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Guardianship Weekly – Week 17: Guardianship Accounting Tips & Traps

INTRODUCTION

A fiduciary is a person who holds a legal or ethical relationship of trust with another person. A guardian of property is a fiduciary and is subject to the governing provisions of the Substitute Decisions Act, 1992 (the “SDA”).[1] “Fiduciary accounting” describes the legal duty of the guardian to maintain the financial accounts and records of all transactions involving the person under guardianship in the management of their property. The guardian is to act in accordance with the statute governing the appointment, whether the SDA, its regulations and the court-approved management plan, or the Children’s Law Reform Act[2] (the “CLRA”).[3] Accounts and records kept by the guardian must be made available to certain statutorily designated persons or entities on request.

Application to Pass Accounts

An application by the guardian for property to “pass” accounts (also referenced in this chapter as a “passing of accounts,” “passing” and “accounting”) is a formal procedure governed by statute that results in court approval of the relevant period of property management. The jurisdiction and procedure for the passing of accounts by a guardian for property are set out in the Rules of Civil Procedure (the “Rules”) in Rules 74.16 through 74.18 inclusive.[4] As with any application, the court has the jurisdiction on an accounting application to grant the relief sought, dismiss, adjourn or direct a trial, in whole or in part, and with or without terms. This jurisdiction applies to applications to pass accounts in accordance with Rule 38.10(1) (a) of the Rules.[5]

A passing of accounts is not strictly, in legal terms, a mandatory requirement. Rather the guardian may choose to pass its accounts, may have an existing court order requiring an accounting from time to time, or alternatively, a guardian may be compelled to do so by those legally entitled to request a passing, including:

the incapable person’s guardian of the person;

a dependent of the incapable person;

the Public Guardian and Trustee (“PGT”) or the Children’s Lawyer; and

a judgment creditor of the incapable person.[6]

Also “any other person” may apply for a passing of accounts, but only with leave of the court.[7] It should be noted that the right to compel an accounting is not an absolute right, regardless of the circumstances; rather, it remains within the discretion of the court to either grant or refuse such an order.

Although a passing of accounts may not be required, it may nevertheless be advisable for a guardian to make an application for a passing, since once the accounts have been passed, the accounts will have received court approval and cannot be questioned at a later date by persons having had notice of the passing (exceptions will apply in the case of fraud by the guardian or mistake).

A passing of accounts application may go uncontested, if no one “objects” to the accounts by filing a Notice of Objection. Where there is an uncontested passing of accounts and an unopposed order is sought, in many instances a court attendance before a judge may be avoided as long as all of the requirements under Rule 74.18 have been complied with.

Where there is an objection to the accounts, there will be a contested hearing for a passing of accounts.[8] The hearing may proceed on the date specified in the Notice of Application to Pass Accounts on the objections raised in the Notices of Objection to the Accounts as filed. The attendance may result in disposition of the matter or an Order Giving Directions respecting steps to be taken to its disposition. An Order Giving Directions is “designed to provide the parties with a procedural framework in which to prepare the proceeding for final adjudication.”[9] It compels the parties to give the necessary forethought to implement a process and the procedure that is most likely to lead to a just, expeditious and cost-effective determination.

The benefits of an Order Giving Directions are, generally speaking, their flexible and consensual nature as every application to pass accounts is unique. Some objections may be about the fiduciary’s failure to keep accurate records; some may be about the propriety of claimed or stated expenses; some may be concerns over poor investment decisions; and others may be about misappropriation/misallocation of assets; just to name some of the more common objections. A well-negotiated and well-crafted Order Giving Directions is less likely than the “default” procedure (i.e. no fixed procedure) to result in wasteful interlocutory motions.

Costs

The costs of an unopposed Judgment are addressed in Rule 74.18(10) and Tariff C,[10] and for an opposed hearing they are set out in Rule 74.18(13).[11] In respect of costs, often the costs set out at Tariff C are insufficient. The court has the discretion to modify costs awards and a Request for Increased Costs may be made.[12]

Compensation

Under the SDA, a guardian of property has a statutory right to compensation, pursuant to a fee schedule set out in the legislation. The current rate is set at 3% on receipts and disbursements and three-fifths of 1% as a care and management fee.[13] The compensation can be taken monthly, quarterly or annually.[14] If consent in writing is given by the Office of the PGT and by the incapable person’s guardian or attorney under a Power of Attorney for Personal Care, if any, the guardian of property may take compensation in an amount greater than the prescribed fee schedule.[15]

This chapter will examine in detail the proper procedure and process involved in preparing, passing and reviewing the accounts of a person under a disability, including the documents to be filed and the service of those documents; the role of the OPGT; guardian compensation; and costs. This chapter will also address some helpful tips and traps when preparing guardianship accounts.

Importantly, this chapter will introduce the new rules and regulations (effective January 1, 2016) affecting passing of accounts proceedings.

PART I : KEEPING ACCOUNTS

  1. GENERAL

A guardian of property is a fiduciary, pursuant to section 32 of the Substitute Decisions Act, 1992[16] (the “SDA”), “whose powers and duties shall be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit.” As such, a guardian of property shall deal with an incapable person’s property and “in accordance with the regulations, keep accounts of all transactions involving the property” (ss. 32(6)).

A guardian of property is required to “act in accordance with the management plan established for the property” (ss. 32(10)), with the exception of the Public Guardian and Trustee, who is not required to file a management plan and acts in accordance with the policies of the Public Guardian and Trustee. If there is a management plan, then pursuant to subsection 32(11) of the SDA, the plan “may be amended from time to time with the Public Guardian and Trustee’s approval.” The language of this subsection is not entirely clear, but it would appear that no court Order is necessary as long as the Public Guardian and Trustee approves the amendment.

Guardians of property or attorneys have a serious responsibility to keep good, detailed and understandable accounts that reflect their diligence and transparency. The accounts are really a snapshot of their handling of a person under disability’s property. If the assets are administered over long periods of time and are of considerable volume, guardians/attorneys may wish to pass their accounts every few years. This relieves them of any liability to further account for transactions during the period of accounts that have been passed.

Ontario Regulation 100/96, s. 1, applies to attorneys under continuing powers of attorney, statutory guardians of property, court-appointed guardians of property, attorneys under powers of attorney for personal care and guardians of the person. Ontario Regulation 100/96, subsection 2(1) sets out the specific components and the form of accounts and records to be maintained by a guardian of property and an attorney under a continuing power of attorney, as follows:

  1. (1) The accounts maintained by an attorney under a continuing power of attorney and a guardian of property shall include,

(a) a list of all the incapable person’s assets as of the date of the first transaction by the attorney or guardian on the incapable person’s behalf, including real property, money, securities, investments, motor vehicles and other personal property;

(b) an ongoing list of assets acquired and disposed of on behalf of the incapable person, including the date of and reason for the acquisition or disposition and from or to whom the asset is acquired or disposed;

(c) an ongoing list of all money received on behalf of the incapable person, including the amount, date, from whom it was received, the reason for the payment and the particulars of the account into which it was deposited;

(d) an ongoing list of all money paid out on behalf of the incapable person, including the amount, date, purpose of the payment and to whom it was paid;

(e) an ongoing list of all investments made on behalf of the incapable person, including the amount, date, interest rate and type of investment purchased or redeemed;

(f) a list of all the incapable person’s liabilities as of the date of the first transaction by the attorney or guardian on the incapable person’s behalf;

(g) an ongoing list of liabilities incurred and discharged on behalf of the incapable person, including the date, nature of and reason for the liability being incurred or discharged;

(h) an ongoing list of all compensation taken by the attorney or guardian, if any, including the amount, date and method of calculation;

(i) a list of the assets, and value of each, used to calculate the attorney’s or guardian’s care and management fee, if any. O. Reg. 100/96, s. 2 (1).”

A guardian of property continues to maintain such accounts until the guardian of property ceases to have authority to act and the guardianship is terminated by the court on a passing of accounts under s. 42 of the SDA.

In accordance with s. 42 of the SDA, a guardian of property has a statutory duty to account and may choose to voluntarily pass accounts or may be required to pass accounts by Order of the court. Subsections 42 (2), (3) and (4) of the SDA set out who is entitled to apply to pass the accounts, whether it is a guardian of property, an attorney or other person(s), and subsections 49(3) and (4) of the Estates Act[17] set out the powers of a judge on the passing of any accounts.

Subsection 32(12) of the SDA states that “the Trustee Act[18] does not apply to the exercise of a guardian’s powers or the performance of guardians’ duties.” It would however appear that the procedural requirements remain the same, despite subsection 32(12) of the SDA, as subsection 23(1) of the Trustee Act provides that the proceedings and practice for a passing of accounts for a trustee are the same as for an estate trustee.

  1. PROCEDURE

The procedures governing the obligation to prepare accounts and the requirement to keep and maintain accurate records in a specific format are set out in Rule 74.17 of the Rules, as follows:

Form of Accounts

74.17 (1) Estate trustees shall keep accurate records of the assets and  transactions in the estate and accounts filed with the court shall include,

(a)        on a first passing of accounts, a statement of the assets at the date of death, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets;

(b)        on any subsequent passing of accounts, a statement of the assets on the date the accounts for the period were opened, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets, and a statement of the investments, if any, on the date the accounts for the period were opened;

(c)        an account of all money received, but excluding investment transactions recorded under clause (e);

(d)        an account of all money disbursed, including payments for trustee’s compensation and payments made under a court order, but excluding investment transactions recorded under clause (e);

(e)        where the estate trustee has made investments, an account setting out,

(i)         all money paid out to purchase investments,

(ii)        all money received by way of repayments or realization on the investments in whole or in part, and

(iii)       the balance of all the investments in the estate at the closing date of the accounts;

(f)        a statement of all the assets in the estate that are unrealized at the closing date of the accounts;

(g)        a statement of all money and investments in the estate at the closing date of the accounts;

(h)       a statement of all the liabilities of the estate, contingent or otherwise, at the closing date of the accounts;

(i)         a statement of the compensation claimed by the estate trustee and, where the statement of compensation includes a management fee based on the value of the assets of the estate, a statement setting out the method of determining the value of the assets; and such other statements and information as the court requires.

(2)       The accounts required by clauses (1)(c), (d) and (e) shall show the balance forward for each account.

(3)       Where a will or trust deals separately with the capital and income, the accounts shall be divided to show separately receipts and disbursements in respect of capital and income.[19]

Accounts must be consistent with the form set out in Rule 74.17 and shall contain a full and detailed list of all of the person under disability’s assets as of the date of the first transaction by the guardian of property, cross-referenced to entries in the accounts that show the acquisition or disposition of the assets, an account of all money received and disbursed on behalf of the person under disability (separated as to capital and revenue), a statement of property remaining, an investment account (investment items recorded are not included when calculating compensation only used to determine a care and management fee), a statement of compensation claimed/taken by/paid to the guardian of property, if any, including the method of calculating the compensation, and a statement of liabilities, contingent or otherwise, at the date of the accounts.

The guardian of property must be familiar with the transactions within the accounts and be in a position to make the accounts available to be reviewed, if required, and to satisfactorily respond to any reasonable questions raised by a person with a financial interest in the assets of a person under disability. If the guardian/attorney is aware that there may be difficulties with the administration or persons having a financial interest in the future then proper and complete accounts will offer some protection to the attorney/guardian down the road. Many harmonious relationships between guardians/attorneys and those having a financial interest in the future end very quickly when transparency and information is lacking. The guardian/attorney’s record-keeping should be governed by the possibility that the accounts may eventually be scrutinized by those with a financial interest or by the courts.

The accounts are compiled from a multitude of sources and weaved together in chronological order so that there is an entry for every related transaction that takes place. The transactions recorded are actual cash amounts (or specie transactions, i.e. distributions of assets in their present form); figures are not rounded up or down. There is no “depreciation” and/or “accrual” type of accounting when maintaining guardian/attorney accounts.

As a general rule, the more information recorded in each entry, the better. The detail must be sufficient to enable anyone unfamiliar with the administration to clearly understand everything that has transpired during the accounting period. Anyone with a financial interest is entitled to full and complete information as to the status of the assets, the nature of investments, the quantum of income generated and the disbursements made. Failure to provide such detail in a timely fashion in a format that is easily understood may result in the guardian/attorney being cited to pass accounts before the court. Proper guardian/attorney accounts provide up-to-date information as to the overall status of the guardian/attorney’s administration.

Although not forming part of the accounts submitted to the court, the specific detail from all entities holding assets and all receipts/disbursements recorded in bank and brokerage statements, supported by electronic copies of cancelled cheques, invoices, and vouchers often referred to as source documents, must be kept and be available in the event the guardian/attorney is required to pass the accounts at a hearing and may also be viewed by any opposing parties on a passing of accounts.

  1. GATHERING AND MAINTAINING INFORMATION

It is self-sabotage not to be organized and devote the time necessary to your fiduciary duty as guardian of property or attorney under a power of attorney to maintain proper financial records. It is time consuming but wise to ensure early on that all source documents will be made available by redirecting them to the guardian/attorney for property. Correspondence should be kept with the source documents to support the guardian/attorney’s efforts to obtain information and documents.

To start, consider preparing an Information Summary (see APPENDIX “A” to this chapter as an example of a guardianship appointment where the management plan is one of the governing documents). In the future, you will be glad you did this for your reference. To supplement this Summary, consider including a list of contacts at the bank, brokerage company, accountants office and any family members, attorneys for personal care etc. with telephone numbers, addresses and email addresses.

Tip: Keep a copy of the supporting documents attached to the Information Summary to verify the source of the figures recorded therein for assets and liabilities at the date of commencing the accounts. It is also a useful reference to make certain you are complying with the terms of the management plan.

Keep appraisals of assets, copies of property deeds, reporting letters with enclosures, insurance policies and tax returns. Where anything has to be calculated that is not readily obvious, for example, a statement of income paid out, these documents should be close at hand.

Keep a copy of the court Order, continuing power of attorney, certificate of statutory guardianship constituting the authority of the guardian/attorney and a copy of the management plan, if any, and the Will, if there is one, with the Information Summary.

A guardian/attorney must be familiar with the person under disability’s Will, if there is one. As a precaution, the guardian/attorney needs to know what personal assets, if any, pass as a testamentary bequest. These assets must be preserved until the person under disability departs this world.

Tip: If new assets are discovered or assets change – e.g. a house will be sold and decisions must be made regarding investment of the proceeds – then the Public Guardian and Trustee’s approval may be required to an amended management plan.

Tip: A person under disability’s financial accounts and transactions must be kept completely separate from the guardian/attorneys. Never borrow or use the person under disability’s money for the guardian/attorney or family and friends unless the guardian/attorney is authorized in the management plan or allowed by the court to receive a specific amount as compensation for their work as the guardian (see Compensation section).

  1. PREPARING ACCOUNTS

If an Information Summary which includes a true and accurate inventory of all the assets and liabilities has been prepared (as in the example provided) and the assets and liabilities which the guardian/attorney is aware of at the time of appointment have been identified in a management plan, prior to the guardian’s appointment, then the preparation of a Statement of Original Assets and Liabilities will be relatively easy to prepare. Compare the Information Summary and management plan and make certain all assets have been identified. The bank and brokerage account statements generally provide information to record in a Statement of Original Assets.

Arrangements can certainly be made for an account preparer, accountant, or lawyers to prepare the accounts – it must be remembered they will charge an hourly rate for their time spent on behalf of the guardian/attorney, and they will usually ask for a deposit up front (called a retainer) when hired. They will hold this deposit in trust until the guardian/attorney is sent a bill for the work done, and it may be necessary to top up the retainer before they will continue any further work. It is the guardian/attorney’s responsibility to maintain accounts, so it should be kept in mind that the cost of any work done on behalf of the guardian/attorney may need to be deducted from any compensation the guardian/attorney ultimately is entitled to receive.

Tip: If an account preparer is hired the guardian/attorney may be required to personally pay them. A guardian/attorney may be challenged for paying a third party for services from the person under disability’s assets that are their responsibility. Account preparers will not start any work if they do not have a retainer. This is not unreasonable – they are, after all, running a business.

Often account preparers are not supplied with sufficient information to prepare the accounts properly – nor can they invent details! The accounts need to reflect actual receipts and disbursements with sufficient detail to explain each of them. Delays and costs are incurred where an account preparer has to constantly follow up to obtain information or documents. It is not an account preparer’s responsibility to get in touch with the bank/investment brokers. Remember: they have other clients, and if the accounts cover a long period of time it can be a lengthy process to have them prepared. Efforts ought to be made to ensure that an account preparer is supplied with absolutely everything, and in an organized manner. Remember, the guardian/attorney – not the preparer – needs to be familiar with every entry in the accounts!

A sample of attorney accounts can be found as APPENDIX “B.” If an asset and liability summary has been prepared, in detail, then that summary provides a good start to preparing guardian/attorney accounts.

  1. ACCOUNTS

The accounts can be prepared using specific software programs for keeping financial records, a spreadsheet program like Excel or by inserting Tables in Word. The guardian/attorney should use a program they are comfortable with. To start, prepare a template similar to the sample accounts at APPENDIX “B” to this chapter.

Statement of Original Assets

This is a statement recording, in detail, all the assets and their values as at the date the guardian/attorney for property begins the financial administration of the person under disability’s affairs: note this means on the actual date of appointment or commencement, not at the beginning or end of the month. Each asset ought to be numbered. When recording transactions relating to each asset, for ease of reference refer to such asset number within the particulars.

Note for securities or investments the book value of the asset is recorded, NOT the market value.

A notation needs to be recorded on the Statement of Original Assets under a column entitled “Disposed of – item No. and page No.” to define the status of a particular asset. For example, “CR 1-6” denotes the capital receipt transaction number and the page number under capital receipts as a cross-reference recording the disposition of a particular original asset, whether partial or complete.

This is important because the accounts will also contain a Statement of Original Assets as at the end of the accounting period and only those assets which have not been realized or only partially realized are recorded there.

Capital/Revenue Receipts

There is an essential question to consider when faced with an accounting decision: Is the transaction capital or revenue?

As a general rule, transactions which arise from the redemption of original assets are capital in nature whereas income earned is characterized as revenue. To illustrate, consider a bank account held by the person under disability, which is then closed by the guardian (provided the management plan permits the guardian to do so). The balance in the account is recorded as a capital receipt. All interest generated in the bank account after the date of the guardian/attorney’s assumption of administration would be recorded as a revenue receipt.

Tip: Keeping bank and investment statements, whether electronic or hard copies, in individual folders/binders, in chronological order (e.g. one for Receipts and another for Disbursements) will greatly simplify posting entries from source documents. All original receipts and vouchers should be retained and kept in chronological order with the source documents.

Tip: It is useful to photocopy or scan department store receipts before their ink fades. Keep the photocopy with the original receipt stapled to it. Perhaps place both in plastic pocket folders specially made for binders and available in most Dollar Stores or office supply stores.

If, for example, the guardian sells the person under disability’s house, an original asset, the proceeds of sale are recorded as a capital receipt in the accounts. There are various methods of recording sales of real estate, but commonly the adjustments are recorded as separate entries. If property taxes and utility expenses prior to the sale were recorded in the revenue account, the adjustments on the sale price should be credited (or debited) to the revenue account as individual items. Some prefer to record the net proceeds of sale under capital receipts, with a summary of the adjustments within the particulars for the transaction. (The “Balance due on closing,” i.e. the amount of net funds received, is found on a Statement of Adjustments provided by the lawyer who handled the house sale and usually accompanies the reporting letter. Other deductions are made, such as any balance of real estate commission, legal fees and repayment of any liabilities directed and relating to the house.)

The profits (gains) from the sale of any investment(s) made during the accounting period are recorded as capital receipts. Similarly, losses are recorded as capital disbursements.

In addition to revenue receipts arising from original assets, all income generated from investments made by the guardian/attorney are properly recorded as revenue receipts.

Revenue receipts, as the name suggests, is where all income for the person under disability would be recorded, e.g. pensions, interest from investments, etc.

Capital/Revenue Disbursements

Improvements – as compared with maintenance and repairs to a real property – are often more difficult to determine for the purposes of recording them under capital or revenue. As a general rule, improvements are recorded under capital, while ongoing maintenance expenses are recorded under revenue. A guardian/attorney has a duty to preserve the assets; therefore, any repairs are considered capital transactions. Insurance is customarily recorded under revenue.

Revenue disbursements include expenditures that are necessary for the support and care of the person under disability, e.g. nursing home fees, medical expenses, personal care expenses, etc. The purchase of, say, a wheelchair or new bed for the person under disability may be more appropriately recorded under capital disbursements.

Any bank charges, including safety deposit box fees or investment management fees, are considered revenue disbursements. If the guardian/attorney is maintaining accounts for a minor, then education costs would be recorded as revenue disbursements.

Discretionary expenditures that have been determined and included in the management plan, e.g. gifts to the person under disability’s relatives or friends, may be made if (before becoming incapable) he or she would make those gifts. For example, if Aunt Georgia gave each nephew and niece $1,000 on their respective birthdays each year, then provided there are sufficient funds available, these gifts can continue.

Similarly, if the person under disability previously made charitable gifts, these may continue provided they do not represent more than 20% of the person under disability’s income in the year the donation is made.

Tip: If the person under disability has expressed that they do not wish to make a gift or donation, the guardian/attorney must follow those wishes. A guardian/attorney should not make a gift or donation to a family member or friend or make a charitable donation that is contrary to the person under disability’s express wishes. Remember, where possible and practical, keep the person under disability informed of their expenditures and the status of their assets – the guardian/attorney is, after all, looking after their assets! Ownership remains in the name of the person under disability.

Tip: If any difficulty arises about the management of the property, a guardian/attorney may apply to the court for directions on how to resolve it. The court will provide directions as to how to deal with any issues. A lawyer can provide the services of bringing an application for directions to the court.

Investments

Investments is an area where an interesting twist comes into play. The Rules clearly state that a separate investment account must be maintained where a trustee, here a guardian/attorney, has made investments of trust funds. Although it appears straightforward, the establishment and maintenance of a proper investment record within the accounts seems, for some, to be a challenge in the accounting process. One needs to consider whether to record the transaction as an original asset or as an investment. Investment entries should not be co-mingled with capital receipts and capital disbursements.

Legislation in the 1950s required a separate account for investments to limit the compensation calculated as a result of investing trust funds. Trustees seemed to change investments more frequently than was necessary in order to achieve greater capital receipt and disbursement totals and consequently to increase the amount of compensation claimed. Separating the investment transactions from the capital transactions eliminated that practice.

An investment account may be considered something of a fiction. It does not relate to original assets in any way but instead records the use of funds arising from the realization/sale of an original asset. Take as an example the net proceeds from the sale of a house that can now be invested. Say the guardian/attorney decides to invest the proceeds by purchasing a Treasury Bill for a 30 day period. The proceeds from the sale of an original asset, in this case the house, that are subsequently invested in the purchase of a Treasury Bill would be recorded under Investments. The Investments made by the guardian/attorney can be recorded under separate headings entitled Investment Disbursements and Investment Receipts; however, most often the investment account is a chronological statement with two columns, one for debits (to record purchases) and one for credits (to record sales). The total purchase price of an investment (including brokerage fees) is recorded as a debit (Investment Disbursement). The subsequent sale or realization of an investment records the initial price paid for the investment, less any gain, as a credit (Investment Receipt). The gain is recorded under capital receipts so that the guardian/attorney may claim a percentage of compensation on the gain. Similarly, any losses are recorded as debits under capital disbursements. Note that compensation is calculated and claimed on net gains.

The investment portion of the accounts is strictly related to principal funds. Any interest earned or dividends received in relation to the various investments are not recorded in the investment statement but under revenue receipts. In the case of mutual funds where dividend re-investments occur, the dividends are recorded under revenue receipts and the re-invested amounts are recorded under investments.

The accounts must balance. The difference between the debits and the credits should be the cost of investments held at the end of the accounting period.

The separation of investments serves a number of practical purposes. The separation enables anyone to review, at a glance, the nature of the investments and whether they comply with The Trustee Act and the terms of the management plan, in the case of a guardianship. Also they reveal whether the guardian/attorney has been diligent with investment obligations or merely rolling over term deposits on maturity dates. Of course, the nature of investments must be in accordance with any management plan and the individual needs of the person under disability. A review of the investments also reveals information as to the rate of return obtained on the investments and whether the maximum was obtained.

The substance or absence of investments could influence the care and management fee.

A review of the investments on hand at the end of the accounting period ought to indicate whether the holdings are balanced as between equity and income producing assets.

Compensation

The compensation calculation, using the tariff for guardian/attorney compensation, is recorded in a statement at the end of the accounts. Note that any non-compensable transactions, e.g. transfers between accounts or overpayments that are subsequently refunded, should be deducted from the Capital/Revenue Receipt/Disbursement totals prior to calculating compensation.

Section 40 of the SDA provides that an attorney for property may take an annual compensation from the property under control, in accordance with a prescribed fee scale[20] currently set at 3% on receipts and disbursements and three-fifths of 1% as a care and management fee, provided there is no express provision in a continuing power of attorney for compensation. If the compensation is predetermined in a continuing power of attorney then that arrangement would govern the compensation to be taken. Under the SDA, a guardian for property or an attorney have a unique statutory right to compensation. The compensation may be taken monthly, quarterly or annually (SDA s. 40(2)). If consent in writing is given by the Public Guardian and Trustee and by the incapable person’s guardian of person or attorney under a power of attorney for personal care, if any, the guardian or attorney may take an amount of compensation greater than the prescribed fee scale (SDA s. 40(3)(a)).

The standard of care that applies to a guardian of property or attorney depends on whether compensation is received or not. Subsection 32(8) of the SDA states that “a guardian who receives compensation for managing the property shall exercise the degree of care, diligence and skill that a person in the business of managing the property of others is required to exercise.” Under s. 32(7) a guardian of property who does not receive compensation is judged by a lower standard and is only required to “exercise a degree of care, diligence and skill that a person of ordinary prudence would exercise in the conduct of his or her own affairs.”

PART II: PROCEDURES TO PASS ACCOUNTS

As indicated by Rule 74.16 of the Rules of Civil Procedure, Rules 74.16 to 74.18 apply to accounts of estate trustees and, with necessary modifications, to accounts of trustees other than estate trustees, persons acting under a power of attorney, guardians of the property of mentally incapable persons, guardians of property of a minor and persons having similar duties who are directed by the court to prepare accounts relating to their management of assets or money.

The following reproduces the relevant text from these Rules, and provides brief annotations with more detail on procedures for compliance. The Rules and annotations reflect the changes coming into effect on January 1, 2016.

Material to be Filed

74.18 (1) On the application of an estate trustee to pass accounts, the estate trustee shall file,

the estate accounts for the relevant period verified by an affidavit of the estate trustee (Form 74.43);

a copy of the certificate of appointment of the applicant as estate trustee;

a copy of the latest judgment, if any, of the court relating to the passing of accounts.

The accounts are attached to the affidavit verifying the accounts as an exhibit. The guardian of property or attorney swears or affirms that the accounts are complete and correct and that all persons having a financial interest in the property of the person under disability have been named. If there is more than one guardian or attorney, they must each swear an affidavit, unless sworn or affirmed jointly at the same time.

A copy of any previous judgment of the court relating to a former passing of accounts is filed in part to provide any carry-forward figures for Capital/Revenue Receipts/Disbursements and Investments including a list of remaining original assets/trustee investments as a starting point for the current period of accounts.

A guardian of property or an attorney under a continuing power of attorney shall also keep, together with the accounts, a copy of the continuing power of attorney, certificate of statutory guardianship or court Order constituting the authority of the attorney or guardian, a copy of the management plan, if any, and a copy of any court Orders relating to the guardian’s or attorney’s authority or to the management of the incapable person’s property (O. Reg. 100/96. s. 2).

Issuing a Notice of Application

74.18 (2) On receiving the material referred to in subrule (1), the court shall issue a notice of the application to pass accounts (Form 74.44)

In addition to the Rules, the particular requirements of the local court office through which the accounts are being passed should be checked in advance as minor procedural steps (e.g. procedure for choosing the hearing date) can vary among the court offices.

The court office will fill in a hearing date and time on the notice of application to pass accounts and the Registrar will then date and sign the notice, provided the documents set out above are submitted along with the notice.

Incorporated in the notice of application is a notice to any person having a financial interest in the property of the person under disability indicating that such person can object to the accounts (Form 74.45).

Service of documents and notice requirements

Rule 74.18 (3) to (5) of the Rules set out the service requirements, as follows:

Service

The applicant shall serve the notice of application and a copy of a draft of the judgment sought on each person who has a contingent or vested interest in the estate by regular lettermail.[21]

Where the Public Guardian and Trustee or the Children’s Lawyer represents a person who has a contingent or vested interest in the estate, the Public Guardian and Trustee or the Children’s Lawyer shall be served with the documents referred to in subrules (1) and (3).[22]

Where a person other than the Public Guardian and Trustee acts as an attorney under a continuing power of attorney for property or as a guardian of property for a person under disability who has a contingent or vested interest in the estate, the attorney or guardian shall be served with the documents referred to in subrules (1) and (3).[23]

Where the person is served in Ontario, the documents shall be served at least 60 days before the hearing date specified in the notice of application.[24]

Where the person is served outside Ontario, the documents shall be served at least 75 days before the hearing date specified in the notice of application.[25]

Person under Disability or Unknown

If a person referred to in subrule (3) is under disability or is unknown, the court may appoint someone to represent the person on the passing of accounts if,

neither the Public Guardian and Trustee nor the Children’s Lawyer is authorized under any Act to represent the person, and

there is no litigation guardian to act for the person on the passing of accounts.[26]

Lengthy notice periods of 60 days before the hearing date specified in the notice of application if service is in Ontario and at least 75 days for service outside of Ontario are required to give the persons served time to prepare, serve, and file their objections, if any.

Objections and Requests for Further Notice

Rules 74.18(7) to (8.1) specify the options open to someone served with the notice of application and draft judgment. Such a recipient may file a notice of objection if they wish to object, or – as of January 1, 2016 – if they do not object but wish to continue to be served with notice of any further steps in the application, they may serve a new form called a “Request for Further Notice” (Form 74.45.1), included below.

Notice of Objection to Accounts

74.18 (7)  A person who is served with documents under subrule (3) or (3.2) and who wishes to object to the accounts shall, at least 35 days before the hearing date specified in the notice of application, serve on the applicant, and file with proof of service, a notice of objection to accounts (Form 74.45).

Request for Further Notice [new form commencing January 1, 2016] (see page 128)

74.18 (8) A person who is served with documents under subrule (3) or (3.2) and who does not object to the accounts but wishes to receive notice of any further step in the application, including a request for costs or a request for increased costs, shall, at least 35 days before the hearing date specified in the notice of application, serve on the applicant, and file with proof of service, a request for further notice in passing of accounts (Form 74.45.1).  (O. Reg. 193/15, s. 12 (4).

(8.1)  Unless the court orders otherwise, a person who serves and files a request for further notice in passing of accounts is entitled to,

(a) receive notice of any further step in the application;

(b) receive any further document in the application;

(c) file material relating to costs under subrule (8.6), (11) or (11.2); and

(d) in the event of a hearing, be heard at the hearing, examine a witness and cross-examine on an affidavit, but with respect only to a request for increased costs under subrule (11).


Form 74.45.1

Courts of Justice Act

Request for further notice in passing of accounts

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE ESTATE OF (insert name), deceased.

request for further notice in passing of accounts

I (insert name) have been served with a notice of application to pass accounts. By serving this request for further notice,  I acknowledge that:

I do not object to the accounts but wish to receive notice of any further step in the application, including a request for costs or a request for increased costs, and

I shall, at least 35 days before the hearing date specified in the notice of application, serve on the applicant, and file with proof of service, this request for further notice.

I further acknowledge that, unless the court orders otherwise, I am entitled to,

(a)             receive notice of any further step in the application to pass accounts;

(b)             receive any further document in the application;

(c)             file material relating to a request for increased costs on the application at least 10 days before the hearing date of the                                           application; and

(d)             in the event of a hearing, be heard at the hearing, examine a witness and cross-examine on an affidavit, but with                                                   respect only to a request for increased costs.

DATE SIGNATURE

 

  (Name, address and telephone number of person requesting further notice)

RCP-E 74.45.1 (February 1, 2015)


 

Next Steps Before Hearing

Rules 74.18(8.2) to (14) specify next steps between service of the notice of application and draft judgment and the ultimate disposition. These steps, and who is involved in them, differ depending on whether any notices of objection or requests for further notice have been filed.

No Response

74.18 (8.2)  Unless the court orders otherwise, a person who is served with documents under subrule (3) or (3.2) but does not serve and file either a notice of objection to accounts or a request for further notice in passing of accounts, is not entitled to,

(a)  receive notice of any further step in the application;

(b)  receive any further document in the application;

(c)  file material on the application; or

(d)  in the event of a hearing, be heard at the hearing, examine a witness or cross-examine on an affidavit.

Response to Application – Public Guardian and Trustee or Children’s Lawyer

74.18 (8.3)   If the Public Guardian and Trustee or the Children’s Lawyer is served with documents under subrule (3.1), the Public Guardian and Trustee or the Children’s Lawyer, as the case may be, shall, at least 30 days before the hearing date specified in the notice of application, serve on the applicant and file with proof of service,

(a)  a notice of objection to accounts (Form 74.45)

(b)  a request for further notice in passing of accounts (Form 74.45.1);

(c)  a notice of no objection to accounts (Form 74.46); or

(d) a notice of non-participation in passing of accounts (Form 74.46.1).

Withdrawal of Objection

74.18 (8.4)  A person who wishes to withdraw a notice of objection to accounts shall, at least 15 days before the hearing date of the application, serve on the applicant, and file with proof of service, a notice of withdrawal of objection (Form 74.48).  O. Reg. 193/15, s. 12 (4).

When a Hearing not Required

74.18 (8.5) An applicant may seek judgment on the passing of accounts without a hearing under subrule (9) if,

(a)  no notices of objection to accounts are filed; or

(b)  every notice of objection to accounts that was filed is withdrawn before the deadline set out in that subrule.  (O. Reg. 193/15, s. 12 (4))

Request for Costs

74.18 (8.6)  Subject to subrule (11), any person served with documents under subrule (3), (3.1) or (3.2) who wishes to seek costs shall, at least 10 days before the hearing date of the application, serve on the applicant a request for costs (Form 74.49) or 74.49.1) and file the request with proof of service.  (O. Reg. 193/15, s. 12 (4).)

Judgment on Passing of Accounts Granted Without Hearing

74.18 (9)  The court may grant a judgment on passing accounts without a hearing if, at least five days before the hearing date of the application, the applicant files with the court,

(a)  a record containing,

(i)  an affidavit of service of the documents served under subrule (3), (3.1) or (3.2),

(ii) the notices of no objection to accounts or notices of non-participation in passing of accounts of the Children’s Lawyer and Public Guardian and Trustee, if served,

(iii) an affidavit (Form 74.47) of the applicant or applicant’s lawyer stating that a copy of the accounts was provided to each person who was served with the notice of application and requested a copy, that the time for filing notices of objection to accounts has expired and that no notice of objection to accounts was received from any person served, or that, if a notice of objection was received, it was withdrawn as evidenced by a notice of withdrawal of objection (Form 74.48) attached to the affidavit,

(iv) requests (Form 74.49 or 74.49.1), if any, for costs of the persons served,

(iv.1) any requests for increased costs (Form 74.49.2 or 74.49.3), costs outlines (Form 57B) and responses to requests for increased costs received under subrule (11.2), and

(v) the certificate of a lawyer stating that all documents required by   subclauses (i) to (iv.1) are included in the record;  (O. Reg. 193/15, s. 12 (8))

(b) a draft of the judgment sought, in duplicate; and

(c) if the Children’s Lawyer or the Public Guardian and Trustee was served with documents under subrule (3.1) and did not serve a notice of non-participation in passing of accounts, a copy of the draft judgment approved by the Children’s Lawyer or the Public Guardian and Trustee, as the case may be.  O. Reg. 484/94, s. 12; O. Reg. 69/95, ss. 19, 20; O. Reg. 332/96, s. 4 (2, 3); O. Reg. 575/07, s. 1, O. Reg. 193/15, s. 12 (9).

Costs

74.18 (10) Where the court grants judgment on passing accounts without a hearing, the costs awarded shall be assessed in accordance with Tariff C, except as provided under subrules (11) to (11.4).  O. Reg. 55/12, s. 12 (5), O. Reg. 193/15, s. 12 (10).

Request for Increased Costs

74.18 (11) Where the applicant or a person served with documents under subrule (3), (3.1) or (3.2) seeks costs greater than the amount allowed in Tariff C, he or she shall, before the deadline referred to in subrule (11.1), serve on the persons referred to in subrule (11.1),

(a) a request for increased costs (Form 74.49.2 or 74.49.3) specifying the amount of the costs being sought; and

(b) a costs outline (Form 57B).  O. Reg. 55/12, s. 12 (5).

74.18 (11.1) Unless the court orders otherwise, the documents referred to in subrule (11) shall be served on the applicant and on the following persons, as applicable, at least 15 days before the hearing date of the application:

  1. Every person who has served and filed a notice of objection to accounts in accordance with subrule (7), even if he or she has since withdrawn it.
  2. Every person who has served and filed a request for further notice in passing of accounts in accordance with subrule (8).
  3. The Public Guardian and Trustee or Children’s Lawyer, as the case may be, if the Public Guardian and Trustee or the Children’s Lawyer was served with documents under subrule (3.1) and did not serve and file a notice of non-participation in passing of accounts. O. Reg. 193/15, s. 12 (12).

74.18 (11.2) Any objection or consent to a request for increased costs shall be made by returning the completed Form 74.49.2 or 74.49.3, as the case may be, to the person making the request so that he or she receives it at least 10 days before the hearing date of the application.  O. Reg. 193/15, s.12 (13).

74.18 (11.3) Where a request for increased costs is served under subrule (11), the person making the request shall, at least five days before the hearing date of the application, file with the court a supplementary record containing, O. Reg. 193/15, s. 12 (14))

(a) the documents served under that subrule, together with an affidavit of service of  those documents; and

(b) an affidavit containing,

(i) a summary of the responses to the request for increased costs received under subrule (11.2), and a list of the persons who failed to respond, and

(ii) the factors that contributed to the increased costs.  O. Reg. 55/12, s. 12 (5).

Judgment on Increased Costs Granted Without Hearing

74.18 (11.4) The court may, on consideration of the documents referred to in subrule (11.3), grant judgment on a request for increased costs without a hearing, and may, for the purpose, order the person making the request to provide any additional information that the court specifies.  O. Reg. 55/12, s. 12 (5).

Contested Passing of Accounts (Hearing)

74.18 (11.5) If one or more notices of objection to accounts are filed and not withdrawn, the applicant shall, at least 10 days before the hearing date of the application, serve on the persons referred to in subrule (11.6), and file with proof of service,

(a) a consolidation of all the remaining notices of objection to accounts; and

(b) a reply to notice of objection to accounts (Form 74.49.4). O. Reg. 193/15, s. 12 (15).

(11.6) The documents referred to in subrule (11.5) shall be served on,

(a) every person who has served and filed a notice of objection to accounts in accordance with subrule (7) and not withdrawn it;

(b) every person who has served and filed a request for further notice in passing of accounts in accordance with subrule (8); and

(c) the Public Guardian and Trustee or Children’s Lawyer, as the case may be, if the Public Guardian and Trustee or the Children’s Lawyer was served with documents under subrule (3.1) and did not serve and file a notice of non-participation in passing of accounts. O. Reg. 193/15, s. 12 (15).

74.18 (11.7) If the application to pass accounts proceeds to a hearing, the applicant shall, at least five days before the hearing date, file with the court a record containing,

(a) the application to pass accounts;

(b) the documents referred to in subrule (11.5);

(c) any responses to the applicant’s reply to notice of objection to accounts by the persons on whom the reply was served;

(d) in the case of any notice of objection to accounts that is withdrawn after the documents referred to in subrule (11.5) were served and filed, a copy of the notice of withdrawal of objection (Form 74.48);

(e) the notices of non-participation in passing of accounts of the Public Guardian and Trustee and the Children’s Lawyer, if served;

(f) any requests for further notice in passing of accounts (Form 74.45.1);

(g) any requests for costs (Form 74.49 or 74.49.1) of persons served under subrule (11.5);

(h) any requests for increased costs (Form 74.49.2 or 74.49.3), costs outlines (Form 57B) and responses to requests for increased costs received under subrule (11.2); and

(i) a draft order for directions or of the judgment sought, as the case may be. O. Reg. 193/15, s. 12 (15).

74.18 (11.8) If the applicant and every person referred to under subrule (11.6), as applicable, agree to all of the terms of a draft order, the applicant shall indicate that it is a joint draft order. O. Reg. 193/15, s. 12 (15).

74.18 (11.9) If the applicant and every person referred to under subrule (11.6), as applicable, fail to agree to all of the terms of a draft order,

(a) the applicant shall indicate that it is the applicant’s draft order; and

(b) any person referred to in clause (11.6) (a) may file an alternative draft order at least three days before the hearing date of the application or, with leave of the court, at the hearing. O. Reg. 193/15, s. 12 (15).

74.18 (12) No objection shall be raised at a hearing on a passing of accounts that was not raised in a notice of objection to accounts, unless the court orders otherwise.  O. Reg. 484/94, s. 12; O. Reg. 55/12, s. 12 (6).

74.18 (13) At the hearing, the court may assess, or refer to an assessment officer, any bill of costs, account or charge of lawyers employed by the applicant or by a person who filed a notice of objection or a request for further notice in passing of accounts. O. Reg. 193/15, s. 12 (16).

Trial may be Directed

74.18 (13.1) On the hearing of the application, the court may order that the application or any issue proceed to trial and give such directions as are just, including directions,

(a) respecting the issues to be tried and each party’s position on each issue;

(b) respecting the timing and scope of any applicable disclosure;

(c) respecting the witnesses each party intends to call, the issues to be addressed by each witness and the length of each witness’ testimony; and

(d) respecting the procedure to be followed at the trial, including methods of adducing evidence. O. Reg. 193/15, s. 12 (17).

Directions regarding mediation

74.18 (13.2) In making an order under subrule (13.1), the court may, in addition to giving any direction under that subrule,

(a) give any direction that may be given under subrule 75.1.05 (4), in the case of a proceeding that is subject to Rule 75.1 (mandatory mediation); or

(b) in the case of a proceeding that is not subject to Rule 75.1, order that a mediation session be conducted in accordance with Rule 75.2, and, for the purpose, give any direction that may be given under subrule 75.1.05 (4). O. Reg. 193/15, s. 12 (17).

Form of Judgment

74.18 (14) The judgment on a passing of accounts shall be in Form 74.50 or 74.51.  O. Reg. 484/94, s. 12.

[1]             SO 1992, c 30, s. 32(1): A guardian of property is a fiduciary whose powers and duties shall be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit.

[2]             RSO 1990, c C.12.

[3]             SDA at ss. 32(6) and 32(10). Note the exception of the Public Guardian and Trustee (“PGT”), who acts in accordance with the policies of the office of the PGT and is not required to file a management plan.

[4]             RRO 1990, Reg. 194, as amended under the Courts of Justice Act, RSO 1990, c C.43.

[5]             Rules, Ibid, r. 38.10(1)(a):  “On the hearing of an application the presiding judge may a) grant the relief sought or dismiss or adjourn the application, in whole or in part and with or without terms.”

[6]             SDA, supra note 1, ss. 42(1)-(8).

[7]             Ibid, ss. 42(1)-(8).

[8]             Rules, supra note 4, r. 74.18(11)-(13).

[9]             Consolidated Practice Direction Concerning the Estates List, Toronto Region, July 1, 2014 [“Practice Direction”] at para. 44.

[10]           Rules, supra note 4, r.  74.18(10)

[11]           Ibid, r. 74.18(13)

[12]           Ibid, r. 58.01; Courts of Justice Act, supra note 4, s. 131; Re Briand Estate (1995), 10 ETR (2d) 99 (Ont. Gen. Div.)

[13]           SDA, Ontario Regulation 26/95, s. 1(a) through (c)

[14]           SDA, s. 40(2).

[15]           SDA, s. 40(3)(a).

[16]           SO 1992, c 30.

[17]           RSO 1990, c E.21.

[18]           RSO 1990, c T.23.

[19]           O. Reg 484/94, s.12

[20]           O. Reg. 159/00

[21]           O. Reg. 484/94, s. 12

[22]           O. Reg. 377/95, s. 6

[23]           O. Reg. 193/15, s.12 (1)

[24]           O. Reg. 193/15 s. 12 (2)

[25]           O. Reg. 193/15 s. 12 (3)

[26]           O. Reg. 193/15, s. 12 (4)

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