There is scope for serious problems where an executor/trustee is also a director of a company in which the estate or trust has a large or controlling interest. This dual role of trustee/director has a broad potential for inherent conflict. Both roles have very stringently enforced inherent duties. Those two sets of duties can conflict in a given situation. The trustee’s first duty may be to try to sell the shares in the corporation if they are not a good or prudent estate investment. This decision will need to be made in most estates where the corporate holdings is a substantial portion of the estate.
During the testator’s life his or her assets will have been invested as the testator saw fit, for instance in risky but high return ventures. That entrepreneurial approach tends to be inconsistent with estate and trust principles, where somewhat conservative investment principles tend to be more suitable. For example, diversification is so important in trust administration that it has been enshrined in section 27 of Ontario’s Trustee Act, but diversifying may have been the last thing on the testator’s mind during his or her lifetime. Some of the fundamental duties of executors and trustees are:
1. the executor must obey the provisions of the Will; 2. the trustee must act impartially between beneficiaries; and 3. the trustee must exercise ordinary care and prudence.
Duties of a director are somewhat different. Section 34(1) of the Ontario Business Corporation Act provides for the following: 1. every director and officer of a corporation in exercising his or her powers in discharging his or her duties shall,
(a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
These duties can come in direct conflict as I will discuss further in tomorrow’s blog. Thanks for reading. Sean.