Estate trustees have a fundamental duty to account. This duty requires trustees to maintain detailed, accurate, and ongoing records, and to be in a position to explain the administration of an estate to beneficiaries, at any time.
While the duty itself is constant, the manner in which it is fulfilled varies. Trustees may proceed by way of a formal passing of accounts under Rules 74.17 and 74.18 of the Rules of Civil Procedure, or by delivering an informal accounting directly to beneficiaries outside of a court application. A formal passing of accounts is a court-supervised review of the trustee’s administration and may be initiated voluntarily by the trustee or compelled by a beneficiary or other interested party through a court proceeding.
Informal accountings can offer significant practical advantages. Since they occur outside the formal court process, they are not governed by strict procedural formalities. In appropriate circumstances, a sufficiently detailed informal accounting may obviate the need for a formal passing of accounts where no objections to the accounts are raised. Used effectively, informal accountings can promote efficiency and reduce costs.
However, this flexibility also carries risk.
For example, in Lis v. Korol et al, 2024 ONSC 1316, the Court considered a situation where an estate trustee provided an informal accounting in 2017 that the beneficiary found unsatisfactory. The dispute ultimately led to the preparation of formal accounts and a contested passing of accounts. What began as an attempt to administer the estate informally evolved into protracted litigation, driven in part by distrust and concerns regarding the adequacy of disclosure. The Court noted that the parties’ conduct resulted in unnecessary time and expense to the estate.
This outcome reflects what may be described as the informal accounting paradox. Where informal accounts lack sufficient detail, clarity, or supporting documentation, they may undermine confidence rather than promote it. Beneficiaries who are left uncertain are more likely to seek further disclosure and, if their concerns are not addressed, may compel a formal passing of accounts. At that stage, any perceived savings in time and cost are effectively lost.
The takeaway is not that informal accountings should be avoided. Rather, it is that “informal” does not mean incomplete. Trustees should prepare and maintain their informal accounts as though a formal passing will ultimately be required. Doing so reduces the risk of dispute, facilitates beneficiary cooperation, and avoids duplication of effort if court involvement becomes necessary.
A well-prepared informal accounting can achieve its intended purpose. A deficient one may do the opposite.