Taking on the role of Executor of a deceased estate can be daunting, time consuming and more difficult than you anticipated!
Most Will-makers appoint a trusted friend or family member as their executor. If this ends up being you, you will end up playing a very important role, with a lot of responsibility.
You might find that you’ve had to deal with closing the deceased’s bank accounts, selling real estate and other property, dealing with disgruntled beneficiaries and perhaps even dealing with a court claim made by someone who is contesting the estate.
When a Will-maker makes their Will, it is not uncommon for them to think that:
- The executor’s job won’t be too difficult, and doesn’t require payment for their time; or
- The executor is a beneficiary along with other beneficiaries, and therefore there is no need for payment.
However, in some instances, the Will-maker will direct that the executor be paid for their services. This is often the case where a professional person (e.g. a lawyer or accountant) is appointed as the executor.
What happens then, if you find yourself in a situation where you are the executor of an estate and there is no provision in the Will to pay you for your time and effort in taking on all these duties? The answer: You can request that the Supreme Court of South Australia (and other Australian courts) orders that you be paid an ‘executor’s commission’.
What is executor’s commission
Executor’s commission is a payment to an executor (or executors) of a deceased estate for their time and effort in administering the estate. That means, doing all the things to ‘tidy up’ what was left behind, pay any outstanding liabilities, and distribute any remaining assets to the beneficiaries of the estate.
In South Australia, the legislation allows an executor to make a claim for executor’s commission, but it is silent on just how much should be paid. In 1920, the South Australian Supreme Court came up with a ‘scale’ which is now referred to as the ‘Barr Smith scale’ (named after the case). The Court decided that the following approach was a reasonable one:
- On specific assets that are brought into the estate, including cash, money in bank accounts, and life insurance policy benefits, the executor is entitled to commission of:
- 1.5% on the first $2,000;
- 1% on the amount from $2,000 to $200,000; and
- 0.75% on the amount over $200,000.
- On other assets realised such as real estate, the executor’s commission should be:
- 5% on the first $2,000; and
- 2.5% on amounts over $2,000.
- On assets, such as real estate, that are transferred to the beneficiaries without being sold first, the executor’s commission should be:
- 1.25% on the first $20,000; and
- 0.75% on amounts over $20,000.
The Supreme Court has also published an ‘Indicator’ on the commission generally payable to executors where:
- The value of the estate is less than $1 million; and
- There are ‘no special or unusual circumstances’ which warrant a higher commission.
Where’s the middle ground?
There are very few reported South Australian cases on the level of executor’s commission that has been paid in recent times. However, there are some recent cases reported in the supreme courts of other Australian states. Some of these cases are summarised below to give you an idea of the factors considered by the court in deciding what is a ‘just and reasonable’ commission for an executor.
Recent Australian case law
Re The Estate of D A Lindsay NSWSC 578 (New South Wales)
In this case, the executor made an application for commission to be paid to him where the value of the estate was made up of $1,115,923 in capital assets and $5,268 in income collected. The executor was also a solicitor and his fees for his professional duties were paid.
As for commission relating to his executorial duties (not professional fees as a solicitor), the Court noted that he had “organised the cleaning of the house and its preparation for sale, negotiated with the agent for sale of the house, arranged for a headstone to be erected, and also carried out various negotiations with beneficiaries concerning payment of executor’s commission” (). The executor had tried to negotiate with the beneficiaries on the commission he would receive, asking for 2.5% (including GST) of the value of the estate (being, $28,535.29).
The Court came to the conclusion that, “iven the size of the estate, the appropriate benchmark for commission is around one percent of the distributable estate, which would result in a figure of $11,159”, and rounded that amount up to $11,250.
Re Estate of Celestino Ghidella QSC 106 (Queensland)
Here, the value of the deceased estate was $2,399,225.30. The executors report having “attended to the funeral arrangements, organising bank accounts for the estate, instructing solicitors and accountants and organising for the maintenance of the assets of the estate by various tradespersons.”
The Court referred to Re Barr Smith (1920) SALR 380, noting that the South Australian Supreme Court favours the view that commission should be based on a percentage of the asset values and the income managed after the date of death. However, the Court also noted that “the assessment must have regard to the value of the efforts of the executors ().
The executors wanted commission of 5% on income and 3% on capital, resulting in an allowance of $87,417.54. The Court decided that their claim “greatly exceeded” what is considered to be appropriate in the circumstances, and allowed 1.5% on income and 2% on capital, resulting in commission of $52,616.50.
Kirkpatrick v Kavulak QSC 282 (Queensland)
In this case, the deceased estate was valued at approximately $1 million in capital, and $232,000 of income.
The Court held that a “relatively modest remuneration is appropriate”, taking into account the fact that the administration of the estate was not complicated, and she had already reimbursed herself for costs paid relating to litigation about the estate in which she had been involved.
The Court paid the executor an allowance of $20,000, being “slightly less than two per cent on capital of $1 million and one percent of income”.
Atkins v Godfrey & Ors WASC 83 (Western Australia)
The deceased estate in question here was valued at $3,125,271 in total, with debts of $20,019. Overall, the executor spent about 210 hours on the administration of the estate.
The Court said that it was “just and reasonable” that the executor receive executor’s commission, “unless his conduct in or in connection with the administration of the estate disentitles him to such remuneration”. On this subject, the Court noted that a court may “refuse commission … where there has been some misconduct in the execution of the executor’s duties”.
The Court mentioned the following factors as being relevant to the consideration of the amount of executor’s commission that should reasonably be paid:
- It should not be assumed that an executor will be awarded the rate of commission allowable by the legislation. This applies to other states, such as Western Australia (but not South Australia), where the legislation allows a maximum of 5% of the value of the estate for commission;
- A maximum rate of commission should only be allowed where the estate administration has been very difficult, or the financial benefit to the estate by the executor’s acts are very considerable;
- The nature and the extent of the executor’s activities should determine the commission payable, rather than the size of the estate;
- The executor choosing to engage and pay for (from the estate) the services of agents, solicitors and accountants should be taken into consideration when assessing his commission;
- The amount of work undertaken by the executor is to be considered, but it is not appropriate that the amount of commission be determined on an hourly rate; and
- The court must form an assessment of what is “just and reasonable rather than apply the Barr Smith scale”. However, the Barr Smith scale is useful to determine what is just and reasonable.
In the end, the Court decided that the rate of 0.6% of the gross value of the estate (being $19,759 of $3,293,230.35) was just and reasonable commission for the executor’s services, because of the fact that the executor had acted in a way that, in part, disentitled him to a larger rate of commission.
If you have any questions, or would like to discuss these matters further, please contact us on 1300 654 590