Passing of Accounts & Executors’ Compensation
Our lawyers have experience in both proceedings for contested and uncontested passing of accounts, including issues arising from estate trustee compensation.
Overview of Passing of Accounts
Broadly stated, passing of accounts (sometimes referred to as auditing of accounts) is a process for obtaining court approval of an estate trustee’s accounts, including the related issue of an estate trustee’s compensation (discussed further below).
At law, estate trustees, guardians, and those acting under a power of attorney, amongst other ‘personal representatives’ have an obligation to keep proper books and records (accounts) and are responsible for accounting for all property under their administration. This includes details about all assets, income and disbursements of an estate.
However, in many cases, there is no legal requirement to pass accounts by seeking to have them approved by the court. Estate trustees, etc., may, therefore, choose not to do so unless compelled by the courts to do so.
Estate trustees may choose to pass their accounts voluntarily. For example, when some beneficiaries of an estate are minors or cannot consent to the accounts for some other reason, including mental incapacity. In practice, estate trustees sometimes even seek to have their accounts informally approved by the beneficiaries of an estate without a formal court application and in exchange for a release of liability.
However, what happens when an estate trustee fails or refuses to account to an estate’s beneficiaries? What if those accounts are inaccurate or incomplete?
The courts have the power to order an estate trustee, etc. to pass their accounts for audit by the court. This also applies to those acting under powers of attorney.
Under s. 49(2) and (3) of the Estates Act, R.S.O. 1990, c. E.21, a judge on an application to pass accounts has broad jurisdiction to make a full inquiry into the actions of an estate trustee, etc. Those sections provide that:
(2) The judge, on passing the accounts of an executor, administrator or trustee under a will of which the trustee is an executor, has jurisdiction to enter into and make full inquiry and accounting of and concerning the whole property that the deceased was possessed of or entitled to, and its administration and disbursement.
(3) The judge, on passing any accounts under this section, has power to inquire into any complaint or claim by any person interested in the taking of the accounts of misconduct, neglect, or default on the part of the executor, administrator or trustee occasioning financial loss to the estate or trust fund, and the judge, on proof of such claim, may order the executor, administrator or trustee, to pay such sum by way of damages or otherwise as the judge considers proper and just to the estate or trust fund, but any order made under this subsection is subject to appeal.
The Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, contain detailed rules governing the minimum information required for accounts filed with the court by an estate trustee (Rule 74.17) and the procedure that a passing of accounts application must follow (Rule 74.18).
Estate Trustee Compensation
Estate trustees, etc. are entitled to claim compensation in administering an estate, including as part of the passing of accounts process. However, that compensation must be fair and reasonable.
Unders. 61(1) of the Trustee Act, R.S.O. 1990, c. T.23, an estate trustee, etc. “is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in about the estate, as may be allowed by a judge.” Although the Trustee Act does not specify the method to calculate compensation, the Ontario courts have developed a percentage approach: 2.5% on capital receipts and disbursements, 2.5% on revenue receipts and disbursements, and a care and management fee of ⅖ of 1% per annum on the gross value of the assets under administration. The courts generally test an estate trustee’s compensation using the percentage approach and then apply the five factors set out by the court in Toronto General Trusts Corp. v. Central Ontario Railway (1905), 76 O.W.R. 350 (H.C.), and restated in Macivor Estate, 2011 ONSC 4175: (1) the size of the trust; (2) the care and responsibility involved; (3) the time occupied in performing the duties; (4) the skill and ability shown; and (5) the success resulting from the administration of the trust.
Estate trustees may pre-take compensation in three general situations: (1) upon the agreement of all persons with a vested or contingent interest in the estate; (2) where approved by the court; of (3) where the will allows. An estate trustee that pre-takes compensation outside of these circumstances risks liability for breach of trust and may be liable to repay the difference between what the court approves and what the estate trustee previously took.
Similarly, section 40(1) of the Substitute Decisions Act, S.O. 1992, c. 30, permits a guardian of property or attorney under a continuing power of attorney to take annual compensation from the property in accordance with a fee set by regulation: 3% on capital receipts and disbursements, 3% on revenue receipts and disbursements, and a care and management fee of ⅗ of 1% annually on the annual average value of the assets.
The foregoing is only a broad overview of passing of accounts and the compensation of estate trustees. This area of law can be very complex. Please contact us for a free initial consultation about your particular situation.
