An estate trustee has many duties, including preserving anestate from financial losses and properly administering the assets of an estate. If an estate trustee breaches theseduties and depletes estate assets, for example by paying legacies before the deceased’s debts have been paid, thetrustee may be liable on the basis of devastavit. A devastavit is committed when an estate trustee wastes estate assets by mismanaging, misapplying, squandering or neglecting them.
A devastavit may not always result in the imposition of liability, however, since the courts have the power to forgive personal liability under section 35 of the Trustee Act, RSO 1990, c T.23. To obtain such forgiveness, the estate trustee must be able to establish: “(1) that he or she acted honestly; (2) that he or she acted reasonably; and (3) that he or she ought to be fairly excused”: see Cahill v Cahill, 2016 ONCA 962.
It has now also been established by the Saskatchewan Court of Appeal in Klaptchuk v. Johnson, 2023 SKCA 25that failure to consider whether an estate trustee can be relieved from liability for devastavit under this statutory provision is an error of law, giving grounds for appeal.
In Klaptchuk, the Court of Queen’s Bench granted summary judgment against the named executrix of the deceased’s estate and held her personally liable for a judgment obtained against the deceased shortly before he died on the basis of devastavit. The presiding judge found that the executrix, who had taken over the operation of one of the deceased’s corporations after his death, had breached her duty by using estate assets for her own use rather than settling the respondents’ claim against the estate. The court only considered one defence to the claim against the executrix – plene administravit – and found that the executrix could not utilize it because she had not pled it, resulting in an implicit admission that there were sufficient assets in the estate to satisfy outstanding debts.
The executrix appealed on several bases, including the fact that she too was a creditor of the estate, as she had paid various estate debts and other expenses related to the administration of the estate out of her own pocket because there were insufficient assets in the estate. The executrix also argued that she had taken control of the corporation without remuneration as the deceased’s wife and as a creditor of the company due to an outstanding shareholder loan.
On appeal, the summary judgment was overturned in light of the lower court’s failure to consider whether there was a proper basis to relieve the executrix from personal liability under section 45 of Saskatchewan’s Trustee Act 2009, SS 2009, c T-23.01, which largely mirrors section 35 of Ontario’s legislation. The Court of Appeal held that due to this error, the wrong legal framework was applied and that the presiding justice “did not fully consider whether he could make necessary factual findings about the value of the Estate or the reasonableness of Mrs. Klaptchuk’s actions in dealing with its assets”. The court went on to explain:
When the matter is viewed through the correct legal lens, a determination of the value of the Estate was crucial to deciding not only whether Ms. Klaptchuk had committed devastavit, but also to deciding whether she ought to be relieved of personal liability and, if so, to what extent. In that respect, the Chambers judge made no firm finding. He simply concluded that [the corporation] had “some value which could be called upon to pay the Judgment” … He also engaged in no consideration of whether the evidence was sufficient to answer the related questions of how the Estate’s value, or lack thereof, affected the reasonableness of Ms. Klaptchuk’s actions or whether it would be fair to excuse her from personal liability.
Had the correct legal framework been applied, the Court of Appeal concluded that “there would have been no proper basis upon which to conclude that there was no genuine issue requiring a trial.”
The Court of Appeal’s decision in Klaptchuk confirms that liability for devastavit should not be imposed until the court considers whether the estate trustee acted both honestly and reasonably, and whether the estate trustee ought to be fairly excused. Such a determination may also require consideration of other factors, including the reasonableness of the estate trustee’s actions, the value of the estate, and the quality of the evidence before the court.
Thank you for reading, and have a great day!
Ian