Trustees may be cautious or uncertain when administering trusts, even when the trust deed gives them unfettered discretion in carrying out their duties.
In Ontario, trustees are able to seek advice and directions from the court under section 60 of the Trustee Act and also seek advance approval of various exercises of discretion in administering a discretionary trust. The jurisdiction of the Court to approve the exercise of discretion by trustees was formally recognized in Public Trustee v. Cooper  WTLR 901, a decision of the High Court of Justice in the UK. These orders are often referred to as “Cooper orders”. However, trustees must consider when it is appropriate to involve the Court in decisions that should be made by trustees.
Justice Hart in Cooper outlines instances in which trustees can seek directions from the Court. He states that parties may seek to obtain the blessing of the Court for a “momentous decision” that they have resolved to make in the trust’s life. As long as the proposed course of action is within the proper exercise of the trustees’ powers and where there is no real doubt as to the nature of the trustees’ power, the Court may make a declaration that the trustee’s proposed exercise of power is lawful. The Courts have made it clear that they will not exercise discretionary powers on behalf trustees.
Cooper Orders have been successfully sought in Canada. In Toigo Estate (Re) 2018 BCSC 936, the Trustees of an Estate sought the Court’s declaration that their exercise of discretion was lawful. The deceased created a spousal trust which permitted the trustees uncontrolled discretion to encroach on the capital of the estate in favour of his wife. After his wife’s death, the residue of the estate was to be divided amongst the deceased’s children and grandchildren.
The wife asked the trustees for a significant encroachment. The trustees had uncontrollable discretion to make the encroachment. However, they still wanted the Court’s “opinion, advice or direction” as to whether they should proceed.
The Court held that because of the magnitude of the encroachment, the Court could provide advice on this “momentous decision”. In making the decision, the court asked the following questions:
- Does the trustee have the power under the trust instrument and the relevant law to make the “momentous decision”?
- Has the trustee formed the opinion to do so in good faith and is it desirable and proper to do so?
- Is the opinion formed by the trustee one that a reasonable trustee in its position, properly instructed, could have arrived at?
- Is the Court certain that the decision by any actual or potential conflicts of interest?
Ultimately, trustees need to consider whether it’s suitable in their circumstances to apply to the court for a stamp of approval when taking drastic or “momentous” action.
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George Floyd died tragically during an arrest by Minneapolis Police officers on May 25, 2020. Mr. Floyd’s highly publicized death ignited demonstrations and protests across the United States and Canada against police brutality and in support of anti-racism. Many individuals are also showing their support to this cause with donations to community groups, non-profit organizations, and other fundraising campaigns with a related mission or purpose.
One of the more successful fundraising campaigns has been the George Floyd Memorial Fund established by Mr. Floyd’s brother, Philonise Floyd, on GoFundMe, an online crowdfunding platform. This campaign has raised just over $14 million to date, far surpassing its original target of $1.5 million. The overwhelming success of this GoFundMe campaign invites the question – what happens if more funds are donated to a fundraising campaign than originally requested?
Crowdfunding campaigns are often created in order to raise money for a specific purpose or project. If more money is raised than is needed to fulfill the campaign’s intended purpose, then there will be surplus funds. A common example is a GoFundMe campaign created to defray funeral expenses and the campaign ends up raising funds over and above the actual costs incurred for the funeral. What is the campaign promoter entitled, or perhaps required, to do with the leftover funds?
In general, if money is donated for a specific purpose and not all of the funds raised can be applied to that specific purpose, the surplus funds may be returned to the donors via a resulting trust. Returning donated monies can be burdensome where there have been a significant number of donors and/or anonymous donors who cannot be easily identified. To help avoid this situation, a campaign promoter can include alternative purposes for which funds can be used. These additional purposes must be set out at the time the funds are solicited.
In the case of the George Floyd Memorial Fund, the GoFundMe page states:
“This fund is established to cover funeral and burial expenses, mental and grief counseling, lodging and travel for all court proceedings, and to assist our family in the days to come as we continue to seek justice for George. A portion of these funds will also go to the Estate of George Floyd for the benefit and care of his children and their educational fund.”
The above description includes multiple purposes for the collected funds. Some of these purposes likely have been or will be fulfilled, such as the payment of funeral expenses. However, other purposes are seemingly unbounded, such as supporting the care and education of Mr. Floyd’s children. Thus, although the George Floyd Memorial Fund garnered millions of dollars in excess of its original goal, it is likely that all of these funds can properly be applied to the campaign’s defined purposes. If this is the case, then no portion of the collected funds will be considered to be surplus and all of the money should remain available for the benefit of the Floyd family.
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Further to my blog on Monday, the Court of Appeal also released another interesting decision last week with respect to the tort of conspiracy in the context of a family law proceeding. Leitch v. Novack, 2020 ONCA 257, is an appeal from a summary judgement motion that was brought by the husband’s father, a family trust, and a family company. Summary judgment was brought because the wife sought damages against the moving parties for an alleged conspiracy that they were intentionally withholding payments to the husband in order to reduce his family law obligations.
The motion judge, in 2019 ONSC 794, held that the conspiracy claim was appropriate for partial summary judgment. The conspiracy claims were dismissed even though the wife could still pursue a claim to impute additional income to the husband for the purposes of determining his income at trial. Over a million dollars in costs were later awarded to the husband and the moving parties and there was a subsequent order for security for costs that effectively froze all of the wife’s assets.
The appeal was allowed. The Court found that there was a material risk of inconsistent results because the wife was allowed pursue her claims that additional income ought to be imputed to the husband despite the motion judge’s finding that there was no unlawful conspiracy.
As for the tort of conspiracy, Justice Hourigan confirms and clarifies the application of this doctrine in the context of family law matters. The tort of conspiracy is part of the judicial toolbox to ensure fairness and for deterrence. It is also there for enforcement purposes because the purpose of the conspiracy is to hide income or assets and “a judgment against a co-conspirator will often be the only means which by which a recipient will be able to satisfy judgment” (paras. 46-47).
Justice Hourigan commented that
“a transfer of funds by loan, gift, or otherwise, is not the only way that the alleged co-conspirators could have acted in furtherance of the conspiracy. If the trial judge is satisfied that [the husband] had an entitlement to funds and that a co-conspirator withheld the transfer of funds to him as part of a conspiracy with the understanding that he would receive the money at some future date, the withholding of funds may itself be an act in furtherance of the conspiracy. It is not necessary to establish more than an acted-upon conspiracy to conceal [the husband’s] entitlement.” (para. 51).
The costs awards and the preservation order were also set aside.
This decision is certainly important to keep in mind when advising trustees of discretionary trusts.
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A recent decision from the Royal Court of Jersey was recently discussed here with respect to a beneficiary’s right to disclosure from a trust. This blog by lawyers from Ogier is an insightful read on this particular area of trust law.
According to the authors at Ogier, M v W Limited and Others was a case that considered a beneficiary’s broad request for documents, such as copies of all trust instruments, latest accounts, financial statements for the corporations owned by the trust, and details about all past distributions from the trust. While Court’s decision was grounded in an interpretation of the relevant Jersey legislation, some of its commentary remains instructive for those of us who practice outside of Jersey.
In M v W Limited and Others, the nature and immediacy of the beneficiary’s interest is salient to the inquiry. For example, a contingent beneficiary may not be entitled to as much disclosure as a beneficiary who is entitled to the assets of the trust at that point in time. By extension, it is also relevant to consider whether the disclosure at issue would negatively affect another class of beneficiaries as well as the proportionality of the request.
As for the law in Canada, I have blogged on a recent Supreme Court of Canada decision about a trustee’s duty to disclose the existence of a trust to the beneficiaries. Justice Brown for the majority in Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, has stated the following at paragraph 19,
“In general, wherever “it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence,  the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust.”
This notion of whether a beneficiary would be unreasonably disadvantaged by the non-disclosure is important to keep in mind because the right to disclosure is grounded in a beneficiary right to hold trustees accountable and to enforce the terms of the trust.
Practically speaking, issues of disclosure often leads to a request for the trustee to commence an application to pass accounts. While the trustee will have the benefit of a court order approving his/her administration for that period (if and when Judgment is obtained), an application to pass accounts must be served on all beneficiaries with a contingent or vested interest pursuant to Rule 74.18 of the Ontario Rules of Civil Procedure. In turn, these beneficiaries will have the right to object to the trustee’s accounts and seek relevant disclosure from the trustee in the course of this process.
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A testator provided in her will that a share of the residue of her estate was to go to three of the testator’s brothers. If any one of them predeceased the testator, their share would go to two nieces of the deceased.
The testator was predeceased by two of her brothers. A third could not be located. What was the estate trustee to do?
This question was addressed in the July 27, 2018 decision of Steele v. Smith, 2018 ONSC 4601 (CanLII). There, the Public Guardian and Trustee suggested that the share payable to the missing brother be paid into court, and that further efforts be taken to locate him. The estate trustee, on the other hand, asked the court for a “Benjamin Order”, allowing him to distribute the estate as if the missing brother had predeceased the testator.
The court reviewed the history of the Benjamin Order. The Order derives from the case of Neville v. Benjamin,  1 Ch. 723. There, the deceased was survived by twelve children. A thirteenth disappeared while on vacation, and after it was suspected that he had stolen money from his employer. The court held that the burden was on the missing person’s administrator (or those claiming through him) to prove that the missing person had survived the deceased. In Benjamin, the burden was not met, and the estate was allowed to be distributed as if the missing person had predeceased.
Benjamin Orders are rare, and not easy to obtain. The court will consider the “sufficiency” of the inquiries made by the estate trustee. In considering this, the court will look for information about:
- How much time has elapsed since the death of the testator?
- What specific steps have been taken to locate the missing person, and over what period of time?
- Who has made the inquiries? Are they appropriately qualified?
- Do the inquiries take into account consideration of the possible location of the missing person?
- Are further inquiries likely to produce any more information?
- What is the amount at state?
In Steele v. Smith, the estate trustee is said to have gone to “extensive lengths” to determine the missing brother’s location in the eighteen months since the testator’s death. The court held that the estate trustee had exhausted all available avenues of inquiry, and that there was no evidence that further efforts would yield positive results. Further, there was no reason why the missing brother would choose not to be found. Unfortunately, the value of the share of the residue in issue is not disclosed in the decision.
The court ordered that the estate trustee was at liberty to distribute the estate as if the missing brother did not survive the testator.
One of the benefits of a Benjamin Order is that it gives protection to the estate trustee. If the missing brother later appeared, he would have no claim as against the estate trustee. However, he may have a claim as against the beneficiaries who benefitted from the Order.
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Newlands Estate was a dispute between three siblings over a $30,000.00 painting. The three siblings were beneficiaries and estate trustees of their late father’s estate. Two of the siblings commenced an application in their capacity as Estate Trustee as against their brother and sought advice from the Court regarding the painting which they alleged was an asset of the Estate. They also alleged breach of fiduciary duty and sought costs of the application on a substantial indemnity basis.
The respondent argued that the painting was gifted to him by his late father on the condition that he pay the value of same to the Estate.
In an earlier decision, released in November of 2017, Justice Spies dismissed the application finding that the painting was not an asset of the Estate and that the applicants were obliged to convey ownership of the painting to the respondent personally upon receipt of the full and final payment of $30,000.00. The Court also found that the respondent had not breached his fiduciary duty as Estate Trustee.
In this follow up decision Justice Spies dealt with the Costs of the application. The respondent sought substantial indemnity costs against the applicants personally in the amount of $214,832.00 or alternatively, partial indemnity of $148,218.00.
The Court found that the application was unnecessary and having considered their conduct throughout, ordered them to personally pay substantial indemnity costs to the respondent.
This case is an example of not only the risk of liability that estate trustees must keep in mind when acting in the fiduciary role of estate trustee, but also the risks of not accepting reasonable settlement offers.
Background of Settlement Offers Exchanged
Before the application was commenced the respondent offered to pay the agreed upon value of the subject painting ($30,000.00) to the Estate. He also offered to resolve some other issues regarding the administration of the Estate. The applicants did not provide a formal response to this offer.
After the commencement of the proceeding, the respondent made five offers to settle on various dates. These offers addressed the painting and other administration issues.
In February of 2017, the applicants presented a counter-offer consenting to the release of the painting to the respondent and provided that the application be withdrawn without costs and that the parties bear their own costs. They declined to deal with any of the other terms.
During the course of the litigation, the action became the subject of three Orders setting out deadlines for mediation, cross-examination and scheduling a hearing. The applicants were non-compliant with the Orders for cross-examination and caused the rescheduling of the hearing, all of which led to additional costs incurred by the respondent.
The applicants argued that the respondent’s original offer was not an offer to settle within the meaning of Rule 49 of the Rules of Civil Procedure as it was made before the application began. They acknowledged, however, that the Court has broad discretion to consider pre-litigation offers with respect to costs.
The respondent submitted that his original offer was an offer to settle that the applicants rejected and that this Court has broad discretion to consider any offer in deciding to award substantial indemnity costs.
The Court cited, with agreement, the view expressed in Brough and Whicher Ltd. v. Lebeznick, 2017 ONSC 1392, at para. 20, that a pre-litigation offer is relevant to the consideration of costs, as it can demonstrate whether a party was prepared to be reasonable from the outset and noted that “clearly” the respondent’s original offer indicates that he was prepared to be reasonable.
In the circumstances, Rule 49.10 would only entitle the respondent to partial indemnity costs. The respondent, relying on the decision of the Ontario Court of Appeal in S & A Strasser Ltd. v. Richmond Hill (Town),  O.J. No. 2321 (Ont. C.A.), argued that the Court has broad discretion to consider any offer in deciding to award substantial indemnity costs.
After reviewing the competing authorities, Justice Spies noted:
I do not understand the law to limit my discretion to award solicitor-client costs to only cases where unsubstantiated allegations of fraud, deceit and dishonesty have been made. It has been repeated in a number of cases that the trial judge in Strasser said: “I think this case, in these circumstances, screams for solicitor-and-client costs.” Furthermore, Rule 57.01 (4) gives me authority to award all or part of the respondent’s costs on a solicitor-client basis and Rule 57.01 (1) permits me to consider any offer to settle and Rule 57.01(1) (f) (i) provides that I may consider whether any step in the proceeding was improper, vexatious or unnecessary.
The Court noted that the applicants misused their authority, brought an application that was improper, vexatious and unnecessary to punish the respondent, who was a sibling with whom they did not get along. They used their position as Estate Trustees to shield themselves from personal liability and ran up costs of a quarter million dollars ostensibly to recover a $30,000 painting:
In my view, not ordering them to fully reimburse John for his legal costs would bring the administration of justice into disrepute.
The applicants’ argument that the respondent should only be entitled to costs up to the date of their counter-offer was not accepted in light of their refusal to deal with other issues pertaining to the administration of the Estate and the fact that by the time that offer was served the respondent had incurred substantial legal fees.
Costs were fixed at $180,167 plus HST for a total of $203,589 payable by the applicants personally. Given the applicants’ conduct, this was not a case where costs ought to be paid from the Estate.
The applicants were also ordered to pay the respondent’s full disbursements minus what had been paid out of the Estate.
Substantial litigation costs to be paid personally by an estate trustee is not common, but well within the discretion of the presiding Judge. Parties to estate litigation should assess their personal exposure to costs before launching a lawsuit or motion, similar to those involved in civil litigation cases.
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The facts in the new Supreme Court of Canada decision on trustee duties were previously set out in last Tuesday’s edition of this blog.
Valard Construction Ltd. v. Bird Construction Co. arose from a commercial matter in which Valard was a subcontractor in a construction oilsands project where Bird was the general contractor. Bird was the trustee of a labour and material payment bond that could have been available for Valard’s claim for unpaid invoices if notice of claim was given to the surety within a fixed time limit. Valard claimed against Bird when Bird failed to disclose the existence of the bond to Valard within the relevant time period.
Justice Brown, for the majority, found that Bird had a fiduciary duty to disclose the bond to Valard even though Valard did not explicitly ask about the existence of the bond until it was too late. In order to determine whether a breach of trust occurred, Justice Brown went on to consider what was required of Bird in order to discharge its duties to Valard because “the question is not what Bird could have done in this case, but what Bird should reasonably have done in the circumstances of this case to notify beneficiaries such as Valard of the existence of the bond” (paragraph 29). In concluding that the duty was breached in this instance, paragraph 26 is particularly instructive for the analysis:
Like all duties imposed upon trustees, the standard to be met in respect of this particular duty is not perfection, but rather that of honesty, and reasonable skill and prudence. And the specific demands of that standard, so far as they arise from the duty to disclose the existence of a trust, are informed by the facts and circumstances of which the trustee ought reasonably to have known at the material time. In considering what was required in a given case, therefore, a reviewing court should be careful not to ask, in hindsight, what could ideally have been done to inform potential beneficiaries of the trust. Rather, the proper inquiry is into what steps, in the particular circumstances of the case — including the trust terms, the identity of the trustee and of the beneficiaries, the size of the class of potential beneficiaries and pertinent industrial practices — an honest and reasonably skillful and prudent trustee would have taken in order to notify potential beneficiaries of the existence of the trust. But, where a trustee can reasonably assume that the beneficiaries knew of the trust’s existence, or where practical exigencies would make notification entirely impractical, few, if any, steps may be required by a trustee.
In this case, Justice Brown found that Bird could have reasonably discharged its duties by posting notice of the bond on its information board and that some method of notice was required of the company to notify beneficiaries like Valard with a caveat. The caveat being that, in some circumstances, nothing could be required to discharge this duty where industry practice and knowledge would render notice unnecessary.
Interestingly, what was or was not industry practice in this case was the question that divided the Court. For Justice Karakatsanis‘ dissenting opinion, she would have dismissed the appeal because Bird was not under an obligation to inform Valard beyond responding accurately when asked because this type of bond was common in this industry in her view.
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The answer is no according to Borges v. Santos, 2017 ONCJ 651.
In Borges v. Santos, a garnishment proceeding was commenced by Maria, who was entitled to child support from Antonio. Maria sought to garnish a trust that was established from the Estate of Antonio’s mother. Pursuant to the Will of Antonio’s mother, the Trustees were given an absolute and unfettered discretion to pay any part of income or capital for Antonio’s benefit and to keep Antonio’s comfort and well-being in mind in exercising their discretion. In this case, the Trustees also happened to be Antonio’s brother and sister as well as the gift-over beneficiaries of this Trust such that they will be entitled to all income and capital that were not distributed to Antonio 21 years after their mother’s death.
In one of her arguments, Maria contended that the Trust was not truly discretionary because of the non-arm’s length relationship between the Trustees and Antonio since they were siblings. The Court in case clarified that Tremblay v. Tremblay, 2016 ONSC 588, “does not stand for the proposition that all familial relationships between trustees and beneficiaries automatically demonstrate that the trust is under the control and hence the property of the beneficiary” for the purposes of the Family Law Act.
Interestingly, Antonio gave evidence in this proceeding that he wanted the Trustees to honour his child support obligations to Maria, although they chose not to comply with his wishes. Ultimately, as obiter, the Court also asked the Trustees to consider making a distribution to Antonio for his comfort and well-being by supporting his son, Christopher, while acknowledging that he could not order them to do so.
For those of you who are interested in the essential elements of a Henson Trust, click here, for a previous blog on this topic by Ian Hull.
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Take a minute to think about how much of “you” exists online. Financial records, photographs, music, social media content, automatic bill payment instructions – the list goes on. And with Bitcoin and other digital assets that have a market value, you could have a lot more than funny posts and pictures in electronic form.
For your estate, we’re so used to thinking of physical assets when it comes to planning, it’s easy to overlook your digital assets when preparing or reviewing estate plans.
There is no right of survivorship for digital assets, so your surviving loved ones are often faced with challenges when trying to access or delete online accounts. Legislation hasn’t kept up, and very few jurisdictions have rules about the release of information required to access accounts to family members or friends, absent a court order. As a result, different providers have different policies about what they allow for access to, or removal of, digital information stored.
If you have digital assets or an online presence, here are three estate planning tips that can help ensure a smoother estate settlement process:
- Appoint an estate trustee who is technologically savvy, can handle the responsibility of being an executor, and is a person you trust to handle your affairs. Make sure this person knows what you would like done with your digital assets (such as through a letter attached to your will), and ensure you give your estate trustee express authority in your will to deal with your electronic assets.
- Make use of existing tools that let you make choices now for online accounts after your death. Examples include Facebook Legacy Contact https://www.facebook.com/help/1568013990080948 and Google’s Interactive Account Manager https://publicpolicy.googleblog.com/2013/04/plan-your-digital-afterlife-with.html.
- Provide a detailed list of any virtual accounts, and related usernames and passwords, to your family and estate trustee. Better yet, consider using a password manager service that stores all usernames and passwords to all virtual accounts in a safe and secure format which can be accessed by one master password (there are many of these services available). In this way, your list can be updated easily and an executor only needs to be provided with one password to access all of the necessary information.
Review your plans
The issue of digital assets and estate planning is not just for Millennials. For both young and old, technology has changed the way we live. Think through what you have online, and revisit your current estate documents to ensure you’ve covered your bases in relation to your digital assets and presence.
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A common problem in estates administration is getting an occupant out of the house of a deceased person. Often, the deceased lived with a son or daughter, and after the deceased dies, the son or daughter refuses to leave the premises. The question arises as to how to get the occupant to leave the premises.
This was the problem in Filippelli Estate, 2017 ONSC 4923 (CanLII). There, the deceased died on October 22, 2016. At the time of her death, the deceased was living in her house with her son, Roberto. The deceased died leaving a Will that transferred her house to her two other children. 90% of the residue of the estate was to also pass to the two other children, with only 10% going to Roberto.
Roberto refused to vacate the house. The estate trustees, being the two other children of the deceased, brought an application for vacant possession. In response, Roberto argued that he was a “tenant” and that the estate trustees must therefore comply with the Residential Tenancies Act. (“RTA”) Roberto argued that he was paying his mother $650 per month. The evidence however only supported payments of $650 on four occasions over a 16 month period. There was no evidence of an oral or written tenancy agreement. The judge found that the payments were consistent with a mother and son sharing the cost of living expenses, and not a tenancy. The judge stated that “it would be a dangerous precedent if a son or daughter could simply assert that s/he was a tenant and that his/her deceased parent was the landlord and therefore thwart the testator’s intentions in a case like this, and require the Estate Trustees to take proceedings under the RTA.”
An order was made requiring Roberto to vacate the premises within 30 days. If he failed to vacate, the Sheriff was authorized to forcibly remove him.
Ironically, Roberto was ordered to pay “occupation rent” for occupying the property from the date of death to the date of vacancy. The court stated that occupation rent was akin to a claim of unjust enrichment. The mere fact that he remained in the house after the date of death did not make him a tenant and the estate trustees a landlord. In addition, Roberto was ordered to pay maintenance expenses of $282.50, and costs of $5,000.
The outcome may have been different if there was better evidence of a tenancy.
Further, the outcome may have been different if a claim was made for dependant support. Such a claim can often lead to an interim order of continued possession.
Thank you for reading. Have a great weekend.