Tag: personal liability
Acting as a Trustee is not only an onerous task but comes with a significant exposure to personal liability.
A trust can be established where three certainties are present: (a) certainty of intention – the Trustee knows that he or she will hold property for the benefit of another; (b) certainty of the subject matter – the property to be held by the Trustee is clearly identified; and (c) certain of objects – the beneficiary of the trust is clearly established.
In Ahmed v. Ibrahim, 2016 ONSC 6430 (ONSC Div. Court), the mother of the plaintiff (Amina) received a settlement payment from a motor vehicle accident. The settlement funds totalling $27,335.03 were deposited into Amal’s bank account. At the time of the deposit, Amal had $19,656.00 in her account. Upon receiving the settlement funds and on Amina’s request, Amal transferred the balance of her bank account (i.e. $46,996.03) to her mother. Amina in turn transferred the funds to a bank account owned by Mohamed (the “Trust Funds”). Believing the Trust Funds belonged to Amina, Mohamed agreed to hold the funds in trust. When Amal demanded her share of the Trust Funds, Mohamed advised that he had already disbursed all of the Trust Funds to Amina in accordance with Amina’s instructions.
Amal sued Mohamed and Amina. At trial, Amina argued that the Trust Funds belonged solely to her and that Amal had no entitlement to the Trust Funds. Amal, however, presented sufficient evidence to show that $19,656.00 of the Trust Funds belonged to her and that none of the funds disbursed by Mohamed had been used for her (Amal’s) benefit. It was Mohamed’s evidence that he believed the Trust Funds belonged solely to Amina and that, in any event, Amina told him the Trust Funds withdrawn by him were used for Amal’s benefit. The judge preferred Amal’s version of the events over Amina and ordered Mohamed, to pay $19,656.00 to Amal.
On appeal Mohamed argued that the trial judge’s decision against him should be reversed because he acted properly in withdrawing the funds, on Amina’s instructions, because he believed the Trust Funds belonged to solely to Amina. In upholding the trial judge’s decision, the Divisional Court held that the trial judge’s findings of fact were owed deference since he had the opportunity to assess the credibility of the parties and accordingly the decision should stand.
This decision is a good example of how easily a trust can be created and a Trustee can attract personal liability even when acting honestly upon mistaken facts.
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Engaging the personal liability of an Estate Trustee is always a concern when administering an estate. In particular, Estate Trustees must be cautious to ensure that the deceased’s debts have been paid and that there are sufficient funds to pay any final taxes before any distributions are made.
In some cases, Estate Trustees may inadvertently find themselves in a situation where the deceased was not meeting their tax obligations to the Canada Revenue Agency (“CRA”). This may be the result of simple carelessness resulting in failure to file previous returns, incomplete information, errors and omissions, or it could also be as serious as deliberate tax evasion. Either way, the Estate Trustees must tread carefully because if they choose to ignore these past discrepancies and distribute the funds, they may be held personally liable for the penalties and interest incurred.
Fortunately, CRA has created the Voluntary Disclosure Program which can be especially useful for Estate Trustees in this type of situation. The Voluntary Disclosure Program allows the taxpayer (or Estate Trustee) to come forward and voluntarily correct any errors or omissions without being subject to penalties (or prosecution) that would normally apply. According to subsection 220(3.1) of the Income Tax Act (“ITA”), CRA may also waive a portion of the applicable interest with regard to assessments from the preceding ten years.
In order to benefit from the penalty and interest exemptions, the disclosure must meet the following four criteria to be considered valid. The exemptions are not automatic and are subject to the review of each request on its own merits:
- The disclosure must be voluntary. This means that it must be made prior to becoming aware of any compliance actions being taken;
- A penalty would apply;
- The disclosure must be complete; and
- The information being disclosed must be at least one year past due.
It is also important to note that disclosure can be made anonymously (commonly referred to as no-name disclosure). No-name disclosure is often preferred as it provides the Estate Trustee (or taxpayer) the opportunity to discuss the facts and tax issues with CRA while remaining protected. However, it should be kept in mind that it is not possible to reach any binding agreement under the no-name process. The Estate Trustee (or taxpayer) is given 90 days to release the name which would result in a further extension to submit any materials.
Under a named disclosure, the taxpayer is identified immediately, which prompts CRA to allow for 90 days to submit any additional materials without the limitation clock starting to run.
The Voluntary Disclosure Program can sometimes be a delicate process. As a result, before starting this process, professional legal or tax advice is always recommended.
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Listen to Personal Liability
This week on Hull on Estate and Succession Planning, Ian Hull talks about the extensive personal liability of an estate trustee.
Also, in the March 2008 issue of Canadian Lawyer, the Toronto Estate Law Blog was ranked as one of Canada’s Top Ten Law-Related Blogs by Gerry Blackwell. The list also included Michael Geist’s blog, Law is Cool and the Rule of Law blog from Kelowna, BC. In the same issue of Canadian Lawyer, Suzana Popovic-Montag was featured as a leader in the world of law and social media. Kudos!
Listen to Trustees’ Rights to Indemnification.
This week on Hull on Estates, Suzana and Ian celebrate the 100th episode of Hull on Estates with the first part of a two episode discussion on a trustee’s right to indemnification.