In April of 2010, the Ontario Bar Association (“OBA”) substantially endorsed the adoption of the recommendations made some 20 years ago by the Ontario Law Reform Commission (“OLRC”) to modernize the bonding requirements set out in Ontario’s Estates Act (the “Estates Act”).¹ The OLRC’s recommendations were set out in its Report on Administration of Estates of Deceased Persons on March 12, 1991.²

Among the issues that the Law Reform Commission and the OBA seeks to address is the difficulty (and consequent cost) associated with applying to the court to dispense with a bond—since it is a process that involves the preparation of an affidavit and the gathering of considerable evidence, including consents, etc. Another problem is the difficulty that non-resident applicants face trying to obtain a bond—one of the challenges being that few, if any, insurance companies issue bonds to residents outside of Canada or the United States.

Although it is not clear what the status of the proposal is, a review of the Estates Act would suggest that no such amendments have been made as yet.

As it is hoped that changes to the existing legislation are not far off, the following is a brief summary of what the current state of the law is on the matter of estate trustee bonds, the problems associated therewith, and the recommendations made.

What is the purpose of the bond?

The primary purpose for the requirement that an estate trustee obtain a bond is to provide protection to the beneficiaries and creditors of the estate from negligence by the estate trustee or misappropriation on the part of the estate trustee who is applying for the grant.

When is the posting of a bond required?

There are a number of situations where bonds a required. Applications for bonds are most frequently seen in the following situations:

• When an estate trustee is seeking appointment, but there is no will; ³
• When an estate trustee is seeking appointment, and there is a will, but the applicant was not appointed an estate trustee pursuant to it⁴; and
• When there is a will and the estate trustee making the application was appointed pursuant to it, but the estate trustee is a non-resident of Ontario and the Commonwealth.⁵

The posting of a bond is also required in cases where a foreign estate trustee’s nominee as estate trustee without a will⁶, and a succeeding trustee with a will where the sole or only surviving estate trustee has died and the will makes no provision for someone else to be appointed.⁷

Exemptions

There are some exemptions to the requirement to post a bond. Subsection 36(1) of the Estates Act exempts the Government of Ontario, any ministry or any provincial commission or board from the requirement to post a bond. Subsection 36(2) also dispenses with the need for a bond where the administration on an intestacy is granted to the surviving spouse of the deceased, the net value of the estate does not exceed the preferential share of $200,000 presently prescribed under the Succession Law Reform Act,⁸  and an affidavit setting out the debts of the estate is filed with the application for administration. Finally, section 175(4) of the Loan and Trust Corporations Act ⁹ exempts registered and approved trust companies that make an application for appointment from the requirement to post a bond.

What is the value of the bond?

Subsection 37(1) of the Estates Act is clear that a bond must be twice the value of the estate. However, subsection 37(2) gives the court discretion to stray from the general requirement and either reduce the amount of the bond or dispense with it altogether, provided “special circumstances” can be shown to exist to merit this adjustment.

In practice, the requirement to post a bond is usually dispensed with or the value reduced to the value of the estate itself, provided the applicant is not a beneficiary. If the applicant is a beneficiary, the beneficiary’s share of the estate is generally deducted from the amount of the bond.

What is required to dispense with a bond – filing requirements

The Estates Act does not enumerate the factors that a court should consider when a request is made to dispense with a bond. Consequently, the task was left to our judiciary to address.

Hence, in Re Henderson Estate,¹⁰  the Honourable Mr. Justice D.M. Brown sought to clarify what the legislation had failed to address. In doing so, his Honour looked to the wording of Form 74.32 of the Rules of Civil Procedure (the “Rules”) along with Rule 74.11(2) and concluded that when an application is made for an order dispensing with the posting of a bond, the court must be satisfied on the evidence presented “that the protection afforded by a bond to beneficiaries and creditors is not required or will be met in some other way.”¹²

In terms of how an applicant can satisfy the court, his Honour concluded that in any application made to dispense with a bond, an affidavit must be included which sets out the evidence relied on in support of the request to dispense with the bond, such as the following:

(i)  The identity of all beneficiaries of the estate;
(ii) The identity of any beneficiary of the estate who is a minor or incapable person;
(iii) The value of the interest of any minor or incapable beneficiary in the estate;
(iv) Executed consents from all beneficiaries who are sui juris to the appointment of the applicant as estate trustee and to an order dispensing with an administration bond should be attached as exhibits to the affidavit. If consents cannot be obtained from all the beneficiaries, the applicant must explain how he or she intends to protect the interests of those beneficiaries by way of posting security or otherwise;
(v) The last occupation of the deceased;
(vi) Evidence as to whether all the debts of the deceased have been paid, including any obligations under support agreements or orders;
(vii) Evidence as to whether the deceased operated a business at the time of death and, if the deceased did, whether any debts of that business have been or may be claimed against the estate, and a description of each debt and its amount;
(viii) If all the debts of the estate have not been paid, evidence of the value of the assets of the estate, the particulars of each debt — amount and name of creditor — and an explanation of what arrangements have been made with those creditors to pay their debts and what security the applicant proposes to put in place in order to protect those creditors.¹³

His Honour recommended that exhibits be included which contain the consents or other documents relied upon and referred to in the affidavit. Notably, where an application for a certificate of appointment is brought by several applicants, only one affidavit of debts from one of the applicants is required.¹⁴

Form of the Order

In Re Henderson Estate, the Court advised that the operative language of any draft order filed with the court should read as follows:

THIS COURT ORDERS that the posting of an administration bond by the Estate Trustee is dispensed with.¹⁵

What are the problems with the existing bond requirements?

The current requirements for bonding of estate trustees are problematic for a number of reasons, including the following:

• Few insurance companies issue estate trustee bonds;
• There are frequently situations where an estate trustee bond cannot be obtained, i.e. where the estate trustee applying is not a U.S. or Canadian resident;
• If an estate trustee bond cannot be obtained this could result in a situation where no one will apply for a Certificate of Appointment. After all, the Office of the Children’s Lawyer (“OCL”) has no statutory jurisdiction to administer estates. And, while the Office of the Public Guardian and Trustee (“PGT”) has the statutory jurisdiction to administer estates pursuant to sections 1 and 2 of the Crown Administration of Estates Act ¹⁶ generally the PGT does not view the unavailability of a bond as sufficient reason for it to apply for a Certificate, unless there is no will and there are no next of kin residing in Ontario;
• There is an anachronistic bias inherent in the legislation which permits a non-resident from another Commonwealth jurisdiction (such as Australia or St. Lucia, for example) to apply without the necessity of obtaining a bond, but requires a non-resident from a non-Commonwealth jurisdiction (such as the U.S.) to post a bond. This somewhat arbitrary requirement is problematic given the multi-cultural makeup of Ontario, and the likely number of estate trustees from non-Commonwealth countries, such as Asia or Africa. It is a problem exacerbated by the fact that most institutions will not bond non-residents who are not American residents; and
• As a result of the foregoing, the requirement of an estate trustee bond increases the cost of administering the estate and routinely applications or motions are made to the court to dispense with them – a process which can be quite expensive and results in considerable delay to the administration of an estate.

Recommended Changes:

Underlying the OLRC and OBA’s recommendations for change to the Estates Act is a desire to reflect modernizations made in other jurisdictions, such as the U.S., the United Kingdom and New Zealand, and replace the existing general bonding requirement with limited bonding requirements in specific circumstances, combined with a broad discretion of the court to dispense with bonds in certain circumstances, such as when the beneficiaries and a majority of creditors consent.

It would appear from the recommendations that two primary changes need to be made to what may now be considered somewhat antiquated legislation, at least when compared with similar jurisdictions outside of Canada. These are:

• Amend sections 5 and 6 of the Estates Act which require that all foreign executors named in a will obtain a bond, and make practical exceptions to the requirement. One such exception would be that, where there are multiple estate trustees and at least one is a resident of Ontario, no bond should be required unless there are beneficiaries who are unborn, unascertained, under the age of majority or mentally incapable within the meaning of section 6 of the Substitute Decisions Act.¹⁷
• Amend the general bonding requirement in section 35 of the Estates Act that currently applies to all estate trustees not named in a will, such that Ontario residents do not require a bond, unless there are beneficiaries who are unborn, unascertained, under the age of majority or mentally incapable within the meaning of section 6 of the Substitute Decisions Act.¹⁸

Such proposals are reasonable given that there are clear remedies for breach of fiduciary duty, joint and several liability also governs the actions of estate trustees, and enforcement is not necessarily an issue if at least one of the applicants is a resident of Ontario (and, thus, there are assets available if a breach occurs).

Conclusion

As the legislation currently stands, in small estates, a bond may not be worth the burden of trying to get one, or the expense associated with a motion to reduce the value of or dispense with one – particularly in light of the numerous requirements articulated by our recent case law. This is no doubt the sentiment frequently expressed by foreign executors appointed in the will of a deceased loved one, once they are apprised of what is required of them in trying to fulfill their duties. The recent decision of the Honourable Mr. Justice J.W. Quinn in Re D’Angelo Estate ¹⁹ is demonstrative of the judicial gymnastics sometimes used by our courts to get over the hurdles facing non-residents estate trustees in trying to obtain a bond. In that case, the court appointed a “monitor,” to work alongside the foreign estate trustees. This was a somewhat novel concept, at least in the field of estates and elucidates the point that, some twenty or so years later, it may be that the time has come for our legislature to heed to the recommendations made by the OLRC, as endorsed by our OBA, to modernize our existing legislation on estate trustee bonds.

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Footnotes:
1. R.S.O. 1990, c. E.21.
2. http://www.oba.org/En/publicaffairs_en/PDF/EstatesBonding.pdf.
3. Estates Act, R.S.O. 1990, c. E.21, s. 35.
4. Estates Act, R.S.O. 1990, c. E.21, s. 35.
5. Estates Act, R.S.O. 1990, c. E.21, s. 6.
6. Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 74.05.1(1)(d).
7. Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rr. 74.06 and 74.07.
8. R.S.O. 1990, c. S.26.
9. R.S.O. 1990, c. L.25.
10. Henderson Estate, Re, 2008 CarswellOnt 8065 (Ont. S.C.J.).
11. R.R.O. 1990, Reg. 194.
12. Henderson Estate, Re, 2008 CarswellOnt 8065 (Ont. S.C.J.) at par. 10.
13. Henderson Estate, Re, 2008 CarswellOnt 8065 (Ont. S.C.J.) at par. 12.
14. Andrews Estate, Re, 2009 CarswellOnt 7144 (Ont. S.C.J.) at par. 4.
15. Henderson Estate, Re, 2008 CarswellOnt 8065 (Ont. S.C.J.) at par. 14.
16. R.S.O. 1990, c C.47.
17. 1992, S.O. 1992, c. 30.
18. 1992, S.O. 1992, c. 30.
19. 2010 CarswellOnt 9868.

This article is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.