Tag: estate trustee duties
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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Sir Terry Pratchett was a noted author and activist. His genre was fantasy, and more than 85 million copies of his books have been sold. He was most noted for his Discworld series of 41 novels.
Sir Terry Pratchett died on March 12, 2015 at the age of 66 as a result of early-onset Alzheimer’s disease (which he referred to as an “embuggerance”). Prior to his death, he was a vocal supporter of Alzheimer’s research and assisted suicide.
Pratchett left a significant number of unfinished works upon his death. These works will never be enjoyed. Pratchett’s daughter, the custodian of the Discworld franchise, has stated that these works will never be published.
More definitively, Pratchett told his friend and collaborator, Neil Gaiman, that he wanted whatever he was working on at the time of his death to be destroyed. More specifically, he asked that his works and computers be put in the middle of the road and run over by a steamroller.
This wish was fulfilled on August 25, 2017. His hard drive was crushed by a vintage John Fowler & Co. steamroller named Lord Jericho at the Great Dorset Steam Fair. The destroyed hard drive was put on display at The Salisbury Museum
Presumably, the destruction was agreed to by his estate trustees. Otherwise, the works would fall into his estate to be dealt with as assets of the estate.
The wishes of authors with respect to their posthumous works are not always fulfilled. Notably, Franz Kafka asked his friend and literary executor Max Brod to destroy all of his works after he died. Brod ignored this request, and as a result, some of Kafka’s most famous works, The Trial, The Castle, Amerika and The Metamorphosis were published after his death. In an essay by Scott McLemee, it is noted that Kafka was a lawyer, and must have known that his intentions set out in a couple of notes would not be binding on his estate trustee.
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The death of the Queen of Soul, Aretha Franklin, on August 16 sent reverberations through Motown and the music industry as a whole. However, equally as shocking to estates law practitioners is the fact that Franklin died intestate, that is, without having executed a valid Last Will and Testament.
Reports have emerged that Franklin died leaving an estate valued at approximately US$80 million. Notwithstanding the insistence of her longtime lawyer to take proper estate planning steps, Franklin’s estate will now likely be distributed in accordance with Michigan intestacy laws rather than in accordance with her wishes. As Franklin died leaving four children and no surviving spouse, a cursory review of applicable authorities in Michigan suggests her estate will be distributed equally amongst her children, as would be the case under Ontario intestate succession laws.
With that said, the fact that Franklin died intestate means that the courts will now be tasked with the appointment of a personal representative to consolidate and distribute the assets of her estate and attend to the payment of any liabilities. In Ontario, where an individual dies intestate, the court is empowered to appoint an Estate Trustee without a Will pursuant to section 29(1) of the Estates Act. While the appointee is entitled to seek professional assistance from lawyers, accountants, and certain other professionals to provide assistance, the administration of an estate, particularly one as large as Franklin’s, can be burdensome especially if the trustee is unsophisticated.
The size of Franklin’s estate will also likely lead to all manner of creditors coming out of the woodwork to stake their claim and create further headaches for the eventual executor. As was the case with other celebrities who died intestate, the chaos that will presumably result is likely to be well-publicized in the media, notwithstanding the wishes of Franklin’s close family. A well-crafted estate plan, including the selection of a willing and competent executor to administer the estate, may very well have allowed the administration of Franklin’s estate to remain largely private. If recent history is any indication, that is no longer likely to be the case.
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The duties owing by an Estate Trustee are plentiful and onerous. It is important for an Estate Trustee, as soon as stepping into office, to understand their obligations and prioritize the steps to be completed.
There have been concerns rising out of Australia where firms have been billing clients, now deceased, for services that they are no longer providing. The Australian Broadcasting Corporation, as well as Bloomberg, have reported that many financial institutions have been billing clients notwithstanding their own internal documents confirm that services are not being provided and that their client is dead. In some instances, clients who had passed away ten years prior, were still being charged.
This serves as a helpful reminder that Estate Trustees should immediately take steps to cancel the deceased’s numerous accounts/subscriptions that are no longer needed and that may automatically renew. These include, telephone, internet, magazine/newspaper, and the gym. And of course, the bank! An estate account should also be opened in order to deposit income and to pay any necessary expenses that may arise.
An Estate Trustee does not want to deliver an accounting, replete with payments for services that are no longer necessary. This would certainly impact a claim for compensation.
Solicitors assisting an Estate Trustee with the administration of an estate often provide checklists to ensure such obligations are met.
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The first instance decision in Roulston v McKenny was recently upheld on appeal. In this case, the deceased, Mr. Penner, and his ex-wife, Ms. McKenny, entered into a separation agreement requiring Mr. Penner to maintain $150,000.00 in life insurance, with Ms. McKenny as the designated beneficiary. Mr. Penner failed to pay the premiums on the life insurance policy, which lapsed prior to his death.
Mr. Penner died in March 2013. Shortly thereafter, the estate trustee (the deceased’s sister, also a beneficiary of the estate) discovered that Mr. Penner’s life insurance policy had lapsed. However, her lawyer did not advise Ms. McKenny’s lawyer until September 2013.
Ms. McKenny commenced her claim against the estate in September 2015, before the two-year expiration after learning of the lapse, but after the expiration of the two-year limitation period from the date of death. The estate trustee sought the court’s directions as to whether the claim was statute-barred.
The application judge held that Ms. McKenny’s claim was not statute-barred, applying the doctrine of fraudulent concealment to toll the limitation period. On appeal, the appellant submitted that the judge made the following errors:
- In finding that a special relationship existed between the estate trustee and Ms. McKenny.
- In finding that the conduct of the estate trustee was unconscionable, such as to attract the operation of the doctrine of fraudulent concealment.
The Court of Appeal for Ontario denied the appeal, reasoning that:
- The special relationship between the estate trustee and Ms. McKenny did exist, arising from a combination of: (i) duties owed at law by an estate trustee to creditors; and (ii) the estate trustee’s exclusive control over information – the insurer would only release information to her.
- By withholding material facts, the estate trustee concealed from Ms. McKenny that she was a legitimate creditor of the estate. It was unconscionable for the estate trustee to initially suggest that insurance was in place, then delay matters and then later take the position (that would benefit the estate trustee as a beneficiary) that the limitation period had expired.
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When a person accepts the role of Estate Trustee, it is a common assumption that they will be indemnified for any expenses incurred as a result of the administration of the Estate. This includes legal fees, which are typically recoverable from the Estate assets and take priority over distributions to beneficiaries. However, this is not always the case.
The denial of legal fees of an Estate Trustee has been ordered when all or a portion of the legal fees has been incurred to protect the personal interest of the Estate Trustee. This was the case in Etobicoke Human Society v. Rinaldi, 2015 CarswellOnt 20495, 14 E.T.R. (4th) 86 (Ont. S.C.J.). In this particular case, the Estate Trustee’s interests in propounding the Will were twofold. Not only did he have a fiduciary duty to propound the Will but also stood to gain a personal financial benefit from the Estate if the Will was successfully propounded.
The Estate and Trusts Reports recently published “Etobicoke Human Society v. Rinaldi: A Case Comment” written by Ian Hull and Suzana Popovic-Montag (the “Case Comment”), which interestingly, addresses the Court’s finding that an Estate Trustee does not have a duty to propound a Will when the testator’s capacity is challenged and therefore is not entitled to indemnification of legal fees.
I encourage you to read the Case Comment as it provides an excellent overview of the common law principles relating to an Estate Trustee’s duty to propound a Will and the underlying purpose for providing indemnification for reasonable legal costs.
You may also be interested to read: Solicitor as Trustee: Indemnification for Legal Fees
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If and when someone asks you to agree to be appointed an estate trustee of their estate, before answering it might help to consider the very high duties owed by an estate trustee as well as the consequences of failing to fulfill them.
Estate trustees are fiduciaries, with the duty to exercise the care, diligence and skill that a person of ordinary prudence would exercise in dealing with the property of another person. They must show “vigilance, prudence and sagacity” (see Fales v. Canada Permanent Trust Co.).
What underlies all duties is the duty of loyalty, described as the duty to act honestly and in good faith, and to use their powers solely for the purposes for which they were granted (see Oosterhoff on Trusts: Text, Commentary and Materials, 8th ed.). Section 27 of the Uniform Trustee Act (not yet adopted in Canada) describes the duty of loyalty as follows:
(1) A trustee must exercise the powers and perform the duties of the office of trustee solely in the interest of the objects of the trust.
(2) Without limiting subsection (1), a trustee must not knowingly permit a situation to arise (a) in which the trustee’s personal interest conflicts in any way with the trustee’s exercise of the powers or performance of the duties of the office of trustee, or (b) in which the trustee may derive any personal benefit or a benefit for any other person, except so far as the law or the trust instrument expressly permits.
Other duties that flow from the duty of care and the duty of loyalty include the prudent investor rule (to properly invest the estate assets), the even-hand rule (to act impartially among the beneficiaries), the duty of transparency (to provide information to the beneficiaries), and the duty to account.
Given the seriousness of an estate trustee’s duties, and the fact that those who do not fulfill their duties are liable to the beneficiaries for all consequential losses, one should think carefully before taking on the job.
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