This Blog was written by: Gosha Sekhon
The term “passing of accounts” is thrown around with relative ease amongst industry practitioners. For our clients, however, it is not very obvious on the face of it as to what this process means or why it is required in the course of an estate or trust administration. [For the purposes of this discussion, I will focus on estates and testamentary trusts, though a passing of accounts may also be required from an Attorney for Property or the Trustee of an inter vivos trust.]
As part of any administration, it is important for the Executor or Trustee (collectively the “Estate Trustee”) to maintain records of all transactions taking place within the estate or trust. These accounts should clearly record the nature of the transaction, i.e. income vs capital receipts/disbursements, expense payments, tax payments, or investment transactions.
In addition, each entry should include the date and sufficient detail on the purpose of the transaction. For example: Sept 17, 2016 – receipt of dividend on Stock X.
At intermittent stages, and again at the conclusion of an administration, an Estate Trustee typically presents his or her accounts to the beneficiaries. These are referred to as “informal accounts” as these are usually not in court approved form (i.e. in accordance with the Rules of Civil Procedure). If the beneficiaries are sui juris (of majority age and capable), the Estate Trustee will generally provide his or her accounts with a request for a Release from each beneficiary. This Release will cover the period of time for which the accounts have been prepared.
The purpose of obtaining the Release is to provide finality to the administration. It can also provide protection to the Estate Trustee against claims by a beneficiary for errors or omissions that may have occurred, or been perceived to have occurred, in the course of the administration.
A passing of accounts may be necessary when:
a) there are minor or incapable beneficiaries who cannot approve the accounts and therefore, a passing of accounts is the most prudent, or possibly required, route for an Estate Trustee to take to obtain approval for the administration;
b) the Estate Trustee chooses to commence a formal court passing of accounts process because of considerable delay in obtaining agreement from the beneficiaries on the informal accounts; or
c) some or all of the beneficiaries of an estate or trust are not prepared to sign a Release of the Estate Trustee on the basis of informal accounts.
The procedure for an application to pass accounts is set out at Rule 74.18 of the Rules of Civil Procedure. In Part II of this blog, I will review the steps involved in the application process.