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Court rules objection to trustee accounts not statute-barred

Executors should make sure beneficiaries are fully informed before taking compensation from the estate according to a recent decision, Toronto corporate lawyer Marlin Horst tells AdvocateDaily.com

The case involved a disputed passing of accounts by a lawyer acting as an estate trustee on a $3-million estate.

The lawyer, who spent 10 years without formally passing accounts, argued beneficiaries’ objections to actions more than two years old should be struck out under the Limitations Act.

However, a unanimous panel of appeal court judges, sitting as the Divisional Court, upheld a lower court judge’s ruling in favour of the beneficiaries.

“By filing a notice of objection to accounts in response to an estate trustee’s application to pass accounts, a beneficiary is not commencing a proceeding in respect of a claim within the meaning of s. 4 of the Limitations Act,” Appeal Court Justice David Brown wrote for his colleagues in dismissing the appeal.

Horst, a partner with Shibley Righton LLP, says the court reached a logical conclusion. Had the ruling gone the other way, he explains that estate trustees would be able to defeat legitimate objections by simply delaying their passing of accounts.

“If the trustee was correct in his analysis, all you would have to do is to wait for long enough that any objections would become statute-barred,” says Horst, who did not act in the matter and comments generally. “Often, the passing of accounts is the first time the beneficiaries will see what has been spent, and it’s not possible to object to things that happened when you had no knowledge of them.”  

The deceased in the case left a will that named the lawyer as executor and created two testamentary trusts for the benefit of her two children. The will also named her nieces and nephews as contingent beneficiaries should her own children have died before vesting in the trusts.

Although the executor never passed accounts formally for a decade, he regularly updated the testator’s children on his administration of the estate during informal meetings.

However, when a dispute with one of the children forced the lawyer to pass accounts in 2015, one the deceased's children and two of her nieces lodged objections, including over the amount of compensation the executor had taken.

The lawyer argued the regular meetings constituted consent for his conduct, and in any case, claimed the objections were statute-barred under the Limitations Act. However, a motion judge rejected his attempt to have the objections struck, and the appeal court agreed.

“One takeaway from the case is that trustees who are dealing with adult beneficiaries must make clear what the estate accounts are, and exactly what they are consenting to, particularly in terms of the trustee’s compensation,” Horst says. “If a trustee wants to take compensation before formally passing accounts, you need to make sure that you have got all the beneficiaries onside.”

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