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.

Checklist, Estate Trustee

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