Estate trustees are frequently asked by beneficiaries to have the estate cover a beneficiary’s legal costs, whether because the beneficiary has retained counsel to attend a passing of accounts, to respond to a challenge to the will, or simply to monitor the administration of the estate. Whether the estate trustee may properly agree to this depends first on whether the will speaks to the issue, and, if it does not, on a body of principles the Ontario courts have developed under the general law of costs.
Where the Will Expressly Addresses the Issue
The clearest case arises where the will itself authorizes the payment. A will may expressly direct that a beneficiary’s legal fees be paid or indemnified from the estate. Where such a clause exists, the estate trustee usually may rely on it. The courts have cautioned, however, that the authorizing language must be clear: a clause that is ambiguous may not be read as authorizing payment of professional or legal fees beyond the trustee’s ordinary compensation.
Where the Will Is Silent
Most wills say nothing on the point. In that case, the default position is that each beneficiary bears their own legal costs, and the estate trustee’s ability to pay them from the estate is governed by the general law of costs in estate litigation and by section 23.1 of the Trustee Act. That section permits a trustee who forms the opinion that an expense would be properly incurred in carrying out the trust to pay that expense from trust property, subject to later disallowance by the Superior Court of Justice.
The Court of Appeal for Ontario set out the modern approach to costs in estate litigation in McDougald Estate v Gooderham, 2005 CanLII 21091 (ON CA) at paras 78 to 80, a decision that displaced the older practice of routinely paying all parties’ costs from the estate. The Court directed that estate litigation is now to be scrutinized under the ordinary civil costs rules unless one of two public policy considerations applies: the dispute arose from an ambiguity or omission in the will, or from the testator’s own conduct; or the litigation was reasonably necessary to ensure the proper administration of the estate. The decision is available in full here.
Several recognized exceptions flow from this framework. For example, where the litigation can be attributed to the testator’s own conduct or lack of clarity, a party may recover costs from the estate even where unsuccessful.
Where the Estate Should Not Bear the Cost
The corollary is equally well established. A beneficiary who opposes the administration of an estate without a legitimate basis, or who pursues litigation for a personal rather than an estate purpose, will typically bear their own costs. Where an estate trustee is personally at fault by failing to fulfil their duties, the trustee rather than the estate may be required to indemnify a beneficiary for the resulting legal costs, and any amount improperly paid from the estate in the meantime may have to be restored.
Practical Takeaways
Before agreeing to pay a beneficiary’s legal fees, an estate trustee should confirm whether the will speaks to the issue and, if it does not, assess the request against the passing of accounts framework and the public policy exceptions described above. Where the position is unclear, particularly where the litigation concerns the trustee’s own conduct, the safer course is often to seek the court’s direction, or to await the outcome of the proceeding, before committing estate funds.
This is a fact specific area of law, and the appropriate treatment of a beneficiary’s legal fees will depend on the terms of the will, the nature of the dispute, and the conduct of the parties involved.