Passing of Accounts
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Near the end of the probate process (and the estate settlement process in general), an executor must commonly apply to pass the estate accounts before the court, documenting all financial estate activity during the entire settlement process.
Overview
The purpose of the passing of accounts is to give the court (and the heirs) visibility into all estate financial activity over time, and court approval of these accounts is often the final step before an estate can be closed.
While a final accounting covers the period from the date of death to the conclusion of the estate settlement process, if the settlement process lasts multiple years, an executor may be required to submit an annual accounting each year, covering only the activity during the recent year.
Whatever the period covered, an estate accounting should include a listing of the assets and debts at the start of the reporting period, then list "all" financial activity that occurred throughout the reporting period.
We put "all" in quotes because the exact report requirements depends on the jurisdiction, the estate, and the judgement of the people involved. For example, in most cases, sundry estate sale items are not listed individually, and rather than saying "sold end table lamp for $35 at estate sale", low value items would be grouped together in a single entry (e.g., "estate sale proceeds of $5065 for household furnishings"). In another example, individual stocks in a brokerage account are often not listed, instead listing the brokerage account itself as an asset with a particular value.
One way or another, all financial activity must be accounted for, and the value of the estate at the starting period must balance with income, disbursements, market value changes, distributions, and remaining estate at the end of the reporting period. Ultimately, an estate accounting should make the court and heirs comfortable that the estate was well-managed, that what happened to everything is clear, that any debts were resolved, and that the heirs received their rightful inheritances.
See EstateExec Estate Accounting for information about using EstateExec to make estate accounting easy.
Accounting Report Structure (Standard)
While some jurisdictions require formatting adjustments, an estate accounting report is normally structured as follows:
Estate Summary
A summary of the overall estate, listing total amounts for estate assets and debts at the start of the reporting period, changes to inventory, income received, expenditures, distributions, and the net remaining estate. Each of these entries will have a corresponding table in the report that provides details about the summary entry (see following sections below).
Standard Approach (download example report)
Starting Inventory
A list of all assets and debts at the start of the reporting period, including value at that time. Note that when preparing a Final Accounting, this list should reflect the final understanding of the inventory at death, not any preliminary inventory that was subsequently revised.
Changes to Inventory
A list of changes to the inherent value of the starting inventory, including a brief explanation of the reason for the value change.
For example:
- Inherent Valuation: If the estate contained a house or a brokerage account that increased in value due to market conditions, the report would list those value increases
- Income and Expenses: If a bank account changed in value due to interest deposits and expenses payments, summarize that change (the exact details will be listed in a separate section)
- Transfers: If you transferred money from one account to another, that should be reflected as a decrease in value for the source asset, and an increase for the receiving asset.
- Asset Sales: When you sell an asset, the sold asset doesn't necessarily undergo any value change (unless you sold it for a different amount than was currently listed). It's true that the asset is no longer in the estate, but the purpose of this section is record individual asset value changes, not overall inventory contents. However, the asset (i.e., account) receiving the sale proceeds does increase in value, and you should record that.
- Debts: Obviously, an asset account making a debt payment will decrease in value, and the amount owed on the debt will decrease commensurately. If a debt increases for some reason (e.g., accruing interest), that should be recorded. If all or a portion of a debt is forgiven, the amount owed on the debt would be reduced.
It is important to understand that this section lists changes to the value of individual assets and debts. It does not list changes to the overall estate inventory: for example, it does not list the fact that an asset has been sold or distributed and is no longer in the estate.
Transaction Tables
An estate accounting report usually then includes a series of subsequent tables listing every transaction by type. The listed transactions should include the date, the amount, the purpose, and the associated asset/account, organized into the following tables:
- Interest
- Rent
- Capital Gains Distributions
- Other Income
- Debt Payments
- Administration Expenses
- Payments to Executor
- Taxes
- Distributions
Future Plans
If you are generating an interim accounting report, you may also include a section on future planned distributions, indicating what the remaining estate you plan to distribute to whom.
Carry Value Accounting
Carry value accounting is rarely used for estates in Canada, and rather than focusing on the market value of the estate, instead focus on the executor's handling of estate assets, tracking each asset from the time it comes under the executor's control until it leaves the executor's control.
When using the carry value approach, the values listed in the accounting report reflect the valuations of the assets as they came under the executor's control, ignoring any subsequent market value changes of those assets unless they are sold or otherwise disposed of.
An accounting report with the carry value approach is usually divided into 3 main sections, prefaced by a summary of those sections.
Carry Value Approach (download example report)
Charges
The "charges" section lists things that the executor has been entrusted to manage, and thus has been "charged" with responsibility for, including:
- Property on hand at start
- Additional property received
- Receipts (e.g., income coming into the estate)
- Gains on Dispositions (e.g., capital gains when making a sale)
- Net income from trade or business
Credits
The "credits" section lists things that show where the "charges" went:
- Disbursements (e.g., expense payments)
- Losses on disposition (e.g., loss on a sale)
- Net loss from trade or business
- Distributions
- Property on hand now
Additional Information
To round out a complete picture of the estate, the report typically adds a table listing the status of the estate's debts as of the end of the report time period, purchases, to round out a complete picture of estate activity. as well as a table listing any transfers (e.g., movements of money from one bank account to another) and asset purchases.
Considerations
Passing of accounts can require a fair amount of work, and is not always required. Some settlement processes in certain jurisdictions make this reporting optional, and in some jurisdictions you can opt of the requirement if all the heirs agree. On the other hand, passing of accounts can provide protection for the executor in case there is disagreement (now or later) among the heirs, and heirs often feel more comfortable being able to see a clear accounting of the estate financials.
If the estate will go through a passing of accounts, keep in mind that you will have to generate the accounting report at the end of the estate settlement process, which usually lasts more than a year (and sometimes multiple years): it will be important to keep good records along the way so that you have the information easily available when the time comes... and it can be difficult if you have to start trying to reconstruct things from memory when you get to the end and realize you haven't been tracking what's required.
See EstateExec Reference: Accounting Reports for details on using EstateExec to automatically generate accounting reports.
EstateExec™ Makes It Easy!
EstateExec with AI software is designed to make it easy for you to manage the probate process: it includes province-specific guidance, easy financial accounting, and even the option to work together online with your lawyer or other interested parties. You can get started using EstateExec for free, and if you find it useful, pay a one-time $199 licensing fee (per estate).
EstateExec will help you appropriately organize and detail financial activity, ensuring that you have good records, and can even import financial activity from most estate account banks. When the time comes, it can automatically generate an accounting report for you.