In managing the affairs of a trust, trustees will be held to the standard of care and diligence required of a person of ordinary prudence in managing their own affairs – Fales v Canada Permanent Trust Co. 1976 CarswellBC 240 [Fales]. Trustees are not expected to be infallible, nor are they expected to guarantee the safety of trust assets. In Fales, for example, the court held that consideration should be given to all of the circumstances leading to the decline in value of the securities held in trust for the estate, such as: 

• whether the breach of trust was merely a technical breach or a minor error of judgment; 
• whether the decline in value of securities was attributable to general economic conditions; 
• whether the trustee is a company organized for the purpose of administering estates with specialized departments, and experienced officials, but above all else; 
• whether the conduct of a trustee was reasonable. 

Subsection 35(1) of Ontario’s Trustee Act may also provide some relief where there has been a technical breach of trust, but a trustee has otherwise acted honestly and reasonably.  

A 2016 Ontario Court of Appeal decision, Cahill v Cahill, 2016 ONCA 962, provides a simple illustration of the weight given to the last point, the reasonableness of a trustee’s conduct in determining whether the ordinary prudence standard has been met. A testator appointed two of his four children to act as executors and trustees of his estate. Under his will, the co-executors and trustees, a brother and sister, were required to set up a $100,000 trust and pay a monthly income of $500 for the benefit of one of their siblings during his lifetime; any remaining trust capital was to be distributed to the testator’s surviving grandchildren.   

The brother, who was named as co-executor and estate trustee of his father’s estate, was also named as the sole trustee of the trust fund. Qualified as a Certified Financial Planner and a Chartered Life Underwriter, he was authorized in his sole discretion as trustee to exercise his judgment as to the investment of the monies under the trust. He arranged for $100,000 from the estate funds to be paid into an investment account and a banking direction for this investment was endorsed by himself and his sister acting as co-estate trustees. The direction did not identify the investment as a trust fund, the brother as trustee, nor the sibling as a beneficiary of the trust. 

When this brother later misappropriated the trust funds for his personal use, depriving the beneficiary of any future payments, the sister who had acted as co-estate trustee was found jointly and severally liable with her brother to the trust beneficiary. The court held that although she was not a trustee of the trust itself, she had a responsibility as a co-estate trustee to: 

• make sufficient inquiries as to the details of the trust investment; 
• exercise her own judgment as to whether the terms of the trust fund met the requirements of the will; and 
• actively follow-up regarding the status of the trust. 

She had relied on her brother’s assurances as trustee and his knowledge of investing that the trust was being properly managed. Effectively, she had delegated the exercise of her discretion as co-estate trustee to her brother. 

When more than one party is appointed as an estate trustee of an estate, courts expect that each trustee acting on behalf of the settlor/testator will take an active role in the management of the estate and any trusts that may form part of that estate.   

While a trustee with less experience in managing trust affairs may be tempted to defer to, or merely endorse, decisions of his or her co-trustees with more experience, courts do not recognize a distinction in the responsibilities of co-trustees and will hold each and all co-trustees liable for a breach of trust for any failure to fulfill their fiduciary obligations in administering a trust. Notably, liability may arise whether the breach is innocent, negligent or fraudulent because in finding liability, the courts seek to restore beneficiaries to the position that they would have been in had the breach not occurred. 

Thank you for reading.

Ian Hull & Susanne Myers