All Trustees, whether Estate Trustees or otherwise, have a duty to account to the beneficiaries on whose behalf a trust is being managed. That is to say, those vested with the power to manage property on behalf of others are obligated to provide to the beneficiaries an accounting of their dealings, particularly financial dealings, with the assets and liabilities of the trust or estate.
Oftentimes, the duty to account is satisfied informally. The Trustee(s) enjoy the confidence of the beneficiaries, on the strength of summary financial information they provide to them, and are released and on certain matters indemnified through the execution of releases and indemnities by each such beneficiary. Note that it is beyond the scope of this blog post to discuss the related distribution of the assets of a trust or estate, including considerations such as first obtaining a Clearance Certificate or those related to claiming Executor’s Compensation.
Formal Satisfaction of the Duty to Account
The Rules of Civil Procedure set out the nature of and requirements to pass accounts. That is to say, the process for formal – or judicial – review of a Trustee’s accounting, what we call a “passing of accounts”, is subject to specific requirements as to form and content.
A formal passing of accounts is not a strict requirement. Such a proceeding typically arises where one or more beneficiaries object to the informal financial information provided by the Trustee, such that a judicial determination becomes necessary. Otherwise, where the Public Guardian and Trustee or the Office of the Children’s Lawyer are involved, passings of accounts are commonplace. Of note, however, any party with a financial interest in the trust or estate can compel a passing of accounts by obtaining a court order.
As the term “accounts” implies, the exercise is largely a question of accounting – identifying and categorizing items such as original assets, original liabilities, assets held, assets distributed, assets received, liabilities outstanding, etc. These are generally filtered through four categories: capital receipts, capital disbursements, revenue receipts, and revenue disbursements. Where called upon to provide information related to particular transactions, the Trustee will be expected to have diligently kept records, such that he or she is in a position to provide vouchers as necessary (e.g., bank statements, receipts, etc.).
The Standard of Recordkeeping Required for an Estate Trustee and the Standard of Care with Respect to a Trustee’s Duty to Account
Baran v Cranston, 2022 ONSC 6636, provides a helpful refresher on the standard of recordkeeping required of an Estate Trustee and the standard of care with respect to a Trustee’s duty to account.
As stated at paragraph 14 of Baran, “the standard of care for an estate trustee is the standard of care of a person of ordinary care and diligence in managing their own affairs”. Thankfully, this standard is not one of perfection, as, per paragraph 16 of Baran, an “estate trustee [is] not required to obtain a receipt for every expense in order to allow her to be reimbursed for expenses she incurred, where she produced accurate accounts for all expenses, which were incurred for the benefit of the estate, along with […] corroborating documents.”
A common sense approach guides the determination as to whether a Trustee has met the standard of recordkeeping required of him or her and the standard of care expected with respect to his or her duty to account.
Failure to Comply with an Order to Pass Accounts
To emphasize the gravity of the duty to account, consider the case of Estate of Nordby, 2023 ONSC 821, where an Estate Trustee was imprisoned for contempt when he failed to comply with an order to pass accounts.
In Nordby, the Estate Trustee was the father of the deceased and grandfather to the beneficiaries. Mr. Nordby obtained a Certificate of Appointment of Estate Trustee with a Will on October 30, 2013, was ordered to pass accounts on April 12, 2017, and was found in contempt of the Order on September 28, 2022.
The Office of the Children’s Lawyer, acting as litigation guardian for the Estate Trustee’s minor grandson, demonstrated immense patience and restraint, attempting for several years to have the Estate Trustee comply with the 2017 Order. Even the 2022 Order showed grace – the contempt could be purged if accounts were passed within 60 days of the Order.
Notwithstanding the foregoing, Mr. Nordby seemingly took his duty lightly and, as a result, was ordered to be imprisoned for five days to, per paragraph 33 of the instant case, “make Mr. Nordby and the public ‘sit up and take notice.’”
Like the song lyric goes, Mr. Nordby “fought the law—and the law won.”
The role of Trustee can be both an immense privilege and an immense responsibility. When navigating the duties arising, it is prudent to consult with a qualified trust and estate lawyer.
— Michael G. von Keitz