Charitable Beneficiaries and Reviewing Trustee Accounts

Written on December 6, 2012 – 5:00 am | by Jasmine Sweatman

In many respects, charities are treated like any other beneficiary of an estate. However, given that they are charities and not individuals, it is arguable that a charity has a higher standard of care when it comes to ensuring that it receives its intended interest in the estate.

For instance, it can be argued that charities have a core responsibility to request and review the administration of the estate, through the estate accounting process (whether formal or informal), to ensure that all estate assets have been accounted for, and all liabilities have been discharged. The duty includes ensuring that trustee compensation and legal fees are reasonable in the circumstances.

The accounting process involves reviewing all entries including legal accounts and compensation. When reviewing the accounts, a beneficiary is entitled to ask for copies of the legal accounts and other backup vouchers. The legal accounts should set out with sufficient detail the work done, by whom, and the length of time taken. With respect to trustee compensation, all proper deductions should be made. Where the lawyer also acts as executor, he or she should have documented and billed work as estate trustee separately from legal work; there should be no “double dipping”. After review, the amount charged should be “reasonable and fair” in the circumstances. All reasonable questions and requests for information should be answered by the estate trustee or estate solicitor. It is arguable that, while an individual beneficiary may choose not to pay attention to this process (at his or her own peril), a charity’s duty to ensure it has received its intended donation may create a legal obligation to participate carefully in the accounting process.

The trustee must ensure that all debts have been paid (or sufficiently held back) before distributing assets of the estate. Usually, at this point, beneficiaries are asked to sign a release and indemnity agreeing to reimburse the trustee for future liability, to relieve the trustee of any personal liability. Charities (and all beneficiaries) should take the documents seriously and read them carefully. Giving an indemnity can be particularly risky for a charity because it could result in incurring indeterminate liability – so charities may wish to avoid giving indemnities, and should make sure they are legally permitted to do so before signing them.

Lesson Learned: Charities may be beneficiaries like all others in many respects, but cannot forget that their purpose differs from that of an individual.

Until next time,

Jasmine Sweatman/Bethany Anderson

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