Probate series – part 3: professional executors and commission
It is becoming increasingly common for clients to appoint a professional executor. In part 3 of this series, we consider why your client may appoint a professional as their executor, the executor’s entitlement to remuneration and considerations when appointing professional executors.
Why clients appoint professional executors
Most clients appoint family members or close friends as their executors. From a practical perspective, those family members and friends will seek advice and assistance from lawyers, accountants and financial advisors, who will do the bulk of the ‘leg work’ in seeking a grant of probate and administering the estate in an efficient and tax-effective manner. However, there are also a number of reasons why clients prefer appointing a professional executor, including:
- they may not have an appropriate family member or friend who can act;
- they may trust a professional to protect and distribute their assets impartially (as that professional, such as their accountant, will have a detailed knowledge of their assets and finances);
- their family and friends may all be overseas and they want to avoid potential tax residency issues; and
- providing greater family law asset protection if the professional executor is also going to act as trustee of a testamentary trust in their Will.
There is no requirement to pay someone for acting as your executor. However, where the executor is a professional (such as an accountant or trusted advisor), there is usually an expectation that the executor will be paid for their services.
If a client appoints a professional executor, we generally recommend that the client include a clause in their Will allowing the executor to charge their ‘usual professional fees’ for acting in this role.
However, it is important for clients to understand that even if there is no charging clause in their Wills, executors are able to receive fees or commission where they either:
- obtain informed consent from each beneficiary under the Will; or
- successfully apply to the Supreme Court of Victoria for a commission payment (which is capped at 5% of the deceased’s estate where acting as an executor).
Either of these options can create significant problems for the estate – increasing costs and increasing the risk of disputes.
Did the beneficiaries give fully informed consent?
Where the Will is silent on commission, the most common way for an executor to receive remuneration for their services is for the beneficiaries to agree on the commission payment. For this to be effective, the beneficiaries must all be adults and must give fully informed consent.
In Walker v D’Alessandro  VSC 15, the deceased’s solicitor was acting as executor of the estate and the beneficiaries had agreed to provide him with 3% of the corpus and the income of the estate as commission. The solicitor’s firm also intended to charge $16,000–$17,000 for their professional fees. The beneficiaries agreed to this because the letter to them from the solicitor stated ‘if you want your money quickly, agree to the 3 per cent commission. If you go to Court to determine the commission you’ll have to wait…’.
The Court found there was no fully informed consent from the beneficiaries, and that ‘they were given wholly insufficient information about the proposal and were given, in fact, misinformation in the letter’. Ultimately, the agreement that 3% commission be paid to the executor was set aside.
What we can see from this case is that an executor/professional who is wearing two hats and seeks to be compensated in both capacities should expect close scrutiny if challenged before a Court (to avoid a situation where the executor is seen as double dipping by charging professional fees, and then also seeking commission for that work). Most importantly, it should be remembered that the object of the payment is compensatory, rather than profit-based. Disputes similar to the above could have easily been avoided had there been an appropriate executor payment clause in the Will.
If you or a client have been asked to act as an executor in a professional capacity, we recommend that you:
- discuss how the payment will be made and ensure the appropriate charging clause is included in the Will;
- check written consent has been provided by the Will maker regarding the charging clause being included before the Will is signed (a requirement for all Wills signed post 1 November 2017); and
- ensure the Will maker is aware of the professional fees that will likely be charged.
Hall & Wilcox has extensive experience in advising clients, beneficiaries and executors in relation to executor payment clauses, and can assist with Will drafting, reviewing executor payment clauses and providing advice regarding executor claims for commission and fees.
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