Estate trustees are accountable to the beneficiaries of an estate for the steps they have taken in their administration. Estate trustees should keep a complete record of their activities and always be in a position to prove that they acted prudently and honestly, with accounts ready upon request by a beneficiary. But what happens when an estate trustee is unable to account for a transaction, such as when they cannot produce a document or paper trail in support of an expense for which they have sought to reimburse themselves from the estate? Does this mean that the estate trustee is personally liable for this transaction and must repay the money to the estate?
The issue of whether an estate trustee must produce a written receipt for every expense incurred in order to obtain a reimbursement from the estate was recently considered by the Court in The Estate of Toller James Montague Cranston, 2021 ONSC 1347. This passing of accounts decision involved the estate of Canadian figure skating icon Toller Cranston, who died intestate in Mexico in 2015. Mr. Cranston left an extensive art collection and other assets worth approximately $6 million. His sister and two brothers were his beneficiaries. The sister was appointed the administrator of Mr. Cranston’s estate by both a Mexican and Ontario court. The sister (the “estate trustee”) brought an application to pass her accounts, to which her brothers/the beneficiaries raised over 300 objections.
Their main objections related to the estate trustee’s reimbursement of expenses for which she obtained no receipt (such as for cash payments made to Mr. Cranston’s domestic staff in Mexico). The beneficiaries argued that the estate trustee should be required to repay these expenses to the estate.
In considering this issue, the Court confirmed that an estate trustee is not required to meet a standard of perfection; rather, the standard of care of an estate trustee with respect to maintaining accounts is the standard of a person using ordinary care and diligence in managing their own affairs.
Although the estate trustee was unable to provide a receipt to evidence the expenses at issue, she otherwise had a record for the disbursements in her accounting, was able to provide a detailed explanation under oath for the reasons for the expenses, and produced documentation to justify and corroborate the amount of each expense she charged to the estate. As a result, the objections to the expenses were denied, and the Court found the estate trustee had acted honestly and in good faith.
This decision indicates that while the absence of a receipt will not by itself be fatal, an estate trustee must nevertheless be able to explain every expense with some corroboration, and the expense itself must be reasonable.
Of course, the recommended approach is for an estate trustee to obtain a receipt for every expense where possible. If a receipt is not available, however, a prudent estate trustee should record the reason and nature of the expense, in the event the expense is questioned or challenged by a beneficiary at a future passing of accounts.