In this post, I'm going to talk about the basics of preparing an executor's accounting. You are most likely to see an accounting at the time that the executor is ready to distribute the estate to the beneficiaries. That means that the funeral, the bills and the taxes have all been paid, and the money left over is going to be split among the beneficiaries in accordance with the Will. The executor prepares his/her accounting, gives it to the beneficiaries, and the beneficiaries are asked to approve the accounts.
Getting the approval of the beneficiaries means that the executor is released from all personal liability for everything he/she has done. Obviously the beneficiaries are going to check everything over pretty carefully before agreeing. This post should be useful both to an executor trying to prepare accounts, and the beneficiary trying to decipher accounts.
The basic idea behind the executor's accounting is to describe what has happened with each of the assets in the estate and subtract all of the bills and liabilities that were paid out, to arrive at the present value of the estate. Here are the elements of the accounting:
1. The inventory of the estate that was included in the application for probate. This is the starting point, as the executor is not responsible for anything that happened while the deceased was alive.
2. A Statement of receipts and disbursements. This can be either a handwritten ledger or a computer-generated statement. It shows all money that came into the estate and everything that was paid out, listed item by item, by date. Many clients find it useful to think of this statement as similar to a bank statement for the executor's bank account. Every asset that was sold - house, car, antiques, cottage - shows as money coming in. Every account or investment that is cashed in also shows as money coming in. Every bill or expense that was paid out show as outgoing money.
3. Reconciliation. Start with the value of the estate as shown on the inventory, add all incoming money, and subtract all outgoing money (using the figures on the statement of receipts and disbursements). If everything has been properly included, the number you get should be the same as the current balance in the executor's account. This, the current balance of the account, is what is now available in the estate to be divided up.
4. Statement of how much the executor wants to be paid. The amount will depend on what was said about compensation in the Will, or if nothing was said, it will depend on the guidelines for your geographical area. The amount of work and responsibility handled by the executor are also factors. The executor should state the dollar amount and how that amount was arrived at (e.g. an hourly rate, a percentage, etc). The executor should also state how much he or she wants to be repaid for out-of-pocket expenses.
5. Statement of any money being held back for future expenses or taxes. Executors have the right to wait for a final Tax Clearance Certificate from Canada Revenue Agency before distributing money to the beneficiaries. However, sometimes the executor agrees to distribute before the tax certificate is received. If the executor does this, he or she should figure out what the taxes might be, and what will be spent on the accountant to do the return, and keep that amount of money in the executor's account.
6. Statement of proposed distribution. The executor should state the names of the beneficiaries, the portion of the estate each will receive, and the dollar amount.
7. Release. The beneficiaries are each asked to review the accounting, and if all looks fine, to sign a release that states they are satisfied with the accounting. A wise executor won't give any beneficiaries their shares until all beneficiaries have signed releases. When all the releases are received by the executor, he or she will give the beneficiaries their cheques.
There is of course a lot more detail I could include here. (I have a chapter about this in my upcoming Alberta Probate Kit, to be released in 2011). This post is intended to give you an idea of what is involved. Executors always have the option of hiring accountants or lawyers to help them with the accounting, which is a good idea if the estate is complicated.
Hi Lynne, I have a question about releases. I am a specific gift beneficiary; shares in a holding co that owns farming assets. There is also cash in the company. My Dad's wife is the only residuary beneficiary but was also willed shares in the holding co. She is paying for things out of the company that should come out of the estate so that she will have more money left over in the residue. She is also paying personal expenses from the company account. She has paid bequest to grandchildren, estate legal fees, personal taxes for herself and my Dad, her personal living expenses, trips,loan to herself, vehicle repairs etc all out of the company account (close to $300,000 so far). I feel that this is self-dealing and impartial as any other executor without a conflict of interest would not have paid these things out of the company account. We have requested a review engagement 3 months ago but haven't received anything. We are still waiting for a clearance certificate so nothing has been distributed to my brother or myself but are expecting it to come soon. Is now the time to request a formal passing of accounts before the court? Is this a lengthy process? Would we have to sign a release as a specific gift beneficiary or just a receipt once the shares are distributed along with the proportionate cash distribution from the company? We want to make sure we handled this correctly.
ReplyDeleteMy husband and I are executors (and I am one of 5 heirs) for my deceased mother. We feel stumped since the other four heirs will not cooperate (amongst many childish tricks) with refusing to submit their disclosures of Estate property. Two of the heirs were the former POAs, one sold the house and deposited the money into mother's account (not provided for in their POA contract), they both wrote thousands of dollars of cheques to themselves personally and refuse to show accountability) and one of the POAs added her name to mother's vehicle (while mother was in a dementia) and thus obtained survivorship post death, and then she sold the vehicle within 9 months (she kept the proceeds) Most of our mother's more expensive property is missing. I am the only heir that did not take one penny of mother's money or property. What should we do?
ReplyDeleteHi Lynn,
ReplyDeleteWould greatly appreciate an answer if you will.... My sister appointed a very nice but completely inexperienced (professionally) lady as her Executor. She has made many mistakes but fortunately I have been able to circumvent them by finding the correct (legal) documentation, thus saving all us beneficiaries a considerable amount of money. My question is can we not request a statement of accounts at this point? My sister died 5 months ago, probate was granted 3 months ago and she has started handing out money. Obviously I have no problem receiving funds, but would like to know where they are coming from. Plus she seems to be spending unnecessarily and I would like to see some figures on paper showing exactly how much has been going out and for what.
We realize the estate won't be settled until after tax statements have been issued and taxes paid but that isn't for another 6 months or so and I am concerned what is going on in the interim. I feel perhaps if she had to put the items on paper she would see just how much she is spending and perhaps cut back.
I am not saying she is spending outside her purview, just unnecessarily.
Bottom line, can I legally request a statement of accounts at this point?
Thank you so much.
Catherine
Hi Catherine. Yes, you certainly can. Assuming that you are a residuary beneficiary, you are entitled to request a full accounting at any time. I agree that this executor appears to be inexperienced, as it is almost unheard-of for an executor to start distributing funds without asking for a release, which in turn requires an accounting. I suggest that you follow up any verbal request in writing.
DeleteLynne
If a beneficiary gives away the inventory of the deceased with permission of the executor and simply asks other beneficiaries what they want when they don't even know what the deceased had because there was no inventory sent to them, can the executor or beneficiary end up paying for the missing items if others can ever prove they had them? (Stove, fridge, chesterfield, TV, tables, chairs, bed, etc.all given away possibly to one beneficiary's children).
ReplyDeleteAlso, at what point should other beneficiaries be entitled to see an inventory list, if ever?
If the probate takes 2 years or more, how will other beneficiaries even remember what they once saw in the house if the inventory list doesn't have to be released before the probate is over?