Executors and Settling an Estate in Alberta
If you are named as a personal representative (executor of a will) in Alberta, it comes with significant responsibilities and considerable time and effort may be involved.
The estate laws in Alberta protect you to some degree, ensuring that you are not out of pocket for performing duties or for fees associated with administering the estate or carrying out the decedent’s final wishes.
But what executor fees should you be paid, specifically? And how will you be reimbursed for out-of-pocket expenses?
Whether you’ve taken on the role of personal representative recently or are a beneficiary who wants to know how a personal representative can legally spend estate funds, this complete guide to executor fees in Alberta has the answers….
Learn More →How long does an executor have to settle an estate in Alberta?
What are the duties of an executor in Alberta?
A personal representative in Alberta must manage the estate by following the instructions in the will. In doing so, he or she takes on considerable responsibilities and may have to commit considerable time to the undertaking, especially for complex estates.
The main duties of the executor include the following:
- Obtaining the final will (original copy)
- Making final arrangements (funeral/memorial service)
- Notifying the beneficiaries of the death and inheritance arrangements
- Identifying the estate’s assets and liabilities
- Applying for a grant of probate (if applicable)
- Preserving and managing the estate’s assets until they can be distributed
- Paying estate debts
- Preparing and filing tax returns
- Distributing the estate’s assets
- Communicating with beneficiaries
An executor can be held personally liable for mismanagement of the estate or misconduct in connection with the above duties.
If you are unwilling or unable to take up the role of personal representative, the responsibility should be handed to an alternate executor or, if no one is available, the court will appoint an administrator.
How much is an executor paid in Alberta?
As you’ve seen, the duties of a personal representative are considerable. The task can involve many hours of work over months or even years.
For this commitment, a personal representative in Alberta is entitled to reasonable compensation from the estate. The amount of compensation may be decided in one of three ways:
- Stated in the will
- Agreed upon with the beneficiaries
- The court may decide
Generally speaking, a total of around five percent of the estate’s value (the gross capital value of the estate) is considered “reasonable”.
However, unless a specific fee is agreed upon in writing with the beneficiaries, any fees paid to an executor must be accounted for. Keep a record of the time spent on administrating the estate, as well as any reasonable out-of-pocket expenses incurred, as you may later need to justify your fees and expenses.
If possible, estate expenses should be paid directly from the estate’s funds. However, some expenses may be incurred before you can open an account for the estate. These will all need to be accounted for if you expect reimbursement.
Remember, part of the responsibility of an executor is to keep an accurate accounting of estate funds, as the beneficiaries may need to see the accounts. If you or the estate are sued by a beneficiary or other interested party, you may need to prove what has happened to the estate assets.
What are the surrogate rules in Alberta?
The Alberta Surrogate Rules are a set of guidelines that, among other things, outline reasonable payments for executors. They state the following:
“Personal representatives may receive fair and reasonable compensation for their responsibility in administering an estate by performing the personal representative’s duties. Compensation paid to a personal representative is for all the services performed by the personal representative to complete the administration of the estate, including distribution of the estate and the conclusion of any trusts.”
These rules go on to set up a schedule for payment/reimbursement to a personal representative. The guidelines are as follows:
- 3% to 5% is reasonable for the first $250,000 of the estate
- 2% to 4% is reasonable for the next $250,000
- 5% to 3% is reasonable for the balance
As mentioned, the total compensation generally amounts to around five percent of the entire value of the estate. If the estate receives income that requires management by a personal representative (e.g., rental property or business income), a fee can also be charged for managing this revenue.
With complex estates that involve businesses or other assets, the duties of a personal representative can extend far beyond the standard duties outlined. These take time and should be reasonably compensated.
Executor fees are generally paid during the final stages of estate administration, around the time that the assets are distributed to the beneficiaries.
Are executor fees taxable?
Executor fees are considered taxable income for the year in which payment was received as they are a form of income and must be reported in the T4 filing.
What expenses can a personal representative claim in Alberta?
A personal representative should discuss the intended fees with beneficiaries so that they understand where the estate funds will be going. This can avoid problems.
At the same time, it’s a good idea to discuss the estate expenses you are likely to incur or have already incurred, as these will need to be reimbursed by the estate.
These expenses may include:
- Filing fees
- Banking charges
- Costs for obtaining documents, e.g., death certificates
- Cost of notarizing documents
- Professional (legal/accounting) fees
- Transportation/travel costs
- Utility charges/taxes at properties
- The cost of final arrangements
Keep receipts for any out-of-pocket expenses such as those detailed above.
What are the accounting responsibilities of an executor?
Generally speaking, a personal representative is expected to complete the estate administration process within one year — but this is a generalization. Legal issues often delay the process beyond this.
When the estate is ready to be disbursed/distributed, the personal representative usually pays his/her compensation and the administration of the estate is completed.
However, at this point, the personal representative is also expected to present the estate accounts to the beneficiaries to prove what happened to the estate’s assets.
The personal representative may also ask the beneficiaries to sign a release that indemnifies them from personal liability. If beneficiaries raise questions about the accounting or challenge the handling of the estate’s assets, they may have the right to file a lawsuit against the executor.
Should estate plans address executor fees?
Because executor fees can be a problematic topic for beneficiaries named in a will, the estate plan should specifically address this matter to avoid disputes.
Ask your estate planning lawyer how you can avoid disputes and make it quick and easy for your personal representative to manage your estate, reduce costs, and be fairly compensated for his/her time and effort. You may wish to decide on a specific amount of compensation, though it does need to be “reasonable” according to the estate laws in Alberta.
If you need help with executing an estate in Edmonton or Calgary, get legal assistance, starting with an initial consultation with one of our experienced lawyers at Vest Estate Planning.