In the Estate of Divina Damm the Court answers the following question – what form of accounts must a guardian of property use when filing an application to pass accounts?
The facts in Re Damm Estate are not remarkable. A guardian of property commenced an application to pass accounts in accordance with Rule 74.18 of the Rules of Civil Procedure seeking court approval of her accounts. No objections arose with respect to the accounts, such that the guardian proceeded to file the application ‘over the counter’ as an unopposed application to pass accounts.
Notwithstanding that there were no objections, the Court refused to approve the accounts. The Court was concerned with the lack of detail and itemization in the entries, as well as the failure to comply with Rule 74.17. The judge tried to “…link all numbers listed in the draft judgment with information presented in the accounts but [was] unable to do so – because the accounts are not in proper form”.
Interestingly, the judge considered whether smaller estates should be permitted to file accounts in a simple format, but noted that it was for the Legislature and the Rules Committee to consider.
Accordingly, the Court directed the guardian to re-serve and re-file the accounts prepared in compliance with Rule 74.17.
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In a recent decision out of the Supreme Court of B.C., Re Thomasson Estate, the Honourable Justice Gerow considered the circumstances where the court may pass over an executor, on an application by a co-executor/beneficiary.
The two Deceased (collectively referred to as the “Deceased”) had been married and had four children together, all of whom survived the Deceased. In their Wills, they named two of their children, as their executors, and directed the executors to distribute the estate to three of their four children.
One son commenced this application to obtain an order that would pass over the other son as his co-executor for the Estates. The Applicant argued that it is necessary for the Estates to make a proper enquiry into the nature of inter-vivos transactions between the co-executor Respondent and the Deceased and such an inquiry must be made independent of the co-executor Respondent as he would be in a conflict of interest.
The co-executor Respondent opposed the Applicant’s application, and argued, amongst other things, that the court should not interfere with the testator’s right to nominate his or her executor and removing him would be prejudging the case.
In her decision Justice Gerow states:
In the circumstances of this case, it is my opinion that there is a perceived conflict of interest between the co-executor Respondent in his role as an executor and his interest in his personal capacity. If an action is instituted by the executors as a result of the transfer of the Property, it would be against the co-executor Respondent. In my opinion, the co-executor Respondent, in his capacity as executor, cannot attack the transfer of the Property to himself while at the same time maintaining, in his personal capacity, that the transfer of the Property was proper. By making such a finding I am not prejudging the case. I am simply of the view that, in the circumstances of this case, if an action is commenced as a result of the enquiries into the transfer, the co-executor Respondent cannot conscientiously act as a plaintiff in his capacity as an executor in a case where he will be the defendant.
B.C. legislation is unique compared to the legislation that governs estate trustees in Ontario; however, if a similar situation arose, an application seeking similar relief could be brought under Rule 14.05(3) of the Rules of Civil Procedure.
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In the recent case of Re Estate of Assunta Marino, 2010 ONSC 5237 (CanLII), the court granted an order to set aside an unopposed judgment passing accounts obtained by the estate trustee, on a Rule 38.11(1) motion brought by a beneficiary who had failed to file a notice of objection to accounts within the prescribed time. Justice Brown, presiding, applied the test in HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894 (CanLII), 2008 ONCA 894, which has three elements:
(i) whether the motion was brought without delay after the defendant (i.e., the moving beneficiary) learned of the default judgment;
(ii) whether the circumstances giving rise to the default were adequately explained; and
(iii) whether the defendant has an arguable defence on the merits – in order to determine whether the interests of justice favour granting the order. To that end, the court should consider the potential prejudice to the moving party if the motion were dismissed, the potential prejudice to the respondent if the motion were allowed, and the effect of any order on the overall integrity of the administration of justice.
The first element was met: time elapsing between the beneficiary learning of the default judgment and the motion was the result of attempted negotiations rather than inactivity, so it was not "delay". The second element was met by the beneficiary’s lawyer filing an affidavit explaining the default. With respect to the the third element, the beneficiary had raised valid arguable objections, which is analogous to a defence. The prejudice resulting from a delay in the estate’s distribution combined with the fact that the estate trustee had properly engaged the court’s legal process to account for his administration was not enough to save the unopposed judgment. Justice Brown wrote that while the case was close, "significant weight should be given to the need to ensure that fiduciaries fully account for their management of property", and so the order setting aside the default judgment was granted. Mediation was ordered before further steps in the passing of accounts, and the beneficiary was ordered to pay all of the mediator’s costs.
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Today’s blog is the last in my series this week addressing certain aspects of preparation for trial in a contested passing of accounts. The items discussed this week were certainly not meant to be, nor were they, exhaustive. Preparation necessary for a hearing/trial with narrow issues, few documents, few evidentiary concerns and an uncomplicated Estate will obviously be different than a case with numerous issues, voluminous documents, evidentiary issues and a complicated administration. The critical aspect of trial preparation is that it begins at the beginning of a case; not literally, but certainly in the sense of being mindful at pre-trial stages of the evidentiary considerations and how the evidence is to be marshalled and presented.
In the February 2009 edition of The Probator, I reported on the decision of Brown J. in Re McMichael Estate. There, Brown J. clarified the requirement that an application for a Certificate of Appointment be filed in the court office for the county or district in which the testator was living at the time of death.
In the recent decision of Re Pearsall released May 21, 2009, (Court File No. 05-36/09, not yet reported) Brown J. offers further clarification on the issue of where applications involving estates may be commenced.
Rule 13.1 of the Rules of Civil Procedure provides that a proceeding must be commenced at the place required by the applicable statute or Rule. If no statute or Rule applies, it may be commenced at any court office.
While the Estates Act stipulates where an application for a Certificate of Appointment must be made, no statute or Rule dictates where an application to pass accounts must be brought, whether as Estate Trustee or guardian for property.
Thus, as held by Brown J., an application to pass accounts can be brought in any county, regardless of where the Certificate of Appointment may have been issued.
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The recent Ontario Superior Court of Justice decision of Re Steen Estate addresses the issue of getting funds paid into court pending a determination of ownership.
In that case, the deceased left a will that divided her estate equally amongst her three sons. There was also a prior “Family Agreement” in which the deceased and her three sons agreed that the deceased’s intent was that each of her three sons would receive a one third share of her financial assets upon her death. The agreement went on to provide that all existing accounts of the deceased, whether jointly held or otherwise, would be totalled, and the value divided into three upon the deceased’s death.
The plaintiff, one of the sons of the deceased was also the estate trustee, brought a claim as against the two other sons with respect to jointly held accounts held by the two other sons. It appears that the plaintiff also held a joint account with the deceased as well.
The plaintiff brought a motion requiring the two other sons to pay the monies they held jointly with the deceased into court pending a determination of the issue.
The Court considered the test for having funds paid into court under Rule 45 of Ontario’s Rules of Civil Procedure. The three-pronged test requires that the moving party show:
1. That the moving party has a right to a specific fund;
2. That there is a serious issue to be tried regarding the moving party’s right to that fund; and
3. That the balance of convenience favours granting the relief sought by the party.
The motion was dismissed. The court held that there was no “specific fund” as the joint account with one of the defendants had been transferred into his investment account: the fund no longer existed. There was no evidence with respect to the other joint accounts.
The court also found that there was no “serious issue to be tried”. The intention of the deceased with respect to dividing her estate was clear.
Finally, the court held that the balance of convenience did not favour the plaintiff. The plaintiff only sought that the defendants’ joint accounts be paid into court, and not his own joint account. The court held that it would be “grossly unfair” to require the defendants to pay their joint account funds into court while allowing the plaintiff to hold onto his joint account proceeds.
This last point seems to have resonated with the judge. The court noted at several points in the decision that the plaintiff was not seeking to have his jointly held funds be paid into court as well.
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On a contested passing of accounts, counsel may be requested to represent two or more clients, such as multiple beneficiaries of an estate or co-estate trustees. In such cases, it is critical to ensure that a conflict of interest does not exist. When counsel first meets with potential multiple clients their respective interests may well be perfectly aligned and identical and it may not appear that there is a potential conflict of interest. Further, all consent to the representation of multiple parties.
In the case of multiple executors, in order to avoid a conflict of interest the controversial issues need to be addressed and discussed in detail. For instance, how will executor’s compensation be apportioned as between them? Is there a different relationship between each executor and the beneficiaries? Does one executor disagree with any actions taken by any of the other executors? Will their evidence be the same? Do the executors share the identical expectations of how the litigation should proceed as well as in respect of potential settlement? The potential disagreements can be discovered by exploring the issues up front.
Listen to Deductions from Compensation.
This week on Hull on Estates and Succession Planning, Ian and Suzana finish up the discussion on the question of accounting by reviewing deductions from compensation and briefly sum up the procedure of the passing of accounts.
Listen to The Question of Compensation and Complaints.
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss the question of compensation and complaints regarding compensation.
Listen to Accounting Concepts and Definitions
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about accounting concepts and definitions after receiving requests from listeners to outline a more general framework for estate administration.
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