Applications to pass accounts are a formal review process of an estate trustee’s (or other types of trustee or guardian) actions in administering an estate. The application is started by the estate trustee, on notice to all beneficiaries of the estate. The beneficiaries are given the opportunity to scrutinize the estate trustee’s accounts and raise objections, anything from a request for further information to allegations of a breach of fiduciary duty. If an agreement is reached between the beneficiaries and the estate trustee, the accounts are sent to the court for approval (this can be done ‘over the counter’).
If the estate trustee and beneficiaries are unable to reach an agreement on the issues raised in a passing of accounts application, the application will be heard by a judge. The court’s decisions in these types of matters, although highly dependent on the unique facts of each case, provide a general reminder of “do” and “don’t dos” for estate trustees. The recent decision in The Estate of Ingrid Loveman, deceased provides one such example.
In that case, Ingrid was survived by her seven children, all of whom were beneficiaries of her estate. Two of her children were named as estate trustees in her will. The main asset of her estate was her house. Her will provided that the estate was to pay for the upkeep of the house for the first six months following her death. Her son Peter (one of the co-estate trustees) was then to have the first right to purchase the house for 70% of its assessed value in another six month period. If he did not exercise his option to purchase, the right would pass to her next oldest child, and so on. Two days shy of the end of Peter’s option period, he expressed a desire to purchase the house. However, the sale of the house did not close until three years after Ingrid passed away (Peter testified that he had difficulty raising the necessary finances to fund the purchase). On Peter’s (and his co-estate trustee’s) passing of accounts application, the beneficiaries raised 29 objections to the accounts, including Peter’s delay in purchasing the house.
The court held that Peter’s delay in purchasing the house was unreasonable – Ingrid’s will contemplated that Peter would purchase the house within a year after her death, not that he would notify the beneficiaries of his intention to purchase the house at some point in the future. As a result, the court held that the costs with respect to the house (mortgage, taxes, insurance) should not have been paid by the estate after Peter’s year to exercise his option was up.
Because the house remain unsold while Peter tried to raise the necessary funds to purchase it, the house was rented out to other family members. However, Peter and his co-estate trustee made no efforts to collect rent – rather, one of their brothers collected and kept the rent. The court held that this was a breach of the estate trustees’ duties and held that the estate trustees had to account to the estate for the lost rental income.
The court also reduced the amount of compensation payable to the estate trustees due to their delay in administering an otherwise simple estate. In the end, the court ordered Peter and his co-estate trustee to amend their accounts within 30 days to accord with the court’s determination on the various objections (the practical effect being the estate trustees would have to pay funds back to the estate and/or have those payments deducted from their compensation).
One last interesting point raised in Re Ingrid Estate: the court set out what evidence it considered in reaching its decision. Justice Douglas set out that he only considered evidence “properly placed before me in this proceeding,” which consisted of oral testimony, agreed facts, and documentary evidence properly tendered and marked as exhibits during the hearing. He did not consider the notice of objection as evidence, nor the response to the objections. Rather, he considered those documents helpful only insofar as they framed the issues in dispute.