July 15, 2009
By Michael Thomas
CFP, CLU, CH.F.C., R.F.P.

It is vitally important that your will is properly drafted in order to minimize any doubt later as to the capacity in which an executor is receiving his or her funds.  Will the amounts received by the executor from the estate be considered taxable executor’s fees, or considered a tax-free legacy from the estate?

In one such recent case, it was demonstrated how such doubt can arise in “Messier et al v The Queen, 2008 TCC 349.”  Jean-Claude Messier and Pierre Messier were the liquidators (Quebec terminology for executors) of their uncle’s (Raoul Messier) estate.

Each of the nephews received $15,000 from the estate. Canada Revenue included this $15,000 in each of their reported incomes in respect of remuneration received for their services as liquidators of the estate. Both Messiers argued, however, that the $15,000 they each received was a tax-free legacy bequeathed to them by their uncle in his will and was not “remuneration for services rendered,” or executor fees.

Laws in Canada dictate that any additional fees received by a beneficiary of an estate for the performance of executor’s duties are fully taxable. In this case, what the court had to determine was whether the $15,000 that each executor received was a taxable “remunerative legacy” (similar to an executor’s fee) or a tax-free legacy.

The court began the analysis by examining the late uncle’s intention, as demonstrated by relevant wording in his will. Article V of the will entitled “Liquidators,” clearly appoints both nephews as liquidators of the estate. It states that in return for services rendered, they should not only be reimbursed for their “expenses, travelling costs and loss of salary” but, in addition, each liquidator should receive “for fulfilling the duties of his office….a legacy in the amount of $15,000, which may be collected from the estate capital.”

The nephews argued that since the will clearly stated that the amount is a “legacy,” it should not be considered remuneration but rather a gift from the state. Unfortunately, this was not what was clearly indicated in the will. The judge concluded that, despite the fact that the term “legacy” was used, the $15,000 was clearly meant to be remuneration for fulfillment of executor duties and thus fully taxable.

This case is one that could have been ruled the other way if the wording in the will had been less ambiguous. If the $15,000 was truly meant to be a legacy, then it should have been included in the section of the will dealing with legacies rather than in the section dealing with liquidator remuneration.

If you have any questions, contact Michael Thomas at the address below.  W. Michael Thomas is a partner with The Investment Guild, endorsed provider of the HortProtect Group Insurance Program, and is a director of Ontario Horticultural Trades Foundation.

    The Investment Guild
    HortProtect Insurance
    1-800-459-8990
    11 Allstate Parkway, Suite 100
    Markham, ON  L3R 9T8

    www.hortprotect.com
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