Prior to taking compensation, an Estate Trustee is required to provide an accounting. This process is often likened to an audit of the estate’s financial records. It involves providing to beneficiaries a detailed account of the assets and debts as well as the transactions undertaken on behalf of the estate. The accounts will also include the calculation of the estate Trustee’s compensation.
If the beneficiaries don’t approve of the accounting, the Estate Trustee may be required to make a presentation of formal accounts to the beneficiaries and the court and obtain the court’s approval of their management of the funds. This is referred to as passing accounts. The Court may order a passing of accounts where an Estate Trustee is uncooperative. In other circumstances, an Estate Trustee may also have the accounts ‘passed’ or approved by the court voluntarily even if not requested to so by a beneficiary or interested party.
While the Estate Trustee is required by law to maintain estate accounts, a formal passing of accounts before the court is not required in Ontario. It is of the utmost importance that the Estate Trustee keep records of every financial transaction, along with all supporting documentation, from the very beginning of the administration of the estate. Wherever possible, the Estate Trustee should ensure that a paper trail is available to support and verify the accounts. Passing accounts is also strongly recommended where an estate is insolvent or where a deficiency of assets results in abatement. There is no set time period dictating when an Estate Trustee may pass accounts. The Estate Trustee may choose to pass accounts on an interval basis or all at once upon completion of their duties.
Beneficiaries may also file objections to an Estate Trustee’s application to pass accounts in court. Beneficiaries must follow the correct court procedures and format when filing a notice of objection. Most often, these objections are made on the following bases:
- excessive trustee or executor compensation
- alleged breaches of trust;
- failure of the trustee or executor to demonstrate the standard of care required in discharging his or her duties;
- inadequate sale price on disposition of an asset;
- failure to act impartially;
- conflict of interest;
- improper investments resulting in loss or lost opportunity; and
- excessive expenses including high professional fees.
Upon an application to pass accounts, a court has the discretion to make various orders for relief. For example, a court may decide any disputed matter; vary the compensation of the Estate Trustee, award costs, or order the trial of an issue.
Once accounts are approved, an order passing accounts will relieve the Estate Trustee of any future liability relating to the property of the estate, except in relation to fraud, mistake or non-disclosure.
