Category: Passing of Accounts
If a loved one has died and you are named in the Last Will and Testament as a beneficiary, the estate trustee will probably ask you to sign a release before any assets are distributed. This legal document confirms that you approve how the estate has been administered to date.
As a residual beneficiary, you are entitled to receive a detailed report of all income, expenses, and distributions from the estate, plus be given the chance to review and approve any compensation requested by the estate trustee. These reports should be as complete and informative as possible, so that when you sign the release you feel you are doing so in an informed fashion.
Along with the request for the release to be signed, there should be a statement that makes it clear that you have the option not to sign the release. At this stage, it is a good idea to seek independent legal advice. You may be unsure of the estate accounting, or the level of compensation claimed by the estate trustee, or there could be other issues related to how the estate was handled.
As the court stated in Rooney Estate v. Stewart Estate, “It is not an answer to say that the beneficiary approved of the accounts and gave a release. One of the obligations of the solicitor acting for the trustee is to ensure that all beneficiaries have competent, independent advice in reviewing the accounts. There is no suggestion by the solicitor that he advised the [beneficiaries] to obtain independent legal advice when reviewing the trustee’s accounts which he had prepared.”
It can be expected that the estate trustee will have received a Tax Clearance Certificate from the Canada Revenue Agency, confirming that all monies owing by the deceased and the estate have been paid. If the estate is distributed before this Certificate is received, the estate trustee could be held liable for any unpaid tax debts.
While it is easy to understand why beneficiary releases are commonly sought by estate trustees, Ontario courts have held that it is improper for trustees to withhold payment or delivery of an inheritance if a beneficiary has refused to sign. At this point, a passing of accounts may be the next step.
From the estate trustee’s perspective, a passing the accounts is the easiest way to deal with uncooperative or unreasonable beneficiaries. Approval of your accounts by the court also removes the need to obtain the consent of the beneficiaries.
If the estate trustee has not sought to pass his or her accounts, the beneficiaries may seek a court order that compels that to happen. During this court approval process, beneficiaries can raise any concerns they have with how the estate was handled. The estate trustee will also be able to explain to the court what they did for the estate, why certain expenses were incurred/payments made, and provide justification for any claim for compensation.
As part of this process, the beneficiaries can request and review the estate trustee’s documentation, such as bank statements and invoices received. Having said that, you should have a good reason for contesting the handling of the estate, as an unnecessary or ill-founded challenge may end up costing you greatly. For example, if you are challenging the honesty and integrity of the estate trustee but in the end the court finds they acted ethically and competently, you may have to pay not only your own legal expenses, but also the legal expenses incurred by the estate trustee in defending your allegations.
If you have any questions or concerns about a beneficiary release, it is wise to seek legal counsel before making the decision to sign it.
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This week on Hull on Estates, Stuart Clark and Nick Esterbauer discuss the costs decision in Toller James Montague Cranston (Estate of), 2021 ONSC 3704, and review factors that may result in an elevated costs award in passings of accounts.
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
The Consolidated Practice Direction Concerning the Estates List in the Toronto Region was established for the hearing of certain proceedings involving estate, trust and capacity law, applying to matters on the Estates List in the Toronto Region.
As of March 9, 2021, Part VII (Contested Matters – Estates) of this practice direction was amended to make reference to model orders prepared by the Estate List Users’ Committee.
Generally, parties are expected to take the time and care to prepare proposed orders giving directions for consideration by the court. If the parties are unable to agree upon an order giving directions and a contested motion for directions is required, each party must file a copy of the draft order giving directions it is seeking with its motion materials.
In addition to providing requirements for what orders giving directions should address, where applicable, this practice direction now includes the following model orders:
- Order Giving Directions – Appointment of Section 3 Counsel
- Order Giving Directions – Power of Attorney/Guardianship Disputes
- Order Giving Directions – Will Challenge
- Order Giving Directions – Dependant’s Support
- Order Giving Directions – Passing of Accounts
As noted in the practice direction, the preparation of draft orders for consideration by the court will greatly expedite the issuance of orders. Where the relevant model orders have been approved by the Estate List Users’ Committee, a copy of the draft order showing all variations sought from the model order must be filed.
The addition of model orders can greatly benefit the Estates List in the Toronto Region. Among other things, these model orders provide a baseline for all parties, such that it can significantly reduce drafting time and potential disagreements on wording among parties, which in turn can increase efficiency and reduce costs.
Many thanks to the Estate List Users’ Committee for their time and efforts in preparing these model orders!
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You would be forgiven for thinking that the entire process for an Application to Pass Accounts is set out in rule 74.18 of the Rules of Civil Procedure as the rule appears to provide a comprehensive step by step guide to how an Application to Pass Accounts is to proceed before the court. Although rule 74.18 likely contains the most cited to and fundamental steps and principles for how an Application to Pass Accounts is to proceed, you would be wise to remember and consider the applicable provisions of section 49 of the Estates Act as they may offer additional insights and tools for a passing of accounts beyond those found in the Rules of Civil Procedure.
Yesterday I blogged in part about section 49(4) of the Estates Act, and the general availability to convert more complex objections that are raised in the Notice of Objection into a separate triable issue thereby potentially opening up more typical litigation processes such as discovery and the calling of witnesses at the eventual hearing of the matter. Although the ability to direct certain complex objections to a separate trial is an important tool under section 49(4) of the Estates Act, it is not the only potential tool or thing to consider under section 49 of the Estates Act when involved in an Application to Pass Accounts.
These additional tools and considerations for an Application to Pass Accounts as found in section 49 of the Estates Act include section 49(3), which provides the court with the ability to consider any “misconduct, neglect, or default” on the part of the executor or trustee in administering the estate or trust within the Application to Pass Accounts itself, and may make any damages award against the executor or trustee for such misconduct within the Application to Pass Accounts itself without a separate proceeding being required. As a result, if, for example, a beneficiary should raise an allegation of negligence in the Notice of Objection against the executor for something such as a complaint that certain real property that was owned by the estate was sold undervalue, the court under section 49(3) of the Estates Act has the power to consider such an allegation and, if ultimately proven true, may order damages against the executor for any loss to the estate within the Application to Pass Accounts process itself. Without section 49(3) the beneficiary may otherwise have been required to commence a new and separate Action against the executor to advance these claims and/or be awarded damages.
Section 49 also contains answers to numerous procedural questions which may come up in an Application to Pass Accounts which otherwise are not mentioned in the Rules of Civil Procedure, including section 49(9) which provides what the executor is to do when an individual has died intestate and you are unable to locate any next of kin to serve, and section 49(10) which provides the court with the ability to appoint an expert to review and opine on the accounts on behalf of the court when the accounts are particularly complex.
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The Application to Pass Accounts serves an important function in the administration of estates and trusts, providing the beneficiaries with the ability to audit the administration of the estate or trust and raise any concerns through their Notice of Objection.
The procedure that is followed for the Application to Pass Accounts is somewhat distinct from any other court process, with the process being governed by rule 74.18 of the Rules of Civil Procedure. These procedural steps include the filing of the “Notice of Objection” and the “Reply” to the Notice of Objection, processes and documents which are distinct to the Application to Pass Accounts. Although the Application to Pass Accounts process differs in certain ways from a more traditional Application, at its core the Application to Pass Accounts is still an “Application” and not an “Action”, with the process designed to be more summary in process as compared to the typical Action.
I have previously blogged about the procedural differences between an “Application” and an “Action”, and how things like Discovery and Affidavits of Documents, as well as calling witnesses to give oral evidence, are generally not available in an Application. The same generally holds true for an Application to Pass Accounts, with there generally being no Discovery process or witnesses called at the eventual hearing for the passing of accounts, with the summary process designed to be adjudicated on the paper record of the documents contemplated under rule 74.18.
Although the simplified and summary process intended for the Application to Pass Accounts may present many benefits to the parties, including allowing the beneficiaries to pose questions and objections to the trustee without having to resort to potentially prolonged and expensive litigation as provided in a typical Action, it could present some challenges if the claims that are being advanced are complex or seek significant damages as the process may not allow for the full record to be adequately explored.
If the claims or issues which are being advanced in an Application to Pass Accounts are complex, such as for example claims that the trustee was negligent or committed a breach of trust, the summary process designed for the typical Application to Pass Accounts may not provide the depth of procedural process that the claims may deserve. Under such circumstances the parties may seek to direct and/or convert the complex objections into a separate triable issue, thereby potentially opening up the procedural processes more typically reserved for an “Action” such as Discovery or the calling of witnesses to the issue.
The process by which certain objections are directed and/or converted into a separate “triable issue” is governed by section 49(4) of the Estates Act, which provides:
“The judge may order the trial of an issue of any complaint or claim under subsection (3), and in such case the judge shall make all necessary directions as to pleadings, production of documents, discovery and otherwise in connection with the issue.”
Under section 49(4) of the Estates Act the court may direct any objection which fits under section 48(3) of the Estates Act, which includes allegations of breach of trust, to be separately tried before the court, with section 49(4) noting that the judge shall make necessary directions regarding pleadings, Discovery, and the production of documents for the objection.
If an individual wishes to direct an objection to be tried under section 49(4) of the Estates Act such an intention should be raised at the early stages of the Application to Pass Accounts, with an Order being sought which would specifically direct the objection(s) in question to be tried by way of Action. To the extent that such an Order cannot be obtained on consent a Motion may be brought regarding the issue, with the court also being asked to provide direction regarding the procedures to be followed for the triable issue.
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Sometimes there is a grey area when it comes to a person’s loss of capacity, and the time when his or her attorney for property first began to act on an incapable’s behalf. In such a situation, it can be difficult to determine the starting date for an attorney’s fiduciary accounting period.
The recent decision of The Public Guardian and Trustee v Willis at al, 2020 ONSC 3660, dealt with this kind of situation. One of the issues was whether the respondent should be required to pass his accounts for the period before he became the attorney for property for his mother, Mrs. Willis.
The respondent was his mother’s only living child, and was acting as her attorney pursuant to a power of attorney for property dated May 2, 2018. Mrs. Willis was assessed as incapable of managing her property in September 2018, but the decision notes that she had been “clearly suffering from some cognitive deficits prior to June 2018”.
The Public Guardian and Trustee (the “PGT”) sought to have the respondent provide an accounting back to January 1, 2015, because the respondent had arranged several mortgages on his mother’s behalf in that period. The respondent, however, only agreed to pass his accounts starting from May 2, 2018 when he became his mother’s attorney for property. One of the main reasons that the respondent did not want to pass his accounts prior to that period was due to the expense, because it was clear that Mrs. Willis was insolvent, and the respondent would likely have to personally bear the costs of passing his accounts. The PGT clarified during the hearing that it was not seeking court format accounts for the period from 2015-2018, but only “justifiable explanations of money coming in and out of his mother’s RBC account and how mortgage advances were spent plus all relevant disclosure.”
The court found that the respondent had assisted his mother with paying bills and arranging mortgages prior to the time that she was assessed as incapable. It was also noted in the decision that there was “no doubt” that even while Mrs. Willis was capable, she was unsophisticated, vulnerable, and relied on the respondent. The respondent also had access to his mother’s bank account before January 1, 2015.
The court held that, even if an individual is not specifically appointed in a fiduciary role (such as an attorney) one must look at the types of duties that the individual was carrying out to determine if they were acting in a fiduciary capacity. On this basis, the court found that the respondent had been acting as a fiduciary for Mrs. Willis for some time, and determined that he should provide detailed explanations of financial transactions upon the PGT’s request from January 1, 2015 to May 1, 2018 (in addition to the passing of accounts to which the respondent had consented starting from May 2, 2018).
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The Ontario Court of Appeal recently set aside an order committing an estate trustee to 15 days in jail, to be served on weekends, for contempt of an order requiring the estate trustee to pass his accounts.
In Ross v. Ross, 2019 ONCA 724 (CanLII), the estate trustee was a lawyer, 73 years of age, with no prior convictions or findings of contempt. At the time of the appeal, the estate trustee had purged his contempt.
At the hearing below, the judge found that the contempt arose from “a failure to understand and appreciate or to ignore the need for, and importance of, complying with the order within the specified time or within a reasonable time.” The Court of Appeal held that this finding meant that the estate trustee’s actions did not amount to a callous disregard for the court’s authority. Accordingly, a jail sentence was not appropriate.
For other cases on contempt and sentencing, see our blog, here and here. In the first blog, reference is made to a case where an 88 year old litigant with health issues was sentenced to 30 days in jail for contempt. In the second blog, we discuss a case where an attorney for property failed to pass accounts as required by court order. He was fined $7,000.
Finally, consider the case of Canavan v. Feldman, 2004 CanLII 4787 (ON SC). This was a claim by an estate trustee against his former lawyer. There, the estate trustee, 67 years old, spent 35 days in jail for contempt of court orders relating to a passing of accounts, and was only released when new counsel put further evidence before the court. The estate trustee’s prior lawyer had consented to an order of contempt without the estate trustee’s knowledge. The lawyer told the estate trustee that he had “nothing to worry about”. At a sentencing hearing, the lawyer did not attend. The estate trustee was sentenced to 6 months in jail. The estate trustee was awarded general damages of $200,000 and punitive damages of $100,000 against his prior lawyer.
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No, we are not referring to the 1979 film featuring Dustin Hoffman and Meryl Streep, but a far more recent (but nonetheless interesting) legal dispute involving an application to pass accounts, suspicious activity on behalf of an Attorney for Property, and the resurgence of the equitable defences of laches and acquiescence.
A complex series of facts is present in the Estate of Ronald Alfred Craymer v. Hayward et al, 2019 ONSC 4600: two Attorneys for Property, six marriages, seven children, thirty years of estrangement between Ronald and his four children, and virtually no financial records for the period during which the first Attorney for Property oversaw the affairs of her incapable husband’s estate.
The cruxes of the dispute are that the first Attorney for Property (Joan, Ronald’s wife) transferred the title of the matrimonial home to herself, she kept scanty financial records, and the value of her assets (over $1 million) dwarfed that of her late husband’s (around $35,000). When Joan died suddenly, John Craymer (Ronald’s son, the plaintiff) applied for a passing of accounts and the second Attorney for Property (Linda, Joan’s daughter) was left in the unenviable position of potentially having to answer for the conduct of her late mother in relation to accounts of which she, Linda, had no knowledge.
Under section 42 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30, the Court may order a passing of accounts. In considering whether to do so, it should examine “the extent of the attorney’s involvement in the grantor’s financial affairs and second whether the applicant has raised a significant concern in respect of the management of the grantor’s affairs” (McAllister Estate v. Hudgin, 42 E.T.R. (3d) 313 (ONSC), at para 13). Since section 42 carries a high threshold, and Linda was not responsible for her mother’s conduct, the Court did not grant the application. In its reasons, moreover, the Court found fault with the transfer of the home, but given the marital relationship between grantor and attorney, it did not attach much weight to the scantiness of detailed accounts.
Noteworthy in this case is the Court’s consideration of the equitable doctrines of laches and acquiescence in the context of a motion for a passing of accounts (in which, in Ontario, there is no limitation period). In determining whether these defences apply, the Court looks at the length of the delay and the resulting prejudice. Neither of these components were applicable here, for when John learned of the value of his father’s estate as well as the transfer of the home into Joan’s name, he acted promptly. Instead, his application was dismissed on the Court’s discretion.
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Ian Hull & Devin McMurtry
We often encounter situations where the administration of an estate is complicated by the fact that the deceased was married multiple times, and there is a clash between children from a prior relationship and a subsequent spouse (and/or his or her children). Sometimes, a couple will be closer with one set of children, which may lead to disputes following both of their deaths. Estate of Ronald Alfred Craymer v Hayward et al, 2019 ONSC 4600, was one such case, in which Joan and Ronald had been closer for much of their 32-year marriage with Joan’s children from a prior marriage. After Joan and Ronald died in 2016 and 2017, respectively, a dispute arose between their adult children.
While Ronald’s will named his own children as beneficiaries of his estate, his Continuing Power of Attorney or Property (like Joan’s), named Joan’s daughter as alternate attorney for property, should his spouse be unable to act. Joan had acted as Ronald’s attorney for property from 2006, during which he had suffered a stroke, until her death. In 2011, Joan had transferred the couple’s matrimonial home, previously held jointly, to herself alone. During this period, however, there had been no request by Ronald’s children for an accounting. Joan’s daughter had subsequently acted as Ronald’s attorney for property and as estate trustee for Joan’s estate over the period of approximately eight months between the deaths of Joan and Ronald.
Ronald’s children sought a passing of accounts with respect to the management of their father’s property by Jane and her daughter and, specifically, challenged the change in title to the matrimonial home. The Court referred to Wall v Shaw, 2018 ONCA 929, in stating that there is no limitation period to compel an accounting. Accordingly, it considered the only bar to this relief to be laches and acquiescence. Justice C.F. de Sa commented that the there was nothing improper in the manner in which the plaintiff had sought the accounting and, furthermore, that the delay was not unreasonable in the circumstances. The Court permitted the claim regarding the matrimonial home to continue, but nevertheless declined to order a passing of accounts:
…[O]rdering the passing of accounts is discretionary. And in my view, to require an accounting at this point would result in a clear injustice as between the parties.
[Joan’s daughter,] Linda, as Estate Trustee, is hardly in a position to account for Joan’s spending while she was alive. Yet, to require a passing of accounts at this point would subject every line of Joan’s spending (as Attorney for Property) to the court’s scrutiny. Moreover, as the Estate Trustee, the Defendant would be liable to account for any unexplained expenditures.
Indeed, it is unclear that the spending was spurious given the nature of the relationship between Joan and Ronald. Joan would have been spending the money as his wife as much as his Attorney for Property. The failure to keep detailed accounts is hardly suspicious given the circumstances here.
…In the circumstances, I will not order a passing of accounts.
This decision is interesting in that it clearly considers the practicality of a passing of accounts and the inability of the deceased attorney’s estate trustee to properly account in the absence of relevant records in determining that it would be unjust to order a passing of accounts, despite there being no other apparent legal reason not to do so.
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In Baca v. Tiberi, the court awarded substantial costs as against an attorney for property/estate trustee for maladministration of her mother’s property while she was alive, and of her estate following her death.
The litigation was settled prior to a court determination. However, under the settlement, the parties submitted the question of costs to the court.
In Baca, the court found that there was serious misappropriation by the attorney and estate trustee. The attorney added her name to her mother’s bank accounts and took out money for her own expenses. She caused her mother to incur tens of thousands of dollars of debt for the benefit of the attorney, her husband and sister. She moved into her mother’s home with her family and did not pay rent. She transferred title to the home to herself and her mother jointly. After the mother’s death, she transferred the home to herself and her husband. She mortgaged the home to pay her own debts.
At the costs hearing, the court asked the parties whether the attorney’s lawyer might have personal liability for costs. The attorney waived solicitor-client privilege and the lawyer was subjected to examination and made submissions.
The court awarded costs against the attorney and the lawyer on a “full indemnity” basis, after a reduction of $50,000 for excessive time spent, in the amount of $301,941.41, plus HST and disbursements. (The estate had a total value of approximately $1m.) The attorney and the lawyer were jointly and severally liable for costs. As between themselves, the attorney was to be liable for 75% of the costs, and the lawyer was liable for 25%.
In its ruling, the court was critical of the lawyer’s conduct. The court found that the lawyer pursued a goal that was unattainable. Further, the lawyer misrepresented facts to the court. In pleadings, the lawyer (not the client, per the court) denied assertions that were, to her knowledge, true. Further, the pleadings contained assertions that were known to be false. The lawyer allowed a misleading affidavit to be sworn by her client. The lawyer also failed to ensure that certain funds were held in trust in accordance with a court order. At a later hearing, the lawyer advised the court that the funds were held in trust when they were not.
The court found the lawyer liable, partially, on the basis that she knew of her client’s misconduct yet advised or acted on instructions to take untenable legal positions. She also took legal steps that costed her client and the other side hundreds of thousands of dollars, yet the steps did nothing to avoid “the only inevitable conclusion possible”: that her client would have to make the estate whole. There was no evidence that the client was ever advised of the situation.
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