When Will the Court Order an Estate Trustee to Pass his/her Accounts?


Written on June 22, 2016 – 7:00 am | by Justin de Vries

In Lacroix v. Kalman, the court declined to order a passing of accounts in a modest estate due to the inordinate expense of such a proceeding. Instead, the judge ordered financial information to be disclosed to Paul Lacroix.

Paul Lacroix sought to compel his sister and co-estate trustee, Paulette Kalman, to pass her accounts as attorney for property of their mother, Viola Lacroix, after she died.  Paulette had lived at home with her parents since the mid-1980s.  In 1994, after her husband died, Viola appointed Paulette as attorney for property. In 2009, Viola began to exhibit symptoms of progressive, and worsening, memory loss.

Paul alleged that Paulette had dwindled an account that was held jointly in Viola and Paulette’s name.  Paul alleged that Paulette withdrew a lump sum of $10,118.22 and transferred monthly amounts pay for car payments. Paulette claimed that the lump sum was to pay for her car loan, and was transferred at Viola’s direction, since the car was largely for Viola’s benefit.

Declining to order a passing of accounts, Justice Maddalena held that after 2009, Paulette was a fiduciary with a “strict obligation to account.”  Ideally, Paulette should have kept detailed and specific records, but she unintentionally did not do so.  Instead she continued to administer her mother’s affairs as she did before Viola became incapable.  Justice Maddalena also found that both Paulette and Viola contributed money to the joint account and that Viola was able – when lucid – to instruct the payment for a gift for Paulette’s niece, as well as for the car loan.

Relying on the reasoning in McAllister Estate v. Hudgin, Justice Maddalena dismissed the motion to compel Paulette to pass her accounts as attorney for property given the estate was only a modest size (a formal application to pass accounts would deplete the estate).  However, she ordered disclosure of “as much information as possible” to address Paul’s concerns.

The take away is that an application to pass accounts may not be proportionate for relatively modest estates.  Instead, disclosure of bank statements (or VISA statements) may be all that is required of the attorney for property to account to a beneficiary (however, a trustee should always make best efforts to keep all receipts).

In McAllister, the case referenced by Justice Maddalena, the court ordered disclosures of banking information as a first step to resolving the dispute between the applicant and respondent. The court allowed the applicant beneficiary to apply to court for further directions if the disclosures suggested the attorney was misbehaving. The ultimate relief sought by the applicant to require a passing of accounts was therefore not disposed of, unlike Lacroix.

The reason for the different outcomes may be because the court in McAllister noted that serious issues had been raised in the application.  In Lacroix, Justice Maddalena seemed to accept that the issues raised had already been adequately explained.  And indeed, in McAllister, the court awarded costs in favour of the applicant, despite not granting the central relief sought.

Happy Litigating,

Justin

Principal residence exemption – renting to a child


Written on June 21, 2016 – 7:00 am | by Derek de Gannes

The Canada Revenue Agency (CRA) was asked if a taxpayer’s property designated as his “principal residence” but rented and lived in by his son continued to qualify as his “principal residence” for the purpose of claiming a principal residence exemption to shelter a gain from personal tax.

The taxpayer owned the residence for 10 years. He rented the residence to his child for the whole period at a rent below fair market value. The child lived in the residence with his family for the whole period. The taxpayer lived in a center for the elderly for the whole period. The taxpayer had no other capital property to designate as his principal residence.

The CRA confirmed that nothing in the Canadian tax rules prevented the taxpayer from designating the above residence as his principal residence for the period of 10 years even if his son rented and lived in the residence during the whole period. The Canadian income tax definition of principal residence in requires the taxpayer, his or her current or former spouse or common-law partner, or his or her child to ordinarily inhabit the housing unit during the year. This would be the case in the above situation since the taxpayer’s child and his family lived in the house during those 10 years. Nothing in the definition of principal residence prevents a housing unit rented and inhabited by the owner’s child to qualify as a principal residence regardless of the amount of rent charged to the child (i.e., at, below, or over fair market value). The taxpayer could therefore designate the residence as his principal residence for the whole 10-year period for the purpose of claiming a principal residence exemption on the capital gain realized on the future sale of the residence.

It is not unusual for elderly taxpayers who require care to cope with the day to day demands of life to move into assisted living facilities. This technical interpretation will bring some comfort to the taxpayers and their appointed representatives when it comes time to sell the family home.

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