In our last update regarding executors, we discussed the role and responsibilities of an executor. We are also asked regularly by clients when preparing Wills, and by beneficiaries of estates, about the payment of executors. Should the executor be paid, and are they entitled to seek commission?
Please click here to view the video.
Entitlement to commission
The starting point is that there is no requirement to pay an executor for acting in that role. This is not an issue for many executors, as in most cases the executor is a member of the family and a beneficiary of the estate.
Where it does become an issue is when the executor is not a family member, especially where they are a professional (such as an accountant or trusted advisor of the family). In this case, there is often an expectation that the executor will be paid for their services.
If you are considering appointing a professional, or are a professional and have been asked to act as an executor, it is important to understand the rights and entitlements to executor payments. There are three ways an executor can be paid for their services:
- payment or commission is included as a clause in the Will
- the beneficiaries of the estate agree to the payment of commission
- an application seeking commission is made to the Supreme Court.
Provision under a Will
The simplest way to ensure the payment of an executor is to include a payment clause in a Will. This avoids the need to obtain the consent of the beneficiaries or make an application to the Supreme Court. It also makes it clear to beneficiaries that the Will maker intended the executor to receive a payment, which assists in managing their expectations.
The payment clause can be as simple as a fixed dollar amount, be based on an hourly rate mechanism, or allow the person to charge their usual professional rates for acting.
The key point is ensuring the payment clause is drafted clearly and correctly. In the NSW case of Chick v Grosfeld (No 3)1, the accountant executor sought to include over 50 hours of time for arranging the funeral. The charging clause was limited to professional work only. As a result, the Court did not allow payment for this time. If a payment clause is intended to cover all of the time of a professional executor, including work that is not part of their profession, this needs to be expressed in the payment clause.
Obtaining consent of the beneficiaries
If no payment clause is included in the Will, an executor can seek the consent of the beneficiaries of the Will. For this to be effective, the beneficiaries must all be adults, and must all give fully informed consent. To ensure informed consent, the beneficiaries should:
- be given specific details of the work done
- if legal fees are charged, be provided with details of work that has been charged, and other matters that have not been charged (to avoid a double dip)
- be advised they are entitled to ask the Court to assess a commission claim
- be informed they should seek independent legal advice regarding their rights.
In the Victorian case of Walker & Ors v D’Alessandro2, an agreement between the lawyer executor and beneficiaries to pay commission was overturned due to a lack of information being given to the beneficiaries before the agreement was reached.
Application to the Supreme Court
If there is no payment clause, and consent cannot be obtained, the Administration and Probate Act allows an executor or administrator to seek commission of up to 5% of the estate for their ‘pain’ and ‘troubles’, with
- ‘pains’ being the responsibility, anxiety and worry of the executor
- ‘troubles’ being the work carried out by the executor.
The Courts take many factors into account including the size and complexity of the estate, the work that was done, the length of time taken and the amount of work delegated by the executor.
The current high water mark for commission awards is around 3% for complicated matters where substantial work has been done, with many cases awarding a lower or no commission (in cases where there are lengthy delays, lack of communication and a combative attitude towards beneficiaries3).
The key point if you are considering appointing a professional, or are a professional and have been asked to act as an executor, is to discuss how the payment will be made and ensure the appropriate clause is included in the Will.