Appointing, Changing or Removing Trustees – Hull on Estates #83
This week on Hull on Estates, Craig Vander Zee and Paul Trudelle discuss the issues surrounding trustee appointments and changes.
Appointing, Changing or Removing Trustees – Hull on Estates Podcast #83
Paul Trudelle: Hi and welcome to Hull on Estates. You’re listening to Episode #83 on Tuesday, October 30th, 2007.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills. Now, here are today’s hosts.
Craig Vander Zee: Good morning Paul.
Paul Trudelle: Good morning Craig. How are you today?
Craig Vander Zee: Good thanks. I think this is our third podcast and I think in the first podcast, we had let everyone know that we find ourselves together not because I’m your first choice, I’m actually your second choice. But that your first choice, Bianca, is away on maternity leave and we can happily report that she’s had a healthy, bouncing baby boy.
Paul Trudelle: Yes, congratulations to you, Bianca and welcome to the new baby.
Craig Vander Zee: Let’s hope that this podcast is listened to her son at some point but not as an aid to help him take one of his naps.
Paul Trudelle: I think he should be listening and taking notes, Craig, okay. When we were last together, before Bianca…I guess it was just around when Bianca had the baby…we were talking about the Trustee Act, trustees and removing and appointing new trustees. We talked about the general concepts surrounding the removal and replacement of trustees. Perhaps today we could talk a bit about the mechanics or the specifics of what needs to be done in order to appoint new trustees.
Craig Vander Zee: I think, Paul, what you’re really referring to is really the structure of how a trustee might be changed or removed or replaced. And when we last spoke, we really focused on the considerations that one might have when representing an individual who either wishes to be replaced as a trustee or conversely, is coming on as a succeeding trustee, what are the factors and considerations you might have.
Paul Trudelle: That’s right and having discussed in our last podcast those factors, we now turn to what needs to be done in order to get a new trustee appointed or someone removed.
Craig Vander Zee: Well, mechanically speaking, we mentioned last time that it can really be done by way of deed, that is the changing of a trustee by way of deed or by way of an application to the Court. And we won’t get back into the sections of the Trustee Act that deal with either one but just to appreciate that in certain circumstances, a trustee may be able to be removed satisfactory to everyone and satisfactory to that trustee on the basis of a deed. But generally speaking, it’s going to be dealt with by way of an application to the Court unless, of course, and this is the overriding and guiding principle, the trust document itself speaks to how transitions with the trustees are to be dealt with.
Paul Trudelle: That’s right and I think a big factor is how co-operative the parties are, whether the matter is proceeding on consent, whether they’re going to be agreeing to the removal of the trustee. And if that’s the case, they can look to the trust document, they can look to the Trustee Act to see if it can be done without a Court application. If it’s not going to be something that’s voluntary or it needs…someone is opposing to the removal or the replacement, then an application is going to be required.
Craig Vander Zee: And when we talk about the mechanism in place or the structure in place, that is really perhaps a little bit more formal than what really takes place. Really, when you’re considering how best to deal with the transition, that is, the removal and the replacement of a trustee, you want to consider all those considerations that we talked about before. And with not getting into detail, the obvious ones again are the risk to all the parties, that is, is there potential liability to the departing trustee and the succeeding trustee, how do you deal with that potential risk, the accounting that might need to be provided by the departing trustee, and why that would be wanted by the succeeding trustee, whether a release is necessary, whether there’s an indemnification in the trust document perhaps, or whether that needs to be dealt with, and whether you need to have a judgment on a passing of accounts. And quite apart from that, and those are all extremely factors, but equally important, if you have a dispute with respect to the transition, it may very well be that the application to change the trustee and have a succeeding trustee is challenged. And it might lead to a settlement. So then you also have to consider Minutes of Settlement, and what do you bring into that Minutes of Settlement.
Paul Trudelle: Right and I think in going through and acting either for a departing trustee or a new trustee or even the beneficiaries under the trust, you want to make sure that all of those issues are addressed so that the liabilities are determined. If you’re a departing trustee, you want to make sure that your liability doesn’t continue. As a new trustee, you don’t want to pick up any responsibility for any acts of prior trustees. An accounting should be there in order to ensure that the books are closed and opened on a fresh page with some clear determination as to what the liabilities of the trust are, what the assets of the trust are. And all of those steps, I think, the overriding consideration for counsel for all the parties should be to ensure that everyone is protected, both the departing trustees and the new trustees.
Craig Vander Zee: And you may actually find yourself in a situation where certain of these items, you know, a release or an indemnification or a passing of accounts, are actually required by one side. So it may be that your client, as the trustee, may actually feel comfortable by dealing with it by way of a deed. Or potentially a consent Order on an application for the change. But certain aspects of the structure will be dictated by the succeeding trustee. For example, if there…if one of the trustees is a corporate trustee, and they’re being replaced, well the corporate trustee will, if they are the departing trustee, they will often require a passing of accounts so that they know that they get the protection afforded by that Order of the Court with the passing. Likewise, even if it’s an individual that’s leaving as the trustee and is being replaced by a corporate trustee, the replacement corporate trustee may require a passing of accounts, even if the departing trustee feels comfortable in the situation of leaving and that all the risks and everything are being looked after appropriately by a release. They may demand it so that they know the starting numbers going forward and they have, by way of documents before the Court, an actual and formal listing of the assets and the receipts and disbursements in the past and any issues that may have arisen in the past, would have the opportunity to have been brought up through that process. So some of this may be dictated by one of the parties, even though the other is completely happy to deal with it in perhaps a simpler fashion.
Paul Trudelle: Right and I think just on that note, the simpler fashion may seem quicker and easier but I think it’s always in everyone’s best interests to have a passing of accounts and I think that would be recommended in most cases, in addition to the other things you mentioned about releases and indemnifications.
Craig Vander Zee: Right and perhaps by way of an example, say there was a situation where a trustee wishes to retire and the administration of the trust has been simple, straightforward. There’s not many assets, they may be significant but they’re easily dealt with and that the administration has been substantially completed and there’s more than two trustees. And again, remembering that you can do certain changes with a trustee by way of a deed pursuant to Section 2 and 3, if there’s a certain number of trustees. And all of the beneficiaries are adult and there’s no minors and there’s no outstanding liabilities. That may seem like the dream situation and to couple that, make it even better, everybody has lawyered up and they each have independent legal advice. In that kind of situation where the parties have determined that there aren’t any risks, that the only thing that they’re really dealing with is the cost of the proceedings through the Court, it may be, in that kind of situation, that a deed can be utilized couple with a release rather from all of the beneficiaries to deal with the removal of the trustee who wishes to retire. It may not even involve a situation where someone’s actually replacing him or her.
But conversely, you might have a very much more formalistic and complicated structure where somebody is being, contrary to their wishes, forced to being removed and replaced, perhaps for negligence, perhaps for improper conduct, self-dealing, whatever the alleged misconduct is. That kind of situation is obviously going to be more difficult to deal with and will require the more formal structure that we were talking about.
Paul Trudelle: Right and I think in those cases, you’d have the different steps and involved and it would be a much more complex process, and the parties would require much greater protection from the Court at the end of the day.
Craig Vander Zee: And when we’re thinking of protection, just quickly, the trustee can look to the trust document. Sometimes there’s indemnification provisions which will either attempt to exonerate conduct, certain kinds of conduct, perhaps of the trustee and everyone has to be careful as to whether that type of provision would be valid in the circumstances. But certainly the trust document should be looked to. But also the trust document may limit liability to certain criteria. Perhaps just the value of the assets as of the date of the settling of the trust, rather than what the growth was or whatever the various limitations or restrictions on potential liability might be. So look to the trust document first as to whether there is any release or indemnification type provisions in it. And then, of course, you can go to the various protections afforded by statute. And again, Section 35 of the Trustee Act may be able to be relied on by the trustee. Then also whether a formal release and a formal indemnification that is written, given by the beneficiaries, is necessary in the situation.
Paul Trudelle: Right. I think that’s a fair analysis. So in dealing with removing a trustee then, or stepping down as a trustee, it’s not enough just to say that I quit or that I don’t want the job any longer based on your paper and what we’ve discussed over the past couple of podcasts. It appears that there’s a lot more to it than that and I think that when faced with that situation, where someone is retiring, either voluntarily or is being asked to step down, there’s a number of serious issues that need to be considered.
Craig Vander Zee: And perhaps lastly where we might end off then, Paul, is just looking over the basic provisions that you might find in an Order further to an application to remove a trustee. Some of the things that you would want to include are setting out in the Order the individual being removed and the capacity that that individual is being removed from. You would also want to include in the provisions identification of the appointment of the substitute trustee or alternatively, where a replacement trustee is not coming on, confirming the remaining trustees that are already in existence, that they will continue…
Paul Trudelle: That’s right. I think it’s important that the Order say that the property vests in the trustees who are continuing, so they can fully deal with those assets and there’s no question as to their authority to deal with those assets.
Craig Vander Zee: And further, typically unless the accounting has been provided prior to the application, the Order will also require that formal accounts be prepared in accordance with the Rules of Civil Procedure and that those accounts and an application to pass those accounts be filed with the Court, usually within a certain time period of the date of the Order.
Paul Trudelle: That’s correct, yep. You may wish to also address the issue of compensation of the new trustees who are coming in, particularly if it’s a corporate trustee. They may want to have their compensation agreement attached to the Order and approved by the Court.
Craig Vander Zee: Well, and it’s also a time perhaps for the replacement trustee to negotiation the compensation. In the circumstance you were alluding to, Paul, I completely agree. It’s my experience that the corporate trustees will want to have their compensation agreement attached to the Order so that it’s clear at least what the terms of that compensation is. But it may be very well different than what the previous trustees may have had. And if there was a prior corporate trustee, that is, the departing corporate trustee, had different terms of compensation, it may be open, and again I say it may be open, for the succeeding corporate trustee or any succeeding trustee, to negotiate the terms of the compensation at that time.
Paul Trudelle: I think that’s fair.
Craig Vander Zee: And then I suppose lastly in the Order, Paul, we would want to consider is there anything else that we need that would be helpful to the succeeding trustee. Perhaps it is a situation where someone is being removed for improper conduct. And they either are refusing to or don’t have all the documents to provide a proper accounting. You may very well in the Order also include directions from the Court that perhaps documents with the financial institutions be ordered to be turned over, not just to the succeeding trustee but maybe the beneficiaries. Maybe it’s important that the beneficiaries have those documents at the same time as the succeeding trustee. There may be other directions that may be pertinent to the specific circumstance and so the Order can be used for that. And then, of course, as with most applications of Court proceedings, you would address how costs are to be dealt with…
Paul Trudelle: We mustn’t for forget costs. Just on that point, the other day there was a matter before the Court and in addition to removing one of the trustees, directions were given to the new trustee as to how a certain property was to be marketed and sold because that was an issue that gave rise to complaints against the prior trustee. So the new trustee, in addition to being appointed, sought specific directions with respect to how that asset was to be dealt with. So I think there’s always an opportunity to deal with those types of questions as well.
Well thank you very much Craig. I think that was quite helpful on the issue of changing trustees.
Craig Vander Zee: And it was again a pleasure, Paul.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.
Our theme music is Upper Structure by DJ AKid and is courtesy of the Podsafe Music Network.