I disagree with the executor's accounting - now what?

I hear a lot of questions from both executors and beneficiaries about the process of reviewing an executor's accounts and signing a Release. I recently received the following letter from a reader, which echoes what many others of you have asked:
"Can you tell me what happens if all heirs do not agree with the statement of accounts? Who looks at that and would the person(s) be contacted regarding why they do not agree with a statment of accounts? I disagreed with the stmt of accounts over a year ago and nothing has happened with the will since. The executor is not co-operative."

The beneficiaries of an estate are given the statement of accounts along with a Release. If all looks fine with the accounts, the beneficiaries sign the Releases and return them to the executor. Once all Releases have been received, the executor pays out the distribution that was outlined in the statement of accounts. The purpose of all of this is to get the beneficiaries to state that they approve of what the executor has done with the estate so far. This indemnifies the executor.

You asked who looks at the fact that a beneficiary doesn't agree with the accounting. This would be the executor. If the executor is using a lawyer to help with the estate, no doubt the executor would consult with the lawyer as to what to do next.

If the executor is trying to do the estate without the help of a lawyer and prepared the accounts without help from a lawyer or accountant, he or she may have no idea what to do now that a beneficiary has disagreed with the accounting. The next logical step from a legal point of view is for the executor to apply to the court to have the accounts passed by the court, but I would hope that before spending the time and money to do that, the executor would try to find out what the problem is, and rectify it.

Beneficiaries have the right to ask for more information on an accounting if something is unclear, or to ask about items that appear to have been omitted. And if the whole thing just seems out of whack, the beneficiary has the right to refuse to sign the Release.

Unfortunately, our system is based on the premise that an executor will want to take care of the estate properly and will make every effort to move the estate along as best he can. As it happens, plenty of executors don't really care if the estate drags on for years, as they aren't the ones waiting for an inheritance. Therefore, even if the executor is aware of the next steps, he or she may not wish to proceed without prodding.

You need to write a letter. If the accounting was sent to you by a lawyer, write to the lawyer, otherwise write directly to the executor. State your objections to the accounting, giving facts or figures if at all possible. Saying something like "I just don't like what you did"  or "I think you're hiding something" isn't useful and won't bring anything to a conclusion. You should be able to specifically refer to an item or a figure, and state, for example, "Mom's house was listed for $450,000 but the accounting only shows $325,000 going into the bank. What happened to the rest?"

Your responsibility to the procedure is to police the executor's actions, but keep in mind that the executor is human and can make mistakes. Give him or her the chance to explain the numbers in the accounting. Realize that most of us have never provided an accounting for anything in our lives and perhaps aren't that good at it, so your detailed questions should allow the executor to understand what is required. Don't nit-pick for the sake of nit-picking, and try to stick to real issues.

Refer to the fact that the accounting was provided a year ago, and that you want the matter cleared up.

If you receive satisfactory answers to your questions, you should sign the Release and return it to the executor. As you've said that the executor isn't co-operative, I don't expect this to happen, but perhaps after a year he or she is more motivated to wrap it up. Don't sit and wait any longer; there is a common law concept of the executor's year that says an estate without legal complications should be wrapped up in a year, and obviously the executor has exceeded that.

If the executor simply won't move on it, you will likely have to hire a lawyer to help you resolve it or push it through court. Perhaps the other beneficiaries would pool their resources with you since everyone would stand to benefit.

Passing accounts - what's worth objecting to?

Our friends at http://www.allaboutestates.ca/ have posted a really interesting entry summarizing two recent Ontario cases. Each of the cases dealt with estates in which beneficiaries objected to the executor's accounting. Because of the objections, the accounts were heard in court.

In these cases, the judge felt that the objections raised by the beneficiaries were book-keeping errors or small issues. In one case, the objections raised by the beneficiary were not really about the accounting; they were simply expressions of unhappiness with how the estate had been administered. The important thing, the judge said, is that all of the money was accounted for and it was possible to resolve the small issues in other ways (such as adjusting the executor's fee) without forcing the executor to pass accounts in court.

The beneficiaries had costs awarded against them.

The lesson to be learned from these cases is that the courts want executors and beneficiaries to work out small issues and errors in an accounting. The court should only be called on to deal with more serious issues. Click here to read the article.

Civil contempt and the wayward trustee

Here is yet another story about an executor who chose not to follow the rules, including court orders directing him to pass his accounts. Yes, he ended up in jail for refusing to pass his accounts, but this article by Jason de Vries of http://www.allaboutestates.ca/ describes what the beneficiaries had to go through to achieve that. It sure takes persistence to bring some of these wayward executors to heel.

When can the executor be reimbursed for expenses?

When an executor is compensated for his or her work on an estate, the amount he or she receives is separate from the reimbursement of expenses. Unless a will specifically says otherwise, the fee is over and above being paid back for expenses. In this post I'd like to look at the expenses rather than the fee.

It's always a good idea for an executor to try to limit his or her personal involvement with estate expenses by submitting bills directly to the bank where the deceased had an account. Many know that they can submit the funeral bill to the bank so that the bank pays that bill directly without the funds passing through the executor's hands. However, this arrangement also works for other bills that are clearly the deceased's bills, such as property tax for the deceased's home, or the final heat and electricity bills. It's worth a chat with a banking officer to see what can be done.

Of course, this idea only works when there is cash available in the deceased's account. Realistically there might not be enough funds. There are plenty of estates which consist of a house and a RRIF and not much more. In those cases, submitting bills isn't going to be helpful and the executor just might end up paying for things (funeral, lawyer, accountant, bills, tax) out of his or her own money.

When hiring a lawyer to obtain a Grant of Probate, you will likely find that lawyers who do a lot of estate work won't even bill you until they get the Probate. This is because they know their bill should be paid by the estate and that you likely won't be able to liquidate estate assets unless you have the probate.

I always advise executors not to take their fee until the estate is finished and the fee has been approved either by the residuary beneficiaries or the court (except for very unusual circumstances). However, that's not the case with expenses which the executor pays directly out of pocket. When the executor is out of pocket, of course he or she needs to be reimbursed as quickly as possible. The executor doesn't have to wait for any specific time or event.

Being reimbursed from the estate means that money has become available, either because an asset has been sold or an investment has been collected in by the executor. These funds would have been deposited into the estate bank account set up by the executor around the time he or she applied for probate. This is where any reimbursement should be taken from. Keep the arrangements simple and transparent. Don't take money directly out of accounts or investments owned by the deceased.

I would suggest that the executor reimburse himself or herself once a month out of the estate account. This way ALL money taken by the executor can easily be accounted for in one statement, and the executor never amasses unmanageable debts on behalf of the estate.

The executor should keep a receipt for every expense and know which cheque out of the estate account paid for which expenses. Don't keep track in your head; keep track on paper or computer. If he or she is claiming for mileage, it should be calculated on paper, which would then be used like a receipt (in my Alberta Probate book I provided a form for this that you can either print or download, as well as forms for all of the executor's record-keeping and accounting).

Now let me add the inevitable caveat. Be careful about what kind of thing you're claiming as an expense and don't make the mistake of thinking that everything even remotely connected to the estate is a legitimate expense. For example, flying your family members to the funeral is an individual's expense, not an estate expense. Getting that massage or that expensive champagne to manage your stress is your own expense. Remember that the residuary beneficiaries are going to examine your accounting at the end of the estate and if you have reimbursed yourself for inappropriate items, you will probably have to repay them to the estate.

Here's the second caveat. Don't be a spendthrift with estate money. The courts won't like it at all should you end up there, and that won't go well for you. Also, there might not even be enough estate funds to pay you back if the estate is small and there are debts and taxes to be paid.

Is five years too long to wait for my inheritance or an accounting?

Recently several readers have sent me questions about how long it takes for an estate to wind up, and how long they have to wait to get an accounting. For any executors reading this post, take note that beneficiaries are going to see lawyers and starting law suits, all because you won't send them financial information.

I'm going to start with this question:

My grandfather died five years ago and we have not received our inheritance from his estate. Is there anything we can do about this? Can we take the executor to civil court to get the accounting information or to find out what happened to the money?

Five years is too long without really good reason for delay. Before doing anything, be sure that you understand the terms of the will. For example, is the gift to you meant to be held in trust for a period of time or given to you when you reach a certain age, or for any other reason have a delay built in?

If that isn't the case, is there anything going on such as an estate lawsuit with another beneficiary that might cause a delay?

Have you directly asked the executor for an explanation? I expect you already have, but if not, starting today create a paper trail of your requests. Instead of calling on the phone, for example, send an email and keep your copy as proof that you tried to resolve this before turning to the courts. If you do make phone calls, log them. If you end up in court, you want the facts at hand.

If you can't get a satisfactory reply from the executor, you will likely need to hire a lawyer. This doesn't necessarily mean that you will end up in court, though I warn you that many people consider another person hiring a lawyer to be an act of hostility. If you are a residuary beneficiary of the estate, the first thing the lawyer will probably do (after reading the will) is write a formal letter demanding an accounting of the estate. Only residuary beneficiaries are entitled to a full accounting of everything that has gone on in the estate.

Even if you are not a residuary beneficiary, you are entitled to receive your gift under the will. And to receive it within a reasonable time! If for some reason you are never going to get your inheritance, you need to know why. For example, perhaps there were more debts than assets and everything had to be sold. If something like that is going on, then the executor should just tell you. I don't know why executors get so ridiculous about keeping important information like this to themselves when someone has a right to know. It only makes people suspicious and angry.

As I said, five years is too long without some good reason. Most estates are wound up in a year. Once the year is up, beneficiaries have the right to push for their inheritances.

If you can't get a satisfactory accounting and receive your inheritance as a result of the lawyer's demand letter, you do have the right to use the courts to enforce your rights. Maybe look into pooling the cost of a lawyer with other beneficiaries.

Along similar lines, I had a question from another reader who thought that the executor might be keeping a bank account open two years after probate in order to avoid having to give an accounting.

If that's the case, the executor is in for a surprise because the bank account doesn't have to be closed. That's completely irrelevant to producing an accounting, so don't let that stop you. Residuary beneficiaries have the right to demand a full accounting at any time during an estate.

Adult trusteeship: what is a passing of accounts all about?

"Passing of accounts" involves a trustee showing the courts what he or she has done with the money and property he or she handles for an incapacitated adult. If the judge is satisfied with the transactions ("accounts") for a set period of time, then they are said to have been "passed" by the judge. In some jurisdictions the process takes place in an open courtroom, and in others it is all dealt with by way of paperwork.

A passing of accounts may take place for various reasons. In some places, the law states that a trustee will automatically have the responsibility of passing his or her accounts on a regular basis. In all parts of Canada, a trustee must pass his accounts if he no longer wants to be the trustee and wants to hand matters over to another person. In fact a trustee is not permitted to quit until he has passed them.

A judge can order at any time that a trustee bring his accounts to court for passing. The judge might do this, for example, if a concerned relative of the incapacited person has asked the court for help. While most passing of accounts applications go through smoothly and without problems, others are hotly contested.

When looking at a trustee's accounts, the judge is looking for several items of information, including:

• the over-all financial situation of the incapacitated person, particularly in relation to the financial situation when the trustee first took over
• whether the incapacitated adult is being properly provided for
• whether money is missing, or everything is accounted for
• whether the trustee is maximizing the incapacitated adult's finances, for example by applying for all pensions and benefits available and by investing wisely
• how the incapacitated adult's property is being held, for example, whether the trustee has wrongly put the property in someone else's name
• whether the trustee has stayed within his authority, which means not doing things like giving away the incapacitated adult's money or making loans with that money to family members

The court wants to know that the trustee is managing the money properly. Knowing that one day he or she might be called upon to pass accounts, trustees should keep very good records.

Refuse to pass accounts? Off to jail with you

This new case from Ontario should make out-of-control executors think twice about their refusal to conduct the estate properly. In Walling v. Walling, the beneficiaries of an estate got tired of trying to get the estate executor to deal with the estate and his refusal to account for what he'd done so far.  They applied to the court for help, and the court ordered the executor to pass his accounts, and fined him $1,000. He still didn't pass them so he was fined again for $1,500. By this time the judges were sick of him too so when he still failed to pass his accounts, he was put in jail for 7 days for contempt of court, and ordered to pay costs of $2,000.

Obviously I don't know why this executor refused to pass his accounts. But whatever the reason, I hope it was worth $4,500 and a week in jail. So far.

Read the full case here.

What if a beneficiary won't sign the Release?

An executor emailed me recently, asking what to do if a beneficiary won't sign the Release. I don't know the facts of the case, but this appears to refer to the Release document that is given to the beneficiary for signing at the end of an estate, accompanied by financial documents that explain what the executor has done with estate assets and liabilities and how he intends to distribute the estate. If the beneficiary signs the Release, it means that he or she approves of the financial accounting provided and will not be able to come back against the executor in the future about anything covered by the accounting.

When one beneficiary doesn't sign his or her Release, it means that  none of the beneficiaries can receive their inheritance.

If a beneficiary were to refuse to sign the Release, I would want to know why. Is there an objection to the contents of the financial documents? Is something missing? Does the beneficiary understand that he or she won't get any money until the accounting is approved (either by the beneficiaries or by the court)? Does the beneficiary object to the compensation the executor is requesting?

If you can find out where the objection lies, you can most likely address it. In many cases, a refusal like this is actually a request for more information. For example, say a beneficiary wants to know why the house sold for $450,000, but only $420,000 shows in the bank account. The executor could show the calculation that showed how much of the $450,000 was spent on realtor's commission, legal fees and payment of taxes. The executor could show the cancelled cheques for those expenditures. Perhaps the executor didn't do a very good job of setting out the numbers, or backing them up with receipts or statements.

Many executors who are acting without lawyers or accountants tend to give an "accounting" that is little more than the current bank balance, without explanation of what happened to investments, RRSPs, the deceased's car, etc. If that's what the executor is presenting, he or she shouldn't be surprised at the beneficiary not signing the Release. I wouldn't sign it either.

If the beneficiary is objecting to the amount of compensation that the executor is requesting, the executor might provide a breakdown of how he or she arrived at that number. The breakdown might include the number of hours the executor put in, the number of kilometres driven, or a list of all of the tasks that the executor had to take care of (this is one reason why executors are always advised to keep a diary or journal of all of their actions on behalf of an estate).

If the issue is compensation and a more detailed accounting isn't persuasive, the executor and the beneficiary may negotiate a different amount that satisfies both of them. If that doesn't work, the executor will have to ask the courts to set the compensation by court order. This takes longer and the beneficiaries get even less because the executor's lawyer is paid from the estate, but at least the issue can be resolved.

It's unusual for a beneficiary to simply dig in his or her heels and refuse to sign the Release without giving a reason or stating an objection, but it can happen. In the end, the executor will give up on asking for information that isn't forthcoming, and will ask a judge to approve the accounting.

Why do residuary beneficiaries sign a release?

When the executor of an estate has finished cashing in assets and paying bills, has filed the tax returns and is ready to pay the beneficiaries, he or she will send the residuary beneficiaries a set of financial statements. Along with the statements will be a Release. If the executor is doing things properly, no residuary beneficiaries get their money until all of them have signed and returned the Release to the executor.

So what is the legal effect of that Release? What is the beneficiary really doing by signing it?

The financial statements that come with the Release are intended to give a full, accurate picture of all of the financial transactions the executor has done on behalf of the estate. The beneficiary should be able to tell from the statements what happened with every asset of the estate (e.g. the deceased's home was sold for $x and the money was put into the executor's account). The statements should show what was spent on the funeral, legal fees, accounting fees and other expenses. The beneficiary is entitled to ask for more detail if he or she believes that to be necessary.

By signing the Release, the beneficiary is approving of the financial statements and all that they contain. Releases will often refer to a time period, usually beginning on the date of death and continuing up until the day the Release was sent to the beneficiary. In those cases, the beneficiary is approving of everything the executor did during that time period. Sometimes in more complicated estates there will be more than one set of financials, perhaps with the second set a year or so after the first, but in most estates there is only one.

By signing the Release, the beneficiary is saying that he or she is satisfied with everything the executor has done. He or she is agreeing in writing that everything is fine. The beneficiary can not later come back and find fault with the accounting, for example by saying that money is missing or that the house was sold for too little. The beneficiary is signing off on it and can't later change his or her mind.

This protects the executor from anyone coming back later and beginning a legal battle over something in the estate. Beneficiaries also benefit from it because the executor, who wants the Release to be signed, will usually provide a thorough accounting that answers all of the beneficiaries' questions.

A beneficiary does have the right to have the accounting looked at by an accountant or a lawyer before signing the Release, though most do not. Every case is different and the beneficiary should take his or her time to read the accounting thoroughly before signing the Release and returning it to the executor.

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.

Can an Attorney under a Power of Attorney sell an asset that is specifically left to someone in a Will?

An Attorney acting under an Enduring (Continuing) Power of Attorney has the responsibility of handling the legal and financial affairs for the person who named him or her as Attorney (the person giving the document is known as the donor). The Attorney must approach each and every transaction from the point of view of what is in the best interest of the donor.

Most Enduring Powers of Attorney give only general instructions for an Attorney. If the Attorney must sell some of the donor's assets so that the donor has something to live on, then the Attorney may choose which assets are to be sold, to whom they are to be sold, and at what price. The assets sold may or may not be mentioned in the donor's Will as being left to a specific beneficiary. The Attorney's responsibility is to the donor while the donor is alive, not to the person who might inherit the assets after the donor's death.

Having said that, an Attorney who knows the contents of the donor's Will should do his or her best to work with it, to avoid thwarting the donor's wishes. It would be in the donor's best interests for the Attorney not to mess up his or her plans.

Some Enduring Powers of Attorney contain specific instructions to avoid selling certain assets if at all possible. For example, if a donor has made a Will in which he leaves his lake cottage to his sister, the Enduring Power of Attorney could instruct the Attorney not to sell that lake cottage if there is anything else that could be sold instead. The Attorney must always follow directions in an Enduring Power of Attorney or risk personal liability.

This kind of specific direction is under-used, in my opinion. The only caveat I'd put on that is to suggest that the Enduring Power of Attorney should not have a direction not to sell the cottage under any circumstances. It would be better to phrase it as a direction not to sell the cottage except in dire financial need. That way, if the money from a sale of the cottage is the only money the donor has left and it is needed for living on, it can be used.

I've always been astonished by the number of people acting as Attorney who believe that their role is to do whatever they please with the donor's finances. I believe that people in general are becoming more aware of the limits of the Attorney's role, and it will eventually become harder for dishonest or misled Attorneys to continue to treat the donor's assets as their own. In the meantime, donors should take care to make the strongest document possible. This certainly does not mean a fill-in-the-blank document; it should be one that is personally tailored. Donors should consider putting in requirements for the Attorney to account periodically to other people in the family, or to advisors of the donor.

When the donor passes away, the authority of the Attorney ends. The Attorney must give the Executor of the estate a full financial accounting of everything he or she has done as Attorney. If an asset has been sold contrary to the instructions of the donor, this will be revealed to the executor.

How do I change executors?

I'm often asked this question, but before answering I always ask whether the person's whose Will it is (the testator) is still alive. In other words, are you trying to change the appointment of an executor in a Will, or are you trying to change an executor who is already in charge of an estate?

A person can change his or her choice of executor in the Will as long as he or she has mental capacity to do so. Changing the executor doesn't necessarily mean making a whole new Will. If you are happy with your Will other than the executor named, you can have a Codicil made that only changes the executorship. A Codicil is simply a new, brief document that amends your Will. It is much like a Will, in that all of the rules for Will-making also apply to Codicils. The advantage to having a Codicil made is that the process and the document are shorter and less expensive.

The Will and the Codicil must be kept together so that they can be read as one document.

If you are interested in changing an executor who was named in the Will but who has not done anything on behalf of the estate, and who doesn't want to do anything for the estate, that executor can opt out. The legal term for it is renouncing the right to be an executor. An executor might renounce if he or she is too ill to be the executor, if he or she has moved very far away, if he or she has lost mental capacity, if he or she doesn't get along with the family members, or for other reasons.

The important thing to remember about renouncing is that it can only be done right at the beginning of an estate before an executor does any work. Once the executor takes any steps at all as executor, he or she can't quit being an executor until the court says so.

If an executor renounces and there is an alternate executor named, the alternate executor can then take over and be in charge of the estate.

If there is no alternate executor named, you are left with a Will that is completely valid except that there is no executor to carry out the work. At this point, someone will have to be appointed as an administrator of the estate. The Will is still used, but the court will appoint an administrator to do the work that the executor would have done.

If an executor is part way through the job of being an executor and wants to resign from it, he or she must ask the court for permission. At that time, the executor will be required to give a full accounting of all financial transactions that he or she has done on behalf of the estate. This includes an update on the current balances and values of all accounts, properties and other assets, and an explanation for each expenditure. This process is sometimes called passing of accounts. Until the court has approved the accounts and dismissed the executor, he or she remains the executor.

Sometimes the family members want to change or remove an executor who they believe is not doing a good job. They want to remove someone who doesn't want to be removed. This is not easy. The court will not want to remove an executor who was chosen personally by the executor without very good reason. It is pretty nasty litigation most of the time, and not something that should be attempted lightly.