Tag: Passing of Accounts
Today on Hull on Estates, Jonathon Kappy and Noah Weisberg discuss the decision on Ghor and Steele and specifically when an attorney can be compelled to account.
As is often the case, a person who is concerned about a fiduciary’s management of property may wish to compel an accounting. However, it is important to remember that a person’s ability to compel such an accounting may vary depending on whether an accounting is being sought from an estate trustee of a deceased’s estate or, in the alternative, from an attorney for property during the lifetime of an incapable grantor.
The legal framework in Ontario
In Ontario, pursuant to section 50 of the Estates Act, an executor or administrator shall not be required to account by the Court “…unless at the instance or on behalf of some person interested in such property or of a creditor of the deceased….” Further, Rule 74.15(1)(h) of the Rules of Civil Procedure provides for any person who appears to have a financial interest in an estate to move for an order for assistance requiring an estate trustee to pass his or her accounts.
Conversely, the right to compel an accounting from an attorney for property or guardian of property is set out under section 42 of the Substitute Decisions Act. Pursuant to section 42, in addition to the attorney, the guardian and the incapable person, the following persons may apply for the fiduciary’s accounts to be passed:
- The grantor’s or incapable persons’ guardian of the person or attorney for personal care;
- A dependant of the grantor or incapable person;
- The Public Guardian and Trustee;
- The Children’s Lawyer;
- A judgment creditor of the grantor or incapable person; and
- Any other person, with leave of the Court.
This is an important distinction to keep in mind: although a person with a financial interest in the estate may be able to compel an accounting from an estate trustee, such a financial interest on the death of an incapable grantor may not in and of itself be sufficient to compel an accounting from an attorney for property during the lifetime of the incapable.
What is the criteria for obtaining the leave of the Court?
The recent decision of the Honourable Justice LeMay in Groh v Steele, 2017 ONSC 3625, is an important reminder of the high threshold for obtaining the leave of the Court to compel an accounting from an attorney for property under section 42.
In Groh, the Applicant, Ernest, sought a capacity assessment of his mother Gabriella under the Substitute Decisions Act. Ernest also sought an order for the suspension of Gabriella’s attorneys for property ability to act and an order for the attorneys for property to pass their accounts. Ernest’s Application was opposed by Gabriella and her attorneys for property.
On the issue of Ernest’s request that the attorneys pass their accounts, Justice LeMay reviewed section 42 of the SDA and concluded that “it is clear that the only circumstances in which Ernest could ask for a passing of accounts is if he can obtain leave of the Court.”
Justice LeMay went on to make the following statement regarding the circumstances in which leave should be granted by the Court:
In my view, such leave should be granted sparingly. The passing of accounts is a detailed review of the financial affairs of the grantor. As such, it is something that is intrusive, and will reveal private financial information about the grantor. In order to obtain leave, the party applying would have to establish both that he or she had some interest (at least indirectly) in the affairs of the grantor, and that there was at least some evidence that the Attorneys were not properly conducting the affairs of the donor. The Court should also consider the role that the Attorneys are playing in the Grantor’s affairs.
After reviewing the facts before the Court, Justice LeMay concluded that a formal passing of accounts should not be ordered, and Ernest’s Application was dismissed.
Thank you for reading,
Umair Abdul Qadir
This week on Hull on Estates, Jonathon Kappy and Doreen So discuss the costs decision in the Pochopsky Estate and whether it is pragmatic to pursue an application to pass accounts in certain circumstances.
Although beneficiaries have a right to compel an accounting from an Estate Trustee, it is not always advisable to do so. The decision of Pochopsky Estate provides an example of such a situation.
Here, practically all of the deceased’s assets passed outside of the estate. Although, there was some concern as to whether a joint account held between the deceased and his sister was an estate asset, subsequent evidence was given to the Estate Trustee, including an affidavit from the bank, indicating that the account was not an estate asset. Accordingly, the Estate Trustee, a friend of the deceased, concluded that there was no money that passed through the estate.
The residuary beneficiaries nevertheless requested that the Estate Trustee proceed against the sister for the joint account and obtain a Certificate of Appointment. In addition, a formal passing of accounts was sought.
The Estate Trustee thought none of these steps were appropriate given the size of the Estate, and indicated that if forced to formally pass his accounts, he would seek his costs from the residuary beneficiaries.
The residuary beneficiaries obtained an ex-parte Order for the Estate Trustee to pass his accounts. Although not mentioned in the decision, for an interesting read on the appropriateness of ex-parte motions, Justice Brown’s decision in Ignagni Estate (Re), is a good one.
On the passing, the Court found that the objections raised by the residuary beneficiaries were ‘ill-founded’, and that they fell into a pattern of aggressively criticizing the Estate Trustee no matter what he did. Given the size of the estate, the Court ordered that the residuary beneficiaries personally pay the costs of the Estate Trustee in the amount of $17,445.60, and that no costs would be payable to these beneficiaries.
Please consider these other interesting Passing of Accounts related blogs:
However, in calculating compensation, there are certain expenses that will be deducted from the compensation to which an estate trustee would otherwise be entitled. As a general rule, expenses paid to a third party for tasks that are properly a part of the main duties and expected expertise of the estate trustee (i.e. “executor’s work”) will be deducted from compensation.
Tasks that are Generally Deducted from Compensation
Generally, the determination of whether the amount will be deducted will depend on the complexity of the task and the circumstances of the particular estate.
If an estate trustee delegates any of his or her general duties to professionals, it is usually a personal expense for which he or she will not be compensated. Examples of this may include preparing the estate tax return, investing the estate assets, and preparing accounts.
Maintaining proper accounts is the primary duty of a trustee and the preparation of accounts has generally been deducted from estate trustee compensation. If an estate trustee acted improperly, the fees to have accounts prepared will be deducted. While accounts are specialized and the argument has been made that an estate trustee may not have the requisite knowledge to prepare proper accounts, the preparation is still excluded from estate trustee compensation.
An estate trustee is not entitled to be compensated for legal fees paid for their own personal benefit; however, the case of Geffen v Goodman, 1991 2 SCR 353, established that an individual may be compensated for any legal fees incurred to defend the interests of the estate.
If an estate trustee’s actions resulted in a loss to the estate through mismanagement of the estate assets, the amount will likely be deducted from compensation. An example of mismanagement is if the estate trustee fails to prudently invest the estate assets.
Tasks that are Generally Not Deducted from Compensated
In Young Estate, 2012 ONSC 343, the court found that investment management was beyond the skill of an estate trustee, and it was proper to retain and pay private investment counsel out of the assets of the estate. An investment or financial manager may be necessary to hire and pay through estate assets if the expertise is reasonably outside the expertise of the average estate trustee.
An estate trustee can also hire consultants, investment managers, property managers or operating managers if an estate has a corporation as an asset, and can pay their fees out of the estate if it would not be reasonable to expect an estate trustee to have reasonable knowledge of the topic.
In summary, it bears repeating that whether an expense is deducted from compensation will depend on the particular circumstances of the estate and the particular expertise of an estate trustee.
Thanks for reading,
Other Articles You May Be Interested In
The Application to Pass Accounts often serves an important function in the administration of an estate, allowing for an open and honest accounting to the beneficiaries of what has transpired, and providing a mechanism by which the Estate Trustee may be paid compensation. In the event that any of the beneficiaries should have any issue with the accounts, or generally with the administration of the estate, they may file a Notice of Objection to Accounts in accordance with rule 74.18(7) of the Rules of Civil Procedure, and the matter may proceed before the court on a contested basis, ultimately allowing the court to determine the validity of the objections should the parties be unable to resolve them personally.
In the past, parties could often find themselves at a stalemate following the service of a Notice of Objection to Accounts, as the Rules of Civil Procedure did not require the Applicant to provide the Objector with any formal response to the objections which had been raised. In order to get around such a potential issue, counsel would often attempt to create a system outside of the Rules, whereby the Applicant would provide the Objector with a reply to the objections which had been raised, with such a reply typically taking the form of a letter to the Objector’s counsel addressing each objection numerically in the order in which they were raised. Such a letter informally came to be known as a “Reply to Notice of Objection to Accounts”, and the timeframe for it being provided to the Objector was often set out in any Order Giving Directions dictating how the Application to Pass Accounts was to proceed.
Although the informal “Reply to Notice of Objection to Accounts” served an important function, it continued to have limitations, for as it was not a formal court document which was to be before the court its impact could be limited. Such a limitation no longer appears to be a concern however, for with the recent changes to the Rules of Civil Procedure which took effect on January 1, 2016, the “Reply to Notice of Objection to Accounts” has become formalized within the Rules of Civil Procedure in the form of the new Form 74.49.4.
Rule 74.18(11.5) of the revised Rules of Civil Procedure provides that at least 10 days prior to the hearing date of the Application to Pass Accounts, the Applicant shall serve upon all people listed under rule 74.18(11.6) a consolidation of all remaining objections in the Notice of Objection to Accounts, as well as a Reply to Notice of Objection to Accounts in the form of Form 74.49.4.
Although rule 74.18(11.5) provides little guidance with respect to what is to be contained in the “Reply to Notice of Objection to Accounts”, and the revised Rules have yet to be fully explored before the court, from a review of the draft Form 74.49.4 which has been provided with the Rules, it appears that such a reply will not be too dissimilar from what was previously informally provided. While the Reply to Notice of Objection to Accounts will no longer take the form of a letter to counsel as it did previously, the content of the Reply to Notice of Objection to Accounts appears to remain substantially unchanged, insofar as it will continue to have the Applicant answer each objection numerically in the order in which they were provided for in the Notice of Objection to Accounts.
Earlier this week I blogged about the recent changes which came into effect on January 1, 2016 concerning Applications to Pass Accounts, and the impact that the revised deadlines may have upon our daily practice. In addition to altering certain of the deadlines relating to Applications to Pass Accounts, the recent amendments to the Rules of Civil Procedure have also created a new “class” of participant in the Application to Pass Accounts process.
Up until January 1, 2016, if you were a beneficiary who was served with an Application to Pass Accounts, you had one of two choices: (1) serve and file a Notice of Objection to Accounts and formally participate in the Application to Pass Accounts; or (2) do nothing and allow the Application to Pass Accounts to proceed without any further notice being given to you. While filing a Notice of Objection to Accounts may seem fairly straightforward if a beneficiary has actual concerns relating to the accounts in question, it may seem a blunt instrument if the only relief which the beneficiary in question desires is to have formal notice of how the Application to Pass Accounts is proceeding.
The revised rule 74.18(8) provides for the creation of a new “class” of participant in the Application to Pass Accounts process, providing for the creation of what is known as a “Request for Further Notice in Passing of Accounts” (Form 74.45.1). By serving and filing a Request for Further Notice, the beneficiary in question will be entitled to receive notice of any further step in the Application, receive any further document in the Application, file materials relating to costs, and, in the event of a hearing, will be entitled to be heard at the hearing, and examine or cross-examine any witness, in relation to any request for increased costs.
Notably, in the event that a beneficiary does not file a Notice of Objection to Accounts or Request for Further Notice, the revised rule 74.18(8.2) provides that the beneficiary in question is not entitled to notice of any further step in the Application, to receive any further documentation in the Application, to file material of their own in the Application, or to be heard at the hearing, or examine or cross-examine any individual at the hearing (subject to a contrary Order of the court).
A “Request for Further Notice in Passing of Accounts” must be served and filed at least 35 days prior the hearing date specified in the Notice of Application, which is the same timeframe contemplated for the service and filing of a Notice of Objection to Accounts in accordance with rule 74.18(7).
As of January 1, 2016, certain amendments to Ontario’s Rules of Civil Procedure have taken effect. These changes, amongst other things, make significant changes to the procedure by which an Application to Pass Accounts is to proceed before the court.
The changes which will likely have have the greatest immediate impact upon our daily practice are the changes to the service/filing deadlines contemplated for certain documentation. These changes include:
- 74.18(7) – Notice of Objection to Accounts must now be served and filed at least 35 days prior to the hearing date specified in the Notice of Application (and not 30 days prior to the hearing date as under the previous rules);
- 74.18(9) – Judgment Record on an unopposed passing of accounts must now be filed at least 5 days prior to the hearing date specified in the Notice of Application (and not 10 days prior to the hearing as under the previous rules); and
- 74.18(11.1) – Request for Increased Costs must now be served and filed at least 15 days prior to the hearing date specified in the Notice of Application (and not between the period commencing 10 days after the Notice of Application is served and ending 20 days prior to the hearing date as under the previous rules).
Notably, the changes to the deadline associated with the Notice of Objection to Accounts means that you now have five less days to prepare and file the Notice of Objection to Accounts than previously. As the service parameters for a beneficiary to be served with the Application to Pass Accounts remains unchanged by the updated rules (being 60 days prior to the hearing for those served in Ontario, and 75 days prior to the hearing for those served outside on Ontario), the net effect of this change appears to be that you will now likely have less time to prepare any Notice of Objection to Accounts upon being served with the Application to Pass Accounts.
The Rules of Civil Procedure often change, and to this effect it is always a good idea to double check the version of the rules upon which you are relying against an official up-to-date version of the Rules of Civil Procedure which can be found on the Ontario government’s website.
Thank you for reading.
The Public Guardian and Trustee (PGT) is often appointed to review accounts where they are submitted to the court for approval by guardians of property, attorneys and estate trustees. I recently happened across Richard Coutinho’s paper on the involvement of the PGT in passings of accounts. While he addresses varying aspects of this topic, for today’s blog I review the issue of service on the PGT, in respect of which the rules are sometimes unclear.
Mr. Coutinho reminds us that the PGT should be served with an application to pass accounts and other required material in the following circumstances:
- When the PGT represents a person with an interest in the estate;
- When there is a charitable beneficiary of the estate or trust (pursuant to ss. 49(8) of the Estates Act); and
- When the PGT is acting on behalf of parties under disability when their guardians/attorneys apply to pass their accounts, unless a close relative or other suitable person would agree to act as litigation guardian in priority to the PGT.
The paper also clarifies for us when the PGT does not get involved in a passing of accounts. Some examples provided of when the PGT does not need to be served are:
- When a guardian of property has been replaced, and the former guardian is applying to pass accounts – this is because the new guardian can review the accounts;
- When the attorney for property is applying to pass accounts and the grantor of the Power of Attorney is not incapable;
- When the incapable person has died – that person’s estate trustee (unless the estate trustee is the PGT) can review the accounts;
- When the accounts are served in draft form – the PGT can only review a formal application to pass accounts; and
- When the PGT has a conflict of interest (e.g. when there are two incapable beneficiaries and the PGT is the guardian of property of only one of them).
Thanks for reading and have a great weekend!
The passing of accounts process can provide beneficiaries with an insight into how an estate and/or trust has been administered, with the revelations not always being good. In response to being served with an Application to pass accounts, allegations will often be brought forward by the beneficiaries that, as a result of the actions or inactions of the trustee, the beneficiaries have suffered damages, and they will be looking to the trustee to compensate them for such damages. If such damages go beyond a mere reduction of a trustee’s compensation, the question which often emerges is whether the passing of accounts is the correct forum for the beneficiaries to seek such damages against the trustee, or if a separate proceeding is required.
Section 49(3) of the Estates Act provides the court with the authority to adjudicate issues of negligence and/or breach of trust as part of the passing of accounts process, providing:
“The judge, on passing any accounts under this section, has power to inquire into any complaint or claim by any person interested in the taking of the accounts of misconduct, neglect, or default on the part of the executor, administrator or trustee occasioning financial loss to the estate or trust fund, and the judge, on proof of such claim, may order the executor, administrator or trustee, to pay such sum by way of damages or otherwise as the judge considers proper and just to the estate or trust fund, but any order made under this subsection is subject to appeal.”
While section 49(3) of the Estates Act does provide the court with the authority to hear such issues as part of the passing of accounts process, section 49(4) of the Estates Act provides the Judge with the discretion to have such issues heard by way of separate trial of an issue, providing:
“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.”
In determining whether such allegations should be directed to a separate trial of an issue, or heard as part of the passing of accounts process, the Ontario Court of Appeal in Simone v. Chiefetz provides the following commentary:
“While there is statutory authority for awarding damages for “misconduct, neglect or default” by a trustee on the passing of accounts (Estates Act, s. 49(3)), it is rare for the court to permit the parties to litigate a substantial claim for damages for breach of a trustee’s duties through the medium of an audit. As Professor Waters states: “… the courts prefer to see beneficiaries bring breach of trust actions for reinstatement of loss to the trust, rather than that a breach allegation be fought out through the medium of a remuneration hearing.“ [emphasis added]
Simply put, the Court of Appeal states that while section 49(3) of the Estates Act provides the court with the authority to hear such claims as part of the Application to pass accounts, that in the event that the claim being brought forward is a substantial claim, that the court prefers that such issues be directed to a separate trial of an issue in accordance with section 49(4) of the Estates Act.
Thank you for reading.