Trustee of a Testamentary Trust: Ongoing Duties and Accounts

Some wills do not simply hand everything over. They set up a trust that continues for years, for example to hold money for a young child, a spouse or a family member who needs support. The person named to run it takes on responsibilities that do not end when the estate is wound up.

This article explains the general shape of those ongoing duties: knowing what the will requires, keeping records, filing tax returns every year, and being ready to account to beneficiaries. The exact duties depend on the wording of the will, so it is a starting map rather than a complete list.

What a testamentary trustee is responsible for

Estate trustees carry out the will's terms and administer the estate under the law. A person named in a will is not required to act, so you can decline the role before taking it on. Once you accept, the will is your starting point, because it sets out who benefits, when, and on what conditions.

A trust that continues for years is different from a quick estate administration. The early stage involves collecting assets, paying taxes, bills and other debts. After that, what remains is held and managed for the beneficiaries according to the will. Typical questions include how the money is invested, when payments are made and what happens when a beneficiary reaches a certain age. The details come from the will and from the law, and a lawyer can confirm what applies to your trust.

Records, bank accounts and getting organized

Good records are the backbone of the role. Without them, tax returns are harder to prepare and questions from beneficiaries are harder to answer. Keep trust money separate from your own, and keep a clear paper trail of everything that comes in and goes out.

• Keep a copy of the will and any court documents that confirm your authority.
• Open a separate account for the trust and avoid mixing in personal funds.
• Record every receipt and payment, with the date, the amount and the reason.
• Keep statements for investments and any rental property.
• Write down the reasons for important decisions, such as why a payment was or was not made.
• Store records safely, because you may need them years from now.

If the estate had to file an Estate Information Return, representatives must keep the records supporting it for four years. For a long-running trust, keeping records for much longer than that is sensible, since beneficiaries can ask questions at any stage.

Yearly tax filings

Tax filings for a trust involve T3 returns. Trustees apply for a trust account number online or with Form T3APP, which is not sent in with the T3 return. The number must be on every T3 return, a $100 penalty is noted for failing to provide it, and a trust filing for the first time needs the number before filing electronically.

The year-end depends on the type of trust. Testamentary trusts that are not graduated rate estates have a December 31 year-end. A graduated rate estate's T3 return is due 90 days after the trust's tax year-end, or after final distribution. Late-filing penalties can apply. If the trust earns rental income after the death, that income is reported on line 8 of a T3 return.

An accountant who works with trusts can confirm which year-end and return rules apply to your trust, particularly when the trust began as a graduated rate estate and later changed status.

Accounting to beneficiaries and the court

Beneficiaries usually want to know what the trust holds, what it earns and how it has been spent. Many trustees share regular summaries voluntarily, which can prevent disputes. If a beneficiary has concerns about the accounts, how the court process applies in your situation is worth confirming with a lawyer.

In that process the estate trustee files accounts verified by affidavit (Form 74.43), the certificate of appointment and any prior judgment. The court issues the Notice of Application to Pass Accounts (Form 74.44), which is served on persons with a contingent or vested interest, and on the Office of the Children's Lawyer if a child is a beneficiary. Interested persons may serve a notice of objection.

Court fees apply: $432 for an estate trustee's application to pass accounts and $93 for a notice of objection to accounts. Fees change, so confirm the current amounts before filing.

Paying yourself and avoiding trouble

Whether and when a trustee can be paid depends on the will and your situation. For executors, taking compensation in advance is allowed only with the agreement of all persons with a vested or contingent interest (if they are capable adults), with court approval, or if the will provides for it. Otherwise the court may reduce the compensation and order repayment. How this applies to a testamentary trustee depends on the will and your situation, so it is worth confirming with a lawyer.

Many problems start when a trustee treats the trust casually, for example by mixing money, skipping tax returns or going silent on beneficiaries. Careful records, on-time returns and open communication are the best protection.

What to do next

• Re-read the will and list every instruction about the trust, including timing and conditions.
• Confirm you have a trust account number, and ask your accountant which T3 due date applies to your trust.
• Set up a separate account and a simple record system.
• Decide how and when you will update beneficiaries.
• Before paying yourself, check what the will says and confirm with a lawyer what approvals are needed.
• Ask a lawyer or accountant when a decision is unclear, such as investments, early payments or a beneficiary's request.

Frequently asked questions