Last week, my colleague, Margarita Grup, blogged on a recent decision out of the Superior Court of Justice, Santos et. al. v Coghlan, 2023 ONSC 4862, discussing an Estate Trustee’s right to indemnification.
Margarita outlines the facts of the case and the Court’s conclusion – her blog can be found here. Ultimately, the Court found in the circumstances of this case, (one of which being certain language contained in an Order for Directions), the Applicant Estate Trustees were unable to fund their litigation against the Respondents from the Estate’s assets, preferring to level the playing field.
Building off of Margarita’s outline of the case, I thought it might be helpful to provide a summary of the Court’s overview of the history of the law regarding an Estate Trustee’s right to indemnification:
- The starting point of the Court’s analysis was to recognize that a trust is not a legal entity capable of suing or being sued – Trustees hold ownership of trust assets and legal actions may be taken in their name – the lawyer engaged by an Estate Trustee represents the Trustee, not the Estate itself (see Martyn v Taylor, 2003 CanLII 43893 and DeLorenzo v Beresh, 2010 ONSC 5655);
- Estate Trustees are entitled to be indemnified for expenses reasonably incurred in connection with the administration of the Estate – this includes litigation expenses (see Thompson et. al. v Lamport et.al.,1945 CanLII 2 (SCC));
- Further, litigation expenses can include those incurred in relation to proceedings where there is some question as to whether the Trustee has acted prudently and properly. This right is even extended when the Estate Trustee, who was also a beneficiary, pursued personal interests alongside those of the trust (see Geffen v Goodman Estate, 1991 CanLII 69 (SCC);
- The right of indemnification has been codified in section 23.1 of the Trustee Act;
- An Estate Trustee does not require the prior consent of the beneficiaries or a court order to have litigation costs paid from Estate funds – many Estate Trustees lack the means to pay expenses from their own pocket and to later seek reimbursement – imposing this burden could discourage them from taking on this socially important role (see Furtney v Furtney, 2014 ONSC 3774 citing Oosterhoff, Albert H., Indemnity of Estate Trustees as Applied in Recent Cases (2013), 41 The Advocates’ Quarterly 123).
After reviewing this summary of the law, it is interesting to know that the Court ultimately concluded in Santos, that the Estate Trustees could not pay their legal fees from the Estate. The language of the Order for Directions the Court found prevented this step, included the following:
- The Order explicitly stated that the Estate Trustee “may not distribute or disburse any estate assets, unless such distribution is approved under this Order or agreed upon in writing by the parties involved in this proceeding,” and
- The Order set out specific actions the Applicants (who had been appointed as Estate Trustees During Litigation) were authorized to do, including the liquidation and consolidation of the Estate’s assets, to pay all debts owed by the Deceased or the Estate, to meet all other obligations of the Deceased or the Estate, and to appoint agents as necessary.
The Court held that litigation expenses cannot be categorized as debts or legal obligations of the Estate, such that they are not captured by the permissive language of the Order. Underlying the Court’s analysis was the unlevel playing field that would result from the Applicants having access to the Estate assets to fund their legal expenses, while the Respondents did not.
The Court concluded that when there is conflict between Estate Trustees involved in litigation and other parties within the litigation, the Court should maintain a level playing field, equity calling for each party to cover their respective costs until the litigation concludes.
This decision is both a helpful summary of the law regarding an Estate Trustee’s right to indemnification, and a reminder of the importance of using clear and intentional language in Orders for Directions, failing which, you could be left with unintended consequences.
Thanks for reading!