Tag: administration of trusts
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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The use of a protector to assist in the administration of a trust was traditionally limited to offshore trusts. However, a protector clause is garnering attention in the USA & Ontario, and is an important clause that estate planners should consider in preparing a will or trust.
Most people are familiar with the office of a trustee – they administer the trust, invest assets, and look out for the best interests of a beneficiary. But, the administration of a trust is no different than life itself – things do not always go as planned. Issues can arise between a beneficiary and a trustee and sometimes between trustees themselves. Before you know it, bickering ensues, litigation follows, and legal costs accrue.
A protector clause, properly drafted, may be useful in avoiding litigation.
A trust protector has been defined as a third party, independent from the trustee and beneficiary, who has the authority to perform certain duties with regard to a trust.
The protector oversees the administration of the trust, looking out for the interests of a beneficiary, and to intervene if necessary. The powers included in a protector clause can vary, but may include the ability to: remove/replace a trustee; oversee investment decisions; resolve deadlock between trustees and between trustees and beneficiaries; and, approve proposed distributions. While a beneficiary may have some of these same abilities, not all beneficiaries are sophisticated enough to know when to speak up or, if they do, end up in lingering and costly litigation.
The use of a protector is not without headaches – do they owe fiduciary obligations to a beneficiary? Do they destroy the role of a trustee?
Nonetheless, as discussed in our prior blog, a protector clause can be a worthwhile feature of a trust or will if litigation is a real possibility. Some have even proposed that every trust should include a protector clause.
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