In my first blog post (as a guest blogger), I wrote about what a law clerk is and what it is that we do. In today’s blog I will expand on a task that an estate law clerk is frequently involved in – a court passing of accounts – and provide some tips on bringing an application to pass accounts (the “Passing Application”).
The court rules regarding passing of accounts are set out in rules 74.16, 74.17 and 74.18 of the Rules of Civil Procedure (Ontario) (the “Ontario Rules”). Rule 74.16 of the Ontario Rules provide that the rules “apply to accounts of estate trustees and, with necessary modifications, to accounts of trustees other than estate trustees, persons acting under a power of attorney, guardians of the property of mentally incapable persons, guardians of the property of a minor and persons having similar duties who are directed by the court to prepare accounts relating to their management of assets or money.” In my blog today, I have provided examples for when acting on the Passing Application for estate trustees (referred to as “Executors”) and for other trustees (referred to as “Trustees”).
It All Starts with the Accounts
A task that an estates law clerk is often involved in is preparing the accounts on behalf of the Executors/Trustees (the “Accounts”). Alternatively, the Executors/Trustees or an accounting professional hired by them may prepare the Accounts. Rule 74.17 of the Ontario Rules sets out the form of the Accounts, which is often referred to as “court passing” format. This format is unique in that every penny in and out of the estate/trust is recorded in the Accounts, rather than financial statement type of accounting, which is a more familiar form of accounting to most people.
Whether I have prepared the Accounts myself or whether the Accounts have been prepared by someone else, the first step that I take on a Passing Application is to read (or re-read) the Accounts through the eyes of the beneficiaries. The Passing Application is the opportunity for the beneficiaries to audit the actions of the Executors/Trustees. The goal should be to make reviewing the Accounts as easy as possible for the beneficiaries. This means including sufficient details of the receipts and more particularly the disbursements to reduce questions. The following are some additional items that I consider when reading the Accounts:
- Check that the Accounts balance.
- Confirm that the cash on hand and the original assets and investments remaining at the ending period match what is in the bank and broker statements.
- Ensure that the compensation calculations clearly show how compensation was calculated, e.g. transactions that are non-compensable and how the fair market value of the assets has been determined for purposes of the care and management fee.
- Make sure that the statement of liabilities at the ending period has been included in the Accounts, as this is the one statement that may often be forgotten.
I also double check that the “vouchers” that support the transactions in the Accounts are ready should they be requested by the beneficiaries. This may include invoices, receipts, cancelled cheques, bank and broker statements, tax returns, and appraisals or valuations.
Next Step – Draft the Passing Application Documents
Rule 74.18 of the Ontario Rules sets out the materials to be filed with the court on the Passing Application. The following are some tips on completing the court forms:
Form 74.43 – Affidavit Verifying Estate Accounts (the “Affidavit”)
- If there is more than one Executor, each Executor must swear an Affidavit verifying the Accounts. In a scenario where not all the Executors are participating in the Passing Application, for example, because of conflict between the Executors, you may amend the wording of the Affidavit which reads “1. I am an estate trustee for this estate.”, and change it to “1. We are two of the three estate trustees for this estate, and the applicants herein.”
- In a trust scenario where the Trustees have been removed or have retired and they are bringing a Passing Application for their trusteeship period, you may amend the wording of the Affidavit to “1. We are the removed trustees for this trust, and the applicants herein.”
- You may have a trust scenario where Trustees have acted for different periods of time during the accounting period, due to deaths or retirements and subsequent appointments. Below is sample wording that could be used on the Affidavit to explain this.
“1. X, Y and Z are the current trustees for this trust.
2.I, X (in respect to sub-paragraph (a) below), and we, Y and Z (in respect of sub-paragraph (b) below), affirm that the accounts marked as Exhibit “A” to this affidavit in respect of each trusteeship period, namely:
(a) [DATE] to [DATE], in respect of the trusteeship period for X; and
(b) [DATE] to [DATE], in respect of the trusteeship period for Y and for Z,
are complete and correct.”
- The Accounts are marked as Exhibit “A” to the Affidavit of each Executor/Trustee. The exhibit stamp should be placed directly on the front of the very first page of the Accounts.
- The Affidavit provides statements in reference to the notice of application to pass accounts (see below). This means that the Notice needs to be drafted and reviewed by the Executors/Trustees before they swear the Affidavit.
Form 74.44 – Notice of Application to Pass Accounts (the “Notice”)
- The form of the Notice sets out, among other things, the date of death of the deceased, the details of the certificate of appointment of estate trustee issued to the Executors, the period of the Accounts, the compensation claimed by the Executors and the costs of the Passing Application claimed by the Executors under Tariff C.
- It may be necessary to modify the Notice for the fact situation and to provide more details. For example, in the above estate scenario, the following is sample wording used:
“A certificate of appointment of estate trustee was issued to A, B and C by this court on [DATE].
The accounts are for the period from [DATE] to [DATE]. The accounts are being passed by two of the three estate trustees, B and C (“B and C”).”
- In the trust scenario above, the Notice would refer to the deed of settlement rather than the certificate of appointment, and would provide a history of the Trustees.
- The compensation amount shown on the Notice should be the total amount of compensation being claimed by all the Executors/Trustees, inclusive of GST/HST, if applicable.
- Similarly, the Tariff C amount, should set out the allowable amount, GST/HST, if applicable and refer to disbursements. Sample wording in the estate scenario above is “The costs of the application claimed by B and C under Tariff C are $[AMOUNT], and H.S.T. of $[AMOUNT], for a total of $[AMOUNT] and applicable disbursements plus H.S.T. thereon.”
- The name and address of each person with a “financial interest in the estate” must be set out on the Notice. It is helpful to have a family tree to determine who must be served. You also need to review the Ontario Rules to determine if the Public Guardian and Trustee or the Children’s Lawyer must be served.
- You may also need to serve additional persons, for example, a co-Executor who is not an applicant of the Passing Application, the executors of a deceased Executor/Trustee or the executors of a deceased beneficiary.
- Remember to prepare a blank copy of Form 74.45 (Notice of Objection to Accounts) and Form 74.45.1 (Request for Further Notice in Passing of Accounts). I have seen these documents loose and clipped to the Notice but I attach them to form part of the Notice, immediately prior to the back sheet of the Notice.
Judgment on Passing of Accounts (the “Judgment”)
- The Ontario Rules provide for a draft of the judgment sought to be served on the beneficiaries along with the Notice. There are two forms of a judgment on a passing of accounts – Form 74.50 for an unopposed Passing Application and Form 74.51 for a contested passing of account. I prepare Form 74.50 for an unopposed Passing Application as it is not typically known at the onset whether the Passing Application will be unopposed or opposed.
- There are a lot of numbers that you must set out in the Judgment – capital and revenue receipts and disbursements, balances forward, if applicable, compensation and costs. It is crucial that the numbers be correct. I prepare an Excel spreadsheet to do the math and check and double check all the numbers transposed to the Judgment.
- The wording on the form of the Judgment is “6. THIS COURT DECLARES that the accounts show that there remain in the estate trustee’s hands the original assets as set out in Schedule “A”, attached.” However, in practice, the following three schedules are usually attached, as applicable:
- Schedule “A” – Unrealized Original Assets as at [DATE OF ENDING PERIOD OF ACCOUNTS].
- Schedule “B” – Investments on Hand as at [DATE OF ENDING PERIOD OF ACCOUNTS].
- Schedule “C” – Cash on Hand as at [DATE OF ENDING PERIOD OF ACCOUNTS].
- [It may also be desirable depending on the fact situation to attach a schedule setting out the scheme of the final distribution of the estate.]
I hope you find these tips helpful. Thanks for reading and stay tuned for more tips on other aspects of a Passing Application.
 Disclaimer: These are examples only – the completion of the court forms is dependent on the relevant facts and current rules and policies.
 Tariff C of the Ontario Rules are “Lawyers’ Costs Allowed on Passing of Accounts Without a Hearing”. The amount of costs is determined based on the receipts recorded in the Accounts and range from $2,500 to $7,500.