The administration of a deceased estate is often an onerous and thankless task, generally involving a significant amount of work and worry - the extent of which depends on the complexities of each individual matter. The role comes with legal duties, responsibilities and possible exposure to liability.
In today's world, complexities in estate administration can arise due to a myriad of reasons, for example, the matter may involve a blended family, the Will may be challenged or a geared asset may exist within a self-managed superannuation fund. In addition to these, there are a range of other relevant issues that may become evident due to the way in which a person has their asset holdings structured.
At Coleman Greig we find that many of our clients appoint their own children as their Executors - although in circumstances where they are looking for an impartial voice, or the will maker is concerned that their family members lack the qualifications directly relevant to the task at hand, people often turn to trusted professional advisors such as accountants, financial planners or lawyers to have them act as their legal personal representative ('LPR').
Entitlement to Commission
There is no requirement to pay an Executor for acting in the role. With this said, if you are a professional who has been asked to take on the role of Executor, you will more than likely expect to be paid for your services, as compensation for the time and effort (or "pains and trouble") associated with administering an estate.
It is important to understand that there are three ways for an Executor to be paid for services rendered, namely:
- The Will contains a clause providing for the payment of a commission and/or some other payment mechanism as a condition of taking on the role;
- The Executor negotiates the payment of commission with the residuary beneficiaries of an estate; or
- The Executor applies to the Court for an order as to the payment of commission.
The simplest way for an LPR to be paid without needing either the consent of the beneficiaries or the approval of the Court is for the Will to include an appropriately drafted payment clause. This could be a fixed dollar amount, based on the professional's usual hourly rate (or other payment mechanism), or a combination of both.
If there is no appropriate, or in any way relevant clause contained in the Will, an Executor would be well advised to consult and negotiate with the beneficiaries who may be affected if commission were paid - generally the 'residuary' beneficiaries. By doing so, there will be no need to get approval from the Court for the agreed payment.
The process of applying for commission from the Court is an expensive and time-consuming exercise which often leads to lengthy delays in the administration process. These applications are usually made close to the end of the administration, and are costly - as the Executor needs to file affidavit evidence covering the entirety of the administration process.
An LPR who applies for commission must also provide the Court with the estate accounts as part of the process. The cost and time involved in applying for commission and passing accounts means that it will generally be in the interest of both the LPR and the beneficiaries if the issue of payment of the commission can be addressed without having to apply to the Court.
Amount of Commission
There is no statutory scale as the basis upon which commission is payable, and if an application is made, commission can either be calculated as a lump sum or as a percentage rate at the Court's discretion, based on the individual circumstances of the case.
As a guide, the Court's practice has been to award commission in the following ranges:
- Between 0.25% to 1.25% of the value of the assets transfers in specie;
- Between 0.5% to 2.5% on a capital realisations, and
- Between 1% to 5% on income collections.
Whilst it is not unheard of for awards of between 3-5% of capital realisations to be handed down, this level of payment is generally only ever seen in the most complex estates, where the amount of stress and work involved is substantial, and the estate has benefited significantly from the executor's involvement.
In considering an application for commission, the Court will look closely at how the Executors conducted themselves throughout the administration of the estate. The following are the types of factors that the Court will take into account:
- The size and complexity of the estate;
- The complexity of the terms of the Will, or the scheme of distribution under the Will;
- The degree of promptness, efficiency and diligence shown by the executor or administrator in completing tasks;
- The number of routine and complex tasks to be undertaken in the disbursement of the estate,
- The amount of work carried out and time spent;
- The amount of responsibility involved (including that which may be ongoing);
- Problems encountered in the course of administering the estate;
- The number of executors or administrators sharing the load of managing the estate; andfthe ad
- Whether there have been lengthy delays, a lack of communication with beneficiaries, or any element of fraud or dishonesty.
Coleman Greig's team of Wills and Estate Planning lawyers have extensive experience in advising executors and beneficiaries with regard to Executor commission payments, and can assist with Will drafting, negotiation of commission with beneficiaries, and both advising and acting in connection with Executor commission claims and the administration of estates more generally.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.