Estate Trustee Checklist

Estate Trustee Checklist

As wills, trusts and estates practitioners, it is important to review the liabilities and entitlements of estate trustees on a regular basis to properly advise clients of what the role entails when they administer an estate. First, the liabilities:

General duties and responsibilities

The estate trustee should know that they have a fiduciary duty to administer the estate, meaning that the estate trustee must do their utmost to act in the best interest of the estate and follow the wishes of the deceased. The below list involves the general responsibilities that an estate trustee will usually face during the course of their administration:

Funeral arrangements:  the estate trustee is generally  responsible  for the burial arrangement, with its costs, within reason, borne by the estate. The funeral expense is a proper expense to be reimbursed by the estate or paid for from the estate . An estate trustee should know that the burial instructions are not legally binding, and that the estate trustee has the authority to determine the specifics of the burial.

Locating the will and following the will (if any): the original will is necessary for probate with a will and for the estate trustee to act on behalf of the estate. The will is a living document and gives the estate trustee their power to act on the estate’s behalf. If there is no will, then an application for a Certificate of Appointment without a will is usually necessary.

Ascertaining the assets and liabilities: ascertaining the assets and liabilities is necessary to determine 1) the estate administration tax to be paid, and 2) how certain gifts (mainly in the residue) will be paid out. The estate trustee will need to determine if certain assets such as RRSPs, RRIFs, TFSAs and RESPs with a beneficiary designation, fall within the estate or pass outside of it. Once the assets are ascertained, the estate trustee will need to protect the assets to the best of their ability.

Applying for a Certificate of Appointment (if necessary): there is a need for the estate trustee to communicate with the beneficiaries of the estate to inform them of what they should expect to receive. These beneficiaries will have to be served with a notice of appointment. Usually, the estate trustee will need to open an estate bank account to administer the assets and liabilities of the estate. On almost all instances, the banks will require a Certificate of Appointment of Estate Trustee in order to open an estate bank account.

Paying taxes and debts: this includes providing a notice to  creditors  so  that  any  creditors  to  the estate can submit claims  before any  debts or  beneficiaries  are paid. The estate trustee  must also ensure that the taxes  (including  the  income  tax)  and  debts  of the  deceased  are paid after the notice to creditors is advertised. The receipts will need to be kept for the accounting.

Passing accounts: the estate trustee must account for all the money that comes into and out of the estate for the beneficiaries. In this stage of the administration it is possible that the estate trustee can have the beneficiaries  sign a release if they are satisfied  with the accounting to release the estate trustee of their liability. If the beneficiaries do not sign a release, the estate trustee may wish to pass their accounts in court to be absolved of their liability. A passing of accounts may be necessary if the beneficiaries do not agree to pay the estate trustee his/her compensation.

Distributing assets according to the will: the estate trustee would have the responsibility to distribute the assets according to the will. Typically, the estate trustee is not expected to distribute within a year of the death of the deceased, called the Administrator’s Year.

What happens when estate trustee fails to perform duty or fulfil responsibilities?

 A failure to perform the aforementioned duties and responsibilities may result in the following consequences:

  • No compensation to be paid out to the estate trustee;
  • According to 159(3) of the Income Tax Act, if a legal representative of a taxpayer distributes without obtaining a clearance certificate, the legal representative is personally liable for the payment of those unpaid taxes, interest or penalties to the extent of the value of the property distributed;
  • If assets are not accounted for, the estate trustee can be personally responsible for the difference; and
  • Costly litigation.

Now we look at the entitlements:

Compensation

Generally, it is believed that the estate trustees can claim a five per cent compensation, but more accurately, it should be claimed based on the following percentages:

  • 5 per cent of revenue receipts and disbursements;
  • 5 per cent of capital receipts and disbursements; and
  • 2/5 of one per cent of the average market value of the estate for a care and management

There are other factors in the common law that will determine the compensation an estate trustee may pay themselves. The leading case on this is the reference case of Re Toronto General Trusts Corporation and Central Ontario R.W. Co., [1905], 6 OWR 350. The factors that the court lists as important factors to be considered include:

  • Size of the trust;
  • Care and responsibility involved therefrom;
  • Time occupied in performing those duties;
  • Skill and ability shown; and
  • Success resulting from its administration.

Reimbursement

 It is important for the lawyer to advise the estate trustee that the Trustee Act, RSO 1990 allows for estate trustees to reimburse themselves for their disbursements in the administration of the estate

Expenses of trustees

 23.1(1) A trustee who is of the opinion that an expense would be properly incurred in carrying out the trust may,

a) pay the expense directly from the trust property; or

b) pay the expense personally and recover a corresponding amount from the trust property.

This reimbursement for estate trustees is supported by case law. In the 1802 English case of Worrall v Harford, (1802) 8 Ves 4, 32 ER 250, 34 ER 1002, Lord Eldon famously stated “It is in the nature of the office of trustee, whether expressed in the instrument  or not, that the trust property  shall reimburse him for all the charges and expenses incurred in the execution of the trust. That is implied in every such deed.”

In more “modern” times, Justice Ivan Rand (as he was then) in the 1945 Supreme Court of Canada case of Thompson v. Lamport, [1945] S.C.R. 343 ruled:

The general principle is undoubted that a trustee is entitled to indemnity for all costs and expenses properly incurred by him in the due administration of the trust: it is on that footing that the trust is accepted. These include solicitor and client costs in all proceedings in which some question or matter in the course of the administration is raised as to which the trustee has acted prudently and properly.

An estate trustee is entitled to indemnify themselves for all costs and expenses properly incurred by them in the administration of the estate.

The aforementioned duties, responsibilities, liabilities and entitlements  is not an exhaustive  list, but it is an informative  starting  point. Though  there are numerous responsibilities that  an estate trustee may assume, there are also many entitlements that can make the role rewarding. Perhaps the most rewarding benefit is ensuring that a loved one’s last wishes are carried out and their legacy is untarnished by conflict.

Big changes for small estates

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

Big changes for small estates

On April 1, 2021, the estates law changes from the Smarter and Stronger Justice Act came into effect in Ontario. The result of the bill raised the limit for a small estate to $150,000 and introduced Rule 74.1 in the Rules of Civil Procedure pertaining to the administration of small estates.

This is similar to the increased limit in the Children’s Law Reform Act in instances where there is no Will or there is a Will but no trust provisions, the estate trustee can only pay $35,000 to the minors parent. Anything above that must be paid into court. The parent or guardian can then apply to be guardians of property their child. The amount was $10,000 previously.

As wills, trusts and estates practitioners it is important to note these changes to the legislation – in particular, estate administrators should be aware of the rules relating to small estates and how it affects the estates administration practice.

Small estates bond requirements

Pursuant to s. 35 of the Estates Act, there is a general requirement that requires every person to whom a grant of administration, including administration with the will annexed, shall give a bond to the judge of the court by which the grant is made. Generally, the administration bond that needs to be obtained is required to be double the amount of the assets of the estate. Pursuant to s. 36(3), an administration bond shall not be required in respect of a small estate, now up to $150,000 (unless a beneficiary is a minor or incapable).

Rule 74.1 small estates forms and procedures: What is the difference?

 The major difference of Rule 74.1 is the probate process for small estates

  • mainly the less stringent requirements to  be appointed  an estate trustee of a small Rule 74.1.02(2), states that Rule 74 continues to apply  with respect  to the  small estates except for Rules 74.04 to 74.11 and 74.14 .

The following demonstrates the requirements under Rule 74.04 in comparison to the requirements under Rule 74.1 (italic emphasis added):

Rule 74.04 Requirements for Probate Application

  • the original of the will and of every codicil; (a.l) proof of death;
  • Form 74. 6 an affidavit attesting that notice of the application, and Form 7 has been served in accordance with subrules (2) to (7);
  • if the will or a codicil is not in holograph form,
  • Form 8 an affidavit of execution of the will and of every codicil or, Form 74.10 an affidavit as to the condition of the will or codicil at the time of execution, or
  • such other evidence of due execution as the court may require;
  • Form 74.9 if the will or a codicil is in holograph form, an affidavit attesting that the handwriting and signature in the will or codicil are those of the deceased;
  • a renunciation (Form 11) from every living person who is named in the will or codicil as estate trustee who has not joined in the application and is entitled to do so;
  • if the applicant is not named as an estate trustee in the will or codicil, a consent to the applicant’s appointment (Form 74.12 or, if the application is for a certificate limited to the assets referred to in the will, Form 12.1) by persons who are entitled to share in the distribution of the estate and who together  have a majority  interest in the value of the assets of the estate at the date of death;

(g.1 ) Form 74.13.2 in the case of an application for a certificate of appointment of estate trustee with a will limited to the assets referred to in the will, a draft order granting the certificate of appointment;

  • the security required by the Estates Act; and
  • such additional or other material as the court

Small Estates Rule 74.1.03 Requirements for Probate Application

  • Form 74, 1B, a request to file an application for a small estate certificate or an amended small estate certificate form;
  • proof of death;
  • Form 74. l C, a draft small estate certificate;
  • if there is a will, the original of the will and of any codicils, together with the following evidence of due execution of the will and each codicil, similar to the requirements in Rule 74;
  • any security required by the Estates Act, which should be nil; and
  • such additional or other material as the court

Small estates have a less formal notice equivalent under Rule 74.1.03(3) that requires the applicant to send a copy of the application for a small estate certificate, any attachments and copies of the wills or codicils to the beneficiaries. It acts very similar to a Notice of Application for estates over $150,000.

As the highlighted passages above indicate, there are more requirements for probate under Rule 74.04 . There are up to six less forms required under Rule 74.1 and generally, there is no security required pursuant to s. 36 of the Estates Act, in comparison to a traditional Certificate of Appointment of Estate Trustee. Forms require time and time is money.

Comparison of forms 

The small estate forms themselves are newer and easier for an administrator of a small estate to complete.

On an analysis of the Small Estate Certificate Form (Form 74. lA) in comparison to the Certificate of Appointment of Estate Trustee Form (Form 74.4) as downloaded from the Ontario Court forms website, at first glance, there are colour indicators in Form 74. lA that easily guide an administrator on where to fill in the forms as compared to the monochromatic Form 74.4. The spacing and larger text in Form 74. lA is placed in a way where it is more intuitive and user friendly than Form 74.4.

In terms of guiding  language, the small estate form is clearer than its “traditional”  counterpart,  and as a snippet, the Personal Property section of Form 74. lA has a more in-depth definition of Personal Property as compared to Form 74.4 .

One interesting note from Form 74. lA, is that this form asks for the beneficiaries to be listed, whereas in 74.4, the beneficiaries are to be provided in another court form.

Who benefits?

According to Attorney General Doug Downey, raising the small estate limit was a part of the changes made “to ease the burden on grieving loved ones and ensure fairness for everyone regardless of the size of an estate, the government is making the process to claim a small estate faster, easier and less costly for Ontarians.”

Overall, the new changes make it easier for administrators of any estate under $150,000.

As some administrators may utilize legal counsel for the administration of their estate, having a process where there are potentially six less legal documents to complete, and a process that requires less correspondence with other parties will drastically help small estates by reducing time and legal fees paid from the small estates.

For the administrators who wish to administer a small estate by themselves, the new process is more simplified. Overall, it is faster, easier, and less costly in comparison to the process for estates over $150,000.

Do changes ensure fairness for everyone regardless of size of an estate?

For there to be winners, there must be losers borne from these changes . In terms of fairness for everyone, regardless of the size of the estate, it is puzzling how the line was arbitrarily drawn at $150,000.

What happens to the still relatively modest estates valued between $150,000 to $200,000? Should there be a system in place that is less onerous and less expensive than obtaining an administrative bond to compel an administrator to fulfil their duties?

The changes are a good start, but there are still questions that need to be answered.

Estate COVID problems: The rogue trustee

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

Estate COVID problems: The Rogue Trustee

A common theme in an administration of any estate is the breakdown of relationships between family members. Sometimes the estate trustee takes it upon themselves to make distributions that are not pursuant to the will or intestacy laws. It could be because they feel that they deserve more money over the other beneficiaries. Whatever the reason, an estate trustee should never endeavour to change the distribution as set out  in a will or on intestacy laws without a court order.

Beneficiaries of a will or under intestacy who have not been given their inheritance because of an estate trustee’s conduct have recourse. This series of articles looks to address the problem: “I  am a beneficiary  of a will but I have not received my gift,” or “what do I do if the  estate trustee  is not distributing according to the will?”

No probate

If the beneficiary learns that they will not be receiving a gift before the estate trustee has applied for probate, then the beneficiary may file to the court a Rule 75.03 Notice of Objection to  the  estate  trustee’s appointment. Essentially, the beneficiary would object to the estate trustee from obtaining the certificate of appointment because of the estate trustee’s conduct or conflict, which would interfere with them being able to act impartially among all beneficiaries (this is the even-hand rule).

The role of the estate trustee requires the trustee to serve the  estate. If the estate trustee is unable to act neutrally and honour the last wishes of the deceased, or the laws of intestacy, then the beneficiary has a strong case to seek the removal of the estate trustee . Just because an estate trustee is a creditor does not mean they cannot act neutrally . Should an estate trustee be deemed by the court to have breached their fiduciary duties, they may be penalized  with partially or fully reduced compensation, and in some instances forced to pay back the improper distributions to the estate with interest.

Duty to account

If the estate trustee has been appointed, either they obtained a Certificate of Appointment with or without a will, or were appointed in the will, then they have a duty to account to the  beneficiaries. This means that the estate trustee must keep accurate records of the assets and transactions of the estate. The beneficiaries are entitled to see all the monies going in and out of the estate.

If  the estate trustee is delaying distribution  because they do not  want to  distribute to a beneficiary, or if they are not reporting anything to a beneficiary, or if a beneficiary suspects that they are not getting what they are owed, then the beneficiary can obtain an order to compel the estate trustee to pass their accounts (Rule 74. l S(h)) . If the beneficiary disagrees with the accounting, then they can file and serve a Notice of Objection to the Accounts (Rule 74.18(7)).

Other options include s. 37 of the Trustee Act, which states that a party may apply for an estate trustee to be removed or Rule 75 . 06 where the beneficiary may apply for the directions of the court.

The bottom line is if someone is a named beneficiary in a will or on intestacy, then they have the right to claim their inheritance.

What is different with COVID?

Luckily, the courts have adapted with the times and are hearing matters via Zoom. Law offices have transitioned to providing services to clients virtually. Though the medium is different, the law remains the law.

More on COVID-era estate law in part two of this series.

Costs in Estate Litigation: Who Pays, When and Why?

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

An Overview of Costs in Estate Litigation: Who Pays, When, and Why?  

The issue of which parties are to bear the costs of litigation in estate matters presents some interesting nuances. On the one hand, estate matters are merely civil proceedings and, in such proceedings, costs generally “follow the event”, meaning that courts order them to be paid by the unsuccessful party to the successful party. On the other hand, such matters can present unique questions: What if the testator—because of mistake, neglect, etc.—failed to make his/her intentions clear enough, effectively constraining the parties in an estate matter to, well, bring the matter to court? What if there are concerns about the execution of the will, or the testator’s capacity at the time of execution? One would think that, in such cases, a common-sense approach to costs would acknowledge that, “winning” and “losing” aside, there are times when all parties may have ultimately benefited by having brought the matter to court to resolve issues, and thereafter administering the estate appropriatelyIdeally, perhaps it would also acknowledge that the testator was—be it partially or otherwise—at fault himself/herself for not having laid out her intentions with sufficient clarity. 

These are precisely the types of considerations that today’s “modern approach” to costs in estate litigation seeks to balance and reconcile, and a brief summary regarding how it does this follows, below. While the general rules regarding the awarding of costs in civil proceedings applies to estate matters, a special approach has been developed in estate litigation that may allow for costs to be bornenot by the parties, but by the estate, in select circumstances.  

The “Modern Approach” to Costs in Estate Litigation 

As mentioned above, generally, the unsuccessful party bears the costs of the civil proceeding. However, in estate litigation, there can be an exception to this general rule if there is a policy justification to deviate from it. When a policy justification is found, then courts may instead order that the costs of some or all of the parties/proceedings be paid out of the estate. In McDougall Estate v Gooderham, the Ontario Court of Appeal outlined that a departure from the normal principles for determining responsibility for costs is justified in two circumstances: (1) where reasonable grounds exist to question the execution of the will or the testator’ capacity to make the will; or (2) where the difficulties or ambiguities in the will being considered by the court were partly or wholly caused by the testator (e.g. by some sort of failure to lay out her intentions clearly so as to have better avoided the need for future litigation). The Court stated at para 85 of McDougall Estate: 

Gone are the days when the costs of all parties are so routinely ordered payable out of the estate that people perceive there is nothing to be lost in pursuing estate litigation. 

Essentially, this approach seeks to strike a balance between: (1) the important role that courts must play in ensuring that valid wills are admitted to probate and complexities/ambiguities relating to it are resolved; and (2) the need to effectively control the propensity for parties to bring unwarranted or unreasonable proceedings under a misplaced expectation that the estate will pay for such proceedings.  

Courts applying this approach will have aappreciation for the facts. Overly simplistic assessments regarding whether or not the will was challenged, or whether or not the capacity of the testator was put in issue, are not enough to render a conclusion as to whether the estate should bear the costs. A deeper analysis is always required. 

Recently, in Trezzi v Trezzi, the Ontario Court of Appeal discussed the proper application of this approach to costs in estate litigation. It reaffirmed that courts in estates matters are to follow the costs rules that apply in civil proceedingsunless one of two “public policy considerations” are applicable: “(1) the need to give effect to valid wills that reflect the intention of competent testators; and (2) the need to ensure that estates are properly administered. This statement is precisely in line with McDougald Estate. 

Partial Indemnity or More? 

As in other civil proceedings, courts resolving estates matters have routinely reaffirmed that costs above a partial indemnity scale should only be awarded: (a) when one party has made an offer to settle which the other party has not accepted and the former party obtains a judgment as favourable or more favourable than the offer (i.e. Rule 495 offers); or (b) when the court makes a clear finding of reprehensible conduct on the part of the party against whom the cost award is being made.

Other Costs Potentially Borne by the Estate 

Generally, executors incurring costs in the course of estate litigation are entitled to full indemnification for such costs out of the estate. The underlying principle here is that executors are entitled to indemnification for all reasonably incurred costs involved in their administration of the estate. It has often been noted that not allowing for this could otherwise turn people away from accepting appointments as executors, or could make executors reluctant to bring proceedings to advance the due administration of an estate.

Executors may have to bear their own costs if they unreasonably resist a reasonable challenge to the will, and courts may order them to bear their own costs for unnecessary or unwarranted proceedings, as well as for reprehensible conduct during such proceedingsJust like other parties in estate litigation, executors should not be initiating ill-advised litigation under the assumption that the estate will bear their costs.  

Concluding Remarks 

There are many cases where litigation may be necessary to properly distribute an estateThe modern approach to costs in estate litigation is a principled one that provides an effective means of identifying when this may or may not be the case, and awards costs accordingly. 

If the Estate Owes you Money, Can you still be the Executor?

The issue we are addressing is whether you can act as executor of an estate that owes you money. If you are owed money, you would argue that you are a creditor of the estate.

There is no absolute law that prohibits a creditor from being appointed as an executor of the estate.

However, there is case law which deals with removal of an executor who was also a creditor when a conflict of interest arises and the beneficiaries object.

Browne v. Browne Estate

In the Supreme Court of British Columbia case Browne v Browne Estate 2014 BcSC 656, the parties were half siblings, and by her will, their mother divided the estate equally between the parties. After the mother’s death, and without obtaining probate, the respondent used the power of attorney for property document (which should have ceased upon death) to sell the residence for $750,000.

The respondent then applied one half of the net proceeds against her husband’s line of credit. She deposited the balance and through counsel made an offer of settlement to her half-sister to settle the estate without obtaining probate and conditional upon her half-sister not contesting her “suspect” accounting.

She claimed a total expenses of $257,000, which she felt entitled to due to the personal care she provided to the deceased for the last five years.

Her half sibling applied to the court and obtained an order removing the respondent as executor on the basis that she was unable to act impartially, that the accounting was at best cursory, and that the claim for expenses were largely unexplained without any supporting documentation.

Conflict of Interest

The actions of the respondent demonstrated a “lack of fidelity” to the beneficiaries and underscored her potential conflict of interest because of her significant claim on the estate as a creditor (para. 52).

The court found that there were several reasons that would give rise to the removal of the executor and trustee. First and foremost was the potential for conflict of interest given that the executor/ trustee claimed to be a 53% creditor of the estate assets (to which the other beneficiaries disagreed). Also, it was a question of whether it would be difficult for the executor to act with impartiality (not whether she would or would not do so).

The court found that the respondent was in a conflict of interest because of her significant claim on the estate as a creditor.

This is simply a classic conflict of interest, for which the Courts will generally not hesitate to remove the executor/trustee on proper evidence.

Lastly the improper use of a power of attorney document to deal with assets of the estate, rather than applying for probate, was a clear indication of her unwillingness to act as executor.

[37] The general test for removal of trustees/executors is set out in Letterstedt v. Broers (1883-84) L.R. 9 App. Cas. 371 (South Africa P.C.) at 385-389. Lord Blackburn says:
[The] main guide must be the welfare of the beneficiaries…The acts or omissions must be such as          to endanger the trust property, or to show a want of honesty, or want of property capacity to                  execute the duties, or a want of reasonable fidelity.”

[38] Lord Blackburn stated at 387:
In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above annunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a manner so essentially dependent on details often of great nicety. But they proceed to look carefully into the circumstances of the case.

[39] Letterstedt was followed in Conroy v. Stokes, [1952] 4 D.L.R. 124 (B.C.C.A.) at 127.

[40] As noted by Donovan Waters, Q.C. in Water’s Law of Trusts in Canada Fourth Edition at 898:
… it is clear that much will turn on the facts of the particular case, and it is only by an analysis of the cases that the manner of application of those guidelines can be seen. The dishonesty of the trustee is an obvious ground for his removal. It is the gravest breach of trust, but dishonesty can extend beyond the situation where the trustee appropriates the trust property for himself to the situation where he has a discretion as to the division of the fund between himself and … other persons, and allocates to himself the lion’s share.

[41] Courts are reluctant to remove an estate trustee. A priority is to respect the testator’s decision in appointing that person: Veitch v. Veitch Estate, 2007 BCSC 952.

[42] Animosity or hostility between an executor and a beneficiary is not sufficient on its own to warrant removal as an executor: Letterstedt at 389

Borisko v Borisko

Distrust

Another case is Borisko v Borisko, 2010 ONSC 2670 where the court found it appropriate to grant a remove an estate trustee where significant allegations aroused the distrust and hostility of the beneficiaries.

The court stated that an application for removing a trustee was not a fact finding process. In its reasons, the court considered a number of allegations indicating a breach of duty or conflict of interest. The trustee was alleged to have tried to buy shares from the beneficiaries when he knew they were valued at nearly twice what he offered. He was also alleged to have withheld this information from the beneficiaries. The trustee was said to have refused to transfer the shares and dividends in a company to the family trust, but instead included the assets in the estate to increase the estate’s value and his compensation. These allegations, which were substantiated with evidence, were sufficient for the Court in this case to order the removal of the trustee.

The Trustee Act section 48 and onwards deals with the obligations of an executor to properly deal with creditors. If there is any question as to whether there is an actual debt or the amount of the debt, it could be argued that the executor in a conflict of interest.

Factors Considered

Some other factors to consider would be: who are the beneficiaries, how much is the alleged debt and what is it for? Is it well documented and therefore not likely to be objected by the beneficiaries? Can it be proved that monies were actually advanced?

While being a creditor does not automatically disqualify a person from being an executor, there can be serious issues as to conflict of interest. Beneficiaries may move to remove the executor and possibly claim costs against the executor if they are in a conflict of interest.