Estate trustees in Ontario have the duty to make sure all assets and money are accounted so that the beneficiaries can audit the administration of an estate. The term "passing of accounts" refers to the process of submitting the accounts to the court for approval and it's only required under certain circumstances.
What is the process for passing of accounts?
In Ontario, the tax court rules regarding passing of accounts are set out in rule 74.16, 74.17 and 74.18 of the Rules of Civil Procedure (Ontario). To start the process, an estate trustee files a notice of application to pass accounts (Form 74.44) to the Superior Court of Justice along with the following documents:
- The estate accounts for the relevant period verified by an affidavit of the estate trustee (Form 74.43);
- A copy of the certificate of appointment of estate trustee;
- A copy of the latest judgement, if any, of the court relating to passing of accounts; and
- There is a filing fee of $322.00 payable to the Minister of Finance.
On receiving the materials mentioned above, the court shall issue a notice of application setting out a date for the hearing, which is usually in about 9 to 12 weeks. The applicant shall then serve the notice of application and a copy of a draft of the judgment sought on each person who has a contingent or vested interest in the estate by regular mail. There are two forms of a draft judgment on a passing of accounts - Form 74.50 for an unopposed Passing Application which is typically used when it's not known whether the Passing Application will be unopposed or opposed and Form 74.51 for a contested passing of accounts.
The application for passing accounts can be either initiated by the estate trustee voluntarily or forced by a beneficiary to require the estate trustee to make the application to pass accounts. To force an estate trustee to pass accounts, a beneficiary in Ontario must make a motion under rule 74.15(2) of the Rules of Civil Procedure (Ontario) to ask the court to make an order requiring the estate trustee to pass accounts.
How to challenge the passing of accounts?
Beneficiaries are not obligated to accept accounts as presented to them and they may challenge almost every aspect of the accounts. Following a review of the accounts, a person in Ontario with a vested or contingent interest in the estate may serve a notice of objection (Form 74.45.1) on the applicant with proof of service at least 35 days before the hearing date specified in the notice of application issued by the court under rule 74.18(7) of the Rules of Civil Procedure (Ontario). There is also a filing fee payable to the Minister of Finance.
A notice of objection may later be withdrawn by serving a notice of withdrawal of objection using Form 74.48 at least 14 days before the hearing date in the notice of application. A person with an interest in the estate who does not object but wishes to receive notice of any further step in the application may serve on the applicant and file a request for further notice (Form 74.45.1) within 35 days before the hearing date specified in the notice of application. This entitles the person filing it to receive further notice of any further step in the proceeding and receive any documents served and filed.
If notices of objection are filed and not withdrawn at least ten days before the hearing, then the hearing will take place. In such a case, rule 74.18(11.5) requires the applicant to consolidate all the remaining notices of objection to accounts, prepare a reply to Form 74.49.4, and serve the notices of objection and the reply on the following persons:
- Every person who has serviced and filed a notice of objection to accounts and not withdrawn it;
- Every person who has served and filed a request for further notice; and
- The Children's Lawyer or the Public Guardian and Trustee if the latter were served with the application to pass accounts (unless a non-participation in passing of accounts was then served).
Then, within five days of the date set for the hearing, the applicant must compile a brief containing the following:
- The application to pass accounts;
- Consolidation of all the remaining notices of objection to accounts not withdrawn and the estate trustee's reply;
- Any responses to the reply received by the estate trustee;
- If any notices of objection were withdrawn since receiving the above-mentioned reply, a copy of such notices of withdrawal of objection;
- Any notices of non-participation in the passing of accounts received from the Public Guardian and Trustee or the Children's Lawyer;
- Any requests for further notice in the passing of accounts;
- Any request for costs;
- Any requests for increased costs, cost outlines, and responses to requests for increased costs; and
- Any draft order for directions or of the judgment sought by the court.
If a hearing is to proceed, the estate trustee and any objecting parties, including lawyers representing the Children's Lawyer or the Public Guardian and Trustee, attend the court for a hearing before a judge. At the hearing, only those objections set out in a notice of objection to accounts served within the proper time can be raised. Upon hearing the submissions of the parties, the judge may pass the accounts as presented or may pass the accounts with alternations or make a ruling that that more information or documentation is necessary.
Pro tax tips - unreasonable estate executor fees is a common reason for passing of accounts
Generally speaking, an estate executor is paid 5% of the estate's value in Ontario, but this also depends on the situation. For example, if an estate has high-value assets but it's very easy to manage, then a 5% fee may be on the higher end of the spectrum. Vice versa, an estate with relatively low-value assets may require a lot of work and a 5% fee may be on the lower end. Overall, the estate executor's fee is a common ground for passing of accounts. If you have any questions about the process to pass accounts, feel free to speak with an experienced Canadian tax lawyer in our tax law firm for guidance.
What is passing of accounts?
A passing of accounts is a formal legal procedure that results in court approval of the relevant period of administration of the estate. It may be initiated by the estate trustee or be forced by an estate beneficiary.
What items in the accounts are usually challenged by a beneficiary?
A beneficiary can challenge almost every item of the accounts and the most challenged items include the value of assets sold, expenses incurred by the estate trustee or compensation claimed by the estate trustee. However, beneficiaries should carefully review the items first because an ill-founded challenge may end up costing a beneficiary even more such as expenses incurred by the estate trustee to defend certain allegations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.