Passing of Accounts
The Ontarian legal view on passing accounts is shaped by its optional nature. Ontario courts are able to inquire into the accounts of fiduciaries in order to determine their validity and pass them (s. 48-50 Estates Act, s. 23 Trustee Act, s. 42 Substitution Decisions Act). There is no formal requirement to pass accounts unless compelled by an interested party. This philosophy surrounding accounts has allowed for a more flexible approach to deadlines on passing accounts or objecting to their passing. However, the differences between these pieces of legislation regarding executors, trustees, guardians, and those with power of attorney has lead to issues regarding the timeline for petitioning for the passing of account.
Passing of Accounts by Attorney for Property
In Armitage v Salvation Army, 2016 ONSC 2043, Sharon Armitage was appointed both as the attorney for property and eventually the executor of a person’s estate. Sharon then applied for passing of accounts two years after the death of the testator which included compensation for exercising her power of attorney. Salvation Army was the sole beneficiary of the estate and thus stood to lose the attorney compensation fees. The organization filed notices of objection, believing that the passing of accounts was too late and barred by the statute of limitations. This would prevent the attorney/executor from claiming compensation from the estate for their work.
The timeline was important to the case. The deceased passed away on February 5th, 2013. However, dating back to 2006, Sharon acted as the decedent’s attorney for his property and personal care, including the drafting of different documentation and selling his home. Sharon only applied for her claim for attorney compensation on September 5th, 2014, issued a Notice of Application January 30th 2015, and filed for another application to pass the estate accounts on January 30th 2015 after being prompted to do so by Salvation Army.
Salvation Army contended that such claims for attorney compensation must be commenced within two years at the end of every year the fiduciary has power of attorney. While the s. 40(1) of the Substitute Decisions Act allowed a guardian of property or attorney under a power of attorney to take annual compensation, there was no limitation period included in the Act. Nor were there any such limitations in the Power of Attorney documents.
The Ontario Superior Court ruled for Sharon. The Substitution Decisions Act did not require the taking of compensation annually. The limitation period did not begin at the end of every year. Instead, the decedent’s death in Feburary 2013 terminated the power of attorney and thus triggered the 2-year period limitation period. The judge found that Sharon properly met the two-year deadline.
The Ontario Court of Appeal agreed with the trial decision but differed on the application of the Limitations Act. The Limitations Act set out a two-year period for “claims”. However, the passing of accounts did not constitute a “claim”. The passing of accounts is a fiduciary obligation; the fiduciary may apply for the passing of accounts and seek court approval for the compensation of their services. Although the Limitations Act fails to explicitly carve out an exception for the passing of accounts, a “claim” under the Act specifically refers to “a claim to remedy an injury, loss, or damage that occurred as a result of an act or omission”.
Salvation Army argued that the failure to claim the compensation earlier constituted the omission, and the loss was the loss of her potential compensation. The Court of Appeal disagreed, stating that the passing of accounts application is not remedial, but the seeking of a court order that no remedy is necessary. It is seeking approval for compensation. The passing of accounts under the SDA was not subject to the two year general limitation of the Limitations Act. With this decision, the passing of accounts may happen at any time following the termination of a power of attorney.
Objections to Passing of Accounts
Two years later, a similar issue was raised in Wall v Shaw, 2018 ONCA 929. Mr. Shaw, the estate trustee, did not pass estate accounts for approximately 10 years. Instead, he conducted annual meetings with the beneficiaries to discuss the administration of the estate. His compensation eventually became a major disagreement. Throughout this time, Mr. Shaw was pre-taking compensation without court approval. In March 2015, Mr. Shaw petitioned to pass the estate accounts. The beneficiary filed a notice of objection, disagreeing on the compensation claimed. Mr. Shaw attempted to strike the notice of objection to the passing of accounts on numerous grounds. One of his arguments was that the notice of objection was time-barred by ss. 4 and 5 of the Limitations Act. In his belief, the beneficiary was asserting a time-barred claim.
The trial judge rejected this argument based on the precedent set in Armitage v Salvation Army.
Mr. Shaw’s appeal to the Court of Appeal was also ultimately dismissed. As demonstrated in Armitage, passing accounts was a proceeding not captured by the Limitations Act narrow definition of a “claim”. Therefore the notice of objection was simply a response to the proceeding to pass accounts that had previously been started. It was not a new proceeding or claim on its own and thus does not trigger s. 4 of the Limitations Act.
Unfortunately, the judge based their decision on Armitage’s logic without distinguishing attorneys from property and estate trustees. The case also centred on the application for the passing of accounts by the executor involved, not by a third party. This issue would resurface in Ontario Courts and force a deeper analysis of the limitation period for fiduciaries.
Application for Passing of Accounts by Third Parties
Cases from the last year have added more context to the limitation of the passing of accounts. Does the lack of a limitation period apply to an interested party attempting to compel the fiduciary to pass account? In The Estate of Celeste Dos Santos, 2022 ONSC 3824, the Ontario Superior Court briefly clarified its earlier rulings and their application to this issue. A beneficiary attempted to compel the estate administrator to pass their accounts in 2021, despite the fact that the decedent had passed away in 2013. The beneficiary relied on Armitage and Wall to claim that the Limitations Act did not apply to their application requiring the executor and attorney to pass accounts.
The court disagreed with this interpretation of Armitage. In that line of cases, the attorney applied to pass accounts of their own accord. None of these petitions, nor any objections to them, constituted a claim under the Ontario Limitations Act. On the other hand, compelling the passing of accounts from a third party did constitute a claim since it attempted to compel the executor or attorney to act. Ultimately, it was unfair and unreasonable to expect a fiduciary to keep records for eight years and provide detailed accounts. This appeared especially unfair to the court without any prima facie evidence of wrongdoing. Thus, the court dismissed the beneficiary’s application to compel the executor to pass accounts.
Fresh off the docket, Van Ruymbeke v. Van Ruymbeke, 2023 ONSC 1212 challenges this state of the law. A complicated family dispute, the case centres on the mismanagement of a mother’s affairs by family members holding power of attorney. The current estate administrator, Sandra, wanted to force the passing of accounts by two of her siblings who previously had power of attorney. Her siblings raised the statute of limitations, hoping Sandra's petition was time barred. Adding to the confusion, Mark, one of the children allegedly possessing power of attorney, had also passed away, leaving his estate objecting on his behalf. Finally, there was actually insufficient evidence to prove that he held power of attorney.
Unfortunately, Sandra only brought the application for passing account more than two years after her mother’s death. This fact would generally disqualify the claim under s.38(3) of the Trustee Act, which prevents executors from initiating an action more than two years after the decedent’s death. Furthermore, Mark’s estate argued that since Mark was never formally granted power of attorney for property, any claims seeking redress and compensation from Mark’s estate were subject to the limitation period. In response, Sandra claimed that Mark was granted power of attorney, and thus was subject to the Armitage rule that passing accounts is not subject to a limitation period.
Mark's estate further argued that Dos Santos cemented that the lack of limitations period for passing accounts only applied to a fiduciary’s own petitions, not for third-party applications to compel the passing of accounts by another. Drawing from Wall v Shaw, Sandra responded that there are policy considerations against allowing fiduciaries to insulate themselves from scrutiny by a statute of limitations. She further claimed that Dos Santos was wrongly decided and not binding.
The court refused to consider this legal issue for this particular case. Since Mark’s status as a fiduciary was only hypothetical, it required a full trial to uncover whether he held power of attorney. The Ontario Superior Court ultimately stated that the court still had the discretionary authority under s. 42(1) of the Substitute Decisions Act to order a passing of accounts if Mark is found to have been a fiduciary. In doing so, the ONSC highlighted the discretionary nature of compelling the passing of accounts in such situations. The judge also used this discretion to compel Susan, who had been explicitly given power of attorney, to pass her accounts under s.42(1) SDA.
State of the law and next steps
The recent case law demonstrates that Ontario does not recognize a limitation period for a fiduciary commencing the passing of accounts, or any objections thereof. However, it is unclear whether compelling the passing of accounts by an interested party is subject to the Limitations Act. Dos Santos and Van Ruymbeke appear to be in opposition to one another. At the very least, in cases where an estate administrator takes over the estate and wishes to compel previous fiduciaries to pass their accounts on the decedent’s behalf, the court retains discretion to grant this motion. However, the state of the law is generally unclear for third-party petitioners, causing uncertainty for many fiduciaries and their lawyers.
The court in Van Ruymbeke seemed to understand that, if taken to the extreme, preventing all third parties from compelling the passing of accounts could cause harm to settlors and beneficiaries. In this vein, lawmakers should re-examine the legislation allowing for such cases. Unlike other provinces, Ontario does not require the passing of accounts. Without this obligation, unfit fiduciaries may be inclined to defraud their beneficiaries by failing to pass their accounts for two years following the settlor’s death. As both Wall and Van Ruymbeke demonstrate, this lack of oversight risks fraudulent activity as clever fiduciaries may believe they are insulated from repaying misappropriated funds.
In any event, all fiduciaries should have their accounts up to date in case they pass them one day. Stay organized and up to date using Estateably's premiere fiduciary accounting software.