The Lawyers Weekly - March 2, 2012

THE LAWYERS WEEKLY
March 2, 2012 | 15

FELICE KIRSH AND ELIZABETH BOZEK

A decision by the Ontario Superior Court of Justice has brought uncertainty to the long-standing principle that an estate trustee is entitled to be reimbursed for all estate administration expenses by suggesting that an exception applies when there is a dispute between the trustee and beneficiaries regarding whether the trustee discharged his or her duties.

Estate matters have been subject to the “loser pays” principle for a number of years; however, estate trustees are nevertheless entitled to pay their out-of-pocket administration expenses out of the estate funds; these expenses are then scrutinized on a passing of accounts. As such, if a beneficiary takes issue with the propriety of any of the expenses paid out of estate funds, including legal expenses, the proper remedy is to deliver a Notice of Objection within the passing of accounts proceedings.

Rules 74.18( 7) and ( 13) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 allow for the assessment of any legal account rendered by lawyers retained by the estate trustee. The wisdom of this approach is that it relieves estate trustees of the financial burden of administering the estate, while providing an eventual “check” on the trustee’s expenses.

In DeLorenzo v. Beresh, [2010] O.J. No. 4367, a trustee sought to have his accounts passed for various periods of administration of an estate. The beneficiaries raised numerous objections. On a motion, prior to the passing of accounts, Justice Thomas Lofchik ordered the trustee to repay all legal fees with respect to the contested passing of account proceedings and to not use any further estate funds to pay his legal accounts with respect to the continuing litigation.

Justice Lofchik recognized that trustees are entitled to indemnification for expenses incurred in passing accounts. However, he also held that different considerations apply when there is litigation between the estate trustee and the beneficiaries related to the question of whether the trustee has properly discharged his duties and that, in such circumstances, the estate trustee must bear his own costs.

This decision was cited favourably in McDougall Estate (Re), [2011] O. J. No. 3327, but the court decided the trustee was entitled to be reimbursed from the estate for her legal costs as they were “ properly incurred by her to respond to the beneficiary’s challenges to the administration of the estate.” However, as the court found pre-taking costs was akin to pre-taking compensation, interest was charged on the fees repaid from the estate.

The court in McDougall Estate
was evidently not aware that, in
an unreported decision, the
trustee of the DeLorenzo estate
had been granted leave to appeal
Justice Lofchik’s decision. Justice
Richard Lococo heard the leave to
appeal motion on Dec. 10, 2010.
He found that Justice Lofchik’s
decision was open to serious
debate and that there is “accord-
ingly good reason to doubt the
correctness of the decision.”
While Justice Lococo held the
estate should not be expected to
fund litigation between the trustee
and the beneficiaries on the mis-
feasance issue, he also observed
that “on general principle, it is open
to serious debate whether an estate
trustee should be ordered to repay
legal fees paid by the estate on an
interim basis relating to the passing
of accounts, including where the
accounts are contested by the bene-
ficiaries, as in this case.”
The issue of whether an estate
trustee should be expected to fund
such expenses personally on an
interim basis was also found to be a
matter of importance in relation to
the administration of estates in
general, as this might impact a
party’s willingness to undertake the
role of trustee. The DeLorenzo liti-
gation was ultimately settled out-
side court prior to the appeal.
Nevertheless, the fact the correct-
ness of the initial ruling was found
to be “open to serious debate” raises
questions about Justice Lofchik’s
decision and suggests the long-
standing principle that an estate
trustee is entitled to be reimbursed
for all proper expenses still holds. n

Felice Kirsh is a partner and Elizabeth Bozek is an associate with Schnurr Kirsh Schnurr Oelbaum Tator LLP, where they practice estate and trust litigation and mental incompetency litigation.

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