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Your guide to estate administration bonds
Disclaimer: This article on estate administration bonds is intended for the purpose of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
We have noted in other articles an estate trustee’s responsibilities. In this article, we will talk about one requirement that you may face when you probate an estate in Ontario.
(If you are appointed as an estate trustee, you may be interested in this article about your responsibilities. If you are preparing your estate documentation, you may enjoy this article about how to select an estate trustee.)
What is an administration bond?
An administration bond is a type of surety bond required in Ontario when someone becomes an estate trustee for a deceased person’s estate. Its purpose is to protect the beneficiaries and ensure that the estate trustee fulfills their duties properly. Generally, the bond is at least double the value of the assets of the deceased.
When is an administration bond required?
Ordering an administration bond is at the discretion of the courts, but a judge will typically require an administration bond in these scenarios:
- There is no will;
- There is a will, but an estate trustee was not named and one needs to be appointed; or
- A foreign estate trustee is appointed.
When referring to a “foreign estate trustee”, the courts will not only apply that definition to someone who lives outside of Canada. It can also be applied to estate trustees that live outside of the province. (Read below for how this can affect your decisions when selecting an estate trustee.)
The Estates Act sets out some situations where an administration bond is not required, including:
- In cases where the Government of Ontario or any Ministry, Provincial Commission, or Board established under legislative Acts submits an application to act as an estate trustee;
- There is no will, but the surviving spouse is applying to be an estate trustee and the value of the estate is less than the preferential share and an affidavit sets out the estate’s debts; or
- It is a small estate (meaning a total value of less than $150,000) and none of the beneficiaries are minors or incapable (as defined by the Substitute Decisions Act, 1992).
Waiving the requirement for an administration bond
Most people do not have easy access to the amount required by an administration bond, so you will want to apply for an order waiving the requirement for an administration bond.
Previously, this was a simple matter that could be handled over the counter with the court registrar. However, as of July 2022, the procedure has changed. A full motion is now required, and it is more likely to require a hearing before a judge. This is a more involved (and more costly) procedure than before.
If you are looking for an order to dispense with the bond requirement, you must convince the court that the protection that a bond provides to any creditors and beneficiaries is not required.
Bond insurance
In some cases, an application to waive an administration bond is unsuccessful, meaning the court will still require it. What are your options in that case?
You can turn to insurance companies that offer bond insurance policies. From the court’s point of view, these insurance policies serve as the equivalent of a bond, eliminating the need to come up with the full cash amount.
It is typically a straightforward application that resembles a credit check, where the insurance company assesses the applicant’s financial standing. There is a one-time premium that you must pay. However, this is considered a proper estate expense. Therefore, the estate trustee can be reimbursed once they receive a certificate of appointment.
Choosing your executor
Knowing that an administrative bond is more likely when your estate trustee lives outside of Ontario can impact who you appoint. It may make sense to select someone who lives locally rather than someone who is geographically distant or transient. For example, this might include a young adult child with an inclination for a nomadic lifestyle.
Navigating estate law with Beeksma Law
At Beeksma Law, we know that estate law can be complex, especially when it comes to requirements like administration bonds. Our team of experienced estate lawyers is here to guide you through the probate process in Ontario with confidence and ease.
Whether you’re stepping into the role of an estate trustee or diligently preparing your estate documentation, we’ve got you covered. We offer comprehensive services tailored to your specific needs. This includes ensuring you understand the ins and outs of administration bonds and how they impact you and the beneficiaries. With our expertise, we’ll find the best solution to protect your interests and streamline the estate administration process.
Reach out to Beeksma Law today. Let us be your trusted partner in managing your estate matters – we’re ready to assist you every step of the way!
Estate Trustee or Executor Fees in Ontario: How Much is Executor Compensation?
Disclaimer: This article on executor fees in Ontario and your estate plan is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
We have previously discussed that being an executor, or estate trustee, is a weighty responsibility. To carry out the terms of the will requires substantial time and energy. These responsibilities include collecting and distributing the estate assets (including large items like any real estate) and paying any debts.
To carry out these duties, the executor must keep accurate records of the estate accounts and all transactions related to the estate. They must also act in the best interests of the estate and the beneficiaries of the estate. Depending on the value of the estate, this can be an onerous responsibility.
It is not surprising, then, that executors often may be entitled to compensation. However, the question becomes, how much can an executor be paid for their role?
In this article, we will outline how to calculate executor fees in Ontario. We will also look at how that applies to multiple executors and others who perform the tasks of an executor.
If you are an executor, you do not need to handle this heavy responsibility alone. You should seek guidance from a lawyer to ensure you carry out your duties correctly and in the estate’s best interests.
How much is executor compensation in Ontario?
Executor fees for administering an estate are provided for in the Trustee Act. It says:
61 (1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice. R.S.O. 1990, c. T.23, s. 61 (1); 2000, c. 26, Sched. A, s. 15 (2).
However, section 61 (5) states, “Nothing in this section applies where the allowance is fixed by the instrument creating the trust.”
What does this mean? The first step is to ask, “Does the will set a flat fee for executor compensation? Is there a clause explicitly stating an amount or percentage of the estate that will be paid to the executor?” If so, that is usually the amount that the estate executor will receive.
Generally speaking, we do not recommend including a clause in the will that will set executor compensation at a specific fee. This is because it can be challenging to determine the size and complexity of the estate beforehand. An amount may have seemed reasonable when drafting the will, but it may not be appropriate when actually administering the estate.
What if there is no provision for payment in the will?
What if there is no amount of compensation stipulated in the will? The Ontario courts have determined five factors in determining what is “fair and reasonable” compensation. These are:
- The size of the estate;
- The care and responsibility involved;
- The time spent by the executor performing the duties;
- The skill and ability demonstrated and required by the executor; and
- The success resulted from the estate administration.
In Ontario, the executor of an estate is generally paid a percentage fee – meaning it would depend on the estate value. Executors generally receive roughly 5% of an average estate. The Court has applied guidelines where an allowance is usually set at 2.5 percent for capital and revenue receipts and 2.5 percent for capital and revenue disbursements.
However, it is vital to remember that this is just a guideline. The court will ultimately decide what is fair and reasonable based on the circumstances of the particular estate. A simple estate may warrant a lower fee than a more complex estate and vice versa.
One fee for one role, no matter how many executors
In some instances, a will appoints multiple people as executors. The amounts listed above apply to anyone who is an executor. For example, let’s say that there are two executors and that 2.5% of the capital receipts is $10,000. The estate would pay $10,000 for both executors ($5,000 each), not $10,000 each.
This also applies to anyone who is not an executor but performs tasks that are part of the executor’s duties. If the executor hires someone to help with the estate, the executor will pay that person from their compensation.
Let’s use estate lawyers as an example. Estate lawyers are careful to carefully document their time. Are they performing work the executor usually does, such as notifying and reporting to beneficiaries? If so, they charge for their time as the executor.
If the lawyer were to charge the estate for those tasks, the estate would (in effect) be paying twice for the same performance. So those costs would be subtracted from the executor’s compensation.
However, on the other hand, a prudent executor is expected to seek out professional advice to ensure that the estate is being administered properly. In that instance, the lawyer would charge their time to the estate, and not deduct it from the executor’s compensation.
Navigating Estate Planning and Executor Fees in Ontario
The role of executor comes with many responsibilities. It can be a daunting task, made even more complicated by the fact that executors are not always familiar with their duties.
That is where we come in. At Beeksma Law, we have a team of experienced estate lawyers who can help you navigate the executor process from start to finish. We can help you understand your responsibilities and provide guidance on how to best manage the duties of an executor.
Our breadth of experience, from preparing estate plans to handling estate litigation, gives us the knowledge and skills to help you through every step. To learn more, please book a call with us today. We would be more than happy to discuss your specific needs.