Have you been named as the Personal Representative (PR for short) in a Will?

PR is the modern term used for the person who conducts the Executor and Trustee duties in completing the administration of an estate.  PRs and beneficiaries who have not been through the estate administration process may not understand the magnitude of the tasks to be completed and decisions to be made. It is a significant amount of work in many cases.  What might look straight forward from the start may take an unexpected turn.

When I am assisting the PR in the administration of the estate in Medicine Hat, one of the early topics of discussion is the fee for acting as a PR.  In most cases a Will does not set the amount of compensation for the PR.  Instead the Will confirms the PR may charge a fee.  In addition to charging a fee, the PR will also be reimbursed for expenses they personally pay on behalf of the estate.

It comes as a surprise to some PRs when I tell them there is no accepted hourly rate for performing PR duties.  There are two legal sources that discuss PR compensation. The Surrogate Court Rules are one source that addresses lawyer and PR compensation.  The Surrogate Court Rules provide 7 Factors to take into consideration:  (1) the gross value of the estate (2) the amount of revenue receipts and disbursements (3) the complexity of the work involved and whether any difficult or unusual questions were raised (4) the amount of skill, labour, responsibility, technological support and specialized knowledge required (5) the time spent (6) the number and complexity of tasks delegated to others; (7) the number of personal representatives appointed in the Will, if any.  The greater number of these factors which apply to the estate administration may indicate a higher PR fee is in order.

There are also Guidelines in Alberta for fees on handling Capital (assets), Revenue, and the Care and Management of Assets.  As an example, the suggested fee guideline on Capital is:

Item                                                  Percentage Suggested

Capital

On the first $250,000                                3% to 5%

On the next $250,000                                2% to 4%

On the balance                                            0.5% to 3%

If you looked at the fee guideline alone, an estate in Medicine Hat with assets of $1,000,000 would entitle a PR to fees of in the range of $15,000.00 to $37,500.00.  It is important to understand that the Guidelines are true guidelines.  If the estate assets consisted of a $1,000,000 GIC, the PR fee of $37,500 to liquidate that GIC would seem very high to many people.  Several of the Surrogate Rule Factors may not apply in this simple example.   In determining the PR fee, the fee Guideline and the Factors for PR compensation must be considered together.  A lawyer can compare the typical tasks performed in an estate administration with those actually performed by the PR and recommend a PR fee.

The PR’s fee needs the approval of the beneficiaries.  Beneficiaries are becoming more informed and sophisticated on the reasonableness of PR fees.  Even charity beneficiaries are increasingly interested in ensuring the PR fee is reasonable.

In addition, PR fees are taxable as income.  Deductions for income tax, CPP and EI are applicable to these fees.  A PR in Medicine Hat, who earns a high income, may be disappointed to learn CRA will receive 39% of the PR fee as taxes.

I have 3 recommendations for current and would be PRs in Medicine Hat:

1. Ensure the PR fee is reasonable.  From my perspective the fee Guideline would be seen as a high water mark in determining PR compensation for straight forward, simple estates.

2. A PR should record their time and actions involved in administering the estate in real time as soon as they begin acting in that role.  It is easier to keep track of tasks and decide not to charge a fee at the end than to not keep track and later decide to charge a fee.  The administration of an estate can take time; remembering PR tasks you did 9 months ago can be difficult.  Time dealing with professionals (lawyer, accountant, realtor, funeral home), locating and collecting assets, paying debts, etc. should all be recorded.  The summary of time/activities is useful backup information to substantiate to beneficiaries the amount of time involved and the actions required; and

3. A PR should seek tax advice on the impact of charging a certain fee, especially where the PR earns a large amount of income.  A senior acting as a PR will also want to ensure they avoid the risk of OAS clawback.

The role of PR is very important in the successful administration of the estate.  They should be reasonably compensated for their actions.