Listen to Administration Bonds

This week on Hull on Estates, Megan Connolly and Paul Trudelle discuss administration bonds; what they are, when they are required, why they are required and dispensing with the administration bond in certain cases. In Particular they refer to the Henderson decision, a recent decision out of the Ontario Superior Court of Justice that deals with the issue of dispensing with an administration bond and what is required.

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Administration Bonds - Episode #157

Posted on April 7, 2009 by Hull & Hull LLP

Megan Connolly: Hello and welcome to Hull on Estates. You’re listening to episode 157 on Tuesday, April 7, 2009.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.

Megan Connolly:   Hi and welcome to another episode of Hull on Estates. I’m Megan Connolly.

Paul Trudelle:    And I’m Paul Trudelle.

Megan Connolly:  If you want to be heard on Hull on Estates, you can participate by leaving us a comment. E-mail us at hull.lawyers@gmail.com or you can visit our blog at estate law.hullandhull.com.

Paul Trudelle:    Hi Megan, how are you today?

Megan Connolly:   I’m fine Paul. How are you?

Paul Trudelle:    I’m good, thanks. And today we thought we’d spend a little time talking about administration bonds.

Megan Connolly:   And exciting topic, I know.

Paul Trudelle:    Yes, yes I’m excited. And we’re going to talk a bit about what they are, when they’re required, why they’re required and dispensing with the administration bond in certain cases. And in particular, there’s a recent decision that we’re going to refer to out of the Ontario Superior Court of Justice.  It’s the case of Re Henderson that deals with the issue of dispensing with an administration bond and what’s required.

Megan Connolly:   And that involved an application to dispense with the bond by an estate trustee who’d been appointed to an intestate estate, meaning there was no Will.

Paul Trudelle:    Right. So normally an administration bond is required in all estates where there is a Certificate of Appointment being sought without a Will. If there’s no Will then the statute requires that you obtain an administration bond. That statute is the Estates Act and its section 35. An administration bond as noted Mr. Justice Brown in the decision that we’re referring to, which is Re Henderson, 2008 CanLII 69136, is the CanLII cite for it. He notes that administration bonds are required wherever a person died intestate. They are also required in other cases as well, such as a case where a Will exists but doesn’t name an executor; where there are foreign executors; or where there is a succeeding estate trustee with a Will not named in the Will.

Megan Connolly:   Now there are a couple of cases where you don’t need an administrative bond, but that’s usually when the government is being appointed as the executor.

Paul Trudelle:    That’s right. So if the Public Guardian and Trustee as we sometimes see is applying to be appointed as the estate trustee, then no bond is required. I guess its felt that they’re good for it. 

Megan Connolly:   I think trust companies don’t have to post either.

Paul Trudelle:    Right and that’s a specific provision of the Loans and Trust Corporations Act. Trust companies don’t need to post a bond.

Megan Connolly:   I think really they’re just trying to make sure the executor doesn’t run off with the estate.

Paul Trudelle:    That’s right. And I think that’s the key here is that the purpose of the bond is to ensure that the work is done by the estate trustee properly and that all the debts of the estate are paid and that there’s proper distribution of the estate.

Megan Connolly:   Now just because, I mean, a bond is usually required doesn’t mean it’s always required. And sometimes the executor or the Court will grant an Order dispensing with a bond. This may be the case where the beneficiary and the executor are one and the same. So if the sole beneficiary is applying, the Court is not going to ask for security before making the appointment.

Paul Trudelle:    Right. And the Court has the discretion under the relevant legislation to dispense with the need for a bond or reduce the amount of the bond and they’ll do that in certain circumstances that you’ve mentioned. However the Henderson decision talks about what evidence is required by the Court before they’ll dispense with the bond. Just before we leave that point, though, I think there is specific provision that the Court will dispense with a bond where there is an intestacy and the certificate is being sought by the surviving spouse and the value of the estate does not exceed preferential share. That also requires that an Affidavit be filed setting out the debts of the estate.

Now in cases where that’s not the case and it’s still a small estate however, the Court can dispense with the bond. In the Henderson decision that we should turn to, deals with what the Court will need before they dispense with the bond. And in the decision, Mr. Justice Brown talked about the Affidavit that’s required.

Maybe just to back up a little bit. He also says that the purpose of this decision is to codify to a certain extent what’s required in order to dispense with the bond. He notes that in Toronto, the Estates Court and judges see up to two dozen requests for Orders dispensing with a bond, a week. And they feel that there’s no…

Megan Connolly:   Wow.

Paul Trudelle:    yeah, that’s a lot. That’s a lot. And those aren’t two dozen estates. Its two dozen estates where the bond is being dispensed with or sought to be dispensed with. And they get a lot of, I guess they had a varying degree of disclosure with respect to that. And a lot of these requests were being rejected. In order to reduce the rejection rate and ensure that all of the evidence is put before the judge in order to make the decision as to whether to dispense or not, Mr. Justice Brown sets out what’s specifically required in the Affidavit. And the Affidavit, if you follow the decision, should put all of the required information before the Court. The decision creates almost a checklist that all counsel should be referring to when preparing Affidavits to dispense with the bond.

And let me go through some of those points now.

Megan Connolly:   Well they want to know the identity of all the beneficiaries of the estate. They also want to know if any of those beneficiaries are either minors or they’re incapable. If someone is a minor or is under incapacity, they want to know what the value of the interest is.

Paul Trudelle:    Right. He goes on to say that you should file executed consents from all of the beneficiaries who are not under a disability and their consent to the appointment of the estate trustee and also to dispensing with the administration bond. If you can’t obtain a consent from all of the beneficiaries, then you must explain how you are going to protect the interests of those beneficiaries by way of posting security or otherwise.

Megan Connolly:   And the Court is also interested in ensuring that all creditors have been satisfied. That all the deceased’s debts have been paid. And if there is anything outstanding still.

Paul Trudelle:    That’s right. And that’s sometimes hard for an estate trustee to come up with when they first make the application. But I think it goes to show that the estate trustee must make inquiries in order to find out what the debts of the deceased are and whether they’ve been paid or not. If they haven’t been paid, then the estate trustee should make some proposal as to how they’re going to be paid, noting that the bond, if it was in place, would be to protect both the beneficiaries and the creditors of the estate. I think we missed one point. The last occupation of the deceased, you’ve got to put that in.

Megan Connolly:   Okay.

Paul Trudelle:    You have to go on and say whether the deceased operated a business at the time of his death, and if he did, whether there were debts of that business. So if there was a business that the deceased operated, you have to dig a little bit deeper and look at the debts of that business and what amounts may be claimed as against the estate.

Megan Connolly:   I guess it’s also interesting to note ending off the reason that this was required was because there is actually nothing in the Rules of Civil Procedure which really speaks to how to dispense with the bond, once you’re through administering the estate.

Paul Trudelle:    That’s right. And Mr. Justice Brown says that it may be an aware where the Rules Committee or the government may want to step in, in order to codify what’s required. But short of that, then his decision provides an excellent outline or guideline as to what’s required in order to dispense with the bond.

I think it’s important to note and we have a little bit of time left, that if you do have to post a bond, the normal requirement is that it’s twice the value of the assets under administration. So that can be a significant amount. I also know that its difficult to get a bond and you pretty much need to show the bonding company that you have assets as the estate trustee, that are sufficient or equal to the value of the bond that you’re getting, so that the bonding company has some protection knowing that if they have to pay out money to creditors or beneficiaries or to the Court under the bond, they’re going to have some recourse and be able to get it back from you as the estate trustee.

Megan Connolly:   And the fact is, and I’ve seen this multiple times, that someone who otherwise would step forward to act as an executor, either can’t or sometimes just is unwilling to do it if it means having to post a bond.

Paul Trudelle:    Right. And its, in addition to being hard to get, also a significant expense that needs to be incurred. I guess one of the recourses then, if you can’t get the bond or if its considered to be too expensive, is to turn over the administration to a trust company.

Megan Connolly:   Yeah. Well I think that brings us to the end of this week’s discussion. Thanks for listening and thanks for joining me today, Paul.

Paul Trudelle:    Well thank you Megan. That was very informative, I thought. Thank you.

Megan Connolly:   And we look forward to hearing from our listeners. You can send us an e-mail at hull.lawyers@gmail.com. Be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practice of estate law. 

We hope that you enjoyed the show. I’m Megan Connolly.

Paul Trudelle:    And I’m Paul Trudelle. Thank you.

This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

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