Being a trustee is a lot of work. A trustee will invest a huge amount of time and effort (not to mention the stress that goes along with it) into ensuring that a trust is properly administered. With the time and effort often comes the expectation that the trustee will be compensated for their work.
But just how much compensation a trustee should receive can be a sticking point between the trustee and the beneficiaries. It is obviously in the best interest of the trustee to receive the highest amount of compensation possible, while the beneficiaries will want to ensure as low a number as possible, retaining as much of the funds as possible for their own use. With agreement between the trustee and the beneficiaries often impossible to achieve, the question arises of how do you quantify a value of the work that a trustee does?
The first place to look in determining a trustee’s entitlement to compensation is the trust document itself. Often the Settlor will expressly state what compensation the trustee will be entitled to, in which case the compensation is easily quantified. By including a set compensation amount in the document itself the Settlor can often avoid some of the infighting associated with quantifying compensation between the trustee and the beneficiaries. By setting out the amount of compensation in advance the trustee will also know up front what they will be entitled to, and if they feel that the compensation is inadequate can decline the task.
If the trust document is silent regarding compensation this does not mean that the trustee is not entitled to compensation. The court retains the absolute discretion to award compensation to a trustee, at all times keeping an eye to what is "fair and reasonable". In assessing what is "fair and reasonable" the court traditionally employed a 5 part test known as the "5 factors", originally formulated in the 1905 decision of Re Toronto General Trust Corp. and Central Ontario Railway. The factors that the courts will consider are (i) the size of the trust; (ii) the care and responsibility involved; (iii) the time occupied in performing the duties; (iv) the skill and ability shown; and (v) the success resulting from the administration.
Over the years in order to arrive at a more easily quantifiable amount the court began to employ a set percentage test, with compensation determined as a set percentage of the value of the trust being administered. The issue of whether to use the set percentage amount or the 5 factors test in determining compensation was considered by the Ontario Court of Appeal in Laing Estate v. Hines, in which the court confirmed the reasoning employed in the earlier decision of Re Jeffery Estate that a combination of the set percentage amount and the 5 factors are to be used in reference to one another to determine compensation. When compensation cannot be reasonably quantified using the set percentage amount, reference will be made to the 5 factors to determine what the compensation should be. The same reasoning was also employed by the court in Logan v. Laing Estate (1996), 11 E.T.R. (2d) 268, with the court using a combination of the two tests in reference to one another to arrive at what the compensation should be.
Compensation is often something that is difficult for trustees and beneficiaries to agree to. Absent a clear direction in the trust document itself, often it will come down to the discretion of the court to determine what sort of compensation the trustee should be entitled to.
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