Over my years of practice, I have not been able to get used to the startled look that an executor, attorney or trustee gives me when I advise them of their duty to account. Questions such as: “Really?” “Why?” and “To whom?” then quickly follow.
A person dealing with the assets of an estate has a fiduciary duty to act honestly and in good faith towards the beneficiaries.
An executor takes on the responsibility of gathering in the deceased’s assets, paying the deceased’s debts, and distributing the residue of the estate to the deceased’s beneficiaries. They also have a responsibility to account to the beneficiaries for what they did with those assets, any additional income that the estate earned after the deceased’s death, and whether all of the debts have been paid. The executor is not entitled to receive any compensation unless this accounting is both provided to and approved by the beneficiaries.
The same responsibility to act honestly and in good faith and to account is also present any time a person is a power of attorney, a guardian for a minor or a disabled person, or a trustee in any capacity. In each case, the person acting in this role is responsible for receiving and disbursing the income/assets and to account to the beneficiary for the actions taken.
To ensure that there is an accounting, we have statutes in Ontario to mandate this requirement:
- The Estates Act deals with the requirement of executors to account
- The Substitute Decisions Act deals with the requirements of attorneys and guardians to account
- The Trustee Act deals with the requirements of trustees to account.
In each of these statutory requirements, the accounting must be approved by a judge of the Superior Court of Justice for Ontario. In the case of attorneys or guardians, the Ontario Public Guardian and Trustee (“PGT”) must also approve the accounting. For estates or trusts involving minor children, the Ontario Children’s Lawyer (“CL”) must also approve the accounting. This statutory and jurisdictional approval is in addition to approval by the beneficiaries.
Passing of Accounts
An accounting mandated by the Estates Act, the Substitute Decisions Act or the Trustee Act is called a “Passing of Accounts”. It is a court proceeding that culminates in a judge hearing any opposition to the accounting and making a final decision.
A Passing of Accounts proceeding is expensive. Not only does it require the preparation and filing of court documents, it also involves an accounting of each receipt and expense made and an allocation of the receipt or expense entry between the estate’s income and capital component.
The duty to account is mandatory. In the case of a simple estate with few beneficiaries, an executor can often satisfy this duty with a summary statement of assets and income received and expenses paid. If all residuary estate beneficiaries sign a release stating that they approve the statement and release the executor from any claims, the executor/attorney/guardian/trustee does not need to provide any further accounting.
Where the beneficiary is a minor or is suffering from a disability such that a guardian needs to be appointed, the Children’s Lawyer or the Public Guardian and Trustee become the entity to review and to approve the accounting.
It only takes one beneficiary, or the CL or PGT, to object. If the objection cannot be resolved, the executor/attorney/guardian/trustee has no choice but to prepare a formal set of accounts and file the court application for a judicial determination of the accounting. If they do not proceed with this, they will remain personally liable for the objections raised. Moreover, if there is an objection raised that cannot be resolved, the statutes allow the beneficiary to also begin a court application to force the executor/attorney/guardian/trustee to file a Passing of Accounts application.
In Ottawa and Toronto, the issues arising from the accounting and the objections are subject to court-mandated mediation. In many cases, the mediation stage will resolve the issues; but if not, a judge will hold a hearing to resolve the issues.
A Passing of Accounts hearing is a formal trial. The judge will determine all of the issues that have not been resolved, including the compensation to which the executor/attorney/guardian/trustee is entitled and who should bear the cost of preparing the accounts.
Acting as an executor, attorney, guardian or trustee is not for everyone. The person must be organized and keep excellent records of all assets/income and expenses for the entire period that they are acting in this capacity. These records must also be available when it becomes time to account to the beneficiaries.
If you have any further questions about estate accounting, contact our Wills and Estates Group.