Author: Suzana Popovic-Montag
INDEMNITIES AND RELEASES FOR TRUSTEES – Acknowledgment, Release, Discharge, Receipt, and Indemnity – Part IV
Ultimately, where a trustee administers the assets of a trust, the two most effective and important releases that are available to be obtained are (1) a Clearance Certificate from Revenue Canada; and (2) an Order of the Court in a Passing of Accounts.
Having said that, while a Clearance Certificate is of course sought in most circumstances, a formal Passing of Accounts is not always obtained by a trustee.
From a practical standpoint, where all of the beneficiaries of a trust are sui juris, the trustee has the opportunity to obtain a Clearance Certificate and then merely circulate a release to all persons with an interest in the trust. In so doing, some consideration must be given to the question of independent legal advice and whether or not it is necessary to insist that a beneficiary obtain such prior to signing the release. Without the benefit of independent legal advice, there is the question as to the strength and enforceability of any release.
None the less, in practical terms, many estates and many trusts are wound up on the basis of an execution of the appropriate release by the beneficiaries.
From a practical standpoint, when seeking a final release from a beneficiary, a copy of the accounts should be provided, and these accounts may be in an informal format or in Court format, depending on the circumstances.
A condition contained in a will to execute a release is enforceable and, upon refusal to do so, the legatee may forfeit the gift: see Williams on Wills (7th Ed.) Butterworths 1995 at p. 374. Furthermore, it has been held that, where there is a requirement in a release that it be executed within a stated time, this must be complied with: see Simpson v. Vickers (1807) 14 Ves. 341.
The form of a release or receipt depends on the nature of the gift itself. For example, when a beneficiary receives a specific bequest, he or she should only need to provide the person who presented the gift with an acknowledgement of receipt of the particular bequest received.
On the other hand, a residuary beneficiary has a right to consider pursuing a formal Court audit or should be expected to sign an acknowledgement, release and indemnity.
In conclusion, the substantive issues relating to the whole question of release, indemnity and receipt are important to keep in mind when you are dealing with the form of a receipt, acknowledgement or indemnity.
Best wishes, Suzana and Ian. ——–
A comprehensive review of the principles in respect of determining when trustees have personal rights of indemnity against beneficiaries is set out in the Australian decision of J.W. Broomhead (Vic.) Pty. Ltd. (in liquidation) v. J.W. Broomhead Pty. Ltd.  V.R. 891 (S.C. Vic.); see also Cullity, M.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. In the Broomhead decision, McGarvie J. set out the following propositions:
·the general principle is that a trustee is entitled to an indemnity for liabilities properly incurred in carrying out the trust, and that right extends beyond the trust property and is enforceable in equity against a beneficiary who is sui juris; ·the basis of the principle is that the beneficiary who gets the benefit of the trust should bear its burdens, unless he can show some good reason why the trustee should bear the burdens alone; ·the right of indemnification is not confined to the case where there is only one beneficiary.
It applies to cases of multiple beneficiaries as long as they are all sui juris and entitled to the same interest as absolute owners of the trust property between them; ·the liability to indemnify could apply to trustees of subtrusts that were beneficiaries of the principle trust; and ·prima facie, the beneficiaries share the liability in proportion to the extent of their respective beneficial interests in the trust.
With the incidence of personal liability for trustees, it is nice to see that the caselaw strongly supports, in the right circumstances, the ability of the trustee to come back against and collect, if necessary, from the beneficiary.
All the best, Suzana and Ian. ——–
In an effort to carry on with our theme of trying to protect trustees, we wanted to consider the liability of trustees as against third parties. In this context, there is really no limit to the extent of liability that a trustee can incur.
A trustee can, of course, incur liabilities to persons other than beneficiaries. For example, the trustee may contract an environmental clean up company to remove contaminated soil from land that is owned by the estate before it is put on the open market. The trustee will therefore be liable for those costs, payable out of the assets of the estate. As trustees are principals and not agents of the beneficiaries, they will, prima facie, be personally liable on obligations owed to third parties and trustees may incur personal liability as a result.
The trustee may limit the extent of the personal liability to the value of the trust assets or limit it to the extent that the right of indemnity exists only against such assets. Furthermore, where the trustee has the right of indemnity out of the trust assets, creditors will, as a general rule, be entitled to be subrogated to it. See Cullity, M.C.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115 at pp. 127-128. As to the question of limiting the liability of a trustee, Falconbridge on Mortgages (4th Ed.), p. 428-429 states:
If the trustee or personal representative covenants to pay, he will be personally liable on his covenant, even thought he covenants as trustee or as personal representative, even though he adds a proviso that he shall not be personally liable, such proviso being repugnant to the covenant to pay and therefore void. He may, however, validly limit his liability without destroying it, as, for example, if the covenant is to pay out of a certain fund, with a proviso that the covenantor shall not be liable after he ceases to be entitled to administer the fund. So, if a trustee covenants "as trustee and not otherwise", or "qua trustee only", or if an executor covenants "as executor, and as executor only", the covenantor is personally liable to pay, but only to pay out of the assets of the estate or to the extent that he has assets.
This strict rule attempting to limit a trustee’s personal liability has been weakened and modified by the courts. For a review of the impact of the ability of a trustee to limit his or her liability, see Cullity, M.C.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115 at pp. 129-133 and see Gordon v. Roebuck (1992), 92 D.L.R. (4th) 670, 9 O.R. (3d) 1 at p. 7-10 (C.A.).
It seems that the bottom line is that a trustee must watch out for the personal risk that may be attached to him or her, merely as a result of his or her dealings with third parties.
On our next Blog, there’ll be more to come on this "protection of trustees" theme…
All the best, Suzana and Ian.
Perhaps one of the more frightening aspects of being a trustee is the fact that the risk of personal liability is "an incident of the office of trustee". His Honour Justice Cullity wrote a leading article on this topic, entitled "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. Given the personal consequences attached to the position of trustee, some consideration must be given to the nature and extent of the releases and rights of indemnification that may be available to a trustee.
Usually these issues are considered at the final stage of an estate administration, when the trustee is dealing with the distribution and winding up of the assets of the estate or trust. In this Blog series on this topic, we will attempt to briefly review some of the substantive and practical issues relating to the whole question of rights of indemnity and releases for trustees.
In order to properly determine just what a trustee should receive in the form of a release, acknowledgement or indemnity, some consideration must be given to specifically the nature and extent of the obligations and liabilities that are expected of the trustee when he or she takes on the role. In short, a trustee is a fiduciary and, as such, his or her fiduciary obligations are owed to beneficiaries, and in some circumstances, to third parties as well.
Given this, the whole question of what a trustee can expect in the form of an acknowledgement, release or indemnity, is a difficult one. Presumably, the trustee’s rights of indemnification out of the trust property arise as a result of the fact that the trustee merely holds the legal title to the property and does not hold the beneficial interest in the property.
"Clients doesn’t care about you, they care about themselves".
While this may seem like a bold statement, we think it is true in every case that we work on. You have to show that you care about your client. You can’t fake the fact that you care. A client has an intuitive ability to determine if you indeed do care about his or her case.
There are three "R’s" of good client service.
You need to respect the client. The first rule of respect is relatively obvious, in that people want to be held to a certain level of esteem by you. Consideration needs to be shown for their thoughts and their feelings.
The client is going to make judgments based on how you communicate your advice to them. You need to make a connection with your client and ask yourself:
What do I, or could I, like about this person? Do I understand this person? What is the quality of my communication with this person? What ideas does this person have that I can appreciate? The purpose of this kind of analysis is to get your thinking aligned with the client to respect their feelings.
The second "R" is building rapport.
What is rapport? Before influence can sink in or leadership can be effective, you have to create a certain level of trust and rapport with your client. Rapport is defined as an agreeable or harmonious relationship. The client is going to come back if that lawyer has their best interests in mind throughout the retainer. The real question is, "Does the client feel that the lawyer has his or her best interests at heart and can that lawyer assist the client"?
Essentially, there is an interdependence between the client and the lawyer. The client eventually comes to a level of trust where he or she is going to respect and act on the advice given by the lawyer.
The third "R" is the rules, sometimes referred to as the client’s rules. Every client has his or her own expectations and rules. Typically, the client comes in with his or her own reasons for his or her own agenda. The rules need to be respected and always considered.
With these three "R’s" in mind, we’re well on our way to improving our client services.
All the best, Suzana and Ian.
A unique characteristic of podcasting is the fact that it is speech-based radio and, in Canada, just like in the U.K., we have a culture of expecting high quality speech-based radio as a result of the CBC.
Podcasting is essentially citizen media created by those who are closest to the story. And podcasting is truly about convenience. These days, people simply do not have the time or the ability to listen to things they want to listen to in "real time". As such, we as service providers have to react and perform to this reality.
In our view, podcasting is not just another fad or interesting technology blip. Rather, it’s the wave of the future. Paired with the ipod, podcasts are informative, intimate and convenient. And because they are portable, they are conducive to complete and total communication.
And the great thing about podcasts is the fact that, while your audience is expecting to hear great content, it is not necessarily expecting great production.
The listeners who are the most affected and the ones whom you have "won" are the ones who download your podcast and essentially "take you with them". The only way you will get them to take you along, however, is to make it simple, easy and convenient – without compromising on the high quality content. We need to teach people how to "consume" podcasts to make sure that they can download and walk away with the technology in hand.
All the best, Suzana and Ian. ——–
In previous Blogs, we have discussed, in part, recent legal developments surrounding the elderly. At the May 25, 2006 Elder Law program that Ian attended, the initial speakers addressed some of the important remedies available to individuals in the context of both the criminal and civil courts.
One interesting reference identified by the speakers was that of section 331 of the Criminal Code, which provides for a criminal remedy against someone who victimizes an elderly person.
Section 331 provides, in part, that anyone who commits theft or who, being entrusted, whether solely or jointly with another person through a Power of Attorney, fraudulently converts the proceeds of an elderly person, may be charged with a criminal offence.
Rita Zaied, the manager of Legal Services for the York Regional Police, noted that in situations where criminal charges are pursued in the context of Power of Attorney matters, the police and the Crown’s office acknowledge that there may be circumstances where the victim may not be able to give evidence. Therefore, they look to other sources, such as the record that was created in the civil law proceedings.
For example, any Affidavits prepared by the victim in the civil law proceedings will often detail some of the history of what happened. In the criminal court, this Affidavit may be helpful. Rita Zaied went on to say that where a lawyer can come to court and confirm that his client was clearly capable when he or she prepared the Affidavit, this evidence can be compelling in the context of the criminal proceedings.
All the best, Suzana and Ian. ——–
As we talked about yesterday, there are 2 important decisions of the Ontario Court of Appeal that have recently been granted leave to appeal to the Supreme Court of Canada. On November 1, 2005, the Court of Appeal again considered the question in Saylor v. Madsen Estate. In this case, the Court of Appeal held that, while the deceased’s intention was clear from the evidence, the presumption of resulting trust did not need to be considered. The Court confirmed the approach set out in Pecore v. Pecore and held that:
Reliance on the presumptions has diminished because the Courts are now first examining all of the evidence to determine the transferor’s intent. That is to say, Courts are tending to examine the evidence in its entirely and base findings regarding intention on all the facts. It will only be where the evidence itself is unclear that reliance on the presumptions becomes necessary.
This approach will reflect what I believe to be a sensible and modern approach to an analysis of the presumptions. …there is no reason to resort to the presumptions where evidence of intention is clear. This approach is both contemporary and reasonable since the overall purpose is, after all, to ascertain the transferor’s intention."
Last week, we commented on our Blog about the whole question of joint accounts. At the end of the week, Eugene Meehan’s email newsletter announced that 2 important decisions from the Ontario Court of Appeal had been granted leave.
In Pecore v. Pecore, the deceased transferred assets held in his name jointly with his daughter. The jointly-held assets amounted to approximately 80% of the value of the Estate. The deceased was concerned that the transfer of the assets to his daughter’s name could trigger a deemed disposition and result in tax consequences. As a result, he wrote the financial institutions and told them not to adjust the cost bases for the investments, as he retained 100% ownership and that the transfer to joint names was for probate purposes only. For the trial decision, click here.
Subsequent to the transfer of the investment accounts, the deceased also amended his Will to name his daughter and his daughter’s husband as residual beneficiaries. The daughter was married to a man who was a quadriplegic as a result of a motor vehicle accident, and the daughter was her husband’s primary caregiver.
Approximately two years after the deceased’s death, the daughter and her husband’s marriage ended and the daughter’s husband, in the course of the divorce proceedings, learned that she had received a substantial inheritance by way of a joint ownership account following her father’s death. The husband brought a claim against the daughter claiming an interest in the jointly-held assets and claiming that he was entitled to 50% of those assets.
Of interest, in this case the transfer of the joint account was not challenged by the siblings of the transferee, it was challenged by the deceased’s son-in-law. At trial, the Judge reviewed the evidence and concluded that the deceased intended the gift of the assets held on joint account with the daughter. The Court again, as is customary in these matters, reviewed the specific factual circumstances relating to this matter.
As Madam Justice Greer said, a gift is not a kiss in the dark. Unlike the memory of a kiss, which fades in time, the giving of a gift has lasting consequences: Feeney’s Canadian Law of Wills, 4th Edition (Lexis Nexis), p. 1.1, per Justice Greer in Schilthuis v. Ainold,  O.J. No. 2212 (Gen. Div.) at p. 2 of 25.
There are two fundamental ways in which a person may make a gift. The first is, of course, by testamentary disposition and the second is by inter vivos gift. The question of validity is naturally paramount in the context of estate litigation matters. Consequently, once the intended gift has been challenged, unless there has been compliance with the appropriate legal requirements to perfect that type of gift, the transaction will be invalidated, no matter how clear the intention of the donor might otherwise be.
Generally speaking, the governing statement of law with respect to the ownership of money deposited in a joint account, when the money is deposited by one of the account holders only, is as set out by the Supreme Court of Canada in Niles v. Lake,  2 D.L.R. 248 at 254 (per Taschereau J.).
As such, the onus is on the recipient of the inter vivos gift to rebut the presumption of a resulting trust and, where the person is deceased, the presumption can only be met by providing the same convincing and unimpeachable corroborative evidence.
The decision of Mr. Justice Cullity in Cho Ki Yau Trust v. Yau Estate (1999), 29 E.T.R. (2d) 204 (Ont.Sup.Ct.J.), is an excellent illustration of how the Courts have dealt with the whole question of ownership of inter vivos gifts and joint accounts. The Court considered issues such as the ownership of the joint account in light of the lack of an express right of survivorship in the language of the bank’s joint account agreement. Justice Cullity made it clear that, in circumstances such as this, the question of whether the son obtains a beneficial right to the funds on deposit depends upon the intention of his mother and that, for this purpose, the terms of the document provided by the bank for their signatures are of secondary importance. The Court made it clear that those documents really just determine the rights and obligations in respect of the bank.
In essence, the Court made it clear that where there is evidence that the original deposit of the funds was made by one of the individual joint account holders, in the absence of any evidence to the contrary, it must be presumed that the sole depositor was the beneficial owner of the funds. This circumstance, where the one individual deposits most, if not all, of the funds into the account and the other joint holder is there solely for the convenience and benefit of the depositor, is of course common in many family situations.