In the recent decision of Muscat v. Muscat Estate, 2025 ONCA 51, the Ontario Court of Appeal upheld the decision of the Superior Court of Justice on the removal of estate trustees and underscored the fundamental importance of fiduciary duties and impartiality in estate administration.
Background
The respondent in the case was the sole residual beneficiary of the estate of the deceased. The appellants included the estate itself and two estate trustees.
At issue was a jewelry business and its associated property, valued at approximately $515,000 for probate purposes. The beneficiary’s entitlement to the estate was held in trust until reaching a specific age.
In early 2023, a prospective buyer—who was in a romantic relationship with one of the estate trustees—offered to purchase the business for $400,000, an amount significantly below its probate value of approximately $515,000. The beneficiary raised concerns about a conflict of interest arising from this relationship. However, counsel for the estate trustee dismissed these concerns as irrelevant and forwarded the buyer’s final offer to the beneficiary, imposing a 10-day deadline for acceptance and recommending that he sign the agreement, characterizing it as a bona fide offer. The beneficiary requested additional time to consider the offer, which was refused. He then formally asked for the resignation of the estate trustee involved. Subsequently, the beneficiary obtained an independent appraisal, which valued the business as high as $911,550.
The application judge concluded that a conflict of interest did indeed exist and that the estate trustees had failed to perform due diligence in evaluating the offer. The estate trustees were removed, and they were ordered to personally cover the beneficiary’s legal costs totaling $56,693.01.
Appeal and Court of Appeal Decision
The appellants challenged the trial judge’s decision, arguing that the judge made factual errors and that there was no duty to disclose the personal relationship since the beneficiary was already aware of it. They further contended that a fair market appraisal was unnecessary, as no sale had occurred—only an offer had been presented.
The Court of Appeal dismissed these arguments, supporting the original ruling on several key points:
Conflict of Interest
The Court determined that the personal relationship between one trustee and the prospective buyer created a conflict of interest. Despite being asked to resign, the trustee refused, arguing that the relationship did not affect trustee duties. The Court rejected this defense, stating that awareness of a conflict by a beneficiary does not excuse a fiduciary’s failure to disclose or act appropriately.
Fiduciary Duty and Loyalty
Trustees are obligated to act in the best interests of the beneficiaries and manage estate assets with honesty and diligence. The trustees failed to properly assess the offer or seek alternative valuations, effectively pressuring the beneficiary to accept a deal that may not have reflected fair market value—constituting a breach of their duty of loyalty.
Lack of Due Diligence
The Court found no evidence that the trustees had explored alternative buyers or options before recommending acceptance of the offer. The claim that it was the “best available option” was unsupported by any investigation or comparative analysis.
Justification for Removal
Given the conduct of the trustees, the Court upheld their removal as necessary to ensure the estate was properly managed and the beneficiary’s interests protected. Their failure to fulfill their fiduciary duties warranted this outcome.
Personal Cost Order
The trustees were ordered to personally pay the legal costs of the beneficiary due to their unreasonable conduct and refusal to step down despite a clear conflict of interest. The Court of Appeal upheld the application judge’s decision, finding that the trustees had acted unreasonably by persistently denying the conflict and unjustifiably refusing to resign, even after a clear and unequivocal request to do so.
In doing so, the Court reaffirmed the principles set out in Westover Estate v. Jolicouer, 2024 ONCA 81 and Salter v. Salter Estate (2009), 50 E.T.R. (3d) 227 (Ont. S.C.), emphasizing the modern approach to estate litigation costs. This approach seeks to protect estate assets from being depleted by unnecessary litigation and discourages trustees from treating the estate as a personal source of litigation funding. Accordingly, trustees who act primarily in their own interest rather than for the benefit of the estate may be held personally liable for costs.
Conclusion
The Ontario Court of Appeal found no merit in the appellants’ arguments. The appeal was dismissed, and the request to challenge the original costs order was denied. The appellants were further ordered to pay appeal-related costs totaling $22,703.44.
This decision reinforces the high standards expected of estate trustees, particularly the duties of impartiality, loyalty, and full transparency. Trustees who place personal interests above their fiduciary obligations, fail to disclose conflicts, or neglect proper due diligence face serious consequences—including removal and personal cost liability.
Notably, the case sends a strong message about the financial risks of misconduct in estate administration. The trustees were held personally responsible for legal costs underscoring Courts will not allow estate assets to be eroded by unreasonable trustee behavior or protracted, self-serving litigation. The ruling reaffirms the modern cost approach in estate litigation: trustees who fail in their duties may not only be removed but may also bear the personal financial burden of their choices.
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