Keeping an Even Hand

July 18, 2016 Ian Hull Executors and Trustees, Trustees Tags: , , , 0 Comments

Last week, Suzana Popovic-Montag blogged about the conflict that can arise between life-tenants and remaindermen with regard to the payment of expenses associated with real estate.

Another potential dispute between life-tenants and remaindermen is whether a trustee must retain a piece of property or sell the property and invest the proceeds in something else. This is particularly the case where the property in question is losing value to the detriment of the remaindermen.

At law, there is an implied duty to sell personal property that is wasting. In other words, if the will does not require the trustees to retain a piece of personal property (e.g. the testator’s car), then trustees have a duty to sell property that will lose value over time or that is invested in unauthorized investments. Proceeds of sale must then be invested in authorized investments.

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The foregoing duty is known as the Rule in Howe v Earl of Dartmouth. Howe v Earl of Dartmouth (1802) 7 Ves 137 is an old English case, but the rule was confirmed by the Supreme Court of Canada in Lottman v Stanford, [1980] 1 SCR 1065, 6 ETR 34 at para 10:

The rule in Howe v. Lord Dartmouth…is a rule requiring the trustee of an estate settled in succession to deal even-handedly between the life tenant and the remaindermen. It operates to compel, where its operation is not excluded by the testator, a conversion of wasting or unproductive personalty and the investment of the proceeds of such conversion in trustee investments. By this means the life tenant is assured of an income from the assets of the estate and the capital of the estate is preserved for the remainder interests upon the demise of the life tenant.

The rule applies only to testamentary trusts; it is not applicable to inter-vivos trusts. Moreover, this rule does not apply to real property. The rule does, though, apply to mortgages on real property, as mortgages are personalty.

The purpose of the rule is to maintain fairness between the life-tenant and the remaindermen on the basis that trustees have a duty to act impartially or to hold an even hand.

As noted above, a contrary provision in the will can override the application of the rule. When considering leaving consecutive interests in a piece of property, a testator should be very clear about their intentions in order to avoid estate litigation.

Thank you for reading.

Ian M. Hull

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