In the recent decision of Carroll v Toronto-Dominion Bank, 2021 ONCA 38, the Ontario Court of Appeal dismissed the appeal of an applicant for lack of standing to bring the application, notwithstanding that the application related to an alleged breach of trust. Standing is required to sue for breaches of trust.
In this matter, the applicant, Marion Carroll, was formerly employed by Toronto-Dominion Bank (“TD Bank”), as a manager who was responsible for the compliance of a group of TD Bank’s subsidiaries relating to the management of mutual funds. Among other things, Ms. Carroll claimed to have exposed regulatory non-compliance and breaches of mutual funds trusts by TD Bank’s subsidiaries. In 2019, Ms. Carroll issued an application against TD Bank with respect to its role as Trustee of designated mutual funds.
The motion’s judge dismissed the application pursuant to Rule 21.01 of the Rules of Civil Procedure, finding that Ms. Carroll lacked standing to bring the application. Ms. Carroll appealed that ruling to the Ontario Court of Appeal.
While the Ontario Court of Appeal addressed other issues within this appeal, the focus of this article will be to highlight the Court’s finding that standing is required to sue for breaches of trust.
Ms. Carroll’s position was that once a court is informed of allegations of a potential breach of trust, the inherent jurisdiction of courts to administer trusts makes standing “subordinate, and largely irrelevant, where allegations of fraudulent or improper misconduct are made against a trustee,” thereby obliging the courts to resolve the litigation. Ms. Carroll also furthered the position that the courts of equity have removed the requirement of standing to protect the interests of incapacitated beneficiaries who cannot effectively sue to enforce trust obligations.
The Court rejected Ms. Carroll’s position stating that the claim that standing is subordinate or irrelevant “misconceives the true nature of the inherent jurisdiction of courts to supervise or administer trusts and is contrary to basic trust principles.” Although, the courts have previously extended access to the court’s inherent jurisdiction to creditors or contingent beneficiaries, the Court noted that the implications of Ms. Carroll’s position would result in strangers being able to enforce trust benefits that beneficiaries are entitled to, even if the beneficiaries choose not to enforce them, and that this would be contrary to the essential character of a trust.
The Courts are able to assist those with an interest in trusts by enforcing and compelling the performance of those trusts. Specifically, the Court noted that:
“the inherent jurisdiction to supervise and administer trusts exists to assist the parties to the trust relationship or those who are interested in the trusts. As such, the inherent jurisdiction of courts to supervise and administer trusts is not inconsistent with the imposition of standing requirements. To the contrary, it is entirely in keeping with the role inherent jurisdiction performs to ensure that those who seek to invoke the inherent jurisdiction to supervise or administer trusts have an interest in the trusts they seek to enforce.”
The Court of Appeal also discussed the following issues within this decision:
- Did the motion judge err by applying the wrong standing test?
- Did the motion judge err by finding that Ms. Carroll had not pleaded facts establishing a prima facie case of standing?
- Did the motion judge err by failing to consider all aspects of the relief sought when determining Ms. Carroll’s standing?
The Court concluded that the motion judge made none of the above-noted errors and dismissed the appeal.
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The Consolidated Practice Direction Concerning the Estates List in the Toronto Region was established for the hearing of certain proceedings involving estate, trust and capacity law, applying to matters on the Estates List in the Toronto Region.
As of March 9, 2021, Part VII (Contested Matters – Estates) of this practice direction was amended to make reference to model orders prepared by the Estate List Users’ Committee.
Generally, parties are expected to take the time and care to prepare proposed orders giving directions for consideration by the court. If the parties are unable to agree upon an order giving directions and a contested motion for directions is required, each party must file a copy of the draft order giving directions it is seeking with its motion materials.
In addition to providing requirements for what orders giving directions should address, where applicable, this practice direction now includes the following model orders:
- Order Giving Directions – Appointment of Section 3 Counsel
- Order Giving Directions – Power of Attorney/Guardianship Disputes
- Order Giving Directions – Will Challenge
- Order Giving Directions – Dependant’s Support
- Order Giving Directions – Passing of Accounts
As noted in the practice direction, the preparation of draft orders for consideration by the court will greatly expedite the issuance of orders. Where the relevant model orders have been approved by the Estate List Users’ Committee, a copy of the draft order showing all variations sought from the model order must be filed.
The addition of model orders can greatly benefit the Estates List in the Toronto Region. Among other things, these model orders provide a baseline for all parties, such that it can significantly reduce drafting time and potential disagreements on wording among parties, which in turn can increase efficiency and reduce costs.
Many thanks to the Estate List Users’ Committee for their time and efforts in preparing these model orders!
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Trustees may be cautious or uncertain when administering trusts, even when the trust deed gives them unfettered discretion in carrying out their duties.
In Ontario, trustees are able to seek advice and directions from the court under section 60 of the Trustee Act and also seek advance approval of various exercises of discretion in administering a discretionary trust. The jurisdiction of the Court to approve the exercise of discretion by trustees was formally recognized in Public Trustee v. Cooper  WTLR 901, a decision of the High Court of Justice in the UK. These orders are often referred to as “Cooper orders”. However, trustees must consider when it is appropriate to involve the Court in decisions that should be made by trustees.
Justice Hart in Cooper outlines instances in which trustees can seek directions from the Court. He states that parties may seek to obtain the blessing of the Court for a “momentous decision” that they have resolved to make in the trust’s life. As long as the proposed course of action is within the proper exercise of the trustees’ powers and where there is no real doubt as to the nature of the trustees’ power, the Court may make a declaration that the trustee’s proposed exercise of power is lawful. The Courts have made it clear that they will not exercise discretionary powers on behalf trustees.
Cooper Orders have been successfully sought in Canada. In Toigo Estate (Re) 2018 BCSC 936, the Trustees of an Estate sought the Court’s declaration that their exercise of discretion was lawful. The deceased created a spousal trust which permitted the trustees uncontrolled discretion to encroach on the capital of the estate in favour of his wife. After his wife’s death, the residue of the estate was to be divided amongst the deceased’s children and grandchildren.
The wife asked the trustees for a significant encroachment. The trustees had uncontrollable discretion to make the encroachment. However, they still wanted the Court’s “opinion, advice or direction” as to whether they should proceed.
The Court held that because of the magnitude of the encroachment, the Court could provide advice on this “momentous decision”. In making the decision, the court asked the following questions:
- Does the trustee have the power under the trust instrument and the relevant law to make the “momentous decision”?
- Has the trustee formed the opinion to do so in good faith and is it desirable and proper to do so?
- Is the opinion formed by the trustee one that a reasonable trustee in its position, properly instructed, could have arrived at?
- Is the Court certain that the decision by any actual or potential conflicts of interest?
Ultimately, trustees need to consider whether it’s suitable in their circumstances to apply to the court for a stamp of approval when taking drastic or “momentous” action.
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On March 30, 2020, Noah Weisberg blogged about the estate trustee’s duty to invest during COVID-19, a time when market fluctuations have become the norm. Today, I consider how pandemic-induced changes in the housing market may impact an estate trustee’s management of real property held by an estate.
Real properties – including primary residences, cottages, and vacation properties – are often some of the largest assets an estate trustee will deal with during the course of their administration of an estate. Unless otherwise stated in the deceased’s will, the estate trustee has a fiduciary duty to sell the estate’s real property for its fair market value and is expected to do so in a timely manner.
However, the exact timing for the market and sale of real property can depend on many factors. It is common for a will to grant an estate trustee the discretion to choose whether to sell or retain assets. As it pertains to real property, this power allows the estate trustee to hold onto a property until such time as they can achieve the best possible sale price on behalf of the beneficiaries. At the same time, the estate trustee needs to be mindful of the costs incurred by the estate in having to maintain the property. Beneficiaries of the estate may also put pressure on an estate trustee to sell the property and convert it to money sooner rather than later.
Like most industries, the real estate market has been impacted by COVID-19. An estate trustee should be attentive to whether recent changes in the housing market make it an ideal or inopportune time to market a particular property for sale, while also bearing in mind the factors described above.
If an estate trustee decides to list a property for sale in today’s uncertain housing market, there are a few things they can do to help protect themselves against future claims from beneficiaries. First, the estate trustee should have the property appraised for its fair market value by a professional appraiser who is an independent third party. For added protection, the estate trustee may want to have the beneficiaries sign off on the property’s price. The estate trustee should also make an effort to keep the beneficiaries apprised of each step of the sale process. Lastly, the estate trustee should take care to keep detailed records of all advice received and steps taken in the event that they need to justify their actions at a later date.
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George Floyd died tragically during an arrest by Minneapolis Police officers on May 25, 2020. Mr. Floyd’s highly publicized death ignited demonstrations and protests across the United States and Canada against police brutality and in support of anti-racism. Many individuals are also showing their support to this cause with donations to community groups, non-profit organizations, and other fundraising campaigns with a related mission or purpose.
One of the more successful fundraising campaigns has been the George Floyd Memorial Fund established by Mr. Floyd’s brother, Philonise Floyd, on GoFundMe, an online crowdfunding platform. This campaign has raised just over $14 million to date, far surpassing its original target of $1.5 million. The overwhelming success of this GoFundMe campaign invites the question – what happens if more funds are donated to a fundraising campaign than originally requested?
Crowdfunding campaigns are often created in order to raise money for a specific purpose or project. If more money is raised than is needed to fulfill the campaign’s intended purpose, then there will be surplus funds. A common example is a GoFundMe campaign created to defray funeral expenses and the campaign ends up raising funds over and above the actual costs incurred for the funeral. What is the campaign promoter entitled, or perhaps required, to do with the leftover funds?
In general, if money is donated for a specific purpose and not all of the funds raised can be applied to that specific purpose, the surplus funds may be returned to the donors via a resulting trust. Returning donated monies can be burdensome where there have been a significant number of donors and/or anonymous donors who cannot be easily identified. To help avoid this situation, a campaign promoter can include alternative purposes for which funds can be used. These additional purposes must be set out at the time the funds are solicited.
In the case of the George Floyd Memorial Fund, the GoFundMe page states:
“This fund is established to cover funeral and burial expenses, mental and grief counseling, lodging and travel for all court proceedings, and to assist our family in the days to come as we continue to seek justice for George. A portion of these funds will also go to the Estate of George Floyd for the benefit and care of his children and their educational fund.”
The above description includes multiple purposes for the collected funds. Some of these purposes likely have been or will be fulfilled, such as the payment of funeral expenses. However, other purposes are seemingly unbounded, such as supporting the care and education of Mr. Floyd’s children. Thus, although the George Floyd Memorial Fund garnered millions of dollars in excess of its original goal, it is likely that all of these funds can properly be applied to the campaign’s defined purposes. If this is the case, then no portion of the collected funds will be considered to be surplus and all of the money should remain available for the benefit of the Floyd family.
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Further to my blog on Monday, the Court of Appeal also released another interesting decision last week with respect to the tort of conspiracy in the context of a family law proceeding. Leitch v. Novack, 2020 ONCA 257, is an appeal from a summary judgement motion that was brought by the husband’s father, a family trust, and a family company. Summary judgment was brought because the wife sought damages against the moving parties for an alleged conspiracy that they were intentionally withholding payments to the husband in order to reduce his family law obligations.
The motion judge, in 2019 ONSC 794, held that the conspiracy claim was appropriate for partial summary judgment. The conspiracy claims were dismissed even though the wife could still pursue a claim to impute additional income to the husband for the purposes of determining his income at trial. Over a million dollars in costs were later awarded to the husband and the moving parties and there was a subsequent order for security for costs that effectively froze all of the wife’s assets.
The appeal was allowed. The Court found that there was a material risk of inconsistent results because the wife was allowed pursue her claims that additional income ought to be imputed to the husband despite the motion judge’s finding that there was no unlawful conspiracy.
As for the tort of conspiracy, Justice Hourigan confirms and clarifies the application of this doctrine in the context of family law matters. The tort of conspiracy is part of the judicial toolbox to ensure fairness and for deterrence. It is also there for enforcement purposes because the purpose of the conspiracy is to hide income or assets and “a judgment against a co-conspirator will often be the only means which by which a recipient will be able to satisfy judgment” (paras. 46-47).
Justice Hourigan commented that
“a transfer of funds by loan, gift, or otherwise, is not the only way that the alleged co-conspirators could have acted in furtherance of the conspiracy. If the trial judge is satisfied that [the husband] had an entitlement to funds and that a co-conspirator withheld the transfer of funds to him as part of a conspiracy with the understanding that he would receive the money at some future date, the withholding of funds may itself be an act in furtherance of the conspiracy. It is not necessary to establish more than an acted-upon conspiracy to conceal [the husband’s] entitlement.” (para. 51).
The costs awards and the preservation order were also set aside.
This decision is certainly important to keep in mind when advising trustees of discretionary trusts.
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In its recent decision, Baran v Cranston, the Divisional Court provides a helpful summary of the principles applied by the court when determining if the appointment of an Estate Trustee During Litigation (“ETDL”) is appropriate.
As a starting point, the court outlines the Superior Court of Justice’s statutory authority to appoint an ETDL. Section 28 of the Estates Act provides that an ETDL may be appointed “pending an action touching the validity of the will of a deceased person, or for obtaining, recalling or revoking any probate or grant of administration…” Additionally, Rule 75.06(3)(f) of the Rules of Civil Procedure expressly authorizes the court to appoint an ETDL on an application or motion for directions.
The court then looked to the jurisprudence for further support that an ETDL may be appointed even where the validity of a will is not in issue. In McColl v McColl, an ETDL was appointed, notwithstanding the fact that the validity of the will was not in issue. In McColl, the court ultimately appointed an ETDL “based on the conflict and the trustee’s lack of experience in managing a business.”
In Mayer v Rubin, the court set out that the appointment of an ETDL may be required (even where the validity of the will is not in issue) where the parties’ duties as fiduciaries are inconsistent with their ongoing litigation interests. The appointment of an ETDL will also be necessary where there is a trustee who is in an adversarial position towards a co-trustee or beneficiary, and who therefore, should not be left in charge of trust property.
After having reviewed the relevant statutory provisions and jurisprudence, the Divisional Court went on to note some of the factors that will be considered by the court in determining whether or not it should exercise its discretion to appoint an ETDL:
- whether a trustee may be a witness in the litigation;
- potential for conflict of interest;
- conflict between the interests of the trustees and/or beneficiaries;
- hostility between the trustees and/or beneficiaries;
- lack of communication between the parties; and
- evidence of settlement discussions that exclude some of the parties.
The Divisional Court also approved the lower court’s summary of the legal principles factored into its decision to appoint an ETDL, which included, among others:
- the court has broad and inherent powers to supervise the management of estates, and can draw upon its inherent jurisdiction (where appropriate) to protect parties so that justice can be done in the proceeding;
- the court must ensure that there is a level playing field between the parties, and the assets of the estate must be immunized from the tactics employed by litigating parties; and
- the appointment of an ETDL is not an extraordinary measure and the court should refuse the appointment only in the clearest of cases. The appointment of an ETDL will be “favoured by the court in the majority of cases of conflict between the trustee and beneficiaries unless the administration of the estate is particularly simple or straightforward.”
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The recent decision of Muth Estate, 2019 ABQB 922, a decision of the Court of Queen’s Bench of Alberta, is a cautionary tale (and a scary one, at that) for estate trustees when distributing an estate.
There, the estate trustee distributed the estate to herself and other beneficiaries of an estate, subject to a holdback. The holdback was insufficient to satisfy amounts owing to CRA. The estate trustee then brought an application for an order requiring that the beneficiaries indemnify her for the amounts owing to CRA.
The estate trustee moved for summary judgment. Summary judgment was denied. The court found that the respondent beneficiaries had no obligation to indemnify the estate trustee.
As background, the estate trustee retained an accountant to prepare estate tax returns. The accountant advised that a holdback of $25,000 was sufficient. The estate trustee therefore held back $25,000, and distributed the balance of the estate. Unfortunately, that accountant did not file the required returns. A second accountant then completed the returns. The tax owing and the second accountant’s invoice totalled $60,772.19. The estate trustee paid this amount, and sought indemnification from the beneficiaries for their share of this amount.
(Query: Whether the estate trustee would have a claim against the first accountant?)
Of note, when making the distributions, the estate trustee could have but did not ask the beneficiaries to provide an indemnity.
The court held that the Income Tax Act imposed personal liability on the estate trustee for unpaid taxes where a clearance certificate is not obtained.
The court went on to find that one of the duties of an estate trustee is to file tax returns and pay taxes owing. As the estate trustee breached her duties, she was not entitled to an indemnity. Relief may have been available if it was the beneficiaries who instigated or requested the breach. However, this was not the case.
The natural corollary of that principle [breach of trust at instigation of beneficiaries] is that if the beneficiaries did not instigate or request the breach, they cannot be obligated to indemnify the trustee. In a fiduciary relationship such as that between a trustee and a beneficiary, the logic of that corollary is that as between the two parties, one who had the obligation to perform the duty and failed and one who had neither the obligation nor the means to satisfy it, it is the former who should bear the consequences of the action or inaction.
Interestingly, the judge dismissed the estate trustee’s motion for summary judgment, but, notwithstanding the finding that the beneficiaries were under no obligation to indemnify the estate trustee, did not dismiss the proceeding. The beneficiaries did not ask for this relief. The matter was therefore allowed to proceed. However, the estate trustee was warned that “if she continues with the lawsuit, she may face a significant costs award if another judge comes to the same conclusion at the end of the suit.”
Thank you for reading.
My father used to have a saying: “Whatever drags gets dirty.” He would trot it out whenever one of us waited too long to do something and as a result, doing that thing became messy, complicated or impossible. For example: I was supposed to mail a letter. I didn’t mail the letter. Now I can’t find the letter. “Whatever drags gets dirty!”. Thanks, Dad.
Growing up, I thought that this was a widespread adage. Apparently, it isn’t. I searched it up on the internet and most of the results referred to Rupaul’s “Drag Race”.
The adage may fittingly sum up the lesson contained in the decision of the Nova Scotia Court of Probate in Kelly Estate, 2019 NSPB 1 (CanLII).
There, the deceased’s daughter and estate trustee, Carrie, brought an application for the possession of an urn containing the cremated remains of the deceased. The deceased died 13½ years before the application. Probate was granted 8 years before the application.
In the deceased’s will, cremation was requested, and Carrie was expressly given “the powers to decide what will happen with the said ashes.” This was consistent with the court’s observation that “Disposition of the deceased is one of the most fundamental tasks an executor/rix can undertake on behalf of the deceased.”
However, after the deceased’s death, the ashes were taken by Carrie’s sister, Cheryl. They remained at Cheryl’s home, apparently with the acquiescence of Carrie. The court noted that there was no evidence to suggest that there were prior attempts by Carrie to regain custody and control of the ashes over the 13½ years since death.
The court cited the BC decision of Re Popp Estate, 2001 BCSC 183 (CanLII) where the deceased’s husband, as estate trustee, was said to be entitled to control the disposition of the deceased’s remains, provided he did not act capriciously. As the husband was acting capriciously, he lost the right to deal with his spouse’s remains.
The court went on to find that by allowing the urn to remain in Cheryl’s possession for 13½ years, Carrie as estate trustee had in fact determined the disposition and final resting place of the urn: with Cheryl. A change of Carrie’s decision this late in the game “seems capricious at best or malicious at worst”, and the court was not prepared to order a transfer of the urn from Cheryl to Carrie.
When administering an estate, as in life in general, don’t let things drag.
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Acting as an estate trustee can be complicated. Complications are multiplied where the estate includes property that is or has been used in a manner contrary to the Cannabis Control Act.
Under the Cannabis Control Act, S.O. 2017, Chapter 26, as amended, various offences are created involving the production, sale or other distribution of cannabis. Vis-à-vis landlords, section 13 of the Act makes it an offence to “knowingly permit a premise of which he or she is a landlord to be used in relation to activity prohibited by section 6”. Section 6 provides that no person shall sell cannabis, other than an authorized cannabis retailer.
The Act provides for penalties for landlords of at least $10,000 and not more than $250,000 or imprisonment for a term of not more than two years less a day, or both. Fines are subject to an additional 25% Victim Fine Surcharge.
Additionally, the court may, upon conviction, order that a premise be closed to any use for a period not exceeding two years. Prior to conviction, the police may cause the premises to be closed immediately. The premises are to be closed until the final disposition of the charge, subject to an order of the court lifting the closure.
A defense to a charge against a landlord under the Act is the fact that the landlord took reasonable measures to prevent the prohibited activity.
Additionally, forfeiture could be sought by the Crown under the Civil Remedies Act.
An estate trustee holding real property should take steps to ensure that he or she knows what is happening at the property, and to ensure that the property is not being used for illegal activity. In addition, the estate trustee should document the steps that are taken to prevent illegal activity. Leases should be reviewed in order to ensure that they prohibit illegal activity.
For further information, see “The Ontario Cannabis Control Act and Implications for Commercial Landlords” by David Reiter and Brian Chung.
For a blog on Cannabis and Estate Law, see my prior blog, here.
Have a great weekend.