Tag: fiduciary obligation
I blogged earlier this week about the availability for a trustee to bring an Application for the opinion, advice and direction of the court under section 60(1) of the Trustee Act, and, in so doing, potentially alleviate themselves from liability concerning the decision so long as they act in accordance with the court’s direction. But what should happen if, when confronted with a difficult decision, the trustee does not ask the court for direction, but rather should act of their own volition? If a beneficiary should later successfully argue that the trustee acted improperly in making such a decision, and committed a breach of trust, will the trustee always be liable for such a decision?
The Trustee Act is clear that just because a trustee commits a technical breach of trust, it does not necessarily follow that the trustee will be held liable for any corresponding damages. Section 35(1) of the Trustee Act provides:
“If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.” [emphasis added]
As is made clear by section 35(1) of the Trustee Act, so long as the trustee acted “honestly and reasonably” in committing the breach of trust, the court may in its discretion relieve the trustee from liability concerning such a decision. The leading authority regarding what is to be considered “honestly and reasonably” is the British decision of Cocks v. Chapman,  2 Ch. 763, at 777, where the court states:
“It is very easy to be wise after the event; but in order to exercise a fair judgment with regard to the conduct of trustees at a particular time, we must place ourselves in the position they occupied at that time, and determine for ourselves what, having regard to the opinion prevalent at that time, would have been considered the prudent course for them to have adopted.” [emphasis added]
If the court is of the opinion that the opinion prevalent at the time would have considered the decision prudent, it may alleviate the trustee fr
om liability concerning such a decision in accordance with section 35(1) of the Trustee Act. If not, the trustee may continue to be liable for the decision.
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A recent decision of the Ontario Superior Court of Justice, The Estate of Ingrid Loveman, Deceased, 2016 ONSC 2687, considered a passing of accounts, and specifically considered whether the Estate Trustees in this case, among other things, met the requisite standard of care in administering the Estate.
The Court briefly reviewed the case law with respect to the standard of care of Estate Trustees, noting that an estate trustee is a fiduciary to the beneficiaries of an estate, must exercise the degree of diligence that a person of prudence would exercise in the conduct of his or her own affairs, and may not prefer his or her own interests over the interests of beneficiaries.
Pursuant to the Deceased’s Last Will and Testament dated July 12, 2006 (the “Will”), two of her seven children, Peter and Heidi, were named as Estate Trustees. The Will provided, in part, that a house (the “House”) was to be retained for six months, at which time Peter had six months to exercise an option to purchase it for 70% of its fair market value as of the date of death. Should he exercise that option, the proceeds were to be divided into six equal shares, with each of four of the Deceased’s children (David, Heidi, Douglas, and Dirk) receiving one share, and the two remaining shares to be equally divided amongst her four grandchildren, and kept in trust.
Peter exercised the option to purchase the House within the twelve month time period. However, he only gave notice of his decision to purchase it; he did not actually act on the decision, nor complete the transaction within the time limit. He claimed that he delayed the purchase as he did not have access to the funds required in a way that was most economical for him. However, the Court found that postponing the sale in this manner was convenient to Peter, but not to the Estate nor to the beneficiaries, and he therefore breached his fiduciary duty.
There was also a delay in obtaining probate, which the Court concluded was likely due to Peter delaying the application until he deemed it necessary, being when he decided to exercise his option to purchase the House. The Court found that Peter accordingly placed his interests before those of the Estate and the beneficiaries. Furthermore, the Court found that, had the Estate Trustees adhered to the time frames stipulated by the Will, it is likely that litigation involving a claim by one of the Deceased’s grandchildren would have been avoided.
Although the Estate Trustees in this case did not act in a malicious or egregious manner, the mere fact that there was a delay related to the preference of an Estate Trustee was sufficient for the Court to find that Peter had breached his fiduciary duty. Fiduciaries are required to act with utmost good faith. This is an extremely high standard, and therefore, the interests of beneficiaries should never be anything but a trustees’ first and foremost priority.
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