What is the duty to account? This refers to the obligation of
persons acting in a fiduciary capacity, such as a trustee, executor
or attorney or guardian for property, to keep records of the assets
and liabilities they are managing on behalf of others and be able
to accurately report their activities and results when required.
The obligation first arose from equity and common law.
What must be included in accounts?
The common law perspective that developed with respect to estates is set out inCampbell v. Hogg1 which states:
Accounts are to contain a true and perfect inventory of the whole property in question, and are to include normally:
- An account showing of what the original estate consisted;
- An account of all moneys received;
- An account of all moneys remaining in hand
These rules apply similarly to trusts and neither are subject to a statutory form of keeping accounts and records.
With respect to attorneys and guardians of property, Regulation 100/96 under the Substitute Decision Act2, contains a requirement to maintain accounts and records as well as setting out what is to be included.
In Ontario, the Rules of Civil Procedure3 sets out what is to be contained in accounts that are to be passed in court by estate trustees and other fiduciaries. Rule 74.16 states:
74.16 Rules 74.17 and 74.18 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.
What is the prescribed format for accounts to be passed in the court?
Rule 74.17 sets out the form of accounts, which are onerous.
74.17 (1)Estate trustees shall keep accurate records of the assets and transactions in the estate and accounts filed with the court shall include:
(a) on a first passing of accounts, a statement of the assets at the date of death, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets;
(b) on any subsequent passing of accounts, a statement of the assets on the date the accounts for the period were opened, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets, and a statement of the investments, if any, on the date the accounts for the period were opened;
(c) an account of all money received, but excluding investment transactions recorded under clause (e);
(d) an account of all money disbursed, including payments for trustee's compensation and payments made under a court order, but excluding investment transactions recorded under clause (e);
(e) where the estate trustee has made investments, an account setting out,
(i) all money paid out to purchase investments,
(ii) all money received by way of repayments or realization on the investments in whole or in part, and
(iii) the balance of all the investments in the estate at the closing date of the accounts;
(f) a statement of all the assets in the estate that are unrealized at the closing date of the accounts;
(g) a statement of all money and investments in the estate at the closing date of the accounts;
(h) a statement of all the liabilities of the estate, contingent or otherwise, at the closing date of the accounts;
(i) a statement of the compensation claimed by the estate trustee and, where the statement of compensation includes a management fee based on the value of the assets of the estate, a statement setting out the method of determining the value of the assets; and
(j) such other statements and information as the court requires.
When are accounts required?
A fiduciary's duty to account is always present as they are legally obligated to have them "at the ready" to provide to the beneficiary (or similar person) upon request or when compelled. This is the principle enunciated in Sandford v. Porter4.
What can be done to provide certainty?
Given the legal duty placed on fiduciaries to account, and the legal right of beneficiaries and others to compel an accounting, ensuring interests are aligned can reduce the potential for conflict and unnecessary costs.
A simple solution is to include in will, trust or power of attorney documents a clear provision setting out the requirement of the fiduciary to account as well as the timeframe when accounts will be provided, such as quarterly.
Other items to clarify can include:
- The format of the accounts (e.g. court passing or informal)
- Who is to prepare the accounts (e.g. professional)
- Whether the costs to prepare the accounts are in addition to the fiduciary's compensation or to be deducted from it
Are there other records a fiduciary should maintain?
In addition to the financial accounts discussed above, fiduciaries may also be required to keep, or benefit from keeping: tax returns and the supporting materials; receipts; mileage logs; journals of time expended on their duties; meeting minutes; trustee resolutions; and correspondence.
Whether and to whom these records must be produced is a separate issue with some records such as trustee meeting minutes generally not being available to beneficiaries, for example.
For further reading
Fiduciary Law in a Nutshell: What Must an Executor/Trustee/Attorney Do? Not do?(April 2021)
Footnotes
1 Campbell v. Hogg et al., 1930 CanLII 330 (UK JCPC).
2 Substitute Decisions Act, 1992, SO 1992, c 30.
3 Rules of Civil Procedure, RRO 1990, Reg 194.
4 Sandford v. Porter(1889), 16 OAR 565 (Ont. CA).
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.