Tag: changing trustees
At the recent 19th Annual Estates and Trusts Summit, Jordan Atin, counsel to Hull & Hull LLP, gave a very useful talk about how to change trustees. Jordan explained the significant difference between an executor and a trustee. He also emphasized the importance of the trust instrument as a tool to avoid running into trouble when a trustee wishes to retire.
Trustee or Executor?
In a will, a testator often appoints the same one or two individuals to act as both executor and trustee. What’s the difference? An executor is the personal representative of the testator; he or she stands in the shoes of the testator and exercises the testator’s rights and fulfills the testator’s obligations. The role of the executor is often a simple one: to settle debts and administer the property of the estate. Once those tasks are finished, the role of the executor is finished. On the other hand, a trustee of a testamentary trust holds the trust property for another, pursuant to s. 43(2) of the Trustee Act. In McLean, Re, the court explained the difference: once a testamentary trust begins, the executor`s duty is complete. The duties of a trustee often last for a longer period than those of the executor.
Why does this distinction matter? Once an executor takes steps to administer the estate, he or she may not retire from the position without a court order. A trustee, on the other hand, may resign pursuant to sections 2 and 3 of the Trustee Act. Someone may also resign as trustee while continuing to act as an executor.
Remember the Trust Instrument
If there are three or more trustees, one trustee may retire without the appointment of a replacement trustee. Where there are one or two trustees, a trustee can retire pursuant to section 3 of the Trustee Act. The rules in the Trustee Act are complex, and an application to court may still be necessary, if there is any disagreement about whether the conditions listed in section 3 apply to the facts at hand.
Accordingly, Jordan emphasizes the importance of considering replacement of trustees when drafting the trust instrument. Section 67 of the Trustee Act states that the powers bestowed by the Act are in addition to and subject to the terms of the trust document. Thus, a drafting solicitor may opt out of sections 2 and 3 of the Trustee Act. The document itself should be the first place co-trustees and beneficiaries look in replacing a trustee. By providing a clear procedure for the removal and replacement of trustees in the trust document, potential confusion and uncertainty about whether section 2, 3, or 5 of the Trustee Act should be used can be avoided.
Thanks for reading,