Tag: Passing of Accounts
As discussed in yesterday’s post, a new regulation has been filed that provides for changes to the Rules of Civil Procedure, affecting, among other things, the practice on Applications for Certificates of Appointment of Estate Trustee and mandatory mediation of estates matters. The changes will also affect Applications to Pass Accounts when most of the operative provisions in the new regulation come into effect on January 1, 2016.
One of the amendments clarifies the rules for service where there is a person under disability with an interest in the estate, who is represented by an attorney for property or guardian of property. The Rules will clarify that an attorney or guardian will need to be served with the application materials.
Another change relates to timing of objections. A Notice of Objection to Accounts will need to be served and filed with proof of service at least 35 days before the hearing date specified in the notice of application. The current requirement is 30 days before the hearing date.
A new form has been introduced that can be filed in response to an Application to Pass Accounts – a Request for Further Notice in Passing of Accounts (Form 74.45.1). This Request entitles the person who files it, unless the Court orders otherwise, to receive notice of any further steps, to receive copies of any further documents, and to file materials relating to costs. In the event of a hearing, it also entitles the person filing it to be heard, to examine witnesses, and to cross-examine on affidavits, but only with respect to a request for increased costs.
The procedure for seeking costs on an Application to Pass Accounts has changed as well. This procedure was revised only a few years ago and the new revisions clarify and streamline the procedure further. Filing requirements and timing are set to change as of January 2016, so care will have to be taken to ensure that the correct procedures are being followed.
New subrules to be introduced under Rule 74.18 will set out the Court’s authority to order a trial and to provide directions with respect to its conduct at the hearing of an Application to Pass Accounts. The Court can also order a mediation under the new Rule 75.2, even in places where mandatory mediation under Rule 75.1 does not apply.
As January approaches, it’s important to be mindful of these changes in the Rules.
When a will challenge is launched, those who have been disinherited will also often request that the Estate Trustee provide them with an accounting of their administration of the estate to date. Should the Estate Trustee refuse, the disinherited individual will often threaten to bring an Application to compel the Estate Trustee to pass their accounts.
The reasoning behind why a disinherited beneficiary may want the Estate Trustee to pass their accounts seems simple enough. By forcing the Estate Trustee to pass their accounts, the disinherited beneficiary would not only receive information pertaining to what assets the estate is composed of, but also about what steps the Estate Trustee has taken in the administration thus far.
But does a disinherited beneficiary, who otherwise has no financial interest in the estate, have standing to seek an order that the Estate Trustee must commence an Application to pass their accounts?
Rule 74.15(1)(h) of the Rules of Civil Procedure provides that any person who appears to have a financial interest in an estate may move for an Order requiring the Estate Trustee to pass their accounts.
Arguably, those who have been written out of the will do not yet have a “financial interest” in the estate, and thus would not have standing under rule 74.15(1)(h) to seek an order requiring the Estate Trustee to pass their accounts.
Should the will challenge ultimately be successful, and the disinherited beneficiary receive an interest in the estate at that time, the disinherited beneficiary would then be in the position to have standing to compel a passing of accounts. Until receiving an actual financial interest in the estate however, any proceedings to compel a passing of accounts may arguably be premature.
Thank you for reading.
Today on Hull on Estates, David Smith and Jonathon Kappy discuss procedural nuances on a passing of accounts application. If you have any questions, please e-mail us at firstname.lastname@example.org or leave a comment on our blog page.
Queen’s University Faculty of Law
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A “passing of accounts” is the presentation of formal accounts to the beneficiaries of an estate and the court. In the situation where accounts are presented to the court, they are then examined and are either approved or “passed” as they appear, amended by court order and passed in amended form; or, not passed because the court is not satisfied with the accounts or with some aspect of the estate administration shown in the accounts.
Although estate trustees are not required by law to pass their accounts, they are nevertheless required to maintain estate accounts. However, it is common for an estate trustee to voluntarily have the accounts audited by the court or to be compelled to do so.
An estate trustee may have his or her actions approved in only one of two manners. The first is to present the accounts to the beneficiaries who may then approve the accounting and discharge the estate trustee. However, if any beneficiaries with vested or contingent interests suffer some form of legal incapacity, such as a minor or mentally incapable person, the approval cannot be obtained from all of the beneficiaries. If that is the case or if there is hostility and one or more of the beneficiaries will not approve the accounts, the estate trustee’s only option is to present the accounts to the court to be audited.
It is generally considered that accounts of an ongoing trusteeship should be approved by the beneficiaries or, if necessary, audited by the court every three to five years. Accounts should be passed if an estate trustee has administered an ongoing estate for such period or if the administration has been completed and the approval of all beneficiaries with an interest in the estate cannot be obtained.
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The accounts of estate trustees in Ontario are quite complicated. They follow an unusual format foreign to most accounting professionals. For one, the accounts are done on a cash basis as opposed to on an accrual basis. I have done some research in an attempt to identify the origins of some of the features of Ontario estate accounts.
The duty to account can be traced back to the medieval English law. Over time, the use of trusts (known as "uses" in medieval English law) became popular as a means of avoiding certain obligations to the King upon the devolution of land on the death of the landlord. Title would be held by a feoffee (the trustee) for the use (or benefit) of the cestui que use (the beneficiary). At common law, there was no means for a cestui que use to enforce the obligations of the feoffee. The chancery courts, however, would protect beneficiaries of these early trusts.
English ecclesiastical courts had the power to order an executor to produce an inventory of the assets of an estate. This obligation found its way into English legislation dating back to 1529. This was imported to what was then called Upper Canada in 1792. Accounts of executors then found their way into the jurisdiction of the surrogate courts.
The 1892 Surrogate Court Rules, at section 19, reads as follows:
"Executors and administrators shall within a period of eighteen months after grant made, and sooner if the Judge shall so direct, exhibit under oath a true and perfect inventory of the property of the testator or intestate (as the case may be), and render a just and full account of their executorship or administration. The Judge shall upon application made to him for that purpose have power to extend the said period of eighteen months. If the executor, or administrator with the will annexed, is the sole legatee or devisee of the property devolving, the Judge may direct that he shall be relieved from the operation of this rule, provided there are no creditors of the estate. …"
By 1917, the Surrogate Court Rules had evolved substantially. At sections 36 to 41, the Rules provided at this time that the accounts "shall contain a true and perfect inventory of the whole property in question". They further detail that the accounts must include "an account shewing of what the original estate consisted", accounts of all moneys received and disbursed, an account of all property remaining on hand, and "such other accounts as the Judge may require". The Rules, as they read at this time, specified that "[w]hen by the will or instrument creating any trust estate, principal and income are dealt with separately, the accounts shall be divided so as to shew receipts and disbursements in respect of principal and income separately." The Rules at this time also provided a framework for fixing the compensation of trustees as well.
Modern estate accounts in Ontario still typically distinguish between capital and income accounts. Capital receipts and capital disbursements are tracked separately from income receipts and income disbursements. The rationale is the natural tension between the interests of income beneficiaries and of capital beneficiaries where an estate or trust has both. Consider a trust in which beneficiary A has a life interest, and B is entitled to the remainder upon A’s death. The trustee has a hypothetical choice between investing in an asset which will depreciate in capital value but will yield high monthly dividends or an asset which will yield only low monthly returns, but will increase in value. What should the trustee do if he or she is required to maintain an even hand between A and B? Whatever the trustee decides, in order to allow for transparency and to allow beneficiaries, counsel and the Court to supervise the actions of trustees, their accounts are presented in this unique format.
Today, the Surrogate Court has morphed into the Estates List of the Ontario Superior Court of Justice. The form of Ontario estate accounting is currently governed by Rule 74.17 of the Rules of Civil Procedure. The wording of the rules regarding the format of Estate accounts has not changed since 1994.
The unique format of the accounts has evolved to meet the various functions that the accounts perform. They provide an inventory of assets on the day the estate trustee begins acting. They provide a summary of the actions of the estate trustee for the beneficiaries and for the Court. They provide a basis for calculating compensation. They also provide information in a useful format for computing the taxes owed by the estate as well.
For a tour of a set of Court format accounts, see the June 2010 edition of the Hull & Hull Breakfast Series. It will be interesting to see how the format of estate accounts continues to evolve in the future. Thank you for reading!
Suzana Popovic-Montag presented an excellent paper on accounts at the October 18, 2012 Hull & Hull LLP Breakfast Series, and I made special note of her comments on adjusting compensation awarded. Some occasions that adjustments are appropriate are:
· increase – when a care and management fee is charged on an annual basis (usually 2/5 of 1% on the gross value of the estate), which is properly sought where the estate or part of it, is to be held in trust and not distributed to the beneficiaries within the executor’s year;
· increase – when a special fee is claimed by the executors, where the administration is extraordinarily complex or time-consuming; for instance, when the estate has been involved in litigation, where the executors were required to operate the deceased’s business, or where the executors were required to deal with new legislation;
· decrease – when transfer are made in specie or are simple transactions;
· decrease – where an executor retains another to act as an agent to perform duties, the agent’s fees should be deducted;
· decrease – where a trust company is retained on an agency basis to administer an estate or trust, fees paid to the trust company ought to be deducted;
· decrease – where a solicitor performs executor’s work, the fees relating thereto ought to be deducted; for example, when the solicitor compiles an inventory of estate assets, keeps accounts, pays bills, makes investments, or opens estate accounts;
· decrease – where the estate’s accountant prepares income tax returns, the fees relating thereto should be deducted (although some case law says this should be decided on a case by case basis);
· decrease – the costs for preparation of accounts in court format for a passing of accounts ought to be deducted; and
· decrease – compensation charged on disbursements to an executor/solicitor for legal services provided by him or her ought to be deducted.
You can find a much more fulsome commentary on this and other account issues in the paper itself, which will be posted on our website.
Thanks for reading and have a great weekend!
Natalia Angelini – Click here for more information on Natalia Angelini.
The time line in passing of accounts proceedings is being changed. Recent amendments to the Ontario Rules of Civil Procedure extend the time period for service of the Notice of Application to pass accounts, and move up the time within which to deliver a Notice of Objection.
The amendments also increase the costs allowable upon an unopposed passing of accounts.
The amendments, found in Ontario Regulation 55/12, come into effect on July 1, 2012.
With respect to timing, the amendments make the following changes:
- Notice of Application: Ontario respondent: 60 days notice (up from 45)
- Notice of Application: Outside Ontario respondent: 75 days notice (up from 60)
- Notice of Objection: 30 days before hearing (up from 20 days)
- Response from Children’s Lawyer or Public Guardian: 30 days before hearing (up from 20 days)
The amendments also codify what is required where a request for increased costs is being made, and the time frame for making and opposing such a request.
The tariff for costs allowable on an uncontested passing allows for greater costs. The costs range from $2,500 for an estate having a value of less than $300,000, to $7,500 for an estate having a value of $3,000,000 or more (up from a range of $800 to $5,000).
Have a great weekend.
Paul Trudelle – Click here for more information on Paul Trudelle.
In its recent decision in Stolarchuk Estate (Re), 2011 BCSC 1681, the Supreme Court of British Columbia considered a request by the beneficiaries of an estate (in an estate trustee’s application to pass accounts) to reduce the compensation allowed to the estate trustee as a result of her delay in dealing with the real property of the estate. In the case, the estate trustee sought to purchase the real property of the estate for herself, which resulted in her delay in taking steps to market and sell the real property.
In Stolarchuk Estate, the Deceased died in October 2004. She was survived by four children, one of them being appointed as her estate trustee (“Trustee”). The Deceased’s Will provided that the residue of her estate was to be divided equally among her children. The estate consisted of her residence and an adjacent lot (together the “Properties”), and nominal cash. At the time of the Deceased’s death, the Properties were valued at $136,300. The Trustee decided that she wanted to keep the Properties in the family, and wanted to buy them from the estate. She approached her siblings to negotiate a suitable purchase price. An appraisal was obtained in April 2005, which valued the Properties at $195,000. The Trustee offered to purchase the Properties for this amount, but the offer was rejected. The Trustee continued to focus on her purchase of the Properties, and in March 2006 obtained a second appraisal, this time valuing Properties at $250,000. The Trustee offered this amount, but her offer was again rejected. Ultimately, in July 2006, the Trustee and her siblings agreed to list the Properties for sale, but a disagreement arose with respect to the listing price. A third appraisal was then obtained, which proposed a listing price of $330,000 to $365,000 (which price was predicated on the subdivision of the lots). The Trustee did not agree to the subdivision proposal, and the Properties were not listed for sale. Instead, the Trustee obtained a fourth appraisal which valued the Properties at $255,000, and she made an offer to purchase for $260,000. In August 2006, the siblings countered with an offer for $283,000, which was rejected by the Trustee. By this time, the relationship between the Trustee and her siblings had become severely strained, and the Trustee did take any further steps to market or sell the Properties in 2007 and 2008. In February 2009, a realtor was finally hired to assist with the sale of the Properties. The Properties were ultimately sold to a third party in September 2009 for $250,000.
Between the Deceased’s death and the date of the sale of the Properties, the Trustee claimed reimbursement for expenses for the maintenance and repair of the Properties totaling $40,072.13. The beneficiaries argued that the Trustee’s delay in listing the Properties for sale resulted in many of these expenses being inappropriately and needlessly incurred.
In her application to pass accounts, the Trustee claimed total compensation based on 5% of the value of the estate assets (calculated at $11,818.17), plus a care and management fee for the years 2004 through to 2009. The total compensation sought was $16,915.77. The beneficiaries opposed the claim for compensation, arguing that Trustee’s delay in listing the Properties to further her own agenda of purchasing the Properties was a drain on the estate assets.
The Court allowed the Trustee’s application in part. While the Court expressed sympathy for the fact that the Trustee had never acted as an estate trustee before, the Court stated “inexperience does not excuse the four to five year delay in dealing with the Properties in an appropriate manner. The executor’s duty was to obtain the best possible result from the realization of assets and ensure a timely distribution of the Estate residue to all Beneficiaries.” The Court held that when it became apparent in 2006 that the beneficiaries were not agreeable to the sale of the Properties on the terms proposed by the Trustee, it was then incumbent on the Trustee to realize the Properties so that the estate could be distributed. The Court held that Trustee should not receive compensation for the care and management of the Properties beyond 2006. Taking into consideration all of the circumstances of the estate (including the fact the Trustee had made a gratuitous payment to each of her siblings of $5,000 during the course of the administration), the Court held that the Trustee was entitled to reduced compensation in the amount of $3,000.
Thanks for reading. Wishing everyone an enjoyable long weekend and, for those who are celebrating, Happy Easter and Happy Passover.
Saman M. Jaffery – Click here for more information about Saman M. Jaffery
Errands & Time Spent in Connection with a Disabled Beneficiary by an Estate Trustee: Compensable Work or Simply a Kindness?
The recent Manitoba decision of Estate of Marion Warren Gandy and Estate of Frank Richard Gandy, 2011 MBQB 78 (CanLII) considered whether running errands, entertainment, and time otherwise spent in connection with a disabled beneficiary was compensable work for an estate trustee.
In the matter, the trustees of the estates of Frank Gandy (“Frank”) and Marion Gandy (“Marion”) applied to the court to pass the accounts of their respective estates, and the motions to pass the accounts were heard together. This was a second passing of accounts for both estates.
By way of background, Frank and Marion were married to each other, and died within months of each other. Their adult son, Ian, was mentally disabled and under the jurisdiction of the Public Trustee of Manitoba. Frank appointed his nephew Donald, Donald’s wife, and his lawyer as the trustees of his estate. Marion appointed the same trustees for her estate. By the second passing of accounts application, Frank’s estate was valued at less than $300,000 and Marion’s estate was valued at less than $140,000.
At the hearing, Donald sought $5,000 in compensation for time expended in respect of Frank’s estate and a further $5,000 in compensation for time expended in respect of Marion’s estate. No objection was filed by the Public Trustee of Manitoba. However, one of the beneficiaries objected to the compensation sought. The beneficiary stated that the time spent by Donald in connection with the estates for which he claimed compensation was spent largely on: "Running errands, entertainment and time spent in connection with lan". In the circumstances, the Court held that these concerns relating to the compensation were valid. The Court stated that “While it is commendable that Donald undertake various tasks for Ian, he does so as a family member, and there is no justification for the type or amount of remuneration sought.” Further, despite dockets maintained by Donald, the Court stated that “It is impossible in the circumstances to ascertain with any degree of accuracy how much time was spent by Donald on work for which he might appropriately be recompensed in each estate.” Accordingly, the Court reduced the compensation payable to Donald to $2,000 in the case of Frank’s estate and $2,500 in the case of Marion’s estate.
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Further to yesterday’s blog, in the case of McDougall Estate, the beneficiary complained about the trustee’s compensation on the passing of her accounts. In issue was whether the trustee’s compensation should be reduced because she:
- Made an improper distribution to a charity that was not authorized by the Will.
- Failed to make an inventory of the contents of the deceased’s house and failed to offer the beneficiary any of the deceased’s personal effects.
- Pre-took compensation.
- Paid too much in legal fees out of the estate.
The court found that even though the charitable gift failed because it was not a specified amount or share, the trustee’s interpretation of the Will was not unreasonable and the trustee was not liable for an innocent mistake, made in good faith. She was therefore not required to reimburse the estate and should not have her compensation reduced.
The contents of the house were of little value and had to be cleaned out for sale. The trustee never received any indication from the beneficiary that there was anything of sentimental value that she wished to receive. In the circumstances, the Court found that the compensation should not be reduced for the manner in which the trustee dealt with the personal effects.
The trustee pre-took compensation of 5% of the value of the estate as originally calculated but, after adjustments, she admittedly overpaid herself by $1,163.24. Estate trustees ought not to pre-take compensation unless authorized in the trust document or by approval of the executor’s accounts by the beneficiaries. The proper remedy was payment of interest on the amount pre-taken. Accordingly, the trustee was ordered to repay $1,163.24 plus interest of $360 to the estate.
It was not unreasonable for the trustee to seek legal advice to respond to the inquiries from the beneficiary’s lawyer. While amounts paid to respond to questions about the administration of the estate were not at first instance a proper charge to the estate, such costs were allowed because they were properly incurred by her to respond to the beneficiary’s challenges to her administration of the estate.
The payment of legal fees from the estate that ought to have been paid by the estate trustee is a form of pre-taking of compensation and so the estate trustee was liable for interest on that amount, which was fixed at $70.00.
Sharon Davis – Click here for more information on Sharon Davis.