Executors Denied Any Fee Despite Will Saying “May Claim” Up to 10% of Estate

The general rule is that an executor is entitled to compensation for their efforts in administering an estate. BC’s Trustee Act providesthat an executor is entitled to a reasonable allowance of up to 5% of the value of the assets of the estate, unless the deceased’s will says otherwise. If the executor’s remuneration is not prescribed by the will, the appropriate fee is determined by looking at the factors in s. 88 of the Trustee Act and a number of criteria, https://onyxlaw.ca/650000-bc-executors-fee-disputed-court-finds-400000-fee-fair-and-reasonable/ including the size of the estate; the care, responsibility and time occupied in administering it; the skill and ability displayed by the executor; and the success achieved in the final result.

Estate administration misconduct dealt with by denial of executors’ fees

We recently discussed an estate case, Zaradic Estate (Re), in which BC executors were denied any fee. https://onyxlaw.ca/bc-executors-fee-disallowed-due-to-dismal-failures-in-administering-the-estate/ The executors’ efforts were found to be a “dismal failure” that disallowed them any remuneration. The executors appealed, arguing that the will in question fixed their fee at 10% of the residue of the estate—in other words, double the normal allowance for the capital fee (10% versus 5%). The executors said they were entitled to the 10% fee regardless of their conduct in administering the estate. The Court did not agree that the Will fixed their fee. The appeal was dismissed, and the Executors were ordered to pay costs of the appeal in their personal capacity. Justice Blok held that the Executors, and not the estate, ought to bear the costs (although on the ordinary scale), as it was purely their own interests that they were pursuing. https://onyxlaw.ca/special-costs-of-all-parties-ordered-to-be-paid-out-of-estate-following-bc-will-challenge/

Facts in the Zaradic Estate litigation

Miro Zaradic died on December 6, 2015. He left a will dated October 14, 2014, which named his friend Norma Brajevic as sole beneficiary (the “Will”). The Will named Herminia and Vlatko Panovic as executors and trustees of his estate (the “Executors”). The Executors were long-time friends of the deceased. The Will contained the following provision at paragraph 5:

My trustees may claim remuneration for acting as Trustees in the amount of Ten Percent (10%) of the net value of the residue of my estate to be shared equally between them, in lieu of any Executor or Trustee Fee’s.

The Executors obtained a grant of probate on August 16, 2016. Assets of the estate consisted of accounts totalling about $280,000, a house in Delta, British Columbia (the “House”), and personal possessions of less than $10,000. In December 2016, the Executors attempted to sell the House to their own daughter for $667,000, an amount far below fair market value. The Executors also loaned their daughter $13,000 from the estate to assist her with the purchase of the House. The sale was thwarted by the filing of a notice of civil claim by the beneficiary, who filed a certificate of pending litigation https://onyxlaw.ca/trespass-damages-dropped-to-2500-from-100000-in-vancouver-estate-litigation/ against title to the property. The $13,000 loaned to the daughter was returned to the estate and the House was later sold to an unrelated third-party purchaser for $1,071,800. The matter proceeded to a passing of accounts. https://onyxlaw.ca/estates-and-trusts-law/vancouver-probate-estate-administration-lawyers/

Registrar denies executors’ fees due to their misconduct

The Executors sought a total of $110,035 as remuneration, arguing that the 10% referenced in the Will was a fixed amount that could not be varied. The Registrar did not agree. Paragraph 5 of the Will states that the executors “may claim remuneration.” The Registrar interpreted this to mean that the Will allows the executors to make a “claim” for remuneration, but the amount is not fixed. The 10% allowed for in the deceased’s Will is a ceiling, not an entitlement as a matter of right. As no specific amount of remuneration was prescribed by the Will, s. 88 of the Trustee Act https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/96464_01#section88 applied. The allowance to be made had to be determined on a quantum meruit basis, which is the reasonable value of the services rendered, subject to the 10% provided for in the Will. The Registrar considered the factors and relevant criteria and concluded that the actions of the Executors were sufficiently egregious to disentitle them to any fee. The Executors breached their fiduciary duty. If they had been successful in the sale of the House, the beneficiary would have been swindled out of 50% of the estate’s value, and the Executors’ daughter would have thereby profited. The Registrar’s decision can be found at Zaradic Estate (Re), 2021 BCSC 1037.https://www.bccourts.ca/jdb-txt/sc/21/10/2021BCSC1037.htmhe

Issue on appeal: Does the Will set a fixed fee?

The Executors appealed on the sole issue of denial of their fees. The Executors said that the setting of remuneration is discretionary only if the remuneration is being set under s. 88 of the Trustee Act. They argued that because remuneration was fixed in the Will at 10%, the discretionary elements of s. 88 did not apply and, instead, s. 90 of the Trustee Act applies. Section 90 https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/96464_01#section90 states: “Nothing in section 88 or 89 applies in any case in which the allowance is set by the instrument creating the trust.” If the Will set a fixed fee, the Executors argued, the Registrar had no discretion to take into account the Executors’ “egregious breach of fiduciary duty” which has disentitled them any remuneration.

Disentitlement to executors’ fee upheld on appeal

Where a dispute arises due to ambiguities in a will, the task of the Court is to interpret the intention of the will-maker, as expressed in his or her will, when it is read as a whole in light of any properly admissible extrinsic evidence. Unfortunately, there was no other wording in the Will that offered any assistance in the interpretation of paragraph 5. The burden of establishing a fixed fee (essentially, a gift), rather than a discretionary fee, falls on the Executors’ shoulders. The Executors failed to meet their burden of proof. They presented no extrinsic evidence as an aid to interpretation, even though the notary who drafted the Will was a witness at the Registrar’s hearing. Left to decide the matter on the basis of the wording of paragraph 5 itself, Justice Blok agreed with the Registrar’s interpretation that the remuneration is discretionary in nature and so must be set in accordance with the usual factors under s. 88 of the Trustee Act. The words “may claim” imply a discretionary element and are not words suggestive of the granting of an absolute entitlement. Justice Blok’s decision can be found at Zaradic Estate (Re), 2021 BCSC 2478. https://www.bccourts.ca/jdb-txt/sc/21/24/2021BCSC2478.htm

Can court reduce a fixed fee if executor has breached fiduciary duty?

Given that Justice Blok concluded that the Will did not contain a fixed fee, it was unnecessary to decide the case on an alternative argument that was raised: does the court have the power to reduce a fixed fee where an executor has breached his, her, or its fiduciary duty? Justice Blok commented only that masters and registrars do not have the powers associated with inherent jurisdiction, as does a superior court judge. So, if there is a power to reduce a fixed fee in light of a breach or breaches of fiduciary duty by an executor—which will certainly come up in a later case—a master or registrar would not have the jurisdiction to exercise it.

Bottom line on BC executor remuneration

An executor’s fee can be specifically fixed in a will. However, the Zaradic Estate litigation serves as a reminder that the will-maker’s wording must be clear if an absolute grant of money (or anything else) is intended in lieu of discretionary executor or trustee fees. If an executor’s fee is not fixed in the will, remuneration must be determined on a quantum meruit basis, taking into consideration criteria such as the success achieved and time spent, subject to the 5% maximum in the Trustee Act.