Listen to: Hull on Estates Episode #331 – Passing of Accounts
Today on Hull on Estates, David Smith and Jonathon Kappy discuss procedural nuances on a passing of accounts application. If you have any questions, please e-mail us at hull.lawyers@gmail.com or leave a comment on our blog page.
Click here for more information on David Smith.
Click here for more information on Jonathon Kappy.
A “passing of accounts” is the presentation of formal accounts to the beneficiaries of an estate and the court. In the situation where accounts are presented to the court, they are then examined and are either approved or “passed” as they appear, amended by court order and passed in amended form; or, not passed because the court is not satisfied with the accounts or with some aspect of the estate administration shown in the accounts.
Although estate trustees are not required by law to pass their accounts, they are nevertheless required to maintain estate accounts. However, it is common for an estate trustee to voluntarily have the accounts audited by the court or to be compelled to do so.
An estate trustee may have his or her actions approved in only one of two manners. The first is to present the accounts to the beneficiaries who may then approve the accounting and discharge the estate trustee. However, if any beneficiaries with vested or contingent interests suffer some form of legal incapacity, such as a minor or mentally incapable person, the approval cannot be obtained from all of the beneficiaries. If that is the case or if there is hostility and one or more of the beneficiaries will not approve the accounts, the estate trustee’s only option is to present the accounts to the court to be audited.
It is generally considered that accounts of an ongoing trusteeship should be approved by the beneficiaries or, if necessary, audited by the court every three to five years. Accounts should be passed if an estate trustee has administered an ongoing estate for such period or if the administration has been completed and the approval of all beneficiaries with an interest in the estate cannot be obtained.
Thanks for reading.
The accounts of estate trustees in Ontario are quite complicated. They follow an unusual format foreign to most accounting professionals. For one, the accounts are done on a cash basis as opposed to on an accrual basis. I have done some research in an attempt to identify the origins of some of the features of Ontario estate accounts.
The duty to account can be traced back to the medieval English law. Over time, the use of trusts (known as "uses" in medieval English law) became popular as a means of avoiding certain obligations to the King upon the devolution of land on the death of the landlord. Title would be held by a feoffee (the trustee) for the use (or benefit) of the cestui que use (the beneficiary). At common law, there was no means for a cestui que use to enforce the obligations of the feoffee. The chancery courts, however, would protect beneficiaries of these early trusts.
English ecclesiastical courts had the power to order an executor to produce an inventory of the assets of an estate. This obligation found its way into English legislation dating back to 1529. This was imported to what was then called Upper Canada in 1792. Accounts of executors then found their way into the jurisdiction of the surrogate courts.
The 1892 Surrogate Court Rules, at section 19, reads as follows:
"Executors and administrators shall within a period of eighteen months after grant made, and sooner if the Judge shall so direct, exhibit under oath a true and perfect inventory of the property of the testator or intestate (as the case may be), and render a just and full account of their executorship or administration. The Judge shall upon application made to him for that purpose have power to extend the said period of eighteen months. If the executor, or administrator with the will annexed, is the sole legatee or devisee of the property devolving, the Judge may direct that he shall be relieved from the operation of this rule, provided there are no creditors of the estate. …"
By 1917, the Surrogate Court Rules had evolved substantially. At sections 36 to 41, the Rules provided at this time that the accounts "shall contain a true and perfect inventory of the whole property in question". They further detail that the accounts must include "an account shewing of what the original estate consisted", accounts of all moneys received and disbursed, an account of all property remaining on hand, and "such other accounts as the Judge may require". The Rules, as they read at this time, specified that "[w]hen by the will or instrument creating any trust estate, principal and income are dealt with separately, the accounts shall be divided so as to shew receipts and disbursements in respect of principal and income separately." The Rules at this time also provided a framework for fixing the compensation of trustees as well.
Modern estate accounts in Ontario still typically distinguish between capital and income accounts. Capital receipts and capital disbursements are tracked separately from income receipts and income disbursements. The rationale is the natural tension between the interests of income beneficiaries and of capital beneficiaries where an estate or trust has both. Consider a trust in which beneficiary A has a life interest, and B is entitled to the remainder upon A's death. The trustee has a hypothetical choice between investing in an asset which will depreciate in capital value but will yield high monthly dividends or an asset which will yield only low monthly returns, but will increase in value. What should the trustee do if he or she is required to maintain an even hand between A and B? Whatever the trustee decides, in order to allow for transparency and to allow beneficiaries, counsel and the Court to supervise the actions of trustees, their accounts are presented in this unique format.
Today, the Surrogate Court has morphed into the Estates List of the Ontario Superior Court of Justice. The form of Ontario estate accounting is currently governed by Rule 74.17 of the Rules of Civil Procedure. The wording of the rules regarding the format of Estate accounts has not changed since 1994.
The unique format of the accounts has evolved to meet the various functions that the accounts perform. They provide an inventory of assets on the day the estate trustee begins acting. They provide a summary of the actions of the estate trustee for the beneficiaries and for the Court. They provide a basis for calculating compensation. They also provide information in a useful format for computing the taxes owed by the estate as well.
For a tour of a set of Court format accounts, see the June 2010 edition of the Hull & Hull Breakfast Series. It will be interesting to see how the format of estate accounts continues to evolve in the future. Thank you for reading!
Suzana Popovic-Montag presented an excellent paper on accounts at the October 18, 2012 Hull & Hull LLP Breakfast Series, and I made special note of her comments on adjusting compensation awarded. Some occasions that adjustments are appropriate are:
· increase - when a care and management fee is charged on an annual basis (usually 2/5 of 1% on the gross value of the estate), which is properly sought where the estate or part of it, is to be held in trust and not distributed to the beneficiaries within the executor’s year;
· increase - when a special fee is claimed by the executors, where the administration is extraordinarily complex or time-consuming; for instance, when the estate has been involved in litigation, where the executors were required to operate the deceased’s business, or where the executors were required to deal with new legislation;
· decrease – when transfer are made in specie or are simple transactions;
· decrease - where an executor retains another to act as an agent to perform duties, the agent’s fees should be deducted;
· decrease - where a trust company is retained on an agency basis to administer an estate or trust, fees paid to the trust company ought to be deducted;
· decrease - where a solicitor performs executor’s work, the fees relating thereto ought to be deducted; for example, when the solicitor compiles an inventory of estate assets, keeps accounts, pays bills, makes investments, or opens estate accounts;
· decrease – where the estate’s accountant prepares income tax returns, the fees relating thereto should be deducted (although some case law says this should be decided on a case by case basis);
· decrease - the costs for preparation of accounts in court format for a passing of accounts ought to be deducted; and
· decrease - compensation charged on disbursements to an executor/solicitor for legal services provided by him or her ought to be deducted.
You can find a much more fulsome commentary on this and other account issues in the paper itself, which will be posted on our website.
Thanks for reading and have a great weekend!
Natalia Angelini - Click here for more information on Natalia Angelini.
The time line in passing of accounts proceedings is being changed. Recent amendments to the Ontario Rules of Civil Procedure extend the time period for service of the Notice of Application to pass accounts, and move up the time within which to deliver a Notice of Objection.
The amendments also increase the costs allowable upon an unopposed passing of accounts.
The amendments, found in Ontario Regulation 55/12, come into effect on July 1, 2012.
With respect to timing, the amendments make the following changes:
The amendments also codify what is required where a request for increased costs is being made, and the time frame for making and opposing such a request.
The tariff for costs allowable on an uncontested passing allows for greater costs. The costs range from $2,500 for an estate having a value of less than $300,000, to $7,500 for an estate having a value of $3,000,000 or more (up from a range of $800 to $5,000).
Have a great weekend.
Paul Trudelle - Click here for more information on Paul Trudelle.
In its recent decision in Stolarchuk Estate (Re), 2011 BCSC 1681, the Supreme Court of British Columbia considered a request by the beneficiaries of an estate (in an estate trustee’s application to pass accounts) to reduce the compensation allowed to the estate trustee as a result of her delay in dealing with the real property of the estate. In the case, the estate trustee sought to purchase the real property of the estate for herself, which resulted in her delay in taking steps to market and sell the real property.
In Stolarchuk Estate, the Deceased died in October 2004. She was survived by four children, one of them being appointed as her estate trustee (“Trustee”). The Deceased’s Will provided that the residue of her estate was to be divided equally among her children. The estate consisted of her residence and an adjacent lot (together the “Properties”), and nominal cash. At the time of the Deceased's death, the Properties were valued at $136,300. The Trustee decided that she wanted to keep the Properties in the family, and wanted to buy them from the estate. She approached her siblings to negotiate a suitable purchase price. An appraisal was obtained in April 2005, which valued the Properties at $195,000. The Trustee offered to purchase the Properties for this amount, but the offer was rejected. The Trustee continued to focus on her purchase of the Properties, and in March 2006 obtained a second appraisal, this time valuing Properties at $250,000. The Trustee offered this amount, but her offer was again rejected. Ultimately, in July 2006, the Trustee and her siblings agreed to list the Properties for sale, but a disagreement arose with respect to the listing price. A third appraisal was then obtained, which proposed a listing price of $330,000 to $365,000 (which price was predicated on the subdivision of the lots). The Trustee did not agree to the subdivision proposal, and the Properties were not listed for sale. Instead, the Trustee obtained a fourth appraisal which valued the Properties at $255,000, and she made an offer to purchase for $260,000. In August 2006, the siblings countered with an offer for $283,000, which was rejected by the Trustee. By this time, the relationship between the Trustee and her siblings had become severely strained, and the Trustee did take any further steps to market or sell the Properties in 2007 and 2008. In February 2009, a realtor was finally hired to assist with the sale of the Properties. The Properties were ultimately sold to a third party in September 2009 for $250,000.
Between the Deceased’s death and the date of the sale of the Properties, the Trustee claimed reimbursement for expenses for the maintenance and repair of the Properties totaling $40,072.13. The beneficiaries argued that the Trustee’s delay in listing the Properties for sale resulted in many of these expenses being inappropriately and needlessly incurred.
In her application to pass accounts, the Trustee claimed total compensation based on 5% of the value of the estate assets (calculated at $11,818.17), plus a care and management fee for the years 2004 through to 2009. The total compensation sought was $16,915.77. The beneficiaries opposed the claim for compensation, arguing that Trustee’s delay in listing the Properties to further her own agenda of purchasing the Properties was a drain on the estate assets.
The Court allowed the Trustee’s application in part. While the Court expressed sympathy for the fact that the Trustee had never acted as an estate trustee before, the Court stated “inexperience does not excuse the four to five year delay in dealing with the Properties in an appropriate manner. The executor’s duty was to obtain the best possible result from the realization of assets and ensure a timely distribution of the Estate residue to all Beneficiaries.” The Court held that when it became apparent in 2006 that the beneficiaries were not agreeable to the sale of the Properties on the terms proposed by the Trustee, it was then incumbent on the Trustee to realize the Properties so that the estate could be distributed. The Court held that Trustee should not receive compensation for the care and management of the Properties beyond 2006. Taking into consideration all of the circumstances of the estate (including the fact the Trustee had made a gratuitous payment to each of her siblings of $5,000 during the course of the administration), the Court held that the Trustee was entitled to reduced compensation in the amount of $3,000.
Thanks for reading. Wishing everyone an enjoyable long weekend and, for those who are celebrating, Happy Easter and Happy Passover.
Saman M. Jaffery – Click here for more information about Saman M. Jaffery
The recent Manitoba decision of Estate of Marion Warren Gandy and Estate of Frank Richard Gandy, 2011 MBQB 78 (CanLII) considered whether running errands, entertainment, and time otherwise spent in connection with a disabled beneficiary was compensable work for an estate trustee.
In the matter, the trustees of the estates of Frank Gandy (“Frank”) and Marion Gandy (“Marion”) applied to the court to pass the accounts of their respective estates, and the motions to pass the accounts were heard together. This was a second passing of accounts for both estates.
By way of background, Frank and Marion were married to each other, and died within months of each other. Their adult son, Ian, was mentally disabled and under the jurisdiction of the Public Trustee of Manitoba. Frank appointed his nephew Donald, Donald's wife, and his lawyer as the trustees of his estate. Marion appointed the same trustees for her estate. By the second passing of accounts application, Frank’s estate was valued at less than $300,000 and Marion’s estate was valued at less than $140,000.
At the hearing, Donald sought $5,000 in compensation for time expended in respect of Frank's estate and a further $5,000 in compensation for time expended in respect of Marion's estate. No objection was filed by the Public Trustee of Manitoba. However, one of the beneficiaries objected to the compensation sought. The beneficiary stated that the time spent by Donald in connection with the estates for which he claimed compensation was spent largely on: "Running errands, entertainment and time spent in connection with lan". In the circumstances, the Court held that these concerns relating to the compensation were valid. The Court stated that “While it is commendable that Donald undertake various tasks for Ian, he does so as a family member, and there is no justification for the type or amount of remuneration sought.” Further, despite dockets maintained by Donald, the Court stated that “It is impossible in the circumstances to ascertain with any degree of accuracy how much time was spent by Donald on work for which he might appropriately be recompensed in each estate.” Accordingly, the Court reduced the compensation payable to Donald to $2,000 in the case of Frank’s estate and $2,500 in the case of Marion’s estate.
Thanks for reading,
Further to yesterday’s blog, in the case of McDougall Estate, the beneficiary complained about the trustee’s compensation on the passing of her accounts. In issue was whether the trustee’s compensation should be reduced because she:
The court found that even though the charitable gift failed because it was not a specified amount or share, the trustee’s interpretation of the Will was not unreasonable and the trustee was not liable for an innocent mistake, made in good faith. She was therefore not required to reimburse the estate and should not have her compensation reduced.
The contents of the house were of little value and had to be cleaned out for sale. The trustee never received any indication from the beneficiary that there was anything of sentimental value that she wished to receive. In the circumstances, the Court found that the compensation should not be reduced for the manner in which the trustee dealt with the personal effects.
The trustee pre-took compensation of 5% of the value of the estate as originally calculated but, after adjustments, she admittedly overpaid herself by $1,163.24. Estate trustees ought not to pre-take compensation unless authorized in the trust document or by approval of the executor’s accounts by the beneficiaries. The proper remedy was payment of interest on the amount pre-taken. Accordingly, the trustee was ordered to repay $1,163.24 plus interest of $360 to the estate.
It was not unreasonable for the trustee to seek legal advice to respond to the inquiries from the beneficiary’s lawyer. While amounts paid to respond to questions about the administration of the estate were not at first instance a proper charge to the estate, such costs were allowed because they were properly incurred by her to respond to the beneficiary’s challenges to her administration of the estate.
The payment of legal fees from the estate that ought to have been paid by the estate trustee is a form of pre-taking of compensation and so the estate trustee was liable for interest on that amount, which was fixed at $70.00.
Sharon Davis - Click here for more information on Sharon Davis.
On March 30, 2011, the Family Law Section and Trusts and Estates Section of the Ontario Bar Association are holding a joint event to meet the Province’s new Children’s Lawyer, Ms. Lucy McSweeney. Ms. McSweeney was appointed to the position of Children’s Lawyer for Ontario on September 18, 2010. I understand that Ms. McSweeney’s legal background includes civil litigation, human rights, constitutional and labour law. The Office of the Children’s Lawyer is part of the Ministry of the Attorney General and provides legal services on behalf of children under the age of 18, and in estates, on behalf of the unborn and unascertained, as well.
Ms. McSweeney will address both the Family Law and the Trusts and Estates Sections. This event will allow those in attendance to meet and hear Ms. McSweeney. The program chairs are Dan Goldberg, Senior Counsel, Office of the Children’s Lawyer (Personal Rights) and Susan Stamm, Counsel, Office of the Children’s Lawyer (Property Rights).
For more information, please contact Blossom Pangowish, OBA Sections Co-ordinator, at (416) 869-0513, ext. 399 or at blossom@oba.org.
See you there.
Craig R. Vander Zee - Click here for more information on Craig Vander Zee.
Today’s blog is the last in my series this week touching upon certain aspects of preparation for trial/hearing in a contested passing of accounts. The items discussed this week were certainly not meant to be, nor were they, exhaustive. Preparation necessary for a hearing/trial with narrow issues, few documents, few evidentiary concerns and an uncomplicated Estate will obviously be different than a case with numerous issues, voluminous documents, evidentiary issues and a complicated administration. The critical aspect of trial preparation is that it begins at the beginning of a case; not literally, but certainly in the sense of being mindful at pre-trial stages of the evidentiary considerations and how the evidence is to be marshalled and presented.
Aside from ensuring that you have appropriate resource materials at the trial (such as texts dealing with the rules of evidence, the Rules of Civil Procedure, Probate Practice etc.), it is important to have prepared your opening and closing statements (to the extent possible), have prepared the necessary law regarding the substantive issues in dispute (casebook, factum), have addressed costs submissions (organizing offers to settle, preparing a Bill of Costs etc.), and have a trial binder with you at trial for your own use.
A trial binder may contain the pertinent materials that you would like to have at your fingertips during the trial (ie. pleadings, orders, witness lists, witness summaries, answers to undertakings, listing of the types of evidence, objections, offers to settle etc.). The trial binder will allow you to have quick access to information that you might only have a few minutes or less to locate and quickly review.
While most contested passings settle at a pre-trial stage, if a trial is necessary, success may hinge on the preparedness of the parties.
Thanks for reading.
Craig R. Vander Zee - Click here fore more information on Craig Vander Zee.
Today’s blog is a continuation of my blogs this week addressing some aspects of preparation for a trial/hearing in a contested passing of accounts. I briefly touch upon transcripts, the Request to Admit and Witnesses today.
It is important in preparing for trial to review the transcripts of the examinations conducted to assist counsel with locating evidence in the transcripts during trial, including admissions and/or inconsistent statements made by a witness at trial, to address the completeness of questions on the examinations, and whether additional discovery is needed before trial.
If a damages brief is to be provided by the opposing party as a result of an undertaking at examinations or otherwise, one can ensure that it has been provided.
A party may also, further to Rule 51.02 of the Rules of Civil Procedure, at any time, by serving a Request to Admit, request any other party to admit, for the purposes of the proceeding only, the truth of a fact or the authenticity of a document. A copy of any document mentioned in the Request to Admit shall, where practicable be served with the request (unless a copy is already in the possession of the other party).
The opposing party must respond to the Request to Admit as required by the Rules of Civil Procedure, failing which the opposing party will be deemed to admit the truth of the facts asserted in the Request to Admit or the authenticity of the documents referred to in the Request to Admit.
There may be cost consequences if a party refuses to admit the truth of a fact or authenticate documents which are proven or authenticated during the trial.
Requests to Admit may be effective to: (i) reduce the facts in dispute, (ii) reduce the number of witnesses to be called and/or the examination of a witness, (iii) minimize the costs and length of the trial, and (iv) avoid having to authenticate documents.
With respect to witnesses, amongst other things, it is helpful to make a witness list of anticipated witnesses for each of the parties, prepare a chart of the issues/documents to be proved by each witness and identify and consider the concerns, evidentiary or not, with the evidence and documents to be dealt with by each witness. If the witnesses are experts, the Rules of Civil Procedure have certain requirements. Summons to Witness should also be considered (Rule 53.04) as well as whether an Order excluding witnesses is necessary (Rule 52.06).
Thanks for reading.
Craig R. Vander Zee - Click here for more information on Craig Vander Zee.
My blogs over the next three days will touch upon certain aspects of preparation for the hearing of a contested passing of accounts. Today’s blog will relate to the parties, the scheduling of the hearing, and the preparation of documents/productions for trial.
The issue of whether all of the parties who ought to be involved in the passing are involved, and, if so, whether any of the parties who do not have representation need representation, must be considered. In considering who the appropriate parties are, or should be, the following questions might be asked: Are there self-represented parties? Have they been notified of all matters related to the proceeding? Has any party filed a Notice of No Objection to the accounts? Has anyone filed a Statement of Submission of Rights (if so, have they been served by the applicant/plaintiff with written notice of the time and place of the hearing)? Is a minor involved (Rule 7.03(2), The Office of the Children’s Lawyer)? Is there an adult party who is disabled (Rule 7, The Office of the Public Guardian and Trustee)? Is a representation Order necessary (Rule 10)?
Regarding the scheduling of the hearing, an order of the Court for directions, or otherwise, at any pre-trial stage, or at the pre-trial conference might address same. It may be that the date of the trial, fixed in its length, is to be fixed by the Registrar on a date mutually convenient to the parties. If, on the other hand, the proceeding is to be set down for trial further to Rule 48 of the Rules of Civil Procedure, that Ruleallows for the proceeding to be set down for trial after the close of pleadings and when a party is ready for trial. In any case, inquiries might be made with the Court office where the trial is to take place to determine what, if any, forms need to be filed with the Court to confirm that the trial is to proceed.
Regarding the preparation of documents/productions for trial, it is critical that the documents in respect of the proceeding be organized prior to trial. If the documents necessary for the trial are not in counsel’s possession when preparing for trial, for whatever reason, they should be obtained prior to trial. Such documents include, but are not limited to, all pleadings, the estate accounts, certificate of appointment, prior Judgments for passing of accounts, all Orders regarding the passing of accounts, all Notices of Objections (and withdrawals), Statements of Submission of Rights, Consents/Releases of any party, Affidavits of Service, and the documents exchanged between the parties as a result of the Rules of Civil Procedure, any agreement of the parties, and/or Court Order.
Issues of privilege regarding the documents should also be dealt with prior to trial, if possible.
Thanks for reading.
Craig R. Vander Zee - Click here for more information on Craig Vander Zee.
In the matter of Estate of Divina Damm, 2010 ONSC 5119 (CanLII), Justice Brown reflected on the form of accounts to be used upon the filing of an application by a guardian for property to pass accounts.
Justice Brown noted that in passing accounts of a guardian, s. 42(6) of the Substitute Decisions Act, 1992 provides that "the procedure in the passing accounts is the same … as in the passing of executors' and administrators' accounts".
Rule 74.17(1) of the Rules of Civil Procedure specifies in detail the form of accounts to be filed. The Rule requires:
(a) an itemized accounting of assets under administration, cross-referenced to entries showing the disposition or partial disposition of the assets;
(b) an account of all money received;
(c) an account of all money disbursed;
(d) where investments are made, an account setting out all money paid to purchase investments, and money received by way of repayment or realization of assets in whole or in part;
(e) a statement of all unrealized original assets at the end of the accounting period;
(f) a statement of all money and investments at the end of the accounting period;
(g) a statement of all contingent or other liabilities at the end of the accounting period;
(h) a statement of compensation claimed; and
(i) such other statements and information as the court requires.
If the will or the trust deals separately with income and capital, the accounts are to show separately the receipts and disbursements of capital and income.
In the matter before Justice Brown, the accounts were said to lack the detail required by the Rules, and provided information at the "30,000 foot" level. Justice Brown felt that he could not hear the matter without greater particularization of the accounts. The accounts did not comply with the Rules; due to this lack of particularity, a question arose as to whether a respondent served with the accounts could properly understand the conduct of the guardian; and the Court could not link the particulars of the judgment (which sets out specific amounts for revenue receipts and disbursements and capital receipts and disbursements) to the evidence.
While he rejected the application, Justice Brown raised the question of whether the Rules should be amended so as to allow for a simpler form of accounts for smaller estates. However, until a rule change, all accounts must comply with the format set out in Rule 74.17(1).
Thanks for reading,
Paul Trudelle
In the recent case of Re Estate of Assunta Marino, 2010 ONSC 5237 (CanLII), the court granted an order to set aside an unopposed judgment passing accounts obtained by the estate trustee, on a Rule 38.11(1) motion brought by a beneficiary who had failed to file a notice of objection to accounts within the prescribed time. Justice Brown, presiding, applied the test in HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894 (CanLII), 2008 ONCA 894, which has three elements:
(i) whether the motion was brought without delay after the defendant (i.e., the moving beneficiary) learned of the default judgment;
(ii) whether the circumstances giving rise to the default were adequately explained; and
(iii) whether the defendant has an arguable defence on the merits – in order to determine whether the interests of justice favour granting the order. To that end, the court should consider the potential prejudice to the moving party if the motion were dismissed, the potential prejudice to the respondent if the motion were allowed, and the effect of any order on the overall integrity of the administration of justice.
The first element was met: time elapsing between the beneficiary learning of the default judgment and the motion was the result of attempted negotiations rather than inactivity, so it was not "delay". The second element was met by the beneficiary's lawyer filing an affidavit explaining the default. With respect to the the third element, the beneficiary had raised valid arguable objections, which is analogous to a defence. The prejudice resulting from a delay in the estate's distribution combined with the fact that the estate trustee had properly engaged the court's legal process to account for his administration was not enough to save the unopposed judgment. Justice Brown wrote that while the case was close, "significant weight should be given to the need to ensure that fiduciaries fully account for their management of property", and so the order setting aside the default judgment was granted. Mediation was ordered before further steps in the passing of accounts, and the beneficiary was ordered to pay all of the mediator's costs.
Enjoy your day,
Chris M. Graham - Click here for more information on Chris Graham.
Billionaire and recently deceased American shopping mall developer Melvin Simon's heirs are fighting over his last will. Mr. Simon's children from his first marriage are challenging a will that changed the distribution of his estate in favour of his second wife. Aside from the glamour factor, the case is interesting in that an allegation of fraud was recently dismissed on the grounds that "[t]he complaints fail to allege affirmative misrepresentations that can support a claim of actual fraud".
This illustrates an important point in estate and trust litigation. Ontario's Rules of Civil Procedure similarly requires pleadings that contain allegations of fraud or breach of trust to contain full particulars:
"Rule 25.06(8) Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred."
This could theoretically present beneficiaries challenging the actions of a trustee, since the trustee frequently has the particulars and the beneficiaries do not. In practice, this problem rarely arises because most litigation occurs in the context of a passing of accounts, where it is unnecessary to make allegations against the estate trustee. Instead, under the procedure in Rule 74, the beneficiaries can simply file and serve a Notice of Objection to Accounts challenging transactions or omissions in the trustee's accounts.
After filing their Notice of Objection to Accounts, the beneficiaries can then bring a motion for an order giving directions (or an order for assistance) that will provide for the disclosure of the particulars they think exist. After receiving full disclosure, the beneficiaries should in a position to make a better-informed decision on whether to add such allegations to their pleadings.
Where this process is anticipated, the order should specifically authorize the parties to return to court for further directions. Of course, it would rarely even be necessary to allege fraud at all, since the facts that support the allegation of fraud can form the basis of an objection to the accounts without using the words "fraud" or "breach of trust", and this can achieve the same practical result without the risks associated with alleging fraud. Beneficiaries can also avoid the risk of having their pleadings struck at an early stage.
Have a great day,
Christopher M.B. Graham - Click here to learn more about Chris Graham.
Rules 74.16 to 74.18 provide the framework for a passing of accounts application. Rule 74.18(12) is a useful limitation clause that provides counsel with legal authority to attempt to bar new issues from being raised at the hearing:
"(12) No objection shall be raised at the hearing that was not raised in a notice of objection to accounts, unless the court orders otherwise. "
This provision can be particularly useful in hearings where there are defined objections but the parties are simply going through the accounts, line by line. It is an especially handy tool to assist the court as legal authority to stop the frivolous allegations or tangents that can side-track hearings.
Of course, Rule 74.18(2) is subject to the discretion of the court, so the provision's usefulness is limited. Every hearing is unique, but it is unlikely that a judge would apply this provision to a fresh objection that appeared to have merit, since ultimately it is the court that must be satisfied the accounts are valid.
Have a great day,
Christopher M.B. Graham – Click here to learn more about Chris Graham.
In Re Estate of John Mitchell, the Endorsement of The Honourable Justice Brown clarifies expectations of the court in respect of requests for increased costs on unopposed applications to pass accounts, as the Rules of Civil Procedure contain some ambiguity in this regard.
His Honour notes that Rule 74.18 specifies the materials that must be filed initially on an application to pass accounts and where the application will be unopposed and proceed without a hearing.
However, the Rule does not expressly stipulate the materials that should be filed where the application will proceed unopposed, but with a request for increased costs so that a hearing must be held. His Honour states that the applicant should ensure that the following materials are filed with the court in such situations:
· proper initial application materials: Rule 74.18(1);
· a supplementary application record containing materials specified by Rule 74.18(9);
· additional evidence (a simple affidavit) that contains:
· the request for increased costs in proper form;
· proof of service of the request on all affected parties;
· a statement explaining the responses of affected parties to the request; and
· the details of and the reasons for the request, either through a detailed bill of costs or an easily understandable copy of the relevant dockets.
His Honour also stresses the importance of this last requirement, as a court cannot conduct a review of the request to ensure it is fair and reasonable without evidence describing the work performed, the time spent, the value of the work or the cost of such work. Adequate evidence is essential.
Have a good day,
Natalia R. Angelini - Click here for more information on Natalia Angelini
A recent decision of C.L.B. v. J.B.addressed when it is appropriate for a court file to be sealed. The case involved two minors who had lost a parent in the 9/11 terrorist attacks and had received victims’ compensation. The court ordered that the funds be held in trust and set out a timeline for when the trustees would be required to pass accounts.
When the trustees later applied to pass accounts, they also brought a motion that the court file be sealed so as to protect the minors’ privacy.
In considering the motion, Brown J. pointed to the importance of an open and transparent court system. This is not just because public policy favours openness as a way of encouraging the public’s faith in the court system but in addition the public’s right to obtain information about the court system is protected by s. 2(b) of the Charter of Rights and Freedoms.
Brown J. found that a sealing order should only be granted in the following circumstances:
1. When there is a serious risk to an important interest and there is are no reasonable alternatives to preventing the risk; and
2. When the benefits to granting the order outweigh the negative effects, having regard not just to the interests of the litigants but also the rights of the public.
Ultimately, Brown J. found that in the circumstances a sealing order was unwarranted. Although the matter involved minors, he pointed out that legal proceedings frequently do and it is far from the norm for the court to order a file sealed. Moreover, he found that there was insufficient evidence before the court that there was a risk of serious harm if the order was not granted.
He also expressed concern about the possible “deleterious effects” that shielding settlements involving minors or matters involving a fiduciary’s management of a minor’s assets would have on the necessary transparency of a court’s review.
Finally, he found that a “reasonable alternative” existed – rather than sealing the file, he ordered that the title of proceeding be amended and that any materials filed with the court list the trustees, the names of the trusts, and the minors using only initials rather than full names.
Have a great day!
Megan F. Connolly
The recent decision of Pachaluck Estate v. DiFebo provides a useful example of the costs exposure that parties can face on an application to pass accounts.
In this case, a beneficiary had objected to the compensation the estate trustee had taken. The court agreed to an extent – it ordered compensation be reduced (by about $9,700), but not by as much as requested by the beneficiary.
The court then had to decide the issue of costs. The executor argued that he had been prudent in his administration of the estate and while the beneficiary was successful in a partial reduction in compensation, she was unsuccessful with regard to most of the objections she had raised. The executor sought fully indemnification for his costs from the estate and argued that the beneficiary should receive partial indemnity costs.
The beneficiary argued that because she was successful in obtaining a reduction in compensation and because she was unable to get a full accounting until the court had ordered one be produced, her costs should be fully paid by the executor.
The court found that there was a mixed result in its determination of the application to pass accounts. While the court agreed the executor had acted in good faith, a reduction in compensation was nevertheless ordered and the court was satisfied that a full accounting would not have been provided absent a court order.
The court was critical of the fact that neither party had served an offer to settle and found that to the extent the estate trustee and beneficiary were entitled to receive costs from the estate it should be on a reduced basis. Ultimately, the court awarded each less than half the costs that were sought.
This case is a reminder of some of the perils involved in pursuing a contested passing of accounts. To begin with, both parties were stuck paying more than half the costs each had incurred personally and, as such, were "out of pocket" in the litigation. Second, the compensation that was repaid to the estate as a result of the litigation was less than the legal fees that ended up coming out of the estate to reimburse the parties, which begs the question of whether the beneficiary was worse off for pursuing the litigation in the first place.
Have a great day!
Megan F. Connolly
Today’s blog is a continuation of my blogs this week addressing some aspects of preparation for a trial in a contested passing. I briefly touch upon transcripts, the Request to Admit and Witnesses today.
It is important in preparing for trial to review the transcripts of the examinations conducted to assist counsel with locating evidence in the transcripts during trial, including admissions and/or inconsistent statements made by a witness at trial, to address the completeness of questions on the examinations, and whether additional discovery is needed before trial.
If a damages brief is to be provided by the opposing party as a result of an undertaking at examinations or otherwise, ensure that it has been provided.
A party may also, further to Rule 51.02 of the Rules of Civil Procedure, at any time, by serving a Request to Admit, request any other party to admit, for the purposes of the proceeding only, the truth of a fact or the authenticity of a document. A copy of any document mentioned in the Request to Admit shall, where practicable be served with the request (unless a copy is already in the possession of the other party).
The opposing party must respond to the Request to Admit within 20 days, failing which the opposing party will be deemed to admit the truth of the facts asserted in the Request to Admit or the authenticity of the documents referred to in the Request to Admit. As such, the Request to Admit should be served at least 20 days before the commencement of the trial, and quite some time before that, if possible, so that counsel will know what facts need not be proved or the authenticity of documents that will not need to be proved.
There may be cost consequences if a party refuses to admit the truth of a fact or authenticate documents which are proven or authenticated during the trial.
Requests to Admit may be effective to: (i) reduce the facts in dispute, (ii) reduce the number of witnesses to be called and/or the examination of a witness, (iii) minimize the costs and length of the trial, and (iv) avoid having to authenticate documents.
With respect to witnesses, amongst other things, it is helpful to make a witness list of anticipated witnesses for each of the parties, prepare a chart of the issues/documents to be proved by each witness and identify and consider the concerns, evidentiary or not, with the evidence and documents to be dealt with by each witness. If the witnesses are experts, Rule 53 of the Rules of Civil Procedure is applicable. Summons to Witness need to be considered (Rule 53.04) as well as whether an Order excluding witnesses is necessary (Rule 52.06).
Thanks for reading.
Craig
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