The use of a Family Trust is a common estate planning tool, whereby an asset, whether it be cash, a family cottage, or otherwise, is placed into a trust to be held for the benefit of the family. More often than not, when such a Family Trust is established, both spouses are named as trustees of the trust, and the beneficiaries are often the two spouses together with any children that they may have. The trust is often discretionary, whereby the trustees may distribute some or all of the trust assets to any one of the beneficiaries to the exclusion of the others.
While the administration of the trust often goes smoothly while everything is going well in the relationship, the question emerges of what should take place should the spouses later separate and commence divorce proceedings. Although we do not tend to see arbitration used as often within the estates and trusts context, the same cannot be said for family law proceedings, where, anecdotally at least, it appears that parties are much more willing to enter into binding arbitration in order to settle their dispute rather than adjudicate the matter before the courts. When the two spouses (who are also the trustees) separate, and as part of the divorce proceedings agree to enter into binding arbitration, the question often emerges of whether the internal administration of the trust can be caught up in the arbitration process?
Inevitably, as part of such an arbitration, one of the spouses will often take the position that as both trustees have signed the arbitration agreement, that the arbitrator has now assumed the powers of the trustees, and may utilize the discretion afforded to the trustees to determine how the trust assets should be distributed as part of the divorce process. Without commenting on whether a trust may be bound to the arbitration process in the event that the trustees have only signed the arbitration agreement in their personal capacities, and not their capacities as trustees, the courts have been clear that unless the terms of the trust specifically contemplate otherwise, that trustees may not delegate the fundamental decision making powers entrusted to them as trustees to any person (whether it be arbitrator or otherwise). As put by Professor Waters in Waters’ Law of Trusts in Canada:
“The courts, however, continue to adhere to the principle that a delegate may not delegate his duties when the nature of the task is one which he is required to perform personally. This prevents the trustee from appointing an agent to perform the task of this kind, whether or not he has an express, implied, or statutory power to appoint agents. Indeed, any act of an agent purportedly carrying out such a task would have no legal effect; it would bind neither the trust nor any third party.“ [emphasis added] (4th ed., pg. 913)
Using this rationale, unless the deed of trust specifically contemplates that the trustees may delegate their decision making to an arbitrator, the trustees may arguably not delegate their fundamental decision making powers to an arbitrator, for to do so would be an improper delegation of their authority. As made clear by Prof. Waters, any decision made by the arbitrator concerning the internal management of the trust would arguably not be binding upon the trust or any third party, as they could arguably not have assumed such powers in the first place.
Listen to Delegation in Investment Accounts
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss delegation issues that arise when dealing with Investment Accounts and address a listeners question about the family cottage.
Listen to The Investment Accounts.
This week on Hull on Estates and Succession Planning, Ian and Suzana conduct a quick lesson on capital encroachment and discuss the role of investment accounts in the passing of accounts.
Listen to Delay in the Granting of Probate.
This week on Hull on Estates, David and Sarah discuss issues that cause delay in the granting of probate.