Estate Accounts and the duty to account
Every estate trustee has a duty to keep complete records of the estate and to provide accounts to the beneficiaries of the residue of the estate, and where appropriate to have them approved by the Court (learn more about “passing accounts” here) at the conclusion of the estate administration or if the estate administration goes on for a number of years at reasonable intervals.
Residual beneficiaries are entitled to a share of the residue of the estate after payment of debts and other bequests. A different class of beneficiaries are ‘specific bequest’ beneficiaries, who are entitled to a fix dollar value or item from the estate. Specific bequest beneficiaries, as a general rule, who have received the bequest are not entitled to complete accounting of the estate.
[Everything below is addressed to ‘residual beneficiaries’ entitled to accounting].
The estate trustee must keep complete and accurate records (accounts) of each step of the administration of the estate. Detailed and accurate ledgers of all assets, income, and disbursements from the estate are an absolute must.
The executor’s accounts should include, but are not limited to, detailed information about all legal and other professional fees incurred by the executor and paid from the estate, and all executor compensation.
Generally, while we strongly recommend that estate trustees communicate with beneficiaries an estate trustee does not have a duty to provide accounts (or detailed expenses and receipts) to beneficiaries at each step of the estate administration. Beneficiaries do not have the right to control the administration of the estate or the estate trustee, and the estate trustee does not have an obligation to provide estate accounts within the first year after the death, nor do they have an obligation to consult with beneficiaries or get their approval or provide beneficiaries with copies of expenses on a real-time basis.
The format of accounts – informal v. formal
Informal accounts
A trustee should always maintain some record of the estate, but this does not always have to be in the highly specialized and stylized format of accounts for Court. Frequently a spreadsheet is sufficient.
Informal accounts should be provided in most instances to beneficiaries when an interim or final distribution of the estate is made.
A beneficiary is entitled to ask for accounts prior to signing a release of any kind; most of the time, complete but informal accounts are sufficient for this purpose.
Formal accounts
Estate accounts for Court purposes (“formal accounts”) have a highly specialized format. Formal accounts are much more than a bundle of receipts – they are a properly organized set of financial statements which detail the assets, income, expenses, and disbursements of the estate.
In format, formal accounts for Court are quite different from ‘financial statements’ for a business.
Estate accounts are not the same thing as the income tax return for the deceased (in the last year of their life) or the income tax return for the estate both of which should be prepared by the estate trustee (or their accountant) and filed with CRA.
Very few accountants have experience preparing estate accounts in court format; generally, this is an area for assistance by a specialist working in cooperation with a lawyer with expertise in estate administration.
We work closely with several experienced and cost-effective practitioners who specialize in preparing estate accounts in Court format.
The content of accounts
Estate accounts are ‘prepared by the estate trustee’. The estate accounts themselves are different from the original receipts, cheques, bank statements, etc. which are the individual transactions. These ‘source documents’ are the backup for the estate accounts but are not usually provided to all beneficiaries.
The estate accounts usually contain the amount of compensation claimed by the executor. Note that an executor should not “pre-take” compensation, which means that generally the executor’s compensation should not be paid to the executor before the executor’s accounts are approved.
Income and interest
Any income earned by the estate, including investment income or interest on investments, should be included in the accounts. As a result, any investment income earned by the estate will ultimately increase the amount paid to beneficiaries. Conversely, however, it is quite possible that the estate may not have earned any investment income (or the amount earned may be minimal). The first obligation of an estate trustee is to avoid losing any principal. Investments should be as low risk as possible. Estate trustees are not obligated to seek investment returns, and they should avoid making any risky investments.
Beneficiaries are not entitled to ‘interest’ on their share of an estate. They are entitled to ‘their share’ of the estate. As stated above, if the estate earned interest, this will affect the overall value of the estate. A share of an estate is not like a bank account that earns interest for each separate beneficiary.
Releases
It is very common for estate trustees to request that a beneficiary sign a ‘release’ before the estate trustee pays a distribution to the beneficiary. A release is a binding contract, which bars the signer from suing the person that they have released. A beneficiary should not sign a release unless they are satisfied with the estate accounts that they have received (either because they have received full accounts that they approve of, or because they do not require accounts from this trustee). Learn more about releases.
Challenging accounts
If the estate trustee refuses to provide accounts, a beneficiary should get a Court order that compels the estate trustee to pass their accounts. Beneficiaries are not obliged to simply accept accounts which are presented to them. Beneficiaries may challenge virtually every aspect of the accounts. Learn more about passing accounts here.
Contact us
We regularly act for estate trustees and beneficiaries with every aspect of estate accounts – from preparing accounts, to orders to compel passing of accounts, to both contested and uncontested passings of accounts. Learn more about the costs here, and contact us using this form.