September 21, 2006 Hull & Hull LLP Uncategorized Tags: 0 Comments

Given the substantial conflicts of interest inherent in the trustee/director role, trustee/directors must tread a very fine line between the two roles.

One way to mitigate the problems inherent in this dynamic is to inform the beneficiaries to the extent feasible about the operation of both the trust and the corporation, let them know the major decisions being made and the reasons for those decisions, and give them opportunity to provide as to why they feel decisions should be made or whether a different course should be taken. The earlier the opinions of the beneficiaries are sought, and the more fulsome the disclosure given to them, the more the trustee will know the likelihood of a potential problem. This does not necessarily mean the trustee/director must do what the beneficiaries wish, but at least the trustee/director will know which issues and decisions are most likely to be controversial and can protect him or herself with professional advice, or other documentation supporting the making of the decision.

Given the fact that the interest of the trust and corporation can and will conflict from time to time, paralysis must be avoided and decisions must be made. The question then is whether the director role comes first, or rather it is the role of the trustee that predominates. Donovan Waters, in the Law of Trusts in Canada (2nd edition, page 843) sets out the following position on that issue:

"It is indisputable that a director, whoever he is, must put first the interest of the company in all that he advocates and then his voting on the board, even if he knows that his arguments or his votes are not in the best interests of the trust or some of its beneficiaries. Corporate law requires that he be a director first, and a trustee second."

Thanks for reading.

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