Trustee Liability – Hull on Estates #202
Listen to: Trustee Liability – Hull on Estates #202
This week on Hull on Estates, Bianca La Neve and Craig Vander Zee discuss ways to protect a Trustee from liability.
If you have any comments, please email us at firstname.lastname@example.org or leave us a comment on our blog.
Bianca V. La Neve – Click here for more information on Bianca La Neve.
Craig R. Vander Zee – Click here for more information on Craig Vander Zee.
Trustee Liability – Hull on Estates- Episode #202
Bianca La Neve: Hello and welcome to Hull on Estates. You’re listening to episode #202 on Tuesday, March 16th, 2010.
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 Bianca, how are you?
Bianca La Neve: Great. How are you Craig?
Craig Vander Zee: Enjoying the March break. You know, the kids are at home and so there’s a lot more pitter-patter around the house and activities going on. So it’s an enjoyable week. Although probably at the end of the week, it’ll be enjoyable when the kids go back to school as well so…
Bianca La Neve: For sure. So today, Craig, I thought we’d talk about protection for a trustee against liability.
Craig Vander Zee: It’s an interesting topic and certainly deserves more attention than just, you know, what we can cover in one podcast. But you know, as we know, liability is part and parcel of the office of trustee, in the sense of that there is a risk of personal liability incident to that office and as such, the trustee has to be wary of his or her conduct or its conduct at all times when they are appointed, but also when they are being removed or are resigning from that appointment, so as to protect themselves from that potential risk, and either enter into the office of trusteeship or exit it with a clean slate.
Bianca La Neve: As we often point out to our clients, trustees are principals. They’re not agents of the beneficiaries and so that’s why all of this is important to always point out to them and to cover with them. Now a trustee’s conduct can be protected, limited or exonerated, by the terms of the actual trust document that appoints them, by statute, by an Order relieving the trustee of liability, by the existence or provision of releases and indemnities, by passing of accounts, by the conduct of the beneficiaries and with the assistance of the Court. And I thought we’d touch briefly on each of these, Craig.
Craig Vander Zee: Again, you know, each one of these topics could be deserving of a separate discussion. But in passing, you know, with respect to considering the risk of a trustee, whether potential or otherwise, you obviously want to be mindful of the trust document itself. And specifically the terms of the trust that may contain provisions that impact on the potential liability of the trustee. It may or may not include exculpatory provisions that appear to absolve the trustee from consequences of a breach of trust or abuse of directions. And from that standpoint, exculpatory provisions in and of themselves can be difficult to rely on in certain circumstances. And while there is not a plethora of case law specifically dealing with that, there is the possibility that based on case law that is out there, or at least that has been suggested, that exculpatory clauses may not excuse liability for acts of gross negligence or wilful defaults or intentional wrong-doing, acts of fraud or intent to be dishonest . And again, that is suggested from principals but obviously when dealing with terms and provisions, specific attention and consideration of the provisions needs to be held. But there is also a suggestion certainly that appropriately drafted exculpatory clauses will be effective to relieve the trustee from liability for breaches of trust from lesser culpability than acts that I had just mentioned. So it’s one of those things where you need to take a look at the trust document, consider the provisions, consider the law, consider the acts of all those involved including the trustee and beneficiaries, and determine whether that exculpatory clause will be valid and binding in the circumstances.
And then moving on to statute consideration, there are also a number of statutes and more specifically, the Trustee Act which contains provisions that can limit liability of a trustee. And by way of example, there’s Sections 18 and 20 of the Act and Sections 28 and 29 which deal with investments and relief from conduct dealing with investments, which one can take a look at. So not really wanting today to get into the details, but certainly once you go past the trust document itself, you would want to consider what the Trustee Act or any other applicable Act might do to relieve the trustee from liability.
Bianca La Neve: There’s also Section 35 of the Trustee Act and under this section, a trustee can consider whether or not his or her conduct met the standard of care and if not, whether that conduct can still be exonerated by the Court by application of Section 35.
Craig Vander Zee: And without sort of reading off Section 35 of the Trustee Act, essentially as a way of balancing the rights of beneficiaries with the interests of not overburdening trustees, Section 35 of the Trustee Act holds that when a breach occurs, the Court has the discretion to relieve the trustee of liability in cases where it believes the trustee acted honestly and reasonably and ought fairly to be excused. So in this particular section then of the Trustee Act, the Court has statutory discretion to grant trustees relief from liability if the trustee or trustees have acted honestly and reasonably and ought fairly to be excused, although this wouldn’t seem to apply to investment decisions.
Bianca La Neve: Right.
Craig Vander Zee: And again, as to what is honest and reasonable and ought fairly to be excused would be a matter for each and every case and the particular case law applicable to it. So again, another consideration but one that could use another day of discussion than just our day today, Bianca.
Bianca La Neve: Now maybe the best way for an outgoing trustee or a new trustee to limit liability is for the trustee and his or her co-estate trustees, if any, to pass their accounts, and this done by Court application. Assuming the accounts are passed, not only will a trustee know the starting numbers and the assets and liabilities for future administration of the trust, but the trustee will have been given the proper protection of a Court Order. And requiring an accounting may also be the only way that beneficiaries can review the administration of the trust and determine whether its been proper or whether there has been misconduct.
Craig Vander Zee: Well and the passing of accounts again is a vehicle through which the trustee and the beneficiaries can verify what went on.
Bianca La Neve: Right.
Craig Vander Zee: From both perspectives. As a trustee wanting the protection of an Order passing of accounts may be one way that the trustee looks to be leaving with a…
Bianca La Neve: Clean slate.
Craig Vander Zee: A clean slate, knowing that his or her or its administration has been approved by the Court. It may actually be again as mentioned, the only way that the beneficiaries are gonna find out the details of the administration and as such, the beneficiaries are interested in that. So while it acts like a protection, once the accounts are passed it acts as a means of investigation and determination, if you want to use those words, from the beneficiaries’ standpoint. And again, accounts can be simple and straightforward. They can be complex, depending on the assets of the estate. And of course there’s a process in place if there’s objections to those accounts.
Bianca La Neve: So trustees can also apply and obtain a tax Clearance Certificate from all applicable tax authorities. And this will release a trustee from tax liability in respect of the trust to the date of the Clearance Certificate. Now again, this will only release the trustee absent fraud, wilful concealment or misrepresentation . So again it’s a way for a trustee to get some protection for their past actions in respect of the trust.
Craig Vander Zee: And again looking at it another way, it’s really the trustee’s way of applying to Revenue Canada to get confirmation by way of the tax Clearance Certificate that there’s no outstanding taxes arising from the trust. And again because personal liability is associated with the office of trusteeship, if this step wasn’t taken and there was a residual tax liability, known or unknown, then the trustee could find his or her or itself in the position of having to deal with that outstanding liability maybe before a final distribution from the…or after a final distribution of a trust, which could make things very messy. So that is one of those things that you want to take into consideration.
And then, of course, you can have releases or indemnifications from beneficiaries. It may be the case that beneficiaries are prepared to provide a release in respect of an accounting provided, wishing to forego the formal process and maybe the costs of the process. Again this is something that the trustee would have to consider in his or her or its specific context but that might be an option. Indemnification could be an option as well when it comes to passing accounts and dealing with distributions while there is a holdback and final confirmation from Revenue Canada that the tax Clearance Certificate is gonna be provided. It could be that there’s an interim distribution coming from a trust and that the trust would otherwise be able to be wound up except for certain things such as a passing of accounts and obtaining the tax Clearance Certificate. It may well be that everyone is comfortable and agrees with the accounting, nobody has any issues with it, everybody is understanding what the tax situation is and there might be an interim distribution. Again, this is all dependent on the specific context of the file. And the parties may agree that if there is any residual tax liability that the beneficiaries will indemnify the trustee while all the time everyone understanding that that is a very, very slim possibility given the holdback that might be left with the file. So in the end, releases and indemnifications can be something to be dealt with. It could also be that dealing with a specific asset of the trust, the trustee goes to the beneficiaries and says I wish to deal with it in this way or the beneficiaries request that an asset be dealt with in a certain fashion and the trustee may be willing to do so but says I want a release from liability or an indemnification with respect to acting this way from all of the beneficiaries such that nobody is going to have an issue down the road and backstopped from any potential liability down the road. So there’s a variety of different reasons that releases and indemnifications can be provided.
Bianca La Neve: And by asking for a release on a specific transaction or asset dealing with a specific asset, it’s a way perhaps to even flesh out any opposition by beneficiaries to a particular transaction and that way the trustee will know with certainty that either all the beneficiaries agree and that trustee can proceed with an intended course of action. Or perhaps it’s better to seek direction from the Court.
Craig Vander Zee: And that’s a very good point, Bianca. And that, in some ways, ties into the next point which is the conduct of the beneficiaries. If the beneficiaries consent or concur or acquiesce to the conduct of the trustee or administration of the assets or a particular asset, then that in and of itself may provide relief or a defence for a trustee in respect of an allegation or objection by a trustee to a manner of administration. And, you know, further to that there’s the defence of laches which arises out of an equitable doctrine and essentially is that if the claimant, that is likely the beneficiary, permits a long delay to ensue before he brings the claim, the Courts may dismiss the action on those grounds. And so those are things that arise from the conduct of the beneficiary, himself or herself, or itself and can be a device for protection for the trustee. And I think lastly today we’ll just talk about the trustee applying to the Court for directions.
Bianca La Neve: Now again, let’s say there’s a situation where a beneficiary does not agree with the administration of the estate or accounting or a particular course of action or it can be that the trustee, him or herself is unsure about their rights and duties or the meaning of the trust document and this is where you would bring an application to the Court for directions.
Craig Vander Zee: And if an Order is obtained and it’s on notice to all the beneficiaries and the trustee acts in accordance with that Order then obviously the trustee would be taking the position that they are relieved from any liability down the road for having acted in accordance with an Order. And so that is another means of providing protection. And again, Bianca, you know our talk today…very enjoyable. Lovely to be podcasting with you again today but…and not a but to that… but what we talked about today was certainly not, from our perspective, to be exhaustive.
Bianca La Neve: Exactly, yes.
Craig Vander Zee: And, you know, each of the things that we talked about, you know, need to be looked at in a particular context with a trustee and with the particular circumstances, and are not meant to be exhaustive in and of themselves as a means of protection. There are certainly other manners of protection for a trustee against liability. And so these were, you know, things from our perspective that we thought could be looked at but certainly not meant to be conclusive or completely inclusive.
Bianca La Neve: I think that brings us to the end of this week’s discussion, Craig. Thanks for listening and thanks for joining me today.
Craig Vander Zee: Always a pleasure, Bianca.
Bianca La Neve: And we look forward to hearing from our listeners. You can send us an e-mail at email@example.com and be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practice of estate law. We hope that you’ve enjoyed the show. I’m Bianca.
Craig Vander Zee: And I’m Craig Vander Zee.
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.