A passing of accounts is the process whereby an estate trustee (or other fiduciary) provides the beneficiaries with a summary of all estate assets, liabilities, and transactions, in a given period. A passing of accounts can be done informally or through a court application. It provides transparency to the beneficiaries and protection to the estate trustee.
Because the role of estate trustee is often filled by family members with little to no prior experience, mistakes are common. Those mistakes can range from inconsequential to irreparable. By providing an accounting, all is laid bare and the beneficiaries have the opportunity to asked informed questions. Once the questions are answered and the accounts are approved (either by the beneficiaries on an informal accounting or by the court in a formal passing of accounts), the estate trustee can rest assured that the beneficiaries will not come back at a later date to complain about the estate trustee’s conduct.
Because each estate is unique, the court is given a wide discretion to make orders and give directions to the parties. A good example of this is found in Jones v Warbick, 2019 ONSC 88, where the Court made practical and reasonable decisions to help bring a 17 year old estate to a close.
Pearl Warbick died in September 2002. She was survived by her seven children, who were equal residuary beneficiaries. Pearl named two of her children, Helen and William, as estate trustees. Pearl also directed that William could live in the family farm for 10 years following her death, after which the property was to be sold and the proceeds divided equally between her children.
For the next 14 years, William continued living at the farm (4 years past the date allowed by the will). Eventually, William’s siblings commenced litigation to have the farm sold, to compel William and Helen to pass their accounts, and to have them removed as estate trustees (they were successful on all fronts).
The passing of accounts did not run smoothly. As Helen testified, she and William only kept records for the first two years of the estate administration. Those records were lost when her house flooded. In addition, Helen did not participate in the estate administration and did not maintain any oversight over the funds. With no receipts and missing bank records, no one was surprised that the accounting provided by William and Helen was incomplete.
At the first hearing date of the passing of accounts, the Court declined to approve the accounts as prepared and instead ordered a forensic accountant to review and report on the estate administration. The forensic accountant provided his own set of estate accounts. Where information was missing, he used his professional judgment and assumptions to fill in gaps. The forensic accountant presented the accounts he prepared to the parties and the Court for approval.
The forensic accountant concluded that (i) William owed the estate over $90,000 in rent and reimbursement of farm expenses; and (ii) the estate owed Helen around $17,000 for estate expenses she paid personally.
Two of the questions faced by the Court were (i) should the accounts prepared by the forensic accountant be approved? and (iii) are Helen and William jointly liable for any damages to the estate?
It was quickly agreed by the siblings who participated at the hearing that the accounts prepared by the forensic accountant represented the best and most complete information available about the estate administration. Accordingly, the Court approved the new set of accounts.
The Court then turned to the amounts owing by William and to Helen ($90,000 and $17,000 respectively). It is an established principle in law that co-estate trustees are jointly liable for a loss, regardless of who caused the loss. As a result, the beneficiaries argued that the two amounts should be set off against each other such that Helen and William were deemed to owe $90,000 – $17,000 = $73,000 to the estate.
However, the Court determined that a different repayment plan was more appropriate. The Court ordered that the estate should look first to William’s inheritance to recover the $90,000 debt. Once William’s share was exhausted, then the estate could look to the $17,000 reimbursement owing to Helen. If there was still an amount owing after those two sources were exhausted, then the estate could look to Helen’s share of the estate.
The case is a good example of how the court can use its wide discretionary powers to find an appropriate solution in any case. Had the circumstances been different (for example, if there was less money at issue) a forensic accounting may not have been proportionate or practical. However, in this case, it enabled the parties to agree on what occurred in the estate (despite a paucity of records) and to quantify damages. As a result, the parties were able to close this chapter of their lives and move forward with winding up the estate.