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What is the Passing of Accounts?

What is an estate trustee? Or rather, who?

An estate trustee is the person given the responsibility of executing a Will by the person who crafted the Will. Typically, the estate trustee would be a known person, like a family member or a friend.

Is the estate trustee always an accountant or a lawyer?

Funny question, eh? The answer of course is “no”. That aside though, it is the question itself that is instructive.

There is a legal obligation on an estate trustee to keep a complete and accurate set of accounts detailing the assets of the deceased. The “passing of accounts” is the process through which a court approves those accounts. Think of it as a double-check on the work of the estate trustee. Needless to say, since the estate trustee is typically not a professional, the process of passing accounts typically includes professional advice and assistance.

Interestingly, not all accounts must be passed. For example, the beneficiaries could consent to an informal summary and release the estate trustee. Some instances in which accounts must be passed include the existence of minor, unascertained, contingent, or incapable beneficiaries, as well as when a beneficiary challenges the handling of the estate accounts.

The Process

If an estate trustee wishes to or must pass an account, there are a number of important considerations to take into account.

An estate trustee must file a series of documents with the Superior Court of Justice. They include the accounts in the proper court format; Form 74.43 - the Affidavit of the Estate Trustee Verifying Estate Accounts; Form 74.44 - The Notice of Application to Pass Accounts; and the certificate of appointment as estate trustee.

A filing fee of $322 made payable to the Minister of Finance is also required. The trustee may also be required to attend a hearing, or have an estate litigator attend as representative.

The fully detailed process for passing of accounts can be found in Ontario’s Rules of Civil Procedure. Rule 74.17 contains the form for the passing of accounts, which requires accurate records of the assets and transactions in the estate. Rule 74.18 details the process for submitting the application and the requirements for sending notice to involved parties.

If one of the beneficiaries is a minor, the Trustee or the Office of the Children’s Lawyer must be notified and involved in the process. The same is true for the Public Guardian if a beneficiary is deemed to have a disability.

If there are any objections to the accounts, the process for submitting a Notice of Objection can also be found under Rule 74.18. In order to avoid a lengthy court process, it is best for estate trustees to ensure they have a detailed and accurate account of transactions in the estate, as well as justifications for purchases.

Needless to say, with court rules and legal documents flying left, right and centre, it can be a convoluted process. So, as stated earlier, it is best for the estate trustee to seek the help of a Wills and Estates lawyer involved in estate administration matters.

Keep This in Mind

It is important for beneficiaries to note that there must be sufficient justification for raising an objection regarding an account. The temptation to turn the estate administration process into a battleground for past grievances must be resisted. Why? Let’s take a look at the 2017 Pochopsky Estate case.

In that case, four sibling beneficiaries legally compelled their estate trustee to initiate a passing of accounts in an attempt to obtain assets shared by their deceased father and his sister. All of the assets of the deceased had been settled outside of his estate, so their request was largely baseless - they were no assets for them to pursue in reality. Nevertheless, they persisted, despite repeated warnings from the estate trustee. The presiding judge ruled that the beneficiaries themselves would be liable for the $17, 445 in costs that the trustee had taken on. Yikes, eh?

Interested in estate administration generally or the passing of accounts specifically? We can readily assist. We have offices in Ottawa and Toronto, and can provide services in most other parts of Ontario. We can be reached by phone at 1-888-59-WILLS.

What are designations, and do you know what yours are?

What is a Will, anyway?

Is it the document setting out how all of your assets will be taken care of and distributed after you pass on?

Well, it can be that document. It most definitely can.

However, in our modern world, there are other documents that are often used - alongside Wills - to transfer assets or properties upon death.

They are the documents most people don’t readily bring to mind - single pieces of paper with a few questions asked and answered, that are then typically filed away or lost in the shuffle of life.

They are called “designations”.

See, in addition to the contents of your Will, there are a number of ways to pass assets on to specific family members, friends, or charities. One such vehicle - that we have already looked at - is through a trust. A designation is another such vehicle.

Much like a trust, a designation can be used to bypass the probate system. That is, the court system that includes the paying of taxes related to the value of the estate.

Think RRSP? TFSA? Life insurance? Think designations. When you open those accounts or take out those policies, you are often required to select a beneficiary who would inherit the funds if you were to pass away. The document on which you make that selection is the designation.

So, it goes without saying that all of your designations are important to your overall estate plan. If it suits your circumstances, you can choose to designate your estate as the beneficiary, ensuring all of your assets flow through your Will. If your circumstances are different, it might be better to leave your designations out of your Will.

There are some benefits in designating a loved one as a beneficiary of a specific asset. As mentioned below, the skirting of the probate system is one. Another is the fact that the transaction is kept private. A third is the fact that it is a much faster transaction compared to the process using a Will. The fourth is the fact that it is usually protected from court claims against the estate.

Planning for Time and Chance

So, designations can be just as important to your estate plan as your Will.

Apart from the reasons already enumerated above, they carry such weight (a) because of the size of the assets they can transfer, and (b) the outsize impacts a mistake or change can have on the distribution of an estate.

A designation can transfer assets valued anywhere from a few hundred to millions of dollars. For many in Ontario for instance, the remainder of a pension can constitute a sizable asset.

Also, similar to a Will, designations are susceptible to life changes. A designation made twenty years ago may no longer reflect a person’s preference, for instance. Also, at the age of 71, funds must be withdrawn from a Registered Retirement Savings Plan, but may be transferred to a Registered Retirement Income Fund. This will, of course, require a new designation and that can trigger the need to update a Will.

In addition, and also similar to a Will, designations must be set out in the final state a person would like to have them in before any incapacity sets in. Especially but not exclusively for the elderly, dementia can be a cause for concern long before death. Accidents constitute another set of possible life occurrences that can lead to mental incapacity. To prepare for such eventualities, people would typically prepare Powers of Attorney for Property. Well, the person appointed in such a document as the “attorney” can do a whole lot, but she or he cannot change a Will or a designation. The result is that a designation in place at the time a person becomes incapable of managing property is effectively “locked in”.

Live in Toronto, Ottawa, or elsewhere in Ontario, and think you might need some estate planning assistance that would see your designations plugged into your overall estate strategy in a smart and efficient way? Give us a call at 1-888-59-WILLS, or book a consultation right here on the website! We’d be happy to help you with all of your estate planning needs.

What is probate?

If you’ve ever had to settle the estate of a deceased loved one, you likely know what “probate” is. 

For anyone else, it’s just legal jargon.

Probate is the process through which a court effectively validates a Will - proving it to be true, accepting that the maker of the Will has died, and confirming that the Will is now a public document. Probate also grants the executor the legal authority to act.

In other words, probate legitimizes a Will in the eyes of the law. 

It also avoids problematic situations for institutions like banks. For example, a bank would not like to release funds to an executor pursuant to a 1982 Will of a deceased person presented by that executor, only to have another executor show up three days later with a 2015 Will of the same deceased person! Probate avoids that kind of mess.

So, how does it work?

The executor must apply to court to be granted a “Certificate of Appointment of Estate Trustee With (or Without) a Will”. Notice is given to anyone interested in the Will - usually anyone set to benefit from it.

Also, in order to know the value of the estate, there can be a detailed and sometimes lengthy process of locating all of the assets of the deceased and determining the value they hold. Non-liquid assets such as real estate and jewelry are priced at fair market value with the assumption that they were sold right before the passing of the deceased. 

The value of the estate is used in calculating the Estate Administration tax or “probate fees” of roughly 1.5%. This can quickly run into the tens of thousands depending on the size of the estate. However, there are legal strategies for reducing - or even eliminating - probate fees.

Also, the executor may have to put up a bond. That is for another day. There are legal strategies to help the executor - and ultimately the estate - avoid this headache also.

Once all of the legal, valuation and accounting paperwork is in order, the court ensures the Will is valid, and ensures that the executor is still willing and able to act. Then, the Certificate of Appointment of Estate Trustee is issued.

That ends the probate process, and starts the executor’s work.

Among the first things to do - final bills and taxes owed by the deceased must be deducted from the estate. Upon death, its debts before distribution. 

These payments can be little, or they can be substantial. For instance, capital gains taxes payable on any real estate that was not the primary residence of the deceased can be rather large, as can be capital gains taxes on any appreciation in the value of stocks held. 

To get slightly off topic a little - if a person dies without a Will (that is, “intestate”) in Ontario, probate is still often required. Further, the “debts before distribution” mantra remains in place. Regarding distribution - the Succession Law Reform Act provides that the estate of such a person is to be distributed with the first $200,000 going to a surviving spouse, and the remainder going to the surviving spouse (yes, again) and children. The distribution can change if a dependant of the deceased makes a claim.

So, how about reducing probate fees or sidestepping probate altogether at least for some assets? 

Well, there are definitely options for that. They can be a good idea because probate includes a tax on the estate, and makes the Will a public document. 

One option is two Wills for one person, with assets intended to be kept out of probate in one of the two Wills. 

Another is the joint holding of property, with survivorship rights. 

A third is the use of inter vivos trusts - that commence operation while the person with the estate plan is still alive.

A fourth is the gifting of the entire estate to a spouse or similar person using estate planning tools besides a Will.

If you reside in Ottawa or Toronto or any other part of Ontario, and have any questions about the probate process - about how to navigate its complexities, how to handle payments, or how to sidestep it in part or entirely, feel free to give us a call at 1-888-59-WILLS. 
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“Per Stirpes” versus “Per Capita” - a crucial distinction in estate planning.

Estate planning is a complicated process, and it can be frustrating when you get overwhelmed with legal jargon and latin phrases.

So, how about a couple more latin phrases? These ones though, will be thoroughly explained.

One very important consideration for most estates is the distinction between the per stirpes and per capita methods of distribution. When should an estate be distributed per stirpes or per capita? Why include this in your Will? What is the difference between them? This blog post will answer those questions in an accessible and informative format, and help guide you in the crafting of a Will that reflects your wishes.

Firstly, the language used in your Will is very important. While a fair judge will take the entire Will into consideration in the case of a family conflict, it is best to be clear and concise in the language you use to avoid a conflict in the first place. If there is a chance that anyone you wish to gift a portion of your estate to may pass before you do (predecease) it is a good idea to clarify how you wish that gift to be redistributed among your other descendants. Outside of naming each individual recipient individually, per stirpes and per capita distribution are the two most popular methods of such clarification.

Per Capita
Per Capita is Latin for “by the head.” You can think of this like a head count - if you are present, you will receive your share. If not, it will be divided up among those who are present. A per capita scheme identifies one or more rows on the family tree (called a class), such as your children, your grandchildren, or your great-grandchildren, and ensures that each of them will receive an equal portion of your estate. They must still be alive to receive their share. To make it easy, let’s assume that you have chosen your children as the class and that each of them will receive an equal share. If one of them were to pass away before the release and execution of the Will, their share will not pass to their children or their spouse. Instead, their portion of your estate will be divided up among your other children equally. If you choose all of your surviving descendants, each one of them will receive an equal share. This method of distribution is called direct entitlement.

It is most appropriate to use “per capita'' when you intend each person to receive an exactly equal portion of your estate, even if this means that one branch of your family will receive more than another. This is demonstrated in the figure below:

Figure 1: Per Capita Distribution (Children only)
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Child 1 and 3 would each receive half of the Testator’s estate. The share that would be given to Child 2 is equally divided between Child 1 and 2

Figure 2: Per Capita Distribution (All descendants)
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Each living descendant would receive an equal portion of the Testator's estate.

Per Stirpes
Per Stirpes is Latin for “by the stock” or “by the root.” You can think of this like a family tree. Even if a person is deceased, their share will travel down the tree to their roots - usually their children. A per stirpes scheme means that a person’s children will represent them if they have passed away before a will is divided up. To use the same example, if you choose your children as the class and you choose to divide your estate equally among them, but one has passed away, their share will be split equally among their children. This is called entitlement through representation and means that a share will go to the family of the intended recipient if they are no longer around to receive it.

It is most appropriate to use “per stirpes” when you intend each branch of your family to be treated equally, even though this may mean that members of the same generation may be treated differently. This is because an equal distribution of your estate among your children will result in an unequal distribution to your grandchildren if your children have differing numbers of offspring.

In most instances of the use of “per stirpes” distribution, the stipulation would be that the estate be divided evenly among the testator’s children, with the added proviso that if a child has predeceased the testator, that child’s portion is to be transferred to the child’s children (the testator’s grandchildren) “in equal shares per stirpes”. Using the figure above, and assuming instead that it is “Child 3” who has predeceased the testator, the result would be one-third to “Child 1”, one-third to “Child 2”, and one-sixth each to “Grandchild 6” and “Grandchild 7”. In this use case, for a grandchild to inherit, the grandchild’s parent must have passed on.

It is also possible, however, for the testator to use “per stirpes” distribution to ensure each branch of the family receives an equal share of the estate, with all living family members - children and grandchildren - inheriting. This is demonstrated in the figure below:

Figure 3: Per Stirpes Distribution (All descendants)
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Assuming equal weight is given to Children and Grandchildren, the above would be the division of the Testator’s estate such that each branch of the family receives a total of 1/3rd.

In essence, the difference between the two is that a per capita scheme refers to equal shares for living, named individuals, and a per stirpes scheme refers to a person’s family line or branch or “stripe”. Per capita means each individual is given an equal share and per stirpes means that each branch of the family is given an equal share.
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