Know Your Options as an Estate Trustee:

Should You Informally or Formally Pass Accounts?

By Elikem Deley

Duty of An Estate Trustee

An Estate Trustee has the responsibility of ascertaining and collecting assets, paying debts and estate expenses, and making distributions to the beneficiaries. However, being an Estate Trustee does not entitle you to freely administer an estate without transparency and keeping a record of everything that was done while administering an estate. An Estate Trustee has a fiduciary duty to the beneficiaries and is responsible for keeping a complete and accurate accounting of their management of an estate.[1] This includes tracking the assets and transactions made to and from the estate from the date of death of the deceased to the present date. The financial records, statements, and supporting documents prepared by the Estate Trustee to show how the estate has been managed are often called an estate accounting. There are two ways that an accounting can be prepared and ultimately approved, thereby discharging the Estate Trustee from their liability for the administration of the estate: an informal estate accounting or a formal passing of accounts.

Informal Estate Accounting

An informal estate accounting is a private, out of court process, where the Estate Trustee provides a detailed record of their management of the estate to the residuary beneficiaries for approval. An informal estate accounting can be provided in a variety of formats and is often seen by way of a spreadsheet. The accounting is reviewed by the residuary beneficiaries, and if there are no disputes regarding the Estate Trustee’s management or the accounting, they sign a release confirming that they approve the accounting and release the Estate Trustee from liability. An informal estate accounting can be quick and cost-effective, provided that the residuary beneficiaries approve and do not object to the accounts.

An informal estate accounting relies on the consent and approval of all residuary beneficiaries. This process may not be suitable for estates where the residuary beneficiaries are uncooperative or there is a historical lack of transparency or lack of trust among the parties. A practical solution may be to provide an informal estate accounting throughout the administration process to ensure the beneficiaries are kept fully updated on an ongoing basis. This regular transparency allows ongoing oversight and provides opportunity for concerns to be raised, addressed, and fixed so that they may be more willing to approve the accounting later.

Formal Passing of Accounts

Formal accounting is much more structured, as this version is a court Application for judicial approval (i.e., getting court approval of the Estate Trustee’s management and administration of the estate). A formal passing of accounts is a court process whereby a judge reviews, and if successful, ultimately approves the Estate Trustee’s estate accounting, relieving them of liability and foregoing the need for beneficiary approval. This process may be triggered by the Estate Trustee voluntarily, by being compelled to do so by an interested party pursuant to section 50(1) of the Estates Act,[2] or if the estate includes minor or incapable residuary beneficiaries.

The Estate Trustee’s formal accounting must include a statement of assets as at the date of death, all monies received and distributed (capital and income receipts and disbursements), investments, debts, Estate Trustee compensation (if sought), and any other information required by the court.[3] When an application is brought to formally pass accounts, the Estate Trustee must file their accounting (verified by an affidavit of the Estate Trustee), a copy of the Certificate of Appointment of Estate Trustee with or without a Will, and any previous court judgments on the Estate Trustee’s passing of accounts.[4]

After the application is filed, the applicant shall serve each person who has an interest in the estate (i.e., beneficiaries).[5] At this time, the interested parties have a period of time during which they may object to the accounting.[6] Provided there are no objections made to the accounting, an applicant may seek a judgment without a hearing.[7] If there are objections, the Estate Trustee and the beneficiaries have an opportunity to review and address their concerns. If those concerns are not satisfied, the matter proceeds to a hearing.

The accounting is then reviewed by a Judge, and if they are satisfied with the accounting, they will issue an order approving the accounting and ultimately discharging the Estate Trustee from liability for the relevant period.[8]

Conclusion

An informal estate accounting is beneficial, cost effective, and is the recommended option in many straightforward estate administration files. A formal passing of accounts is suitable when the residuary beneficiaries are uncooperative, the estate is more complex, there is an objection to the accounting, or there are vulnerable interested parties.

Whether there is an informal estate accounting or formal passing of accounts, the Estate Trustee should wait to make the final distribution until the accounting is approved. This is the best way to protect an Estate Trustee and to discharge their duty as Estate Trustee.

If you have any questions about estate accounting or estates in general, please reach out to our Wills and Estates Department.