Solicitor as Estate Trustee: Compensation Agreements

December 1, 2015 David Freedman Estate & Trust, Passing of Accounts, Trustees, Uncategorized 0 Comments

Many lawyers who draft Wills are asked by clients to accept appointment as Estate Trustee. It’s a very traditional practice that works well in a variety of situations whether the lawyer is appointed as a sole trustee or is appointed with others. It is also fraught with danger given that trustee compensation is a common area for disputes in relation to the administration of estates, and, for the fact that a lawyer is in a fiduciary position with respect to the testator.

The Trustee Act, section 61 provides for two types of compensation arrangements; that is, (i) the “fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate” that is the subject of the traditional; “five factors”, and, (ii) compensation “fixed by the instrument creating the trust”. One might recall that at general equity a trustee was not entitled to compensation at all. Thus the inclusion of compensation in the statute allowed a settlor to be assured that a suitable person (or trust company) would take up appointment.

There are not many cases respecting the nature of the agreement by which compensation is “fixed” other than to re-enforce the principle and the pragmatic nature of the statute. Thus, Justice Gale (as he then was) held in Re Robertson, [1949] O.R. 427 (Ont. H.C.J.), that the Court had no jurisdiction to reduce or increase the amount fixed by the trust instrument. In that case, however, the trustees held were neither lawyers nor were in a pre-existing fiduciary relationship to the testator. In Re Andrachuk Estate (2000), 32 E.T.R. (2d) 1 (Ont. S.C.J.), Justice Greer considered the wording of the statute and took a restrictive approach to interpretation. In Cheney v. Byrne (Litigation Guardian of) (2004), 9 E.T.R. (3d) 236 (Ont. S.C.J.), Justice Lalonde held that the solicitor who enters into a compensation agreement with a testator can rely on that agreement absent undue influence, and no independent legal advice is required to be obtained by the client. Of course the testator in that case was a very sophisticated senior executive and the Will ultimately did not fix a compensation schedule. It is not always clear that the client does not require ILA and the LSUC may well consider that the lawyer is in a conflict of interest in the circumstances of the case; cf. Anderson v. Law Society of Upper Canada, 2010 ONLSAP 00004.

Where does that leave us? I would suggest that the emphasis of the Rules of Professional Conduct has been for many years that a lawyer should avoid actual or apparent conflicts of interest with his or her client and particularly so where a client is not sophisticated. I would suggest further that lawyers who do commonly advise their clients that they would be willing to accept appointment and administer the client’s estate after death should recognize their clearly superior position when negotiating a “fixed” form of compensation and that the conventional tariff be disclosed in the compensation agreement if compensation is to be in excess of tariff. While the beneficiaries may not be a party to the contract they are certainly affected and will not be content to allow a professional trustee and a lawyer no less take compensation that is improper.

Up next: “double dipping”.

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