It is well-known that all fiduciaries are entitled to compensation for the time and effort they have expended in administering the estate. This right is governed by common law, by statute,[1] and by the instrument creating the relationship or a separate instrument. But the time when a fiduciary may take compensation is not clearly defined. It depends on several things: (a) whether the instrument creating the relationship, or a separate instrument, regulates the matter; (b) whether the instrument permits interim compensation;[2] (c) consents by the beneficiaries; and (d) common law rules.
If the instrument regulates the matter, the fiduciary can obviously take compensation in accordance with it. Similarly, if the instrument permits interim compensation, the fiduciary can take compensation from time to time, but subject to the provisions of the instrument. If the beneficiaries, being all sui juris, consent to the fiduciary’s taking compensation at a specific time and the amount of the compensation, clearly the fiduciary is entitled to take it in accordance with the consents. But if the instrument does not regulate the taking of compensation, does not address interim compensation, and consents cannot be obtained from all the beneficiaries, the fiduciary is thrown back on the common law. In that case she must normally wait until the court has fixed the compensation on a passing of accounts.[3] And then s. 23(2) of the Trustee Act[4] provides that once the compensation has been fixed by the court, the fiduciary is entitled to retain the amount so determined.
A fiduciary is entitled to retain estate assets in payment of her compensation. This is because the compensation is a first charge or lien on the estate property, just as expenses for which the estate trustee is entitled to be indemnified are a first lien on the estate property.[5] Thus, the fiduciary is entitled to retain the property until the compensation is satisfied. Moreover, the lien lies against the entire estate property, both income and capital, so that all beneficiaries must bear the cost rateably.[6] This is, of course, subject to the will or other arrangement, which may have imposed a different regime. Whether the fiduciary can recover compensation directly from the beneficiaries under the rule in Hardoon v. Belilios,[7] appears never to have been decided.[8]
It is important to remember that the lien is lost if the fiduciary has distributed the assets. However, he can recover the property to satisfy the compensation, but only under a court order.[9]
A couple of Canadian cases hold that taking interim compensation ought to be permitted. In Re William George King Trust[10] Misener J. suggested that taking interim compensation without court approval is not inappropriate for work already done in a continuing trust, so long as the amount taken is reasonable. Taking interim compensation saves the beneficiaries the expense of a passing of accounts. Similarly, in Pachaluck Estate v. DiFebo[11] the court allowed an interim taking because the work and services had been completed at the time of the taking and the amount taken was fair.
However, most cases excoriate the practice and hold that taking interim compensation is impermissible.[12] That is why professional trustees typically insist on a clause in the will that permits interim taking of compensation.
If a fiduciary takes compensation in the absence of such a clause, the court may require repayment of the amount on a passing of accounts.[13] It may also do so if interim taking was permitted, but the amount taken is excessive.[14] However, courts are often lenient in the matter. For example, in Re Wright Estate[15] the court charged the executors interest only on the amount by which the interim compensation exceeded the amount of the compensation allowed by the court.
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[1] See Trustee Act, R.S.O. 1990, c. T.23, s. 61; Substitute Decisions Act, 1992, S.O. 1992, c. 30, s. 40.
[2] I use this term in preference to the commonly used “pre-taking,” which is a non sequitur in my opinion. Perhaps it derives from the expression “pre-planning” that is common in the funeral industry. That term is total nonsense. Planning is something you do before an event. The prefix “pre,” which means “before,” is therefore totally redundant. “Planning” by itself is sufficient. Similarly “pre-taking” makes no sense. Literally it suggest that you are taking something before actually taking it, which is impossible. What the users of this term mean is that a fiduciary takes compensation before the court has given its imprimatur. The term interim compensation can be found in the heading of s. 65 of the Uniform Trustee Act, passed by the Uniform Law Conference of Canada in 2012. The Act is available online at http://www.ulcc.ca/images/stories/2012_pdfs_eng/ 2012ulcc0028.pdf. Section 65 allows a trustee, subject to certain conditions, to take interim compensation without court approval. For a discussion of the Act, see Albert H. Oosterhoff, “Trust Law Reform: The Uniform Trustee Act” (2014), 34 E.T.P.J. 329.
[3] See Macdonell, Sheard and Hull on Probate, 5th ed. by Iam M. Hull and Suzana Popovic-Montag (Toronto: Thomson Reuters/Carswell, 2016), pp. 545-48.
[4] Supra, footnote 1.
[5] Life Assn. of Scotland v. Walker, 1876 CarswellOnt 182, 15 Gr. 405 (Ch.); Re Ermatinger (1896), 28 O.R. 106, affirmed with a variation sub nom, Re Tilsonburgh Lake Erie and Pacific Railway Company (1897), 24 O.A.R. 378 (C.A.)
[6] Waters’ Law of Trusts in Canada, 4th ed. by Donovan W.M. Waters, Mark Gillen and Lionel Smith (Toronto: Thomson Reuters/Carswell, 2012, pp. 1224-25. See also Albert H. Oosterhoff, “Some Aspects of Indemnification of Trustees,” Law Society of Upper Canada, 16th Annual Estates and Trusts Summit – Day One, 11 November 2013, §4.
[7] [1901] A.C. 118 (P.C.). The rule permits trustees to recover expenses (as distinct from compensation) directly from the beneficiaries on the basis of the equitable principle that the beneficiaries who enjoy all the benefits of the property should bear its burden, unless they can adduce a valid reason why the trustees should bear the burden themselves. However, the rule applies only in limited circumstances. The rule is discussed in Oosterhoff, ibid, §2 and in A.H. Oosterhoff, “Indemnification of Trustees: The Rule in Hardoon v. Belilios” (1978), 4 E.T.Q. 180.
[8] See Waters, supra, footnote 6, p. 1225, note 90.
[9] See Patterson v. MacKenzie, [1924] 3 D.L.R. 234 (Sask. Q.B.).
[10] (1994), 113 D.L.R. (4th) 701, 2 E.T.R. (2d) 123, 1994 CarswellOnt 645 (Gen Div.)
[11] 2009 CarswellOnt 2278 (S.C.J.), para. 23, additional reasons 2009 CarswellOnt 3980 (S.C.J.). The court followed Re William George King Trust, ibid.
[12] See, e.g., Re Knoch (1982), 12 E.T.R. 162 (Ont. Surr. Ct.); Re Gordon Estate (1998), 114 O.A.C. 312 (Div. Ct.); Re Freeman Estate 2007 CarswellOnt 5654, 34 E.T.R. (3d) 157 (Div. Ct.).
[13] Zimmerman v. McMichael Estate, 2010 ONSC 2947 (S.C.J.).
[14] See, e.g., Re Anthony Estate, 2006 CarswellOnt 8184 (S.C.J.), in which the will directed that any excess compensation should be repaid to the estate.
[15] (1990), 43 E.T.R. 69 (Ont. Gen. Div.), additional reasons (1990), 43 E.T.R. 82 (Ont. Gen. Div.), para. 19.
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Written by: Albert Oosterhoff
Posted on: July 19, 2017
Categories: Commentary
It is well-known that all fiduciaries are entitled to compensation for the time and effort they have expended in administering the estate. This right is governed by common law, by statute,[1] and by the instrument creating the relationship or a separate instrument. But the time when a fiduciary may take compensation is not clearly defined. It depends on several things: (a) whether the instrument creating the relationship, or a separate instrument, regulates the matter; (b) whether the instrument permits interim compensation;[2] (c) consents by the beneficiaries; and (d) common law rules.
If the instrument regulates the matter, the fiduciary can obviously take compensation in accordance with it. Similarly, if the instrument permits interim compensation, the fiduciary can take compensation from time to time, but subject to the provisions of the instrument. If the beneficiaries, being all sui juris, consent to the fiduciary’s taking compensation at a specific time and the amount of the compensation, clearly the fiduciary is entitled to take it in accordance with the consents. But if the instrument does not regulate the taking of compensation, does not address interim compensation, and consents cannot be obtained from all the beneficiaries, the fiduciary is thrown back on the common law. In that case she must normally wait until the court has fixed the compensation on a passing of accounts.[3] And then s. 23(2) of the Trustee Act[4] provides that once the compensation has been fixed by the court, the fiduciary is entitled to retain the amount so determined.
A fiduciary is entitled to retain estate assets in payment of her compensation. This is because the compensation is a first charge or lien on the estate property, just as expenses for which the estate trustee is entitled to be indemnified are a first lien on the estate property.[5] Thus, the fiduciary is entitled to retain the property until the compensation is satisfied. Moreover, the lien lies against the entire estate property, both income and capital, so that all beneficiaries must bear the cost rateably.[6] This is, of course, subject to the will or other arrangement, which may have imposed a different regime. Whether the fiduciary can recover compensation directly from the beneficiaries under the rule in Hardoon v. Belilios,[7] appears never to have been decided.[8]
It is important to remember that the lien is lost if the fiduciary has distributed the assets. However, he can recover the property to satisfy the compensation, but only under a court order.[9]
A couple of Canadian cases hold that taking interim compensation ought to be permitted. In Re William George King Trust[10] Misener J. suggested that taking interim compensation without court approval is not inappropriate for work already done in a continuing trust, so long as the amount taken is reasonable. Taking interim compensation saves the beneficiaries the expense of a passing of accounts. Similarly, in Pachaluck Estate v. DiFebo[11] the court allowed an interim taking because the work and services had been completed at the time of the taking and the amount taken was fair.
However, most cases excoriate the practice and hold that taking interim compensation is impermissible.[12] That is why professional trustees typically insist on a clause in the will that permits interim taking of compensation.
If a fiduciary takes compensation in the absence of such a clause, the court may require repayment of the amount on a passing of accounts.[13] It may also do so if interim taking was permitted, but the amount taken is excessive.[14] However, courts are often lenient in the matter. For example, in Re Wright Estate[15] the court charged the executors interest only on the amount by which the interim compensation exceeded the amount of the compensation allowed by the court.
—
[1] See Trustee Act, R.S.O. 1990, c. T.23, s. 61; Substitute Decisions Act, 1992, S.O. 1992, c. 30, s. 40.
[2] I use this term in preference to the commonly used “pre-taking,” which is a non sequitur in my opinion. Perhaps it derives from the expression “pre-planning” that is common in the funeral industry. That term is total nonsense. Planning is something you do before an event. The prefix “pre,” which means “before,” is therefore totally redundant. “Planning” by itself is sufficient. Similarly “pre-taking” makes no sense. Literally it suggest that you are taking something before actually taking it, which is impossible. What the users of this term mean is that a fiduciary takes compensation before the court has given its imprimatur. The term interim compensation can be found in the heading of s. 65 of the Uniform Trustee Act, passed by the Uniform Law Conference of Canada in 2012. The Act is available online at http://www.ulcc.ca/images/stories/2012_pdfs_eng/ 2012ulcc0028.pdf. Section 65 allows a trustee, subject to certain conditions, to take interim compensation without court approval. For a discussion of the Act, see Albert H. Oosterhoff, “Trust Law Reform: The Uniform Trustee Act” (2014), 34 E.T.P.J. 329.
[3] See Macdonell, Sheard and Hull on Probate, 5th ed. by Iam M. Hull and Suzana Popovic-Montag (Toronto: Thomson Reuters/Carswell, 2016), pp. 545-48.
[4] Supra, footnote 1.
[5] Life Assn. of Scotland v. Walker, 1876 CarswellOnt 182, 15 Gr. 405 (Ch.); Re Ermatinger (1896), 28 O.R. 106, affirmed with a variation sub nom, Re Tilsonburgh Lake Erie and Pacific Railway Company (1897), 24 O.A.R. 378 (C.A.)
[6] Waters’ Law of Trusts in Canada, 4th ed. by Donovan W.M. Waters, Mark Gillen and Lionel Smith (Toronto: Thomson Reuters/Carswell, 2012, pp. 1224-25. See also Albert H. Oosterhoff, “Some Aspects of Indemnification of Trustees,” Law Society of Upper Canada, 16th Annual Estates and Trusts Summit – Day One, 11 November 2013, §4.
[7] [1901] A.C. 118 (P.C.). The rule permits trustees to recover expenses (as distinct from compensation) directly from the beneficiaries on the basis of the equitable principle that the beneficiaries who enjoy all the benefits of the property should bear its burden, unless they can adduce a valid reason why the trustees should bear the burden themselves. However, the rule applies only in limited circumstances. The rule is discussed in Oosterhoff, ibid, §2 and in A.H. Oosterhoff, “Indemnification of Trustees: The Rule in Hardoon v. Belilios” (1978), 4 E.T.Q. 180.
[8] See Waters, supra, footnote 6, p. 1225, note 90.
[9] See Patterson v. MacKenzie, [1924] 3 D.L.R. 234 (Sask. Q.B.).
[10] (1994), 113 D.L.R. (4th) 701, 2 E.T.R. (2d) 123, 1994 CarswellOnt 645 (Gen Div.)
[11] 2009 CarswellOnt 2278 (S.C.J.), para. 23, additional reasons 2009 CarswellOnt 3980 (S.C.J.). The court followed Re William George King Trust, ibid.
[12] See, e.g., Re Knoch (1982), 12 E.T.R. 162 (Ont. Surr. Ct.); Re Gordon Estate (1998), 114 O.A.C. 312 (Div. Ct.); Re Freeman Estate 2007 CarswellOnt 5654, 34 E.T.R. (3d) 157 (Div. Ct.).
[13] Zimmerman v. McMichael Estate, 2010 ONSC 2947 (S.C.J.).
[14] See, e.g., Re Anthony Estate, 2006 CarswellOnt 8184 (S.C.J.), in which the will directed that any excess compensation should be repaid to the estate.
[15] (1990), 43 E.T.R. 69 (Ont. Gen. Div.), additional reasons (1990), 43 E.T.R. 82 (Ont. Gen. Div.), para. 19.
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