Area of Law: Wills, Estates and Powers of Attorney
Answer # 1173
Passing of accountsRegion: Ontario Answer # 1173
What is the passing of accounts?
There is a legal obligation for an estate trustee to keep a complete and accurate set of accounts for the assets of the estate that the trustee is administering. An estate trustee is an individual who has been appointed to hold the property in a trust for the benefit of any beneficiaries of that trust. This term can refer to any of the following:
- personal representative,
- administrator, or
- administrator with the Will annexed.
The trustee-trust relationship creates a fiduciary duty by the trustee (or executor) to the beneficiary or trust. Fiduciaries owe a duty of care to the trust or beneficiaries, and must always act in good faith and with integrity, and make decisions that are in the best interest of the beneficiaries or trust.
Passing of accounts is the process for obtaining Court approval of the accounts as kept by the estate trustee. In most cases, the beneficiaries of an estate will approve, or consent to, the accounts as kept by the estate trustee because it avoids the time and expense of a court application. However, if the beneficiaries are unwilling or unable to approve the accounts as administered by the estate trustee, then passing the accounts before the Court will be necessary.
Accounting duties of the estate trustee
When someone dies, an estate trustee, also known in Ontario as an executor or a personal representative is named to carry out the wishes in the Will. In addition to making sure that the property goes to the people the deceased has chosen, the estate trustee is responsible for performing a number of duties to ensure that personal affairs are wrapped up in an orderly manner.
One of these duties is to keep the deceased’s money in a separate bank account that does not have any connection to the estate trustee’s personal account. The trustee must keep a record of all the receipts and documents associated with this account, such as:
- all expenses involved in the administration,
- money the estate receives,
- where payments came from, and
- where the money was spent.
Who can order a passing of accounts?
Passing of accounts can take place in one of three ways:
- A beneficiary can force the passing of accounts by obtaining a Court order,
- A passing of accounts is legally required under certain circumstances, or
- An estate trustee can voluntarily apply to Court for a passing of accounts.
1. Passing of accounts by beneficiary obtaining a court order
In Ontario, under the Rules of Civil Procedure, if a beneficiary, or any person who appears to have a financial interest in the estate, believes that the deceased’s account was mismanaged, or handled dishonestly, they may make an application to the Court to have the estate trustee pass his or her accounts. This is usually done to prove that the deceased’s money was used for the benefit of the estate and handled legally. If an estate trustee cannot provide proof of where money was spent, the Court may order that the money be returned to the estate.
The most common reasons a beneficiary may request a passing of accounts include:
- if the estate trustee does not keep the beneficiaries informed as to what is going on with the estate;
- compensation or fees for the estate trustee do not seem to be correct;
- the length of time taken to administer the estate is believed to be too long;
- there seems to be money missing from the estate; or
- there are issues with the sale of estate assets, including the sale price and manner of sale, etc.
The right to request a passing of accounts for a Power of Attorney or a Guardian of Property are found in the Accounts and Records of Attorneys and Guardians Act, or the Substitute Decisions Act. Generally, the circumstances where a passing of accounts may arise include:
- by court order, on application,
- on application of the attorney or grantor, and
- with leave of the court,
- a guardian,
- incapable person,
- guardian or attorney for personal care,
- a dependent of the incapable person,
- the Ontario Public Guardian and Trustee,
- the Ontario Children’s Lawyer,
- a judgment creditor, or any other person,
may apply to pass the accounts of the guardian.
Just like an estate trustee, the Court appointed guardian of property is a fiduciary pursuant to the Substitute Decisions Act. In these cases, the fiduciary manages money and other types of property for someone else. As a fiduciary, the guardian of property for an incapable person must manage the property in accordance with the law and keep accounts of all the transactions involving the incapable person’s property.
2. Passing of accounts for legal reasons
An estate trustee must have the estate accounts approved by the Court in the following circumstances:
- There are beneficiaries who are minors,
- There are beneficiaries who are mentally incapable,
- There are beneficiaries who are unborn or unascertained. A situation of unborn and unascertained beneficiaries arises when a class of beneficiaries has not been finalized (closed) at the date of the testator’s death. For example, where the Will states that grandchildren will receive a share of the estate and there are some grandchildren at the date of death, but there is a possibility of more being born,
- There are beneficiaries who are contingent. A contingent beneficiary is someone or something (such as a corporation or charity) that receives the benefits of an estate if the primary beneficiary (main or first choice beneficiary) can’t or won’t receive the benefits of the estate,
- Where a beneficiary challenges the actions of the estate trustee, or
- Where a beneficiary challenges the handling of the estate accounts by the estate trustee.
3. Voluntary passing of accounts by an estate trustee
An estate trustee can voluntarily apply to the Court for a passing of accounts. This is often done when a trustee is concerned that they will not be properly paid for the work they have done because the estate is challenging the trustee over the trustee’s fees.
How much are estate trustee fees?
Under the Trustee Act, the fees paid to the estate trustee are to be fair and reasonable. The general guideline is that an estate trustee can receive a total of 5% of the value of the estate. It should be noted that the 5% is a total fee, not a yearly compensation. In addition, the trustee may have been guaranteed a particular fee as indicated in the deceased’s Will.
- 5% of money received from capital and from revenue, and
- 5% of money spent from capital and revenue (called Disbursements).
When reviewing the fees claimed by an estate trustee, the Court generally considers the work needed to be done by the trustee and the complexity of the estate. The five factors the Court considers are:
- Size and value of the estate,
- Level of care and responsibility required, and risk assumed by the trustee,
- Time required to properly administer the estate,
- Skill and ability needed and shown by the trustee, and
- Degree of success in administering the estate.
Care and Management Fee, or Special Fee
However, in some cases a trustee can charge more, and the Court may agree they are justified. On the claim of a trustee, the Court may make an award for a care and management fee, or a special fee. Where such a fee is awarded, the Court will usually allow a management fee of 2/5 of 1% or 4% per year of the average market value of the estate assets. This may be awarded to compensate the estate trustee in cases where:
- an estate is taking a number of years to administer,
- where extra or specialized work by the estate trustee is necessary,
- where there are taxation problems,
- where there are many categories of beneficiaries, or
- if there is a lawsuit started by the estate or against the estate.
For more information about Wills, visit the Ontario Ministry of the Attorney General website.
Getting the legal help you need
If you want to make sure your Will is legal and clearly expresses your wishes, or for help in obtaining a court order for a passing of accounts, you should consult a lawyer.
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