Trustee Liability – Part 2 – Hull on Estates #203
This week on Hull on Estates, Bianca La Neve and Craig Vander Zee continue their discussion on ways to protect a Trustee from liability, particularly discussing the removal and/or replacement of a Trustee.
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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 – Part 2 – Hull on Estates- Episode #203
Bianca La Neve: Hello and welcome to Hull on Estates. You’re listening to episode #203 on Tuesday, March 23rd, 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.
Bianca La Neve: Hi and welcome to another episode of Hull on Estates. I’m Bianca La Neve.
Craig Vander Zee: And I’m Craig Vander Zee. And how are you doing today, Bianca?
Bianca La Neve: Great. How was your March break?
Craig Vander Zee: It was excellent. When we last podcasted last Tuesday, we were only a couple of days into it. But we certainly had great weather last week and a bunch of different activities with the kids. So yeah, it was a nice week.
Bianca La Neve: So coming back to work is a bit of a rest period now for you after the kids?
Craig Vander Zee: Ironically, yes. So on the last day we talked about protection that is afforded from liability to trustees and we went through a number of different types of protections, whether it’s the trust document itself , statutory protections perhaps, releases and indemnities and the conduct of the beneficiaries themselves, whether they acquiesce or consent to certain types of transactions. Of course, there’s always a passing of accounts and a tax Clearance Certificate amongst other things. And so today we weren’t going to go through those again but one of the things that can also be something that a beneficiary can look to do with respect to a trustee that they’re not content with, or a trustee that everyone agrees should just be removed for a very…
Bianca La Neve: Obvious.
Craig Vander Zee: Uncontentious reason. It could be that someone’s been a trustee for a number of years and they wish to terminate that with no real issues at all. And it could just be that the trustee wishes to resign. Maybe they’re moving jurisdictions. Maybe there’s other things that have happened to the trustee. Maybe the trustee has become sick or bankrupt or there are other difficulties where people will agree that they can be removed. And again, we’re going to talk about it in a little bit of both, because there’s considerations in negotiating the removal and/or the replacement of a trustee.
Bianca La Neve: Now I guess the first step is always to look to the trust document itself. So see if there are any provisions there that can govern or that dictate the removal or replacement of trustees.
Craig Vander Zee: For example, the trust document itself may have a power of appointment that may be different from the trustee itself. So it may be that some party has the ability to appoint a trustee. Also there may be multiple trustees. And the trust document may require a certain number of trustees, may require that if there’s a corporate trustee amongst non-corporate trustees. But if it’s the corporate trustee that should be replaced, that it be by way of a substitute corporate trustee. So from that standpoint you want to go over the document to make sure what the requirements are. And it could be, given the requirements or perhaps lack of a requirement from the trust document, that the trustee may just be able to resign as opposed to having to go to Court. So that also becomes a consideration arising in part out of the trust document but is a separate consideration and that is, well if the trustee’s going to resign or be replaced, do you have to go to Court? Do you have to resort to the Trustee Act or a separate deed? Or how are you going to go about this? So that’s a consideration. We’re not going to get into the depths of that right now but certainly that’s a consideration.
Bianca La Neve: So is it safe to say that if the trust document is silent on whether you’re able to replace or remove a trustee without going to Court, you should be applying to the Court?
Craig Vander Zee: Well it depends on the number of the trustees. There are mechanisms or manners in which a trustee might be removed. If there was say 3 or 4 trustees and only 1 wanted to be removed, it may be possible to do that outside of going to Court, with the consent of the beneficiaries, the trustees and by way of a separate deed that may be required. So it’s not absolute that they would have to go to Court under all circumstances. And so again, not getting into the details of that today but identifying it certainly as an issue. And then also piggy-backing on that is who needs to be involved in the decision? Is it something that other trustees need to be involved with? If there are multiple trustees then they should be involved. But considering who needs to be involved. Are there minors who are beneficiaries? Are there people who are incapable? Are you going to be putting the Children’s Lawyer therefore and the Public Guardian and Trustee on notice? So those are all issues that also need to be addressed as part of the process.
And again, I guess, sort of the flip side to that is, do all of the beneficiaries consent to the retirement, removal or replacement of the outgoing trustee and the new trustee? Do all of the trustees agree? Have they all received legal advice? Is the corporate…and again, is there a corporate trustee involved and should there be one? So it’s one thing to think about who should be involved in the process and the process itself. But then the next consideration is, is everybody in agreement? If everybody is in agreement, then the issues slip away. But if not everybody is in agreement, it could be that there’s no issue with the removal of the trustee who simply wants to retire, but there’s an issue with who should be the new trustee. So you may not have issues or disputes on all aspects but there could be something that’s quite important. If one of the trustees is a friend of one of the beneficiaries…close friend…some of the other beneficiaries may be concerned about that and the propriety of it all. Certainly another issue is the satisfaction of the administration of the trust. And by that I mean, has it been properly administered and with the standard of care required? Is that going to be an issue? Because if that’s going to be an issue then there will be a need for a passing of accounts. It could very well be…and I would guess in the majority of the cases…that there would be a formal passing of accounts so that the old trustee has the protection of that passing of accounts and the new trustee has certainty with the starting numbers for the trust. So even though that may be a step that’s required by all or by some, it’s also good to think about whether there’s going to be opposition to the accounts themselves so that you can strategically deal with the whole issue, whether it’s from the standpoint of the beneficiary or whether it’s from the standpoint of the trustee.
Bianca La Neve: And then I guess what ties into that is the potential liability of the outgoing trustee or the continuing trustees for any past acts or conducts in the context of the administration of the estate. And that’s why it probably makes sense to have a passing of accounts so any of those issues can be brought to light and dealt with in due course.
Craig Vander Zee: Well that’s right. I mean certainly the new trustee is going to want to be assured or I think that they would want to be assured…I would be, I would want to be assured…that the past acts of trustees are not going to be visited on them. And one way to deal with that is to have a passing of accounts so that it’s clear what the starting assets are and what the starting numbers are. And frankly, as I mentioned, that goes to protecting the outgoing trustee as well. There may be cases where the assets are simple and few and there’s really no issue with respect to the administration. Perhaps it’s as easy as if GIC’s being rolled over and just being held to a certain time period. If it were that simple, then one might envision where there could be an agreement for a trustee to be removed and trustee appointed without a formal passing of accounts but with protections of releases and having informal accounts circulated. But certainly in the majority of cases I would think that a passing of accounts is going to be a part of the discussion, if not the practice.
Bianca La Neve: And one of the considerations that a new trustee will have to deal with is if there’s ongoing litigation by or against the trust and to what extent is the outgoing trustee involved.
Craig Vander Zee: If there is litigation involving the trust…and again this isn’t intended to be litigation as between the former trustee and beneficiaries…this is the trust and perhaps an outside party…you’d want to ensure that you have the evidence of the trustee particular to the matters. And understand as the incoming litigation, to what extent is the claim being made? To what extent is there risk for coming in as the trustee? Is there any personal risk? Is there any personal risk of costs? What is the potential for that? So again, not something that occurs terribly often but something that you’d want to be mindful of.
Bianca La Neve: When considering the appointment of a new trustee, you should always look at the qualifications of the proposed trustee. So it could be that beneficiaries or some trustees are comfortable with a certain named third party but you then want to look to see what qualifications that person has to deal with the specific trust at issue.
Craig Vander Zee: Well and sometimes that involves, if it’s a professional, an individual as opposed to a corporate trustee involves providing a bio or a curriculum vitae of that person to the others who need to be involved, so that they’re familiar with the qualifications of the individual. It’s often the case that people just want, if you will, verification as to the qualifications, not that they’re against the individual to be appointed. They just want to ensure that the person is qualified.
And I think that that takes us to the vesting of the assets in the new trustee and co-trustees. So again when you’re dealing with this, you also want to ensure that the assets continue to invest in the ongoing and new trustees who, at that point, would become the co-trustees in that there aren’t any residual vesting issues in the former trustee as well.
Bianca La Neve: Now when you’re looking at the actual removal of the trustee, particularly if you’re going to do it by Court application, you need to consider what evidence there is to justify the removal of the trustee. Is it the case that it’s possibly health concerns of the outgoing trustee? Or is it a case that the welfare of beneficiaries is in jeopardy?
Craig Vander Zee: Well and again, prior to that last point we were mostly talking about situations where you’re thinking of considerations but you’re able to provide an answer to the questions. You know, are accounts going to be necessary? Well yes. Is that going to be a difficult exercise? Yes or no? Do you have to formally pass accounts? These are all things that you might be anticipating when there’s no dispute. If there is going to be a dispute, then you’re thinking of okay, well how hard fought is this going to be? Is it going to be something where people aren’t against the removal per se and the replacement but they’re against the choice. And so in those situations, if you’re the incoming trustee or the beneficiaries conversely, you want to consider how far down the road you want to take this and also what are the…what were the intentions of the settlor? Maybe again the trust document is of assistance. And what are the potential legal costs of all of this that could be visited upon an individual that the Court disagrees with on any of these issues?
And I think too, as part of the passing of accounts issue and the accounting issue itself, the outgoing trustee is going to want to ensure that they’ve considered whether they’ve received their compensation. And if not, then they’ll be asking for their compensation as part of the process. It could be that the parties have consented to the taking of compensation or it was part of the settlement…sorry, the actual trust document itself…but if that’s not the case, and it’s needed to be obtained by way of a passing, then that’s an issue to be addressed and to be negotiated. And there may be an issue, not just with compensation but with the reimbursement of the trustee of personal expenses that he or she or it may have incurred in the role of trustee on behalf of the estate. So that’s quite apart from what I would term compensation is the reimbursement of expenses incurred by the trustee.
And then I think, you know, is there money that should be paid into Court? Is this sort of an issue where that is a consideration at all? And that’s not one that comes up very frequently but is one that could be at the back of your mind in the appropriate circumstance. And I think, Bianca, that’s where we were going to go today.
Bianca La Neve: So that brings us to the end of this week’s discussion. Thanks for listening and thanks for joining me today, Craig.
Craig Vander Zee: Always a pleasure, Bianca.
Bianca La Neve: I look forward to podcasting with you again soon.
Craig Vander Zee: And with you as well.
Bianca La Neve: And we look forward to hearing from our listeners. You can send us an e-mail at firstname.lastname@example.org 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 enjoyed the show.
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