Fair and Reasonable Compensation in Estate Administration: A Fresh Look

The recent Ontario Superior Court decision in Perlini v. Martone provides valuable guidance on how courts assess compensation for estate trustees and attorneys acting under powers of attorney. This case serves as an important reminder that while standard compensation guidelines exist, courts will carefully scrutinize whether the requested amounts truly reflect the work performed and results achieved.

The Case at a Glance

When Mr. Perlini passed away in March 2021, he left behind a substantial estate valued at over $1.7 million. His children Anne and Arthur, serving as estate trustees, requested the standard 5% compensation (approximately $86,670) for their services. Anne separately sought an additional $52,754 for managing her father’s affairs under a power of attorney during his final four years. Their sister Sandra challenged these amounts, arguing they were excessive given the estate’s relative simplicity.

Understanding the Legal Framework

The court’s analysis provides a masterclass in how compensation should be determined. Under Section 61(1) of the Trustee Act, compensation must be “fair and reasonable” for the care, effort, and time invested in managing the estate. While there are standard compensation guidelines – typically 2.5% of capital and revenue flows plus a potential management fee – these serve only as a starting point.

The court relied on five time-tested factors from Re Toronto General Trusts to assess what constitutes “fair and reasonable” compensation:

1. The estate’s total value.
2. The care and responsibility required.
3. Time invested by the trustees.
4. Skill and ability demonstrated.
5. Success of the administration.

Key Lessons from the Court’s Analysis

The court’s application of these factors yields important insights for estate trustees:

Complexity Matters More Than Size: Despite the estate’s substantial value, its straightforward nature – comprising only two properties and financial assets – weighed against awarding full compensation. This reinforces that the complexity of administration, not just the dollar value, drives appropriate compensation.

Quality of Administration is Crucial: The trustees’ poor management of estate funds and reluctance to share information with beneficiaries led to a reduction in compensation. The court awarded 3% ($52,000 total) instead of the requested 5%, demonstrating that subpar performance will impact compensation.

POA Compensation Must Reflect Actual Work: The court’s dramatic reduction of Anne’s power of attorney compensation from $52,754 to $10,000 highlights that such fees must align with the actual complexity and demands of the role. Routine tasks like bill payments and property maintenance warranted a more modest compensation of $2,500 per year.

Practical Implications

This decision offers several practical takeaways for estate trustees:

Document Everything: Detailed records of time spent, tasks performed, and decisions made are essential to justify compensation claims. The court’s analysis shows that vague or unsupported claims will likely face reduction.

Communicate Proactively: The trustees’ poor communication with beneficiaries contributed to their reduced compensation. Regular, transparent updates to beneficiaries can help avoid disputes and support compensation claims.

Focus on Quality: Superior administration – demonstrated through prudent investment decisions, efficient estate management, and cooperative behaviour – remains key to securing full compensation.

Cost Considerations

The court’s cost award – splitting payment between the parties but drawing from the estate – reflects the nuanced nature of compensation disputes. While the trustees received more than Sandra suggested, their excessive initial claim led to shared responsibility for costs.

Looking Forward

This case reinforces that while standard compensation guidelines provide a useful starting point, courts will carefully examine the actual work performed and results achieved. Estate trustees should focus on delivering high-quality administration with clear documentation to support their compensation claims. This approach not only serves beneficiaries better but also maximizes the likelihood of receiving fair compensation for their efforts. If you need help with your estate planning needs, feel free to reach out to Peter@smartwills.ca

You might want to check out our latest blog post, The Great Inheritance Dilemma: When Parents’ Treasures Become Children’s Burdens