Executor Liability – Following Instructions and Discharging Obligations
It is well-known that executors and estate trustees have fiduciary obligations. We have discussed some estate trustee liabilities and obligations on this blog before. Although it may seem obvious that estate trustees must act selflessly and in the best interests of the beneficiaries and the estate, a recent decision from the Ontario Superior Court of Justice provides an instance where estate trustees were held liable for failing to carry out the terms of a will and self-dealing, even by passively standing by.
In Cahill v Cahill, 2016 ONSC 2863, the named estate trustees of an estate were held jointly and severally liable for failing to establish a trust pursuant to the Deceased’s will. The relevant facts are as follows: The Deceased left a Last Will and Testament naming two of his adult children, Sheila and Kevin, as Estate Trustees. The terms of the Will provided that Sheila and Kevin were to set aside $100,000.00 in a trust fund for the benefit of another of the Deceased’s adult children, Patrick, and that he would receive $500.00 per month from the trust until his death or until the principal was reduced to nil. The funds to set up the trust came from the sale of the Deceased’s home, and were put into a Non-registered Investment Plan with London Life (the “London Life Plan”), owned by Kevin.
For a period of time, Patrick received the payments of $500.00 per month, until the summer of 2014, when several of his cheques were returned for insufficient funds. He then discovered that in May 2012, Kevin had withdrawn the principal remaining in the London Life Plan, which was approximately $92,000.00 at the time, as a mortgage with respect to some commercial premises purchased by him for his business, and lost the funds when his business failed and the bank realized on the property.
The Court found that both Kevin and Sheila were in breach of their fiduciary obligations to the beneficiaries of the Estate, as they had failed to carry out the instructions set out in the Will. In fact, the Court found that the trust fund provided for by the Will was never actually set up. Even though Kevin opened the London Life Plan with the $100,000.00 amount, and he was noted as the legal owner, his application for the London Life Plan did not mention a trust, Patrick was not disclosed as a beneficiary, and Patrick therefore did not have equitable title to the Plan. The Plan therefore did not meet the requirements for a trust. The court held that Kevin’s self-dealing by using the funds for his personal benefit was a “wrongful and deliberate misappropriation of the funds” and that he had breached his fiduciary obligations by his conduct in this respect.
Throughout these events, Sheila had been quite passive. She claimed that she had relied on Kevin to do most of the work required to administer the Estate, as he had expertise in the field of financial management. However, the court held that the case law is clear that there is no distinction between sophisticated and unsophisticated individuals in fulfilment of the obligations of Estate Trustees. As such, if Sheila was not confident in her knowledge of the role, she should have either obtained the necessary guidance, or renounced as Estate Trustee. Furthermore, she failed to discharge her obligations by failing to ensure that all proper steps were taken to set up the trust fund. If it had been set up, Kevin was to be the sole trustee, but as the court found that it was not, in fact, established, there was never a point at which Sheila was relieved of her obligations as Estate Trustee.
Ultimately, the court held that Kevin and Sheila were jointly and severally liable and were required to fund the trust in accordance with the terms of the will. It is therefore vital to always keep in mind the seriousness of the duties and obligations of estate trustees.
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