Saturday, February 09, 2008

Can a Beneficiary Require a Trustee to Pass Accounts After Signing a Release?

Paul Trudelle has written some thought provoking posts on the Toronto Estate Law Blog on an Ontario case dealing with trustees' duties to account to beneficiaries of an estate. The case he wrote about is Rooney Estate v. Stewart Estate (2007), CarswellOnt 6560.

In his post "Obtaining Releases from Beneficiaries," he writes about whether a beneficiary can compel a passing of accounts (a hearing in which the court reviews the accounts) after having approved the trustee's accounts. Mr. Trudelle describes the Ontario Court of Justice's decision as follows:

In Rooney, the beneficiary was provided with a form of accounts, and was told that if she signed a release, she could receive a distribution from the estate. (The court was critical of this practice.) The beneficiary did so.

Later, the beneficiary sought to compel a passing of accounts. The court allowed the Application.

The trustee had asserted that because of the release, the beneficiary could not compel a passing. The court stated “It is not an answer to say that the beneficiary approved of the accounts and gave a release. One of the obligations of the solicitor acting for the trustee is to ensure that all beneficiaries have competent, independent advice in reviewing the accounts. There is no suggestion by the solicitor that he advised the [beneficiary] to obtain independent legal advice when reviewing the trustee's accounts which he had prepared.”

I am not sure if a British Columbia court would have dealt with this issue in the same manner. It is common practice in British Columbia for trustees to ask for releases from the beneficiaries before distributing an estate. If all beneficiaries are adults with full legal capacity, and they approve the accounts by signing a release, the trustee will not usually pass accounts.

In Leckie v. Mitchell, (1997), 46 B.C.L.R. (3d) 383, the British Columbia Court of Appeal held that a beneficiary who had approved the executor and trustee's accounts could not later change his mind and compel the trustee to pass accounts.

Mr Justice Donald, in discussing section 99 of the Trustee Act (formerly section 101), wrote that "[i]f all of the beneficiaries approve and consent to the accounts there is no need to pass accounts within two years or at any other time."

The Court of Appeal considered the potential costs and delays to estates if beneficiaries could change their mind and require a passing of accounts after signing a release:

The process of obtaining approval and consent under s.101(1) [now s. 99(1)], which is the practice in most uncomplicated estates, would be rendered uncertain if beneficiaries could change their minds on reliance of s.101(2) [now s. 99(2)]. If that were possible the only safe course for executors would be to pass accounts in every case because only then could they confidently bring the estate to a conclusion. This would involve unnecessary cost and delay in many estates.

But, Mr. Justice Donald did leave open the possibility that a beneficiary could require a passing of accounts if the beneficiary signed a release without being fully apprised of the material facts.

Despite the apparently different approaches (or perhaps different emphasis) of the courts in Ontario from those in British Columbia to enforcing beneficiary releases, Mr. Trudelle's advice to trustees is worth heeding in either province:

What is an Estate Trustee to do to protect himself or herself? The Estate Trustee might send out accounts that are as complete and informative as possible, so that the release can truly said to be an informed one. Solicitor’s accounts might be included, and these accounts could specify the nature of the services provided. Beneficiaries should be advised to obtain independent legal advice.

Mr. Trudelle has written two other posts on the Rooney case: "What is included in the Duty to Keep Accounts," and "Administration and the Role of Solicitor and the Role of Estate Trustee."

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