Executor Compensation Is Taxable Unless Gifted In the Will

Disinherited.com has seen innumerable estate disputes concerning the amount of executor compensation and trustee is entitled.

Under the Trustee Act in British Columbia, the maximum is 5% and it would appear that most executors feel entitled to claim this amount.

Executor compensation can be particularly irksome to the other siblings and is often viewed as one child as executor, lording the authority over the others and then being compensated for it.

Considering that executor compensation is normally taxable, and this is often not known to the executor, it can often be helpful to resolve this disputes by considering the income tax implications for personal income tax to the executor that arises.

The payment of executor compensation can be split over two or more calendar years which can affect the personal taxation rate as of result of perhaps lower marginal rates.

Nevertheless the income is taxable unless proper avoidance techniques are employed.

The use of a specific bequest in the will by the testator to the executor, in lieu of executors fees, can often be successfully utilized in avoiding personal tax for compensation.

No reference can be made in the will that the gift is in lieu of executor compensation, but instead the amount set out in the will could instead perhaps equate to the approximate amount that they might be paid in compensation.

There is always the risk that the executor might seek double dipping, but there is a presumption in law to overcome that the specific bequest was given instead of executor compensation.

Another way of avoiding the tax implications, particularly in negotiations or amongst functional families, is to not claim the compensation but instead have the beneficiaries gift an appropriate amount to the executor in recognition of the labor and time incurred.

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

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