No matter how big or small the estate, the executor has a laundry list of duties to attend to including arranging for burial, probating the will, dealing with financial institutions and insurance companies, paying debts, filing taxes and finding and transferring assets to the beneficiaries of the estate.

For middle class estates (for lack of a better term), there is a modest amount of assets to divide after paying off debt and taxes. However, executors should be compensated for their services. In many jursidictions, there is no prohibition against setting out an executor’s compensation in the will. But how much is too much and what is the fine balance between compensating the executor properly without depriving the estate?

A general approach is to establish a set percentage based on general convention and then adjust based on contextual factors. Based on a non-exhaustive review, Ontario Courts seem to have set the floor on compensation indicating that a compensation scheme of  2.5% of capital receipts and disbursements, 2.5% of income receipts and disbursements and annual care and management of 0.4% per year is reasonable. British Columbia’s Trustee Act seems to set the high water mark since it states the maximum compensation should be 5% of the gross aggregate value of the estate with a similar 0.4% annual care and management fee per year.

Certain jurisdictions like New York State have sliding scales starting at 5% (5% on the 1st $100,000; 4% on the next $200,000; 3% on the next $700,000, 2.5 % on the next $4,000,000 and 2% on any amount above $5,000,000 with trust companies having the ability to charge more). But, again, 5% appears to be the maximum reasonable compensation keeping in mind that the 2.5%-5% range should also take into account anything you are leaving the executor as a beneficiary.

In the absence of a clause in your will specifying compensation in detail, a Court may adjust the above figure by considering the following general and non-exhaustive factors:

1. the magnitude of the trust;
2. the care and responsibility springing therefrom;
3. the time occupied in performing its duties;
4. the skill and ability displayed; and
5. the success which has attended its administration.

To add one more wrinkle, some jurisdictions, like California, must approve of executor compensation even if it set out in a will to ensure it is reasonable.  Thus, they could apply a test like the above even if you set out compensation in the will in the generally acceptable range.

Even if your will specifies compensation based on the above benchmarks (and assuming no Court approval is required), consideration should be made as to whether to adjust up or down based on these factors as well. A simple estate with far-flung beneficiaries and a myriad of bequests (a transfer of property which is not real estate) could occupy your executor’s time much more than a larger estate with a single beneficiary.

Weighing all the above, the following are some key factors to consider:

1. Put some real thought into this issue. Being an executor is a very tough job. There is a large emotional, administrative, legal and book-keeping burden you are placing on someone who could be grieving. Even if you were frugal in life, it can be a poor legacy to tell your executor you don’t value them that much by compensating them relatively little (and see below on why this could back-fire as well).
2. How complex is the estate? The less complex the estate, the more one should consider compensation on the lower end of the scale as specified in a will. However, going too low could result in an executor simply declining to act as an executor and, in the absence of an executor, the state will have to step in (cue the bureaucracy). Thus a fine balance must be sought.
3. The general trend is to avoid lawyers as executors unless they are close family friends or are both the personal and business lawyer for the deceased and possess vital institutional memory. Lawyers are expensive options for simpler estates and should be used to provide guidance rather than all the administration in this context.

Think carefully about this issue and seek qualified legal advice on the matter.