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that he believed the Trust Funds belonged solely to Amina and that, in any event, Amina told him the Trust Funds withdrawn by him were used for Amal’s benefit.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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When dealing with the administration of an estate, there is the possibility that a bequest will be left to a minor, resulting in the need for it to be held in trust until the minor reaches the age of majority. It is also possible to have a situation where the executor named in a will is a minor at the date of death of the testator, pursuant to section 26 of the Estates Act. This will result in a Certificate of Appointment of Estate Trustee being issued to the guardian of the named executor, until he or she turns 18. The guardian acting as executor is called durante minore aetate, which translates to “during the minority”.
Pursuant to section 26 of the Estates Act:
(1) Where a minor is sole executor, administration with the will annexed shall be granted to the guardian of the minor or to such other person as the court thinks fit, until the minor has attained the full age of eighteen years, at which time, and not before, probate of the will may be granted to the minor
(2) The person to whom such administration is granted has the same powers as an administrator has by virtue of an administration granted to an administrator during minority of the next of kin.
The powers of durante minore aetate to act in the place of a minor are not limited. As per Re Cope, (1880), 16 Ch. D. 49 (Eng Ch Div) at 52:
The limit to his administration is no doubt the minority of the person, but there is no other limit. He is an ordinary administrator: he is appointed for the very purpose of getting in the estate, paying the debts, and selling the estate in the usual way; and the property vests in him.
In Monsell v Armstrong, (1872) LR 14 Eq 423 at 426, the court held there is “no distinction between a common administrator durante minore aetate as regards the exercise of a power of sale.” Along with the power of sale, it seems too that an administrator for the use and benefit of a minor may also assent to a legacy and may be sued for the debts of the deceased.
An application for a certificate of appointment for the use and benefit of a minor should be in Form 74.4, 74.4.1, 74.5, or 74.5.1 (forms can be found here) and should include an explanation stating that the executor named in the will is not the applicant due to the minority of the named executor. Once the application is filed, the matter will be referred to a judge. If the judge orders a certificate of appointment of estate trustee with a will, it will include the phrase “Right of (name of minor executor) to be appointed estate trustee on attaining 18 years of age is reserved.”
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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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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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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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This week on Hull on Estates, Jonathon Kappy and Noah Weisberg discuss the duties trustees owe to beneficiaries as it relates to the rule in Saunders v Vautier.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
A Bill known as Senate File 2112 that was recently passed by the Iowa legislature has the potential to enhance the access of fiduciaries to digital assets. As it currently stands in Iowa, many other states, and Canadian provinces including Ontario, the law has not been formally amended to reflect technological advancement and the prevalence of digital assets in estate administration. This represents a major problem in situations where an individual has not considered his or her digital assets when creating or updating an estate plan. The result is most often that digital assets and online accounts are inaccessible or accessible only after a Court Order is obtained, a process that may add significant time and cost to an otherwise simple estate administration.
Senate File 2112 provides that fiduciaries, which class is explicitly stated to include estate trustees, guardians, and those authorized to act under a power of attorney, may access digital information on behalf of an incapable or
deceased person who has authorized them to do so.
In circumstances where there is no written direction granting access of the fiduciary to the user’s information, an estate trustee is permitted to access a deceased person’s digital assets upon providing the following to the custodian of the assets:
- A written request for disclosure;
- A certified copy of the death certificate;
- A certified copy of probate, an affidavit made pursuant to the Bill, or a file-stamped copy of the court order authorizing the fiduciary to administer the estate; and
- If requested by the custodian of the assets, any of the following:
- A username or other unique account identifier to identify the user’s account;
- Evidence linking the account to the user;
- An affidavit stating that the disclosure of the digital assets is reasonably necessary for administration of the estate; and/or
- A finding by the court that either (1) the user had a specific account with the custodian of the assets, or (2) disclosure of the digital assets is reasonably necessary for administration of the estate.
The provisions of the bill are intended to apply unless the power that it provides is restricted by Court Order or limited within the document appointing the fiduciary.
Until similar legislation is enacted in Ontario, drafting solicitors should remember to canvass the important issue of digital assets and accounts when assisting clients in creating or updating estate plans to prevent inaccessibility during incapacity and/or following death.
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One of the articles included in the Toronto Lawyers Association’s Newsstand this week discusses the concepts of Private Trust Companies (PTCs) and Private Trust Foundations (PTFs) in the British Crown dependency of Guernsey. While there are significant differences between these types of structures and trust companies in Canada, it is interesting to consider ways in which trustee arrangements are structured in other jurisdictions.
PTCs, similar to corporate trustees in Canada, are often used by high net worth families to consolidate various family interests into a private structure that is customized to fit their particular needs. PTCs can offer many benefits, including in-house specialized knowledge and expertise, continuity, and flexibility. In Guernsey, PTCs are structured in a two-layered manner. The PTC itself is a limited company established for the sole purpose of acting as a trustee. The shares of the PTC must then be “orphaned”, by having a non-charitable purpose trust hold the shares of the PTC.
PTFs, on the other hand, are differently structured. A foundation can be established for the sole purpose of acting as a trustee. As a legal entity the foundation can then act and exercise all the powers and obligations of a trustee in the same way as any corporate trustee, such as a PTC. However, since the foundation has no members or shareholders, it is already “orphaned” and there is no need to set up a holding vehicle, as is required for the PTC. A crucial difference between PTCs and PTFs is that, the law in Guernsey which applies to fiduciaries, does not necessarily apply to PTFs, as long as the PTF is not paid for its services. Of course, if the PTF is paid for its services, it will be deemed to be carrying on business and will fall under the Fiduciaries Law. In Guernsey, PTFs may be seen as a simpler alternative to PTCs.
In Canada, trust companies are similar in concept to PTCs, but are structured differently, as the “orphan” layer of the PTC is not necessary. Trust companies are regulated federally by the Trust and Loan Companies Act, SC 1991, c 24 and in Ontario by the Loan and Trust Corporations Act, RSO 1990, c L.25. Many of the large banks have a subsidiary trust company through which they operate in the capacity of a corporate trustee. Trust companies in Canada are fiduciaries and are paid for their services as trustees. This is an important element of trust companies, and the non-fiduciary nature of PTFs would likely be incompatible with trustee obligations in Canada.
As with PTCs and PTFs, Canadian trust companies are often used in place of an individual trustee where a trust or estate is particularly complex. For example, corporate trustees may be useful where a trust, whether inter vivos or testamentary, is intended to exist over the course of many generations. Trust companies can provide continuity of administration, and avoid issues restricted to the lifetime of an individual trustee.
Furthermore, given the increase in non-traditional family structures, such as second marriages and blended families, estates can be very complex and can involve many beneficiaries. It may be overwhelming for an individual to manage the complex structures that may be created to account for the different interests in a family. It may also be difficult for an estate trustee to remain neutral and objective if there are conflicts or issues that arise with respect to the family structure and distribution of assets.
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The “Henson trust” is a type of trust often used in estate planning to deal with situations where there is a disabled beneficiary who is entitled to receive support payments from the Ontario Disability Support Program (ODSP). The name of the Henson trust originates from an Ontario case, The Minister of Community and Social Services v Henson,  OJ No 1121, aff’d  OJ No 2093 (Ont CA), where the Court held that a discretionary trust established for a disabled beneficiary would not result in a loss of government benefits, as the beneficiary had no vested right to receive income or capital from the trust.
Under the Ontario Disability Support Program Act, if a recipient of ODSP has assets, or receives income over a prescribed limit, they will cease being eligible to receive support payments. An individual cannot hold more than $5,000.00 in assets (with some exceptions, including their principal residence and a vehicle) and continue to receive ODSP. However, ODSP often does not provide sufficient income, and the restrictions on income and assets cause recipients to subsist on very little, or risk losing their ODSP. One way to address this issue is through the establishment of the Henson trust.
The essential elements of a Henson trust are: (i) that the trustee must have absolute discretion, (ii) that the assets of the trust do not vest in the beneficiary, and (iii) that there is a gift-over following the death of the beneficiary. While usually a beneficial interest in a trust is taken into account in determining an individual’s assets, the Henson trust is an exception, due to the fact that the beneficiary in this type of trust has no vested interest in the assets, nor any right to demand that the trustee pay them from the trust. As such, the beneficiary is not required to treat the trust assets as his or her own and consequently, the Henson trust provides a method of providing additional income to a disabled beneficiary without causing them to become ineligible for ODSP.
The Henson trust, however, is not a perfect solution. First, it relies on the absolute discretion of the trustee in order to meet the requirements of the trust. Because Henson trusts are often created in a will by parents of a disabled beneficiary to ensure that their child will be properly looked after, the parents are forced to repose complete trust in their chosen trustee. That trustee consequently holds a great deal of responsibility. Thus, it is vital to choose a trustee that is unquestionably trustworthy, who will prioritize the best interests of the child and will not take advantage of their position.
Second, the Henson trust cannot avoid the rules with respect to income limits for recipients. Therefore, the payments to the beneficiary from the trust still cannot exceed the income limits for ODSP. Although the trust helps to provide a guaranteed, steady income to a disabled beneficiary, they will likely still be living on quite a low income.
If a settlor of a trust has sufficient assets to provide for a disabled beneficiary, they may want to consider a regular trust arrangement, as opposed to a Henson trust. The downside of course, is that, depending on the amount of payments to the beneficiary, they may lose their eligibility for ODSP. However, it may be worth the trade-off to ensure that your loved one can live comfortably. Before making a Henson trust arrangement, talk to a trusted advisor who can help determine the best fit for you.
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Secret and half-secret trusts are trust arrangements made between a testator and a trustee, without disclosure of the terms of the arrangement, but where an understanding exists between the parties. Secret trusts are not mentioned at all in a testator’s will. Half-secret trusts are explicitly included in a will, but the terms of the trust are not disclosed.
There are certain requirements that must be met in order to form a secret or a half-secret trust. With respect to secret trusts, there are four required elements, as per Ottaway v Norman  3 All ER 1325 at 1332 (“Ottaway v Norman”):
- An intent by the testator to subject the trustee to an obligation in favour of a beneficiary;
- Communication of that intent to the trustee;
- Acceptance of the obligation by the trustee, either expressly or implicitly; and
- The conditions are satisfied before or after execution of the will, but before the testator dies.
With respect to half-secret trusts, the timing of the communication and acceptance is different: it must occur before or at the time of execution of the will.
Due to the nature of these types of trusts, there can be issues proving their existence. Section 13 of the Ontario Evidence Act, RSO 190, C.E-23, requires corroboration.
Accordingly, as in Re Dhaliwal Estate, 2011 ABQB 279 (“Re Dhaliwal”), where the only evidence of the existence of the alleged secret trust were the affidavits of the chief beneficiaries of the trust, the required corroboration was not provided.
According to Re Snowden  CH 528, the standard of proof for proving a secret or half-secret trust is the normal civil standard (i.e. balance of probabilities).
As per Ottaway v Norman, where a secret trust fails, the trustee will be entitled to the trust property absolutely with no obligation to the beneficiary. By contrast, if a half-secret trust were to fail, there would be an automatic resulting trust in favour of the testator’s estate. The distinction is due to the fact that, in the case of a half-secret trust, the will explicitly states that the trustee has no beneficial interest in the trust property.
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