The duty to account
Every estate trustee has a duty to keep complete records of the estate and to provide accounts to the beneficiaries, and where appropriate 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.
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
Estate accounts have a highly specialized format. 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. They are similar to, but 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 lawyer with expertise in estate administration.
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 the individual transactions. These ‘source documents’ are the back up 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).
An estate trustee is not entitled to ‘hold the beneficiaries hostage’ and refuse to make any distribution unless the beneficiaries sign a release. If the beneficiaries will not consent to the release, the estate trustee should pass their accounts. Similarly, if beneficiaries are not content with the estate accounting or compensation claimed by the estate trustee (or other conduct of the estate trustee), and the estate trustee has not moved to pass their accounts, then the beneficiaries should seek a Court order that compels the estate trustee to pass their accounts.
For estate trustees, often the best the way to deal with an uncooperative or unreasonable beneficiary is simply to pass their accounts. Approval of your accounts by the Court removes the need to get any approval or release from beneficiaries.
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. Learn more about passing accounts here.
Beneficiaries are not obliged to simply accept accounts which are presented to them. Beneficiaries may challenge every aspect of the accounts. Items that are often challenged include:
- the value that assets were sold for (for instance, if a property was sold to a relative, rather than to ‘an arms length third party’);
- the expenses incurred (including especially legal fees incurred by the estate trustee);
- missing income (for instance, if occupancy rent was not charged or collected); and,
- the compensation claimed by the estate trustee.
In the course of a challenge to the accounts, beneficiaries may request and review the estate trustee’s source documentation (for instance, copies of bank statements and cheques).
However, beneficiaries should be very careful about when and how much they challenge. Just because you have a right to challenge does not mean that you should – and an unnecessary or ill-founded challenge may end up costing a beneficiary greatly. For instance, if a beneficiary impugns the honesty and integrity of the estate trustee and in the end the estate trustee is found to have acted ethically, the beneficiary may have to pay the unnecessary expenses incurred by the estate trustee defending against these baseless allegations. Beneficiaries should only challenge ‘things that matter’ and not challenge trivial issues.
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 for a free consultation using this form.