Preparing for the passing of accounts

Common disputes and how executors can avoid them

The “passing of accounts” is the process whereby estate beneficiaries and the probate court review and approve the executor’s management of the estate. How should executors prepare?

No question marks

Jonathan Hooper of Patterson Law in Halifax says executors should think of the passing of accounts as a “double check” of the executor’s work by the courts.

Including the time taken by the executor to prepare documentation and itemize estate transactions, the entire process can take several weeks with simple estates, and up to several months with more complicated ones, he says. While each province has its own laws, this is the general concept for common-law jurisdictions: executors circulate a detailed description of all estate transactions (e.g., income, expenses, interim distributions) to all beneficiaries and the probate court for review.

Once the description is submitted, Hooper says it can take six additional weeks before a hearing is scheduled before a registrar or probate court judge.

“They typically approve [the accounts] at the hearing,” Hooper says. “Barring any really contentious issues, you will get a decision at that time.”

Not every passing of accounts needs to be this formal, he says. For example, if all beneficiaries consent to an informal summary accounting and give the executor a release for their work, there’s no requirement for attendance in court. In other cases (if the executor is also the sole beneficiary of the estate, for example), the court may not need to review the accounts at all.

Still, all executors should perform their duties with the assumption that they’ll have to go through a more detailed, formal passing, he says.

“Best-case scenario: you provide information to beneficiaries, everyone consents and a passing of accounts might not be required,” Hooper says. “But if it is, then it takes a lot less time, energy and costs to prepare if you have that information organized.”

If the court finds anything amiss, then the judge has the authority to order changes to the accounts as they are presented, such as directing or approving distributions and even ordering the executor to pay the estate back, he says.

It comes down to beneficiaries

Amy Mortimore, a partner at Clark Wilson LLP in Vancouver, says the passing of accounts process can be contentious when it moves to a formal setting.

“It comes down to the beneficiaries and their relationship with the executor—or lack of trust with the executor,” she says. “There are legal issues at play, but there’s this emotional overlay. I’ve seen tears, and I’ve seen anger and shouting.”

Disputes can arise over a number of subjects, including expenses and the sale price of estate assets. By law, beneficiaries will describe their concerns. As Mortimore explains, the executor will then be put under oath and may be cross-examined by the beneficiary or the beneficiary’s lawyer.

“It can be very stressful, being cross-examined by your brother, or by [his] lawyer,” Mortimore says.

Executor compensation is particularly contentious. While executors can charge anywhere from 0% to 5% of estate capital for their work, it’s common to be asked to justify their fee with a precise accounting.

“Keep notes as to how much time you’re spending on a day-to-day basis,” Mortimore says. That includes a 45-minute call with the lawyer about issue X, for example, and a 15-minute meeting at a bank to discuss Y. It’s a lot more work to try to reconstruct all that activity more than a year later, she says.

“You should be fully paid for all the work that you’ve done. So keep your records and increase your chances.”

Passing of accounts: red flags

Unaccounted withdrawals/disbursements

Preference given to one beneficiary; disbursements that aren’t dictated by the will; unexplained withdrawals from estate accounts.

Discrepancies in estate inventory

Omission of assets; differences between expected value and sale price of estate assets; estate income (e.g., rent, interest) not accounted for.

Incomplete records

Expenses without receipts; transactions noted as “costs” without specific information; lack of bank records or statements proving deposits and withdrawals.

Unexplained or unreasonable expenses

Costs claimed without explanation; personal expenses claimed as estate expenses; expenses that seem too high for services rendered.

Executor’s fees

Fees paid before beneficiaries sign release or probate court orders payment; fees that exceed typical range (0% to 5% of estate value) or seem too high for actual work done.

Source: https://www.advisor.ca/tax/estate-planning/preparing-for-the-passing-of-accounts/