Capital vs Income Accounts for an Estate in Ontario

If you are an executor, sooner or later someone will ask what came into the estate, what went out and why. Estate accounts are the written answer. The layout can look rigid at first, especially the split between capital and income.

This article explains how that split works in an Ontario estate, what court-filed accounts must contain, and how to keep your records so the accounts are easier to prepare. Your will and the facts of your estate matter a great deal, so treat this as a general guide.

What capital and income mean in an estate

In plain words, capital is the underlying property of the estate, such as a house, a portfolio or a bank balance as it stood at death. Income, sometimes called revenue, is what that property earns after death, such as interest, dividends or rent.

The distinction matters because some wills give one person the income and another person the capital, for example when a spouse is to enjoy the earnings and children receive the remainder later. If the will treats the two differently, your accounts must too.

Where the will or trust treats capital and income differently, the receipts and disbursements in court accounts must be divided into capital and income. If the will gives everything outright in shares, the split may matter less, but the court judgment on a passing still refers to capital and revenue receipts and disbursements.

What court-filed accounts must contain

When accounts are filed with the court, the Rules of Civil Procedure set out the contents. They are more detailed than a simple list of deposits and cheques.

• A statement of assets at the date of death on a first passing, cross-referenced to entries showing how each was disposed of; on later passings, the assets at the start of the period.
• An account of all money received.
• An account of all money disbursed, including the trustee's compensation and payments under court order.
• Investment transactions, unrealized assets at the closing date, and all money and investments at the closing date.
• All liabilities, contingent or otherwise.
• A statement of the compensation claimed and, for a value-based management fee, how the value was set.

The receipts, disbursements and investment accounts must each show the balance forward.

Keeping records that fit the layout

Estate trustees must keep accurate records of the assets and transactions in the estate. The easiest way to prepare for the capital and income split is to label each transaction as it happens instead of sorting them years later.

• Open an estate bank account and run every receipt and payment through it.
• Record the date, source or payee and reason for each entry.
• Note whether each receipt is capital (for example, sale proceeds of an asset) or income (for example, interest earned after death).
• For each payment, leave room to record whether it belongs to capital or income, since the accounts must be divided that way where the will or trust treats them differently. If you are unsure how a particular payment should be classed, ask a lawyer or accountant.
• Keep invoices, statements and receipts, including for any expense you paid personally and later recovered from the estate.

A trustee who believes an expense is properly incurred may pay it from estate property, or pay it personally and recover the same amount from the estate. The Superior Court of Justice can later disallow a payment or reimbursement if the expense was not properly incurred in carrying out the trust. Clear records help you show the expense was proper.

When accounts have to be passed

Ontario has no statutory requirement for estate trustees to pass accounts at fixed intervals, and they may choose not to unless the court compels them. Apart from an inventory, an executor or administrator need not account to a court unless asked by or on behalf of a person interested in the property or a creditor of the deceased.

Anyone who appears to have a financial interest in the estate may move for an order requiring the estate trustee to pass accounts. Many executors also choose to pass accounts voluntarily to have the court approve what they did and their compensation.

If no objections are filed, or all are withdrawn, the court may grant judgment without a hearing. On a passing, the judge can inquire into complaints, including misconduct or neglect that caused loss, and may order payment to the estate.

What to do next

Start the capital and income labels now, even if you do not expect to go to court. Read the will for any clause that gives income and capital to different people or says how expenses are charged.

Before you distribute anything or file accounts, it is worth having a lawyer or accountant review the will and your records. Tax filings and clearance are separate from the court accounts and have their own steps.

Frequently asked questions