It is the responsibility of the estate trustee to keep accurate accounts of the estate assets. This should be done on the outset so that a passing of accounts can be easily prepared. Reconstructing accounts after an administration can be a frustrating process.
There are certain accounting requirements and various methods that the estate trustee may use to maintain proper accounts for the estate, such as having a separate ledger book with receipt and disbursements being recorded in these books.
Passing of accounts is the presentation of formal accounts to the court and beneficiaries. The accounts are examined by the court and:
- “Passed” in form presented
- Amended by court order and passed (in amended form); or
- Not passed (because court not satisfied with accounts).
Is passing of accounts required?
There is no requirement in law for an estate trustee (or any other fiduciary) to pass his/her accounts. That being said, an estate trustee is required to maintain estate accounts and may volunteer or be compelled to have their accounts audited by the court.
There are two ways for an estate trustee to have his/her actions approved, either the beneficiaries approve (however, if any have legal incapacity such as being a minor/mentally incapable, then their approval cannot be obtained) or the accounts are presented to the court for an audit.
If there is a dispute over the accounts, the estate trustee may be required to attend a hearing and provide viva voce (oral) evidence under oath. Counsel for the estate trustee may examine the estate trustee in chief and the estate trustee is then subject to cross-examination by parties in dispute. Like other proceedings, the court may make a decision immediately or reserve to consider the matter at a later time.
Estate Trustee’s Compensation
Typically the dispute compelling an estate trustee to pass his/her account is due to the estate trustee’s compensation.
S.61 of the Trustee Act sets out the statutory basis for fees charged by estate trustees, stating that “the trustee, guardian or personal representative if entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate.” [Link: https://www.ontario.ca/laws/statute/90t23#BK78}
Usual Percentage Approach
While this seems broad, a “court-recognized” tariff or “usual percentages” approach has been widely adapted. It is a yardstick – not implemented in legislation and can be increased/decreased/disregarded for another approach, such as fees based on docketed time.
In Ontario, the general rule is to categorize capital receipts and disbursements at 2.5% and revenue receipts and disbursements at 2.5%, which is roughly 5% of the estate’s value. There is also an estate management fee as 2/5 of 1% (0.4%) per annum of the average annual value of the assets.
There are many things to consider and as mentioned, these percentages are simply a yardstick. Some things to consider are that the estate trustee is not allowed the capital disbursement percentage until the capital has been paid out. Also, the care and management fee may not be available if the trust account was not held for a significant period of time (Re Archibald (Estate).
The court is increasingly looking for evidence to substantiate the amount of compensation estate trustees are seeking. This evidence includes time dockets, length of administration, complexity of estate, skill needed, and results obtained.
For a complex estate, the estate trustee may consider requesting a “special fee” which are usually asked for if there were business interests among the estate assets or the estate has been involved in litigious matters and the estate trustee has had to make decision on behalf of the estate.
Compensation may also be set by will or agreement.
Pre-taking of compensation is considered to be subject to judicial sanction (unless there is testator authorization in the will or a compensation agreement made with the executor prior to death) (Re Knoch). Generally, an estate trustee who pre-takes compensation that is more than the amount the court ultimately approves will be ordered to repay the estate with interest.
What to do next
We understand that this is a difficult time for you and your family and this is merely a brief overview of the law regarding passing of accounts. Your best interest is our main concern and we make sure to adopt cost-effective solutions in a timely manner.
We will explain your rights and options in a manner that is easy for you to understand.
We also offer a free consultation, which is an opportunity for you to speak to a lawyer before making any commitment. Call us for a free consultation on (416) 868-3263.
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