Category: Executors and Trustees

07 Jul

ACCOUNTING DUTIES OF THE EXECUTOR AND TRUSTEE – THE FORM OF THE ACCOUNTS – PART V

Suzana Popovic-Montag Executors and Trustees Tags: , , , , , 0 Comments

A common area of complaint stems from an allegation that the executor or trustee was negligent in his or her efforts to administer the assets of an estate or trust. For a comprehensive discussion of the personal liability of trustees, see Maurice C. Cullity, Q.C., "Personal Liability of Trustees and Rights of Indemnification", (1996) 16 E.T.J. 115.

Generally speaking, most claims or objections to accounts arise out of what is perceived by beneficiaries to be negligence or failure on the part of the executor or trustee to maintain a proper standard of care and skill in his or her office. The most common complaints arise out of the following situations:

  • investments by the executor or trustee which are not authorized by the will or by the law;
  • the failure to provide a proper mix of investments so as to balance competing interests, such as life interests as opposed to remainder interests;
  • the negligent or improper investment by the executor or trustee in investments of a speculative nature;
  • an executor or trustee can be held liable for not maintaining the value of assets, such as a residence, by effecting proper repairs and would be liable for such neglect;
  • executors or trustees must be extremely careful to make sure that all proper considerations are taken into account in making elections under the Income Tax Act, so as to avoid any criticism by the beneficiaries;
  • care must be taken by an executor or trustee to ensure that prompt filings of returns are made and that penalties and interest payable on late filings are not incurred; and
  • while trustees are seldom culpable for what are perceived by beneficiaries to be unnecessary delays, care must be taken to ensure that damages are not in fact incurred by the beneficiaries by reason of delays caused by inattention.

READ MORE

04 Jul

ACCOUNTING DUTIES OF THE EXECUTOR AND TRUSTEE – THE FORM OF THE ACCOUNTS – PART IV

Suzana Popovic-Montag Executors and Trustees Tags: , 0 Comments

In a recent series of blogs (see our June 14, 15 and 16, 2006 posts), we discussed the form of an executor’s or trustee’s accounts. In our experience, as complaints against a trustee and/or an executor often stem from this issue, we felt it would be worthwhile to continue to explore this topic.

As we’ve mentioned in the past, in Ontario, Rule 74.17 of the Rules of Civil Procedure sets out an exact summary of what is expected in regard to the form of the accounts. In particular, it provides as follows:

(1) Estate trustees shall keep accurate records of the assets and transactions in the estate and accounts filed with the Court shall include,

(a) on a first passing of accounts, a statement of the assets at the date of death, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets;

(b) on any subsequent passing of accounts, a statement of the assets on the date the accounts for the period were opened, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets, and a statement of the investments, if any, on the date the accounts for the period were opened;

(c) an account of all money received, but excluding investment transactions recorded under clause;

(d) an account of all money disbursed, including payments for trustee’s compensation and payments made under a Court order, but excluding investment transactions recorded under clause;

(e) where the estate trustee has made investments, an account setting out,

(i) all money paid out to purchase investments,

(ii) all money received by way of repayments or realization on the investments in whole or in part, and

(iii) the balance of all the investments in the estate at the closing date of the accounts;

READ MORE

16 Jun

ACCOUNTING DUTIES OF THE EXECUTOR AND TRUSTEE – THE FORM OF THE ACCOUNTS – PART III

Suzana Popovic-Montag Executors and Trustees Tags: , 0 Comments

In general terms, the form of the accounts should provide all essential information to all persons interested or entitled to an accounting in the Estate or Trust. Generally speaking, the accounts should be prepared in a manner that is capable of being understood by a person of average intelligence, literate in English, and familiar with basic financial terms, who has read it with care and attention. Accordingly, Executors and Trustees preparing their accounts should be careful to avoid technical terms such as "debit" and "credit", which are generally not known to persons who are not familiar with bookkeeping and accounting practices.

One of the main problems encountered by Executors and Trustees in answering requests for information or providing explanations to beneficiaries is that the beneficiaries frequently do not read the accounts with the required care and attention which is essential if the accounts are to be understood.

On the cover of the accounts, a short statement of the purpose of the accounting, such as "The Trustees present these accounts for the approval of the Judge and to acquaint interested parties with the administration of the Estate and its proposed distribution", might well be added.

READ MORE

15 Jun

ACCOUNTING DUTIES OF THE EXECUTOR AND TRUSTEE – THE FORM OF THE ACCOUNTS – PART II

Suzana Popovic-Montag Executors and Trustees, New Media Observations Tags: , , 0 Comments

In Ontario, Rule 74.17 of the Rules of Civil Procedure sets out the specific expectations of this relatively precise art of accounting. It can be seen, therefore, that any accounting by Executors and Trustees has both a broad and a narrow aspect to it.

In the broad sense, it is an obligation whereby the Executor or the Trustee furnishes information to interested parties on an ongoing basis concerning the administration of the Estate or Trust.

In the narrow sense, the Trustee’s accounting relates to the accounts prepared by him or her at the close of his or her administration (or some appropriate intermediate stage) so as to reflect the transactions that have occurred, with a view to discharging the trustee from liability for his or her stewardship.

Usually, a Trustee informs the beneficiaries of the results of his or her administration on an interim basis. This statement usually sets out the income or revenue received, the expenses incurred and the net result of investments, together with a list of assets.

Interim reporting statements vary widely in the manner of their presentation and the detail of the information they contain. To a greater or lesser degree they are designed to demonstrate the performance of the trust and frequently resemble the form of corporate financial statements.

READ MORE

08 Jun

INDEMNITIES AND RELEASES FOR TRUSTEES – Acknowledgment, Release, Discharge, Receipt, and Indemnity – Part IV

Suzana Popovic-Montag Executors and Trustees Tags: , 0 Comments

Ultimately, where a trustee administers the assets of a trust, the two most effective and important releases that are available to be obtained are (1) a Clearance Certificate from Revenue Canada; and (2) an Order of the Court in a Passing of Accounts.

Having said that, while a Clearance Certificate is of course sought in most circumstances, a formal Passing of Accounts is not always obtained by a trustee.

From a practical standpoint, where all of the beneficiaries of a trust are sui juris, the trustee has the opportunity to obtain a Clearance Certificate and then merely circulate a release to all persons with an interest in the trust. In so doing, some consideration must be given to the question of independent legal advice and whether or not it is necessary to insist that a beneficiary obtain such prior to signing the release.  Without the benefit of independent legal advice, there is the question as to the strength and enforceability of any release.

None the less, in practical terms, many estates and many trusts are wound up on the basis of an execution of the appropriate release by the beneficiaries.

From a practical standpoint, when seeking a final release from a beneficiary, a copy of the accounts should be provided, and these accounts may be in an informal format or in Court format, depending on the circumstances.

A condition contained in a will to execute a release is enforceable and, upon refusal to do so, the legatee may forfeit the gift: see Williams on Wills (7th Ed.) Butterworths 1995 at p. 374. Furthermore, it has been held that, where there is a requirement in a release that it be executed within a stated time, this must be complied with: see Simpson v. Vickers (1807) 14 Ves. 341.

The form of a release or receipt depends on the nature of the gift itself. For example, when a beneficiary receives a specific bequest, he or she should only need to provide the person who presented the gift with an acknowledgement of receipt of the particular bequest received.

On the other hand, a residuary beneficiary has a right to consider pursuing a formal Court audit or should be expected to sign an acknowledgement, release and indemnity.

In conclusion, the substantive issues relating to the whole question of release, indemnity and receipt are important to keep in mind when you are dealing with the form of a receipt, acknowledgement or indemnity.

Best wishes, Suzana and Ian. ——–

07 Jun

INDEMNITIES AND RELEASES FOR TRUSTEES – Rights of Indemnity Against Beneficiaries – Part III

Suzana Popovic-Montag Executors and Trustees Tags: , 0 Comments

A comprehensive review of the principles in respect of determining when trustees have personal rights of indemnity against beneficiaries is set out in the Australian decision of J.W. Broomhead (Vic.) Pty. Ltd. (in liquidation) v. J.W. Broomhead Pty. Ltd. [1985] V.R. 891 (S.C. Vic.); see also Cullity, M.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. In the Broomhead decision, McGarvie J. set out the following propositions:

·the general principle is that a trustee is entitled to an indemnity for liabilities properly incurred in carrying out the trust, and that right extends beyond the trust property and is enforceable in equity against a beneficiary who is sui juris; ·the basis of the principle is that the beneficiary who gets the benefit of the trust should bear its burdens, unless he can show some good reason why the trustee should bear the burdens alone; ·the right of indemnification is not confined to the case where there is only one beneficiary.

It applies to cases of multiple beneficiaries as long as they are all sui juris and entitled to the same interest as absolute owners of the trust property between them; ·the liability to indemnify could apply to trustees of subtrusts that were beneficiaries of the principle trust; and ·prima facie, the beneficiaries share the liability in proportion to the extent of their respective beneficial interests in the trust.

With the incidence of personal liability for trustees, it is nice to see that the caselaw strongly supports, in the right circumstances, the ability of the trustee to come back against and collect, if necessary, from the beneficiary.

All the best, Suzana and Ian. ——–

06 Jun

INDEMNITIES AND RELEASES FOR TRUSTEES – Third Parties – Part II

Suzana Popovic-Montag Executors and Trustees Tags: , 0 Comments

In an effort to carry on with our theme of trying to protect trustees, we wanted to consider the liability of trustees as against third parties. In this context, there is really no limit to the extent of liability that a trustee can incur.

A trustee can, of course, incur liabilities to persons other than beneficiaries. For example, the trustee may contract an environmental clean up company to remove contaminated soil from land that is owned by the estate before it is put on the open market. The trustee will therefore be liable for those costs, payable out of the assets of the estate. As trustees are principals and not agents of the beneficiaries, they will, prima facie, be personally liable on obligations owed to third parties and trustees may incur personal liability as a result.

The trustee may limit the extent of the personal liability to the value of the trust assets or limit it to the extent that the right of indemnity exists only against such assets. Furthermore, where the trustee has the right of indemnity out of the trust assets, creditors will, as a general rule, be entitled to be subrogated to it. See Cullity, M.C.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115 at pp. 127-128. As to the question of limiting the liability of a trustee, Falconbridge on Mortgages (4th Ed.), p. 428-429 states:

If the trustee or personal representative covenants to pay, he will be personally liable on his covenant, even thought he covenants as trustee or as personal representative, even though he adds a proviso that he shall not be personally liable, such proviso being repugnant to the covenant to pay and therefore void. He may, however, validly limit his liability without destroying it, as, for example, if the covenant is to pay out of a certain fund, with a proviso that the covenantor shall not be liable after he ceases to be entitled to administer the fund. So, if a trustee covenants "as trustee and not otherwise", or "qua trustee only", or if an executor covenants "as executor, and as executor only", the covenantor is personally liable to pay, but only to pay out of the assets of the estate or to the extent that he has assets.

This strict rule attempting to limit a trustee’s personal liability has been weakened and modified by the courts. For a review of the impact of the ability of a trustee to limit his or her liability, see Cullity, M.C.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115 at pp. 129-133 and see Gordon v. Roebuck (1992), 92 D.L.R. (4th) 670, 9 O.R. (3d) 1 at p. 7-10 (C.A.).

It seems that the bottom line is that a trustee must watch out for the personal risk that may be attached to him or her, merely as a result of his or her dealings with third parties.

On our next Blog, there’ll be more to come on this "protection of trustees" theme…

All the best, Suzana and Ian.

05 Jun

INDEMNITIES AND RELEASES FOR TRUSTEES – Personal Liability – Part I

Suzana Popovic-Montag Executors and Trustees Tags: , 0 Comments

Perhaps one of the more frightening aspects of being a trustee is the fact that the risk of personal liability is "an incident of the office of trustee". His Honour Justice Cullity wrote a leading article on this topic, entitled "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. Given the personal consequences attached to the position of trustee, some consideration must be given to the nature and extent of the releases and rights of indemnification that may be available to a trustee.

Usually these issues are considered at the final stage of an estate administration, when the trustee is dealing with the distribution and winding up of the assets of the estate or trust. In this Blog series on this topic, we will attempt to briefly review some of the substantive and practical issues relating to the whole question of rights of indemnity and releases for trustees.

In order to properly determine just what a trustee should receive in the form of a release, acknowledgement or indemnity, some consideration must be given to specifically the nature and extent of the obligations and liabilities that are expected of the trustee when he or she takes on the role. In short, a trustee is a fiduciary and, as such, his or her fiduciary obligations are owed to beneficiaries, and in some circumstances, to third parties as well.

Given this, the whole question of what a trustee can expect in the form of an acknowledgement, release or indemnity, is a difficult one. Presumably, the trustee’s rights of indemnification out of the trust property arise as a result of the fact that the trustee merely holds the legal title to the property and does not hold the beneficial interest in the property.

READ MORE

10 Apr

Hull on Estate and Succession Planning Podcast #3 – More on Wills

Hull & Hull LLP Executors and Trustees, Hull on Estate and Succession Planning, Hull on Estate and Succession Planning Tags: , 0 Comments

LISTEN HERE

READ THE TRANSCRIBED PODCAST HERE

During our podcast, we discussed the following legal issues:

(i) role of an Executor;

(ii) children and the Corvette effect;

(iii) guardianship (iv)what happens when you die without a will;

(v)the difference between a holograph and typewritten will; and

(vi)considerations when amending a will. ——–

SUBSCRIBE TO OUR BLOG

Enter your email address to subscribe to this blog and receive notifications of new posts by email.
 

CONNECT WITH US

TRY HULL E-STATE PLANNER SOFTWARE

Hull e-State Planner is a comprehensive estate planning software designed to make the estate planning process simple, efficient and client friendly.

Try it here!

CATEGORIES

ARCHIVES

TWITTER WIDGET