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Monday, August 30, 2010

What goes into an executor's accounting?


Many times in this blog I've mentioned that the executor accounts to the residuary beneficiaries of an estate. No doubt you have heard this mentioned elsewhere as well. If you're an executor, do you know how to prepare an accounting? If you're a beneficiary, do you know what to look for in the executor's accounts?


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.


35 comments:

  1. 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.

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  2. My 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?

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  3. Hi Lynn,
    Would 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

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    1. 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.

      Lynne

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  4. 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).

    Also, 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?

    ReplyDelete
    Replies
    1. I have the same question as you, anonymous Nov 10th. Yes there is a plus estate but the question about the inventory must be one thousands of people are curious about.

      Delete
    2. This is a question that I obviously missed when it was first posted, so thanks for bringing it back to my attention.

      As a general rule, beneficiaries are provided with a copy of the inventory, along with a copy of the will and a copy of the application for probate at the beginning of the probate application, not the end. Waiting until the end makes no sense, for the reasons you've mentioned.

      Keep in mind that the only beneficiaries who should expect to receive a copy of the inventory are the residuary beneficiaries, and not those who are simply receiving a token gift from the estate.

      The issue of items going missing from the estate is huge. Executors really do make a huge mistake here. If you find out that even ONE item went to someone who was not named in the will, then yes the executor can be held liable for the value of the item. Finding out what was there two years later is difficult to say the least. It may take a joint effort by members of the family to reconstruct what was there.

      It seems to me that in this particular case, the executor is being too coy with information. The inventory is a tool for all to use during the estate and there is no proper reason for it to be hidden.

      Lynne

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    3. Lynne , I have a similar problem. My brother is executor ( one of four ,late fathers estate to be split four ways)and after 2 1/2 years has still not provided an inventory even after repeated requests and has even started to release funds without providing any sort of accounting . He also refuses to communicate , this was a very simple estate , no reason that it wasn't wrapped up in a year ( fist year he did nothing at all ! ) I have only received a couple of very short letters from him and have got promises over the phone that he then goes back on . In the few letters I have from him ( 4 total) he does promise to keep me informed , in writing , every step of the way .

      Do you think I should take him to court ?

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  5. If the Estate has a negative balance, what does the Executor have to provide to the beneficiaries?

    ReplyDelete
    Replies
    1. The most helpful thing would be a copy of an inventory of the estate. It would show assets as well as liabilities, taxes, and expenses. Sometimes beneficiaries find it hard to believe that there is nothing for them to inherit, forgetting that properties have mortgages, cars have loans, and people have credit cards.

      Lynne

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  6. My son was left everything when his Dad passed away but there is no money to pay the debts. Can the executor sell the house from under him or does my son have the right to take over the debt?

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    Replies
    1. The executor is required to cover the debt by selling the house, but there is no reason he couldn't sell it to your son.

      Lynne

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  7. What can be done if money was given to the beneficiaries without any or some of them nto seeing and releasing statement of accounts?
    My dad passed away just over 2 years ago and I have made requests to the executor who is also my brother for a copy of the statement of accounts. My requests have been ignored.

    ReplyDelete
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    1. You are only entitled to an accounting if you are a residuary beneficiary of the estate. Assuming that you are, then you are entitled to receive an accounting from the executor within a reasonable time (say, a week or two) of asking for it, and it has to be an accurate and complete accounting. Unfortunately, the only way to force an obstinate executor to provide an accounting when he won't do so voluntarily is to use the courts to compel him to provide one. His risk, of course, is that the court might find fault with his accounting or his administration of the estate, so that he may be removed as executor, or be ordered to forego his executor's compensation, or even to be ordered to repay money that was wrongly paid out. I don't know why so many executors are so cagey on this issue.

      Lynne

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  8. In common-law jurisdictions, administration of an estate on death arises if the deceased is legally intestate,probate attorneymeaning they did not leave a will, or some assets are not disposed of by their will.

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  9. Hi Lynne,

    So, are our flights to the funeral individual expenses and as well as work-time lost?

    Great column!
    Thanks,

    Greg Leighton Alcock

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    Replies
    1. Yes, they are individual expenses.

      Lynne

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  10. Lynne,

    If probate has not been granted yet, are the property taxes and the secured line of credit (house is collateral) on the deceased's home to be paid by the estate or by the co-executor who is residing in the house? They are living in the home until probate is issued but there has been a petition issued by one of the beneficiaries challenging the will.

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    1. It's alright for the property taxes and other expenses that preserve the capital asset to come out of the estate. However, the executor living there should be paying rent. There is no reason to live there rent-free now that it's clear that it's not just going to be a month or two. Now that there's a will challenge, it could be years.

      Lynne

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  11. This blog appears very timely for us, as our father Died in mid-January 2015 leaving a widow, three sons and five grandchildren, with a trustee who has had no experience, but has done an excellent job administering Dad's will. An inexperienced lawyer filed immediately for probate, but included all the joint assets, and registered accounts (with the widow as beneficiary) as part of the estate. Though the dollar values for each asset were accurate, this error doubled the probate fees. Two questions:

    In Ontario is there any recourse to revaluing the estate to its true value at time of death, and recovering the excess fee mistakenly paid?

    Second, given that the joint assets assumed by the widow automatically are part of the estate, does the trustee need to document all the automatic distributions that were made as part of his settlement of the estate?

    By the way, only the sons and grandchildren are beneficiaries of the "true" value of the estate.

    ReplyDelete
    Replies
    1. You are able to file a supplementary affidavit with a new inventory, showing the real values. When this is done, talk to the clerk of the court at the time of filing to see about getting a reimbursement of the probate fee.

      I don't know why you would call it a "given" that the joint assets assumed by the widow are automatically part of the estate. They're not.

      Lynne

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    2. Thank you for your advice. When I said "given", I was referring to the erroneous probate value where joint assets (not part of the estate) had been included. So my question is whether the trustee needs to report on each asset (and its disposition) for the joint account, the RRIFs and the TFSA that rolled over to the widow. The "estate" as filed shows these assets. Does the trustee need to include them to properly match what the probate application said?

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    3. Thank you for your reply. The "given" reference meant that the joint assets were erroneously included in the probate application, so does the trustee need to elaborate on the disposition of each (joint bank account, RRIF accounts to beneficiary and TFSAs to beneficiary) so that the trustee report contains all the assets filed for probate? Or just report the "true" components of the estate that were not jointly held? If the latter, is that not a mismatch which would not properly close the estate?

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  12. Is an executor required to provide official statements and receipts in his accounting of an estate? My stepfather is the executor of my deceased mother's estate. He is also a beneficiary along with myself and my four siblings. We have all received his accounting statement along with the release document for each of us to sign. He has listed several figures but there are no official statements to back up those figures.

    Also my stepfather has already paid himself an executors fee out of my mom's estate. This is a significant amount of money that he has paidhimself before any releases of been signed and before any of the beneficiaries have received their portion. Final taxes have not yet been paid Is this appropriate for him to have done at this point?

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    1. When an executor provides an accounting, it is usually a summary without the receipts etc attached. But that is just for convenience and to control costs. Any residuary beneficiary is entitled to ask to view the statements and receipts, or to have photocopies of them.

      If you have questions or concerns about the accounting, please ask them because once you sign the release, it is too late.

      Lots of things get paid before the final taxes, which is fine as long as the executor has held back enough funds to cover them.

      As for whether he should have paid himself an executor's fee, the short answer is "no". The fee has to be agreed upon by the beneficiaries as evidenced by the signing of releases. The only exception to that would be if the will specifically said what he is supposed to get for his fees.

      I wonder if he's working with an estate lawyer. If so, sounds like he isn't listening to the lawyer.

      Lynne

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  13. My brother is the trustee for my father's estate, and has been honourable and diligent in his efforts, but he made the huge mistake of processing some transactions on his personal account, so the bank estate account does not include them. In preparing a provisional accounting (informal) he has refused to treat the estate account as the prime reconciliation to be balanced, and used a spreadsheet to annotate these transactions. By accepting an advance from the widow early in the process, he has treated the reimbursement as if it was an expense instead of a non-estate transaction, and insisted that the beneficiaries share in this "cost" of reimbursement. I told him to rationalize the bank account but that this advance had nothing to do with the assets of the estate, and therefore was not to be included in his report. No question that the application of this advance forms part of the estate expenses, but the reimbursed advance is irrelevant to the estate, just to sync the estate's bank account? After all, these funds added nothing to what the beneficiaries received.

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  14. I have just received an accounting from the executrix (also stepmother) of my father’s will. The estate was small (approx $55000) with no real estate so she never applied for probate. She originally told myself and my sister that we weren’t in the will, I found the estate lawyer and requested a copy and found that we were residual beneficiaries and that my son was bequested a lump sum.
    Executrix, upon learning that I was now aware we were in the will, was now telling us that debts exceeds assets and that the only asset of the estate was his vehicle, valued at $2500.
    I knew that to be untrue so I retained a lawyer who began writing letters. We have so far, over the course of a year, received snippets of info and now finally, received a “proper” accounting.
    The accounting shows clearly and with no attempt to even cover it up, she in fact included receipts, that she spent some estate money on herself. She spent $2000 repairing HER vehicle and the rest putting a new Bay window on her house. She sold a motorhome worth at least $20,000 for $8000, literally GAVE the vehicle worth $2500 away to her son, and denies that my father’s sea-doo and utility trailer even exsist. (They DO exsist and they ARE in his name). Her accounting concludes after all expenses and her exec fee, that $0 remains. I’ve spent $2500+ on lawyer so far that if she had of been honest and done her job properly I wouldn’t have had to spend. My lawyer says that the size of the estate makes it very illogical to take it to court. My question, Lynn, is that in small estates likes this, what on earth to beneficiaries do when the executor is stealing? I mean, she’s lying and stealing and doing it without apology at this point! What do you do when the cost of taking it to court exceeds the value of the estate?

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  15. A will leaves specific bequests - e.g. house to be sold and net proceeds to 'A'.
    residual of estate to go to 'B' and 'C' split equally.
    Does the statement of account and release for 'B' and 'C' include just the residual, or would it include the house sale and costs.
    I'm thinking the deceased didn't want B and C to know the value of the house.

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  16. Lynn,
    I have a question about the Statement of Assets and Liabilities for my mom's very small estate. Do I need to include specific bequests (bank accounts, jewelry), joint assets (bank account), or assets with an assigned beneficiary (TFSA, insurance policy) under the Assets section? Also, if the Estate has a negative balance, do I still need to get a release from the sole residuary beneficiary (her husband)? I want to make sure I do this right. Thank you.

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    1. On the specific bequests, yes, include them. You want to create a snapshot of what your Mom owned on the day she passed away, so these items must be included.

      Anything with an assigned beneficiary such as TFSA and insurance policy, do not include them unless the beneficiary is the estate. This is because these assets will get paid directly from the bank or insurance company to the named beneficiary and never pass through the estate.

      As for the joint bank account, including it depends on who the other joint owner is. If the joint owner is her husband, do not include it. If the joint owner is you or one of the other children, you should include it unless the will says otherwise. This one is a bit tangly because a joint account with one of the kids belongs in the estate unless there is clear written evidence otherwise.

      As for the release, I generally think they are a good idea. Sometimes people treat the release as if it's a receipt for money received, but that's not right. Its real purpose is to make sure that nobody can come back later and accuse you of doing something wrong.

      Lynne

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  17. Thank you, Lynne. My mom's Will bequeathed the proceeds of her bank accounts, and her china cabinet (and contents) to me and all jewelry to her granddaughter with the residue of her estate to be transferred to her husband. I was under the impression that any bequeathed assets, joint assets or assets with a designated beneficiary do not form part of the Estate. I did not open up an Estate Account as the amounts were small and my bank waived probate. I guess my question is ... did these items actually pass through the Estate, and if they don't form part of the Estate, do they still need to be included in the statement?

    The joint account is with me. We set it up together quite some time ago. Does the specific bequest of all bank accounts cover this?

    I have been unable to locate a precedent Release where the Estate has a negative balance with no residue or funds to distribute. Are you able to point me in the right direction?

    Your advice is invaluable! Thanks so much!

    Shelley

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    1. Hi Shelley,

      Items that are bequeathed to people are IN the estate. Of course they are, because it is the will that gives them away. They are supposed to be in the inventory of the estate. In your case, the bank account left to you, the china cabinet and the jewelry are all part of the estate, as are the items that were left to her husband.

      Perhaps you are misunderstanding the term "assets with a designated beneficiary". This phrase means assets such as life insurance policies or RRSPs. You are right that they do not go into the estate, unless of course the estate IS the beneficiary. A designated beneficiary does NOT mean they are left to a specific person in the will.

      You haven't given me enough information about the joint bank account to say whether it is in the estate or not. The default position is that it IS part of the estate. You can only leave it out of the estate if a) your mother intended for you to be the one and only owner of that account for your own use, and b) there is some written evidence of that from her. This is a complex topic that can't really be covered in a snippet on a blog.

      I can't point you to a release because: a) I don't know which province you are in. b) only a handful of provinces have standard precedents, and in the rest the lawyers make up releases that seem to do the job. and c) your release doesn't have to say anything about a negative balance.

      I think you've been operating with only partial information. You've gotten pretty far, all things considered. A bit of legal advice would probably have saved you some trouble. You might consider seeing a lawyer local to you to go over your actions and show him/her the estate paperwork to make sure nothing is going to come back later and bite you when you least expect it.

      Lynne

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  18. Hi Lynne my sister is the executor and all 7 siblings were named in the will equally shared assets. The amount of money that should have been left is minimum 200k for each of us that is with mom living more than comfortable. We are left with almost nothing, about $3k each. Do we habe the right to see bank statements and previous home papers, etc to see where the money went? Mom had 3 homes which we just found out sold for 1,075,000.00 in 2015 plus other monies before that.how could there only be $3k each left? What do you suggest we Do? The executor and 2 other sister's were in mom's affairs together and would never share us 4 siblings anything. Thank you

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    1. I also have the same question. Do beneficiaries have the right to see previous bank statement in order to trace where large amounts of money have gone? In my case it is highly probable to be a loan to another beneficiary.

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    2. To say that a beneficiary has a right to see "previous" bank statements is much too simplistic. Your position as a beneficiary gives you the right to see what the EXECUTOR has done with estate funds. If the executor never received the funds, there is a question about what you're entitled to see or not see.

      In the scenario above, it seems to me that the handing over of information needs to come from the person or people who were dealing with your mom's finances before her death (an executor only has responsibility AFTER her death). If the sisters you mention were acting under a POA, that will give you added ammunition to challenge them because they will have an extra duty of care.

      Where I'm going with all this is that I don't think you can rely on the executor or the estate lawyer (who works for the executor) to investigate this. I expect that you will need to hire a lawyer of your own to find out what has happened. As I said, the investigation may not just be against an executor; it might be against others too.

      If they were acting under a POA when money supposedly went missing, consider discussing this with the police, particularly if your local police have an elder abuse team. Money that goes missing when someone acts under a POA is a serious economic crime.

      Lynne

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