Accounting – Hull on Estate and Succession Planning #112
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This week on Hull on Estate and Succession Planning, Ian and Suzana discuss how to prepare for review by the beneficiaries of the estate by keeping all accounts in order.
To open this week’s show, they remind listeners that they did this week’s episode of Hull on Estates (#110). They also extend their congratulations to Terry Fallis for winning the Stephen Leacock Medal for his book, The Best Laid Plans.
If you have any comments that you would like to share, send us an email at email@example.com or leave us a message on our comment line: 206-457-1985. You can also find our blog at hullandhull.com.
Accounting – Hull on Estate and Succession Planning Podcast #112
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #112 of our podcast on Tuesday, May 13th, 2008.
Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada. From the offices of Hull Estate Mediation in Toronto, Ontario, Canada, here are Ian and Suzana.
Ian Hull: Hi, Suzana.
Suzana Popovic-Montag: Hi there, Ian. How are you today?
Ian Hull: I’m great thanks. This week is a big week. We had the pleasure earlier this week to record Hull On Estates as well, so we did both of the firm podcasts, so to speak. Before we get into our topic today, I just want to remind everyone that we welcome comments and that’s our call-in number at 206-457-1985.
Suzana Popovic-Montag: And, of course, that number, if you didn’t catch it, will be in our show notes as well as our e-mail address which is: firstname.lastname@example.org, if you prefer to send us a comment by e-mail.
Ian Hull: So we had some really interesting blogs last week and I noticed yesterday’s blog was particularly interesting. When I say yesterday, when it goes into the Internet we won’t know what yesterday is, but I encourage you looking at our blog as well, because it’s at hullandhull.com. But we had some interesting comments by Chris Graham last week and Diane Vieira this week as well.
Alright, now before…oh yeah, also our last podcast that we did on Hull On Estates, we spent more time than I intend to today, but we would like to again note with great enthusiasm that Terry Fallis, our great friend at Inside PR, has won the Stephen Leacock Medal of Humour Award, which was given to him last week. And is an incredible result for him because he self-published his book, “The Best Laid Plans”, and as a result of winning the award, he also had the book reviewed in The Globe and Mail which was very exciting for him. So, it’s a tremendous honour for him, no doubt, but well deserved. It’s a terrific book called, “The Best Laid Plans”, and we congratulate you, Terry.
Suzana Popovic-Montag: That’s for sure. Congratulations, Terry. Your book is outstanding and it’s great to see good things happen to good people.
Ian Hull: Okay, so let’s talk about accounting. And it seems like a good segway because no doubt Terry is counting his money as it comes in with his self-published book. But we finished off our last podcast and the work that we’re doing really focusing…we touched briefly on the whole question of accounting. But certainly, and it’s one of these things with podcasting, every week that we do this you live on the experiences of the week before, and unfortunately for the clients that I’ve seen in the last week, there has been a myriad of messy accounting situations come into our office. And, you know, you do feel very badly for some clients who do not understand some of the basic expectations of an accounting that come from your role as an estate trustee.
Suzana Popovic-Montag: And generally speaking, what you’ll do as an estate trustee, of course, is to try to keep as detailed an accounting as possible so that you can, at the end of the day, indicate everything that’s come into the estate and everything that’s been paid out of the estate and to whom. And as part of that whole process, you want to prepare this accounting for review ultimately by the beneficiaries of the estate.
Ian Hull: And one of the things I like to do before we get into some of the formal steps, is the informal step of making sure my beneficiaries know what’s going on, on a fairly regular basis. And I compare it to a stockbroker or an investment advisor who would be expected to give quarterly updates as to the status of their account with their client, but certainly would expect it to do an annual update. And many financial planners will sort of identify annually that they have to at least once a year sit down with their client. They will be in contact with them throughout the year, but once a year they make an effort to go and see them or meet with their financial advisor. And that’s sort of a good benchmark if I’m an executor. And that’s just business thinking, not necessarily fiduciary law. There is not, sort of, something written in stone, but it’s a good informal benchmark.
Suzana Popovic-Montag: And we certainly know from our experience, Ian, that it just helps if people are kept informed. As soon as there’s a cloud of some secrecy or not being fully apprised of what’s going on, that just leads to uncertainty with respect to the whole process. So it just makes sense to provide this information, provide it regularly and provide it completely.
Ian Hull: So carrying on with this theme that should we have done that or should we be in a situation where it is not contentious, there are no beneficiaries that are upset with our work as executor, at the end of the process, and the end of the administration, you can typically write to the beneficiaries sending out your accounts, maybe in an informal form, and look to them to provide you with a release. And that release, before you finally distribute all the money, in most cases, and, you know, this is a complicated area, but generally speaking, if you can get a release, that, in most cases, will end your involvement and it will wrap up your disclosure obligations on the estate.
Suzana Popovic-Montag: And just to keep in mind that you can get a release in situations where all the beneficiaries are adults and have consented to the accounts. If, though, you’ve got an incapable beneficiary or a minor beneficiary of an estate, it’s not as easy.
Ian Hull: That’s for sure. So, let’s talk about the more formal passing of accounts because, like you say, there are situations where, if you have a minor or you have an incapable beneficiary, you simply have to formally pass your accounts. But there are also cases where the beneficiaries will not agree to sign a release and close things off for you, so you still need to go into the Court system to pass your accounts.
Suzana Popovic-Montag: And the ultimate goal, just for a passing of accounts, is to provide the executor with a release from the Court now because the beneficiaries themselves may not be able to or will not consent. And so it’s basically a stamp of approval by the Court saying that what you’ve done during the course of this administration has been proper. And that really is important to close the loop in terms of the fiduciary responsibilities of a trustee at the end of a day.
Ian Hull: That’s such a good point. Because really, at the end of a day, all we’re trying to do is allow for either an informal (when you just look for a release and a letter), or a formal audit of your work. And when you’re an estate trustee, your work really is, although we’ve talked a lot about the kinds of things like worry about burial arrangements, worry about all of this. When it comes right down to it, your work is fundamentally based on how you handle the money; paying the bills, paying the beneficiaries and so forth. So there is this need at the end of the process for an audit. And whether it’s formal or informal, you want to make sure you’ve done one or the other, finally wrapped up by a blessing from Canada Customs and Revenue, who will give you what we call a Clearance Certificate. But that’s a little different in the sense that you do that right at the end. And so, let’s talk a little bit about the process, so people can get a sense of what you’re going to get into should you be forced to pass your accounts in the formal courtroom setting.
Suzana Popovic-Montag: And if you’re actually doing a formal passing, we would certainly recommend the assistance of an accountant or an account preparer who is familiar with the process of preparing accounts in Court format, because those are very different. And I know my clients are always surprised by the fact that they’re very different from the normal financial statements that accountants prepare for companies. And it’s a very different process. So to the extent that you can have that done properly, right from the get-go, I think it saves time and aggravation at the outset.
Ian Hull: And if you want to get an example, and we say this to clients and they sort of glaze their eyes over it, and say, “yeah, yeah, yeah, we’ll talk to the accountant”. But if you want to get an example of what these accounts look like, go to our webpage and there’s a Breakfast Series that we produced, and in that we talk about various passing of accounts. And we have precedents in there of accounts that Suzana and I worked up as a format account to show people what these things actually look like, because it’s hard to describe the form of estate accounts until you see them. But it is essentially a bank book ledger, a start to finish line-by-line listing of all of the financial transactions which then isn’t in the courtroom but then has to be backed up by receipts; no different than the real world when you’re running your own chequebook and you’re balancing your own chequebook.
Suzana Popovic-Montag: And in terms of the actual application itself, that’s really a very formalized set of requirements that are set out here in Ontario in our Rules of Civil Procedure. So there is, for instance, a Notice of Application that has to be issued by the Court that will refer to the accounts, will refer to the period of time during which the accounts are being passed and also set out what the claim for compensation by the estate trustee is for that period of time.
Ian Hull: And in the materials, and they’ll always include as well a copy of the Will, or the trust or whatever instrument that you’re passing your accounts under in that sense, so you can understand or the Court more particularly can understand what should have been done at law. For example, if it was set up in a trust arrangement where all of the estate passed to the wife and then on her death, it passed to the kids; that’s a classic spousal trust arrangement. Well, you need to look at the Will, make sure that that was the case. Maybe there were some specific bequests as well that needed to be paid and the trustee missed that; maybe there were $100 gifts to all the grandkids and they were never paid or something like that. When you check the Will, you make sure that those gifts were paid. Those are the sorts of inquiries that, you know, this doesn’t take training as a lawyer to look for, but, you know, these are kinds of inquiries that you could make at this initial stage. So, we’re going to start, I think at this point we want to talk in our next podcast in a little bit more detail about what the process is, so that you can get a feel for it. But, again, the application itself sets the stage, so to speak.
Suzana Popovic-Montag: Well I think that, Ian, will wrap up this podcast for this week. I want to thank everyone for having listened and remind our listeners that if they have any comments, that if they’d like to phone and give us their comments by voicemail, feel free to call us at 206-457-1985.
Ian Hull: And generally speaking, of course, getting a hold of us, chasing us down with an e-mail, giving us some comments is welcomed and encouraged. We’ve got a email@example.com address and obviously feel free to go to our webpage at hullandhull.com, which will guide you through a myriad of options.
Suzana Popovic-Montag: Well, thanks very much, Ian.
Ian Hull: Thanks, Suzana.
You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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