It is well-established that trustees have a duty to maintain and produce a proper accounting of their dealings with trust property. More specifically, trustees are expected to preserve accurate records, justify transactions involving trust assets, and establish that the trust property has been administered in accordance with their fiduciary obligations. While the duty to account is most commonly associated with express trusts, such as wills or other trust instruments, courts have long recognized that accounting obligations may arise in a broader range of circumstances, even if a trustee is not formally appointed.
Accounting Obligations of Trustees de Son Tort
For example, if a person handles trust property, despite never being formally appointed to the role of trustee, they may be required to account for their actions. In Cambareri v. Sorrenti, 2023 ONSC 4918, the Superior Court of Justice confirmed that a trustee de son tort must “account for their administration of property held in trust, such as property of a person who has died but in respect of whom no estate trustee has been appointed.”
The Duty to Account for a Resulting Trust
Case law also demonstrates that the duty to account may arise in the context of remedial trusts, including resulting trusts. This can have significant ramifications in estate litigation, as disputes often centre on gratuitous property transfers made by the deceased before they died.
For example, in Archer v St. John, 2008 ABQB 9, the deceased made a gratuitous transfer of farmland prior to his death so that he and his daughter held the land as joint tenants. Following his death, the deceased’s son argued that the land formed part of the estate and was to pass to him under the deceased’s will because his sister held it in trust for the estate. Justice Erb agreed, finding that the deceased’s daughter did not prove that the deceased had intended a gift in transferring the land to her, meaning that the presumption of resulting trust had not been rebutted.
Justice Erb went on to hold in Archer v St. John, 2008 ABQB 245, that the daughter was also required to account for her handling of the property from the time it was transferred to her, when the resulting trust came into existence. Relying upon Professor Oosterhoff and E.E. Gillese’s Text, Commentary and Cases on Trusts for the proposition that “[a] trustee under a resulting trust is like an express trustee in that he or she stands in a fiduciary relationship towards the beneficiary,” the court went on to confirm that a party who holds land pursuant to a resulting trust owes a duty to account not only for the trust property itself, but also for income generated from that property.
The Duty to Account for a Resulting Trust Versus the Duty to Account as a Substitute Decision-Maker
The duty to account for a resulting trust can also be salient in the context of substitute decision-making. If a donor creates a power of attorney and also transfers ownership of their property so that it is jointly held with their attorney, the court may call upon the attorney to account for that property as a resulting trustee, even if the donor was capable of managing their property following the transfer.
This issue was recently addressed in DiFalco v. DiFalco, 2026 ONSC 1926. The plaintiff in this case was not only her mother’s attorney for property, but had also been added to her mother’s bank account so that the funds were held jointly. Following their mother’s death, the plaintiff’s brother argued that the plaintiff had mismanaged their mother’s funds and sought an accounting. In response, the plaintiff argued that she was not required to account under section 38 of the Substitute Decisions Act, 1992 because her mother had remained capable of managing her property after the power of attorney was created.
Justice Krawchenko ordered the plaintiff to account for her mother’s bank account as a trustee, rather than in her capacity as her mother’s attorney. By virtue of the daughter’s status as a gratuitous joint account holder, the court recognized that she held the account in trust for her mother pursuant to a resulting trust and was therefore a resulting trustee who was subject to “a strict obligation to fully account for all dealing with the trust property.”
As a trustee, the plaintiff was subject to stricter accounting obligations than the accounting obligations ordinarily associated with an attorney for property. Justice Krawchenko stressed the rigorous nature of a trustee’s accounting obligations, stating:
“As a trustee, the Plaintiff had a positive duty to account for the entire trust property, to justify any use, transfer or disposition of that property and to restore any misapplied funds. That meant that proper accounting needed to be maintained, the accounts needed to be clear, precise and verifiable. The trustee bore a strict evidentiary burden and any ambiguity, missing records and any unexplained or dubious transactions were resolved against the trustee.”
The Consequences of Failing to Account
In DiFalco, the plaintiff failed to satisfy her duty to account, as she “could not explain material transactions, failed to account for extended periods, commingled funds, and offered explanations unsupported by reliable records.” As a result of these deficiencies, Justice Krawchenko ordered the plaintiff to repay more than $137,000 to her mother’s estate, representing funds that had either been misapplied or could not be properly accounted for.
Takeaways
These decisions serve as an important reminder that the duty to account for a trust may arise, regardless of whether a trustee has been formally appointed. If a person intermeddles with trust property, such that they are a trustee de son tort, they may be required to account. Similarly, if a person receives property through a gratuitous transfer, such that they hold that property on a resulting trust, they may be subject to accounting obligations as a resulting trustee. The duty to account includes not only accounting for how the trust property has been handled – preferably with detailed, verifiable records – but may also require the trustee to account for profits earned on the trust property. If a trustee fails to satisfy this duty, the financial consequences can be quite significant, as demonstrated by the court order in DiFalco.
Thank you for reading, and have a wonderful week.
Ian.