View solution in original post The executor may be entitled to additional compensation if the estate becomes unduly complicated, requiring quite significant time, knowledge and expertise from the executor in carrying out his responsibilities. You had noted that the estate was wound up before the expenses could be reimbursed to the executor. While the specifics and terminology vary from province to province, the gist of each provision provides for a court to allow compensation to an executor that is “a fair and reasonable allowance for the care, pains and trouble and the time spent in administering the estate or trust.”. Robert Flood is a senior real estate and estates and trusts solicitor in Brockville, Ontario. Steven Frye. Deciding If You Need Life Insurance in Canada. Co-Executors Share Fees Travel and motor vehicle expenses are only deductible where the taxpayer was required by a contract of employment to pay such expenses. If you’d like a bit more (free) help understanding the estate settlement process, you can answer a few simple questions and get a free custom executor plan here on Executor.org.. And, here are the executor fees by state, so you know how much compensation is reasonable. What is a capital loss? there’s a compensation agreement in place; any agents were retained to assist with the administration; and. Discuss the issue of executor fees with your family and your executor when making your estate plan. In British Columbia, the maximum fee is 5% of the gross aggregate value of the Estate. For more information, see Guide RC4445, T4A-NR – Payments to Non-Residents for Services Provided in Canada. Generally, paragraphs 8(1)(h) and 8(1)(h.1) allow a taxpayer to deduct certain expenses, such as travel (including meals) and motor vehicle expenses, if the following conditions are met: 1. It is well-established law in Canada that any additional fees received by a beneficiary of an estate for the performance of executor’s duties is fully taxable under the Act. The executor commenced his application to pass his accounts. Courts generally accept that the executor is entitled about 5% of the estate’s value, plus an ongoing management fee of 2/5 of 1% of the average annual value of the estate assets during the settlement process. I am not in the business of being an executor. 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Courts generally accept that the executor is entitled about 5% of the estate’s value, plus an ongoing management fee of 2/5 of 1% of the average annual value of the estate assets during the settlement process. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. More significant administrative costs, such as appraisals, professional fees and court filing fees, are estate expenses paid by the beneficiary and are usually paid directly from estate funds. document.write(CurrentYear) The legal fees associated with the action may be deductible for tax purposes, as long you can demonstrate a direct connection between the incurrence of legal fees with the securing of the dividends from ABX. Therefore, the Act does not allow for the deduction of the said expenses which would be typically recovered from an estate but in actual fact are not reimbursed before the estate is wound up. In the absence of a compensation agreement, executors shouldn’t assume they’re automatically entitled to 5% of the value of the estate, for instance. However, clients acting or considering acting as executor should bear in mind that they are entitled to seek court approval of their accounts and compensation (in most provinces), subject to the terms of any compensation agreement, and that beneficiaries have the right to require them to present their accounts and proposed compensation to the court for approval. We hope our comments will be of assistance. But exercise caution if the will leaves a legacy to the executor—beneficiaries could argue that the legacy was intended to be in lieu of compensation. The executor of an estate is responsible for resolving a deceased person’s estate. As the executor, you must report these fees on a T4 slip. The fundamental duty of loyalty holds that an estate or trust must be administered in the best interests of the beneficiaries, and that there must be no conflict of interest between the executor or trustee’s duties and their own personal interests. Canada Revenue Agency has generally not challenged the deductibility of “reasonable” accounting fees claimed as a deduction against the trust’s income, where the expense Estate Management Fees. For more information, see "Employment by a trustee" in Chapter 1 of the T4001, Employers' Guide - Payroll Deductions and Remittances. So how do courts determine appropriate compensation? REASONS:    The fee received by an executor not acting in a business capacity is considered to be income from an office. In other cases, potential executors are motivated by the sometimes lucrative compensation that may be available. However, your Executor will still have to file your final income tax return (and also possibly pay capital gains taxes on some assets). The Income Tax Act indicates that expenses incurred to produce income from business or property are deductible. In the absence of a set statutory fee, a percentage-based approach has evolved. Newcom Media Inc. We use cookies to make your website experience better. It is well-established law in Canada that any additional fees received by a beneficiary of an estate for the performance of executor’s duties is fully taxable under the Act. Note: all executor compensation is subject to Court supervision; the rate approved for large or simple estates may be lower than suggested by this calculator. Also, all applicable taxes (GST/HST) must be charged and withholdings, such as CPP payments, may apply. "Is this deductible?" Unless included in your business income, trustee, executor, or liquidator fees paid to you for acting as an executor is income from an office or employment. 3% to 5% is charged on the first $250,000; 2% to 4% on the next $250,000; and 0.5% to 3% on the balance. I am handling the estate for a friend. In most cases, it's not the decedent's kin or beneficiaries. Deduction of expenses against exectuor fees - Thomson Group. (Trustees are not obliged to claim compensation). 1. Instead, executors should obtain approval for any proposed compensation before charging a fee to the estate. The amount received by a lay executor is treated as taxable income in his hands. Only those expenses deemed to be reasonable will be approved for reimbursement. (In fact, probate fees aren’t deductible by the estate for income tax purposes.) The good news for an executor is that she does not have to pay these expenses out of her own pocket. When the proceeds or deemed proceeds of disposition of a capital property are less than its The guidelines set out four categories of executor fees: Fees charged on the gross capital value of the estate. Fees earned by a taxpayer for acting in the capacity of executor in the course of business form part of the business income of the taxpayer, and expenses incurred in this connection are deductible in the usual way in computing such income, to the extent they are not recoverable from the funds of the estate. And executor fees by state vary. The question is who gets to deduct them. Arrange for Canada Post to redirect the deceased’s mail to your mailing address. By accepting this notice and continuing to browse our website you confirm you accept our Terms of Use & Privacy Policy. Executor fees and expenses typically involve small expenditures, such as postage, copying fees, and long-distance phone calls but can also include mileage reimbursement for the estate executor. lifetime capital gains deduction limit will be increased from $250,000 (1/2 of $500,000) to $375,000 (1/2 of $750,000). There have been many cases where the issue of executor fees is settled by a court. Evaluating companies on how they recruit, retain and develop their workforce, The growth of ETFs and how they fit into client portfolios. The Canada Revenue Agency (CRA) takes the position that executor’s compensation received for administrating an estate, not performed “in the regular course of business”, is income from employment or an office under section 3 of the Income Tax Act (“ITA”). If an executor keeps track of all these extra little costs that the estate doesn't pay for, the executor is entitled to reimburseme… var CurrentYear = new Date().getFullYear() Acting as an executor can be highly demanding and time-consuming. A statement of claim was issued by the beneficiaries suing the executor for negligence. For more information see "Employment by a Trustee" in Chapter 1 of the T4001, Employers' Guide - Payroll Deductions and Remittances ." Robert Flood is a senior real estate and estates and trusts solicitor in Brockville, Ontario. The taxpayer was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places; 2. A recent case decided in March (Flood v The Queen, 2006 TCC 186) involved the deductibility of legal fees paid by an executor to challenge the Canada Revenue Agency's (CRA) income tax assessment of the deceased's final tax return (the "terminal return"). Many provincial governments also levy probate taxes or probate fees at death. The IRS may also require the executor to itemize all tax deductions and provide proof of expenses to write off expenses incurred as an estate's executor. For example, a T4 for fees paid in 2015 must be filed by February 28, 2016. That hold or register your assets are unlikely to deal with your executor enough to... The issue of executor fees with your executor when making your estate plan fee. Of being an executor... you want to leave money you wouldn ’ t mean that in... 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