Who Pays To Balance An Estate's Accounts?
As a general rule, costs associated with getting a court to approve an estate trustee's actions in realizing and distributing the estate's assets are paid by the estate. However, in certain situations, one or more of the beneficiaries may have to pay some of the costs personally. For example, if a beneficiary acts unreasonably in challenging the trustee's actions, s/he may be required to pay the costs of litigation. Alternatively, if the estate trustee acted for his or her personal benefit, s/he may be required to pay the bill. The latter situation will be dealt with in a subsequent article. This article looks at a 2015 Ontario case, where the beneficiary unreasonably challenged the trustee's actions and was required to pay legal costs of more than $100,000.
For years prior to the death of her mother, Erna took care of her. She was name attorney over property so that she could manage her mother's affairs. Similarly, the will named Erna as estate trustee. The will granted Erna ownership of her mother's house. All remaining property was to be divided between Erna and her sister Hilda.
HIlda took issue with both the management of the estate and with the management of their mother's property during her lifetime. She demanded, as is her right, to review the accounts. Erna produced the necessary records. Hilda then demanded that she be provided with the accounts in accounting format. Again, Erna complied producing over 750 pages of records including extensive back-up and supporting documentation.
Not surprisingly, the trial dealing with the estate accounts lasted five days. In the end, Erna was substantially successful. Notwithstanding that Hilda had the right to challenge the accounts, the trial judge ordered Hilda to personally pay all of Erna's costs. Hilda appealed.
On appeal, Divisional Court partially overturned the costs order. It upheld the trial judge's decision that Hilda had acted unreasonably in challenging the accounts and in failing to accept three offers to settle. As such, Hilda was responsible to personally pay for the costs involved in a five day trial. However, Divisional Court reduced the amount and awarded a blended amount in which Hilda was required to pay partial indemnity costs (roughly 60% of the costs) and the estate would pay the remaining costs. This blended award is reflective of the cost regime in which, as a general rule, an unsuccessful party is required to pay the winner's costs on a partial indemnity basis. While a trial judge has significant discretion in determining costs awards, for the most part full costs will only be required when a party's conduct is scandalous or outrageous.
Even with the 40% reduction, Hilda was still required to cover over $100,000 in litigation costs for unsuccessfully and unreasonably challenging the trustee's actions.
The Lesson: Costs should always be considered as part of litigation strategy. This includes not only your costs but the potential that, if unsuccessful, you could be responsible to pay the winner's costs as well. As such, when reviewing the estate's accounts, which you are entitled to do, be sure to assess the reasonableness of challenging the trustee's actions. Even if a challenge successful, if the estate is required to pay the costs, the amount available to beneficiaries is reduced. We recommend professional legal assistance in making your decision.
Re Aber Estate, 2015 ONSC 5123 https://www.canlii.org/en/on/onscdc/doc/2015/2015onsc5123/2015onsc5123.pdf
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