The estate trustee has a duty to account to the beneficiaries ‘of the residue’ of the estate
The residue is ‘what is left at the end’. This contrasts with ‘specific bequest’ beneficiaries who receive a specific item or dollar value. In the rest of this page below, references to ‘the beneficiaries’ or ‘a beneficiary’ are references to a residual beneficiary and not to specific bequest beneficiary.
Learn more about preparing accounts in Court form here.
Passing accounts is a Court proceeding
Passing accounts (or ‘passing of accounts’) is the process of submitting accounts to the Court for approval. This includes a timeline and process for
- the beneficiaries to review the accounts and object to any transactions (and omissions);
- the trustee to provide a response and supporting material (receipts, known as ‘vouchers’);
- cross-examination of the trustee if necessary;
- the beneficiaries to withdraw any objections;
- any remaining objections to be put before a judge for determination; and
- a concluding order approving a specific set of accounts.
The entire process to pass accounts can take a significant period of time, and the costs can be substantial.
When the trustee should elect to pass accounts
“Passing accounts” refers to the process of obtaining the Court’s approval of the executor’s accounts. There is no universal duty to pass accounts. In other words, not all executors are required to have their accounts approved by the Court – it is only required in certain instances.
The estate trustee must have the estate accounts approved by the Court in the following circumstances:
- there are minor or mentally incapable beneficiaries
- there are unascertained or contingent beneficiaries
- a beneficiary challenges the actions of the estate trustee or refuses to consent to the amount of the estate trustee’s compensation
- a beneficiary challenges the handling of the estate accounts by the estate trustee
An estate trustee can voluntarily apply to the court for a passing of accounts.
An estate trustee has an affirmative duty to complete administration of the estate in a timely manner. If the trustee does not want to finalize distribution because of some uncertainty – for instance, if a beneficiary has complained about the administration and refused to sign a release – then the estate trustee should pass their accounts so that the issue can be resolved and the estate finalized.
Often, the trustee should proactively initiate a passing of accounts when they have a dispute with a beneficiary that they are unable to resolve themselves. Once the passing of accounts is in motion, the process often helps the parties reach an agreement, and if not, it is inevitable that a final determination will be made by a judge that is final and binding on the parties.
Forcing the trustee to pass their accounts
A beneficiary is entitled to accounts. Usually, informal accounts are sufficient (more here)
However, if the trustee refuses to provide any accounts or provides inadequate or inaccurate accounts or refuses to make a distribution of the estate in a timely manner, a beneficiary can ask the Court to compel the estate trustee to pass their accounts either on an interim or final basis. When accounts are final they will also include an Order covering the final distribution of the estate.
A beneficiary forcing the trustee to pass accounts is effectively a two step process:
- The beneficiary must secure a Court order that requires the executor to pass their accounts, usually within a given period of time. Generally, this step can be conducted relatively cost-effectively assuming that there is no valid reason for the estate trustee having failed to pass their accounts.
- The estate trustee must then apply to the Court to pass their accounts (see the process above).
How to pass accounts
Passing of accounts is accomplished by preparing documents in proper Court format, and filing them with the Superior Court of Justice.
The following is required:
- estate accounts in proper Court format. Learn more about the format of estate accounts for Court proceedings.
- an Affidavit sworn by the estate trustee verifying the estate accounts
- copy of the Certificate of Appointment of Estate Trustee
- a Notice of Application to Pass Accounts
- the filing fee of $322.00 payable to the Minister of Finance
Most executors seek the assistance of legal counsel when passing accounts, as do most beneficiaries who want to contest the executor’s accounts. As with any other piece of litigation, passing of accounts can be complex, requires knowledge of the law, attention to detail, and the core skills of an advocate – clarity, focus on what matters, emphasis, and brevity.
Challenging accounts
Beneficiaries are not obligated to accept accounts as presented to them. Beneficiaries may challenge virtually 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 both as to amount and legitimacy as an estate expense (including especially legal fees incurred by the estate trustee);
- missing income (for instance, if occupancy rent was not charged or collected);
- the fact that the estate has not been distributed in a timely manner (if the trustee is simply failing to finalize the estate); 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, known as ‘vouchers’). Beneficiaries may also cross-examine the trustee on the accounts, where additional explanation or clarity is required.
However, beneficiaries should be very careful about when and how much they challenge, and whether they cross-examine at all and if so what on. 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, because even if the challenge is valid it is likely not cost-effective to make it.
Costs
The cost to prepare accounts in Court format (more here) is separate from the cost of the legal proceedings to ‘pass the accounts’.
The cost to pass accounts can vary widely. The factors that affect this cost include:
- The size and complexity of the estate
- The quality of the executor’s records
- How long the estate has been on-going
- Any disputes about the size or legitimacy of any expenses
Many accounts for simple well-organized estates can be prepared and passed quickly and cost-effectively. Please contact us for a free initial consultation.
We can also assist you to prepare estate accounts, pass accounts before the Courts, to force an executor to prepare or pass accounts, and to contest any accounts put forward by an executor.
Who pays?
Generally, for an executor, the initial cost to file an application to pass accounts is borne by the estate (note that the cost of preparing accounts in Court format is often but not always deducted from the trustee’s compensation: more here).
The cost to respond to objections is a different matter. Success matters to ‘who pays what’. Increasingly the Courts are awarding costs on a ‘loser pays’ basis, and by no means will all costs be borne by the estate.
The trustee is not automatically entitled to recover all of their legal fees from the estate without regard to the merit of the trustee’s position. When objections are withdrawn or found to be unfounded, then the trustees costs of responding will usually be borne by the estate (although the estate may sometimes recover some of this amount from the objector). When objections are upheld by the Court, the trustee will likely be responsible for both their own legal fees trying to maintain the rejected claims and for a portion of the successful objector’s legal fees.
Beneficiaries should not start or maintain unnecessary or unreasonable challenges or objections in a passing of accounts. Beneficiaries should focus their attention on the issues that matter, and not get distracted with trivial or minor expenses and issues because regardless of whether the objection is upheld or not the fight will cost more than is gained. A successful objector may recover some of their legal fees from the estate and/or the trustee personally. On the other hand, an unsuccessful objector may have to pay both their own legal fees and a portion of the trustee’s fees.