Failure To Timely Disclose Accounts Has High Price For Estate Trustees
Accepting the role of trustee of an estate is a serious responsibility with a number of important obligations. One of those obligations is passing the estate accounts. This means that the estate trustee(s) must "balance the books" of the estate and account for all the assets, liabilities and disbursements of the estate. The accounting must be sent to all beneficiaries prior to a court signing off on the accounts. Any beneficiary may challenge the accounts or request supporting documentation.
Often trustees are less than careful with the estate's monies and receipts and fail to keep proper records. When a beneficiary asks for the accounts to be passed, delays due to the sloppy record keeping occur. A recent Court of Appeal decision demonstrates that these delays can be very expensive to both the beneficiaries and, more importantly, to the estate trustees personally.
The case involved five of the six children of the deceased, two of whom were named as estate trustees. Three of the remaining four children, all of whom were residual beneficiaries requested that the accounts be passed. The trustees delayed and the beneficiaries applied to the court to require the passing of accounts. The matter progressed with insufficient disclosure, undertakings were given but never fully answered. On the eve of trial, the parties settled the matter but could not agree on costs. They moved before a judge for determination of the issue of costs.
The motion judge ruled that the settlement had resulted in "mixed success" with neither party being either winning or losing. The judge ordered both sides to pay their own costs in amounts of $74,299.37 and $80,380.63 respectively.
The trustees appealed. They asserted that they were entitled to have their costs paid for from the estate. Specifically they argued that absent serious misconduct, self-interest or unreasonable misconduct a trustee is entitled to costs payable from the.
The Court of Appeal rejected this argument. It cited that the two primary situations in an estate does pay legal costs are 1) where the litigation arises from difficulties or ambiguities caused by the testator or 2) where the legal costs are required to ensure the estate is properly administered. The Court of Appeal then assessed the motion judge's reasons and determined that, implicit in the ruling, was the finding that the trustees had acted "unreasonably". The heart of the dispute involved the trustees' failure to properly disclose the estate's accounts. Disclosure was not made timely and the failure to be forthcoming elevated costs for all the parties. The trustees were required to pay their own litigation costs.
The Lesson: A trustee must take his or her responsibilities as trustee seriously. Keep accurate records of steps taken, time spent in addition to receipts for monies spent. When a beneficiary requests information relating to the accounts of the estate, respond in a timely manner and disclosure is fulsome. Failure to do so could have a high price.
Brown v Rigsby, 2016 ONCA 521 https://www.canlii.org/en/on/onca/doc/2016/2016onca521/2016onca521.pdf
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