Anticipating Trustee Problems

November 24, 2016 David Freedman Executors and Trustees, Litigation, Trustees, Wills 0 Comments

This is the second installment of three blogs on drafting Wills in the contemplation of litigation.

Litigators only see cases where problems arise, and one of the most commonly occurring is disharmony amongst trustees or between one or more trustees and the beneficiaries. These can be frustrating for all concerned as judicial intervention is discretionary which makes an application to the Court unpredictable. Sometimes bad family dynamics or self-interest are at the heart of the dispute. Other times it may be that an overly-officious professional trustee is perceived to be looking for opportunities to assert control or prevent decision-making based primarily on minimizing his or her risk or, at its worst, inflating a compensation claim through unnecessary work.

A common drafting strategy is to provide a majority-rules clause for some if not all decisions. This may help or may exacerbate the problem by creating a recurring dynamic that causes the trustees to be carved into factions.

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“Litigators only see cases where problems arise, and one of the most commonly occurring is disharmony amongst trustees or between one or more trustees and the beneficiaries.”

Another, less common strategy in Ontario, is to appoint a “protector” –  a specified person who can be provided with extra-ordinary discretionary powers to remove or replace the trustee(s) or decide the matter that is at the heart of the dispute. My impression is that Ontario lawyers have heard about protectors but are still hesitant to use protector clauses to resolve foreseeable problems in a manner that avoids expensive litigation.

In my opinion, a well-drafted protector clause may be a very efficient and worthwhile feature of a Will or trust settlements made where litigation may be a real possibility. What is necessary for drafters to bear in mind in the degree of control over normal administration the protector is to have (see Herman Grad 2000 Family Trust v. Ontario (Minister of Revenue), 2016 ONSC 2402 (Ont. S.C.J.), the precise circumstances and powers to be allotted the protector, and insulating the protector from liability through an exculpatory clause. Depending on the value of the trust, one can couple protector powers with mandatory mediation for specified types of disputes in a manner that helps sort out the problem without the need for expensive litigation.

Have a nice day,

David

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