Tag: Trustee Act
Being a trustee of a trust can be perilous, with trustees facing potential personal liability should they make the wrong decision. As a safeguard against such potential liability, when issues arise in the administration of a trust, trustees may consider commencing an Application for the opinion, advice or direction of the court in accordance with the Trustee Act. Section 60(1) of the Trustee Act provides:
“A trustee, guardian or personal representative may, without the institution of an action, apply to the Superior Court of Justice for the opinion, advice or direction of the court on any question respecting the management or administration of the trust property or the asserts of a ward or a testator or intestate.”
Should the court accept such an Application, and provide the trustees with directions regarding the issue, the trustees are insulated from liability as it relates to the beneficiaries regarding such an issue so long as they act in accordance with the directions of the court. This is made clear by section 60(2) of the Trustee Act, which provides:
“The trustee, guardian or personal representative acting upon the opinion, advice or direction given shall be deemed, so far as regards that person’s responsibility, to have discharged that person’s duty as such trustee, guardian or personal representative, in the subject-matter of the application, unless that person has been guilty of some fraud, wilful concealment or misrepresentation in obtaining such opinion, advice or direction.”
Notably, while section 60(1) of the Trustee Act allows trustees to direct a specific issue for the “opinion, advice or direction” of the court, the court has been clear that on such an Application the court will not exercise discretionary decisions on behalf of the trustees. Such a point was recently made clear by Justice Broad in Keller v. Wilson, where at paragraph 25 the court states:
“The fact that trustees are expressly permitted by the Trustee Act to apply for the opinion advice or direction of the Court does not authorize the court to exercise discretionary powers on behalf of trustees, thereby shifting responsibility from the trustees, on whom the settlor of the trust placed such responsibility, to the court. This is so even though subsection 60(2) of the Trustee Act provides a specific indemnification to trustees who act upon the opinion, advice or direction of the court.” [emphasis added]
Cases like Keller v. Wilson make it clear that on an Application for opinion, advice, or direction, the court will not exercise discretionary decisions on behalf of the trustee, with their jurisdiction to provide directions being limited to questions of a “legal” nature relating to the discharging of the trustees’ duties. To this effect, the court’s direction can be thought of the court advising whether the trustee “can” not “should” do a particular action. While the court will advise whether the trustee has the legal authority to do a particular action, they will not make such a discretionary decision on behalf of the trustee.
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In Ontario, it is trite law that an estate trustee of a testate estate derives his or her powers from the Will of the deceased. Accordingly, unlike an intestate estate, it is not always necessary for an estate trustee to obtain a Certificate of Appointment of Estate Trustee with a Will (“probate”) in order to administer an estate.
However, in certain matters it is necessary for an estate trustee to obtain probate before being able to represent the estate, regardless of whether there is a valid Will. The 2000 decision of Justice Haley in Carmichael Estate (re) succinctly sets out the three instances where probate is required:
- Third parties dealing with the executor may require probate in order to accept the authority of the Will. Justice Haley provides the example of a debtor who wishes to ensure that the proper person is being paid in order to satisfactorily discharge the debt.
- Proceedings where the executor represents the estate as plaintiff or as defendant. Here, Justice Haley notes that the Court will require probate in order to satisfy an evidentiary matter pursuant to section 49 of the Evidence Act.
- Where a foreign estate trustee intends to establish his rights in Ontario, letters probate must be resealed (referred to as ancillary letters probate).
In Re Carmichael Estate, the respondents sought to include a fourth category requiring probate – the removal of an executor under section 37(1) of the Trustee Act. The Court held, however, that an applicant is free to bring a removal application regardless of whether probate has been granted and whether the estate trustee has acted in the administration.
Re Carmichael Estate a decision well worth reading for all history buffs given Justice Haley’s excellent historical analysis of the English common law Courts relating to probate and estates from the 11th century onwards.
Earlier this week I blogged about the process of how to pay funds into court for the benefit of a minor beneficiary in accordance with section 36(6) of the Trustee Act. While the blog provides a summary of the steps required to pay such funds into court, presuming that the Accountant of the Superior Court of Justice should accept such funds to be paid into court, one question remains. How does the beneficiary go about having such funds “paid out” of court upon turning 18 years of age?
The process of having funds “paid out” of court is established by rule 72.03 of the Rules of Civil Procedure. In accordance with rule 72.03(7), money which has been paid into court for the benefit of a minor individual which is to be paid out upon such an individual reaching the age of majority (i.e. 18 years of age) is to be paid out to such an individual upon filing the following with the Accountant of the Superior Court of Justice:
- a written request for payment out; and
- an affidavit proving the identity of the party and that the party has attained the age of majority.
As confirmed by Sanders v. Gouthro, presuming that there is no Order to the contrary, no further court Order is required for such funds to be paid out of court, and the Accountant of the Superior Court of Justice is to pay the funds to the individual upon the filing of the appropriate materials.
In summary, should funds have been paid into court for the benefit of a minor beneficiary in accordance with section 36(6) of the Trustee Act, upon such a beneficiary turning 18 years of age they should file a written request, together with an affidavit proving their identity and age, with the Accountant of the Superior Court of Justice. The Accountant of the Superior Court of Justice should then pay out such funds, together with any interest, to the beneficiary.
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Suzana Popovic-Montag blogged last week about the ability of an Estate Trustee to pay funds into court for the benefit of a minor beneficiary in accordance with section 36(6) of the Trustee Act. While the blog provides an excellent summary of the statutory authority for the payment of the funds into court, and of the release from liability of the trustee as it relates to the funds paid into court, one question remains: how do you actually go about paying the funds “into court”?
In Ontario, funds that are “paid into court” are payable to the Accountant of the Superior Court of Justice, a branch of the Ministry of the Attorney General. In Toronto, the Accountant of the Superior Court of Justice’s offices are presently located at 595 Bay Street, 8th Floor.
In the case of funds paid into court for a minor beneficiary in accordance with section 36(6) of the Trustee Act, section 36(6.2) of the Trustee Act provides that the person paying the funds into court (i.e. the Estate Trustee) is to deliver to the Accountant of the Superior Court of Justice an affidavit containing the following:
- A statement that the money is being paid into court under subsection 36(6);
- A statement of the facts entitling the minor to the money;
- If the amount being paid into court differs from an amount specified in a document that establishes the minor’s entitlement, an explanation of the difference;
- The minor’s date of birth;
- The full name and postal address of:
- The minor;
- The minor’s parents, or the parent with lawful custody if it is known that only one parent has lawful custody;
- Any person, if known, who has lawful custody of the minor but is not his or her parent; and
- any guardian of property, if known, appointed under section 47 of the Children’s Law Reform Act.
In the event that the funds being paid into court are payable in association with a document (i.e. a Will or a trust), a copy of such a document should be attached as an exhibit to the affidavit in accordance with section 36(6.4) of the Trustee Act.
In summary, in order to pay funds into court in accordance with section 36(6) of the Trustee Act, you should attend at the offices of the Accountant of the Superior Court of Justice with an affidavit containing the information required by section 36(6.2) of the Trustee Act, together with a cheque in the requisite amount. Should the Accountant of the Superior Court of Justice accept the funds to be paid into court, the trustee would enjoy the discharge from liability concerning such funds as contemplated by section 36(6.5) of the Trustee Act.
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You are an Estate Trustee of an estate which leaves an interest to a beneficiary who is presently under 18 years of age. Knowing that as the amount in question is in excess of $10,000.00 that it cannot be paid to the child’s parent on their behalf in accordance with section 51(1.1) of the Children’s Law Reform Act, and not wanting to delay the administration of the estate until the child has turned 18 years of age, you begin to inquire about what options may be available to you. The possible solution? Paying the funds into court for the benefit of the minor beneficiary.
Section 36(6) of the Trustee Act provides an Estate Trustee with the authority to pay any funds which they holding on behalf of a minor beneficiary into court for the benefit of the minor beneficiary, providing:
“If a minor or mentally incapable person is entitled to any money, the person by whom the money is payable may pay it into court to the credit of the minor or mentally incapable person.”
Should the Estate Trustee pay any funds into court for the benefit of a minor beneficiary, they are discharged concerning such funds in accordance with 36(6.5) of the Trustee Act, which provides:
“Payment into court in accordance with subsection (6), (6.2) or (6.3), as the case may be, and with subsection (6.4) is a sufficient discharge for the money paid into court.”
While the Estate Trustee is discharged from liability as it relates to the funds which are paid into court, this does not necessarily mean that paying funds into court is a sufficient release for the Estate Trustee concerning the administration of the estate as it relates to the minor beneficiary, as the Estate Trustee may still be required to justify how any amount paid into court was arrived at. If the minor beneficiary is entitled to the payment of an amount which is not fixed (i.e. a percentage of the residue), the Estate Trustee will still need to justify how any amount paid into court was arrived at, likely on an Application to Pass Accounts. Presuming that the beneficiary is still a minor when such an Application to Pass Accounts is commenced, the Application will likely be required to be served on the Office of the Children’s Lawyer on behalf of the minor beneficiary.
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Estate Trustees play a critical role in administering an Estate. Their role can give them great decision making power. Yet this power can be abused. A conflict of interest may arise between the Estate Trustee in their role as representing the Estate and their personal interests. This conflict risks favouring their personal interests over the Estate, to which they owe fiduciary obligations. Conflicts of interests, actual or potential, raise significant concerns. An application to remove a trustee may be warranted in circumstances where there are significant allegations made.
The Court in Borisko v Borisko, 2010 ONSC 2670 found it appropriate to grant a removal application where significant allegations aroused the distrust and hostility of the beneficiaries. In doing so, the Court in that decision stated that an application for removing a trustee was not a fact finding process. In its reasons, the Court considered a number of allegations indicating a breach of duty or conflict of interest. The Trustee was alleged to have tried to buy shares from the beneficiaries when he knew they were valued at nearly twice what he offered. He was also alleged to have withheld this information from the beneficiaries. The Trustee was said to have refused to transfer the shares and dividends in a company to the family trust, but instead included the assets in the Estate to increase the Estate’s value and his compensation. These allegations, which were substantiated with evidence, were sufficient for the Court in this case to order the removal of the trustee.
As has been previously blogged, the Court takes such an application very seriously. The Court will prioritize the welfare of the beneficiaries as the governing principle when considering whether to grant such an application. It will also consider whether the administration of the Estate will be delayed should the Estate Trustee remain in office. If the Estate Trustee is named in the Last Will and Testament, this will also be of some importance to the determination of whether to grant the application for removal.
The mechanism for removing an Estate Trustee is by recourse to section 37(1) of the Trustee Act. This section requires that the Court, when removing a trustee, appoint a replacement. The Court may also exercise its inherent jurisdiction to remove the Trustee without appointing a replacement. The authority to do so is confirmed by the Court of Appeal Decision, Evans v Gonder, 2010 ONCA 172 where it was held that no single provision or the Trustee Act, when read as a whole, ousted the inherent equitable jurisdiction of a Superior Court.
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The recent decision in Bunn v. Gordon demonstrates how a breakdown in the relationship between an estate trustee and beneficiary may lead to the removal of the estate trustee.
The Testator made a Will naming his girlfriend of three and a half years as estate trustee. The Will, amongst other things, leaves real property and a portion of the residue to his two children to be held in trust by the estate trustee until attaining the age of 21. As a result of the age of the children, the estate trustee’s office will last until at least the year 2021.
From the outset, the administration of the estate was contentious, such that the children commenced an application under s 37(1) of the Trustee Act for the removal and replacement of the estate trustee. The law with respect to estate trustee removal has remained relatively consistent with the governing principle being the welfare of the beneficiaries and whether the continuance in office of an estate trustee will likely prevent the estate from being administered. From this the courts do not take lightly the wishes of the deceased as expressed in the Will.
The children raised four examples in support of their application to remove the estate trustee:
- failing to provide the children with a copy of the death certificate, despite multiple requests;
- failing to account for a Kodiak trailer demonstrating a lack of care with the estate assets;
- selling a desk and cupboard which was of sentimental value to the children, showing a disregard for the interests and wellbeing of the beneficiaries; and
- failing to report on the sale of real property.
Individually, the evidence in and of itself was not sufficient to call for the removal of the estate trustee. However, the court held that collectively the relationship between the estate trustee and children had broken down and that the antipathy towards the beneficiaries precluded the dutiful administration of the estate. Although the behaviour was not solely the fault of the estate trustee, the court indicated that it is the estate trustee who owes the fiduciary obligation. Therefore, the estate trustee was removed.
An estate trustee’s right to compensation is a creature of statute in Ontario. Prior to the enactment of a statutory right to compensation, an executor or administrator could draw compensation from an estate only when authorized to do so by the will, by agreement with all of the beneficiaries, or by court order. In Ontario, compensation for estate trustees is governed by the Trustee Act, which permits “fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice”.
One question that arises frequently is the question of whether an estate trustee can pay his or her compensation out of the estate before it is approved by a court. Some older texts had indicated that pre-taking compensation without passing accounts was once a common practice for estate trustees. However, the Ontario Surrogate Court indicated its disapproval of the practice in the 1982 case of Re Knoch,  O.J. No. 2516, 12 E.T.R. 162, 1982 CarswellOnt 622 (Surr. Ct.). Justice Dymond took the view that pre-taking of compensation is a breach of a trustee’s fiduciary duty to the beneficiaries because it places the trustee in a fundamental conflict of interest between his or her obligations to the beneficiaries and his or her own interests, and because a fiduciary is not supposed to personally profit from his or her position. It also deprives the beneficiaries of the interest that would have been earned on the compensation, had it not been pre-taken.
There have been some cases where the Courts have been more forgiving. In Re William George King Trust, the prohibition in Re Knoch against pre-taking was described as a “general rule”, but that in cases where the administration of the trust is ongoing, the trustees are paying themselves for services already rendered, and the amount taken is fair, pre-taking might not only permissible but should be encouraged in order to avoid the expense of a passing of accounts. Courts have since disapproved of this statement, however.
Whether an estate trustee pre-takes or not, compensation is reviewable on a passing of accounts. A trustee who takes compensation without a court order, authorization in the will, or agreement from the beneficiaries risks being ordered to repay interest to the estate, or to have his or her compensation reduced for having acted improperly. The estate trustee may have to reimburse the estate for excess compensation taken if it is found that the fair and reasonable amount is less than what was pre-taken.
Although no discussion of this appears in the case law, it is interesting to speculate as to whether the decisions in these two cases were influenced by interest rates. At the time of the decision in Re Knoch in 1982, interest rates were very high. In 1994, when the King Trust case was decided, they were much more modest and the consequences of pre-taking were quantitatively smaller. This is purely speculation on my part, however.
In any event, subsequent cases have returned to the position in Re Knoch and it now seems that the weight of authority is against unauthorized pre-taking. If the will doesn’t allow for it, and the consent of all of the beneficiaries cannot be obtained, pre-taking of compensation will generally be improper and is to be discouraged.
Under section 61 of the Ontario Trustee Act, an estate trustee is normally entitled to compensation in an amount that is “fair and reasonable”. There is a sound body of case law regarding the proper quantum of compensation, but it generally applies only where the will is silent as to compensation. Usually, it’s clear whether a will addresses compensation or not, but sometimes it can be a little bit tricky if the will also includes a gift to the estate trustee.
At law, where the will also leaves a legacy to an estate trustee, there is a presumption that the legacy is intended to be in lieu of compensation. However, this generally arises only when the gift is made to the estate trustee in his or her capacity as estate trustee. Additionally, this presumption will give way to even a slight indication that it was not intended to be in lieu of compensation.
For example, in the B.C. case of Canada Permanent Trust Co. v. Guinn, the will appointed a trust company and Ms. Guinn to be the executors. The will also left a bequest of $40,000 to Ms. Guinn. The trust company took the position that she was entitled to her $40,000 and nothing further in terms of compensation. Looking first to the will, the Court determined from the wording of the clause appointing the executors that Ms. Guinn’s role was meant to be nominal and that the primary responsibility for administering the estate was intended to fall to the trust company. Paired with that, the bequest to Ms. Guinn was thought to be disproportionately large for her limited role and was also disproportionate in that the legacy to her was double that left to any blood relative of the deceased. These facts were sufficient to convince the Court that the legacy to Ms. Guinn was not to be in lieu of compensation.
Interestingly, the Court noted that extrinsic evidence of the surrounding circumstances would be admissible for the purpose of determining this question.
This issue does not arise very often, but when it does, it touches upon some interesting questions about the interpretation of wills and the origins of an estate trustee’s entitlement to compensation. Before the enactment of statutory provisions entitling an executor or administrator to remuneration, he or she would not have been entitled to any compensation at all unless the will or trust provided for it or unless the beneficiaries agreed to it. While compensation has been the norm in Ontario for a very long time, there are other jurisdictions that still adhere to the traditional rule that compensation can only be claimed where allowed under the will or by the beneficiaries.
I’ve always been a fan of the “beer bet”. Whenever an interesting point of trivia should come up, and there should be two differing points of view, more often than not the matter will be settled through a “beer bet”, where the loser must buy the victor a beer the next time that they are out. While I have had some good winning streaks of “beer bets” (at one point one co-worker lost about 13 in a row), I have to give credit where credit is due, as I have never reached the sort of levels which the National Post reported on earlier this week.
In a beer bet to end all beer bets, the National Post advised of a 24,576 bottle “beer debt” that had recently been cleared by the Edmonton Eskimos’ recent victory over the Calgary Stampeders. In a math lesson which teaches you how fast “double or nothing” can get out of hand, after a repeated string of Edmonton losses to Calgary dating back to June 15, 2012, and a corresponding “double or nothing” bet that was placed on each game, one brother owed the other 24,576 bottles of beer.
While at first blush this story may have nothing to do with estate litigation, when I sent the story around to some of my co-workers who are also fans of a good “beer bet”, something near the bottom of the article caught one of their attention, as one brother referenced the fact that this bet would go on. The comment back was something to the effect of “imagine trying to collect that debt from an estate”. Well imagine no further.
Being ever one to believe that a beer bet is an unbreakable oath and debt, if you should find yourself in the unfortunate situation of having someone die before re-paying a beer bet, you may be required to turn to their estate to collect on the debt. In such situations, the first question that you must ask yourself is whether you want to demand payment of your beer bet in the form of the beer itself, or if you were willing to take a cash payment in lieu of beer. If it’s the latter, at an average price per beer of $2.50 (no true beer bet can be settled by buck a bottle beer), at 24,576 bottles this would work out to $61,440.00.
If you should find yourself needing to collect on a beer bet from an estate, make sure to keep in mind section 38(3) of the Trustee Act, which provides that no action may be brought against the estate after two years from the death of the deceased. It would be a shame to rack up a 24,576 bottle beer debt, only to have the claim thrown out as a result of the expiry of any limitation period.
Have a great weekend.