TRUSTEE DISCRETION AND CAPITAL ENCROACHMENTS - PART IV
The Scope and Extent of the Power to Encroach (cont’d)
The term “mala fides” can be broadly interpreted. In the Fox Estate case (discussed yesterday), Galligan J. held that the term means more than just fraud. The term is sufficiently broad to include acts by a trustee based on “extraneous” matters, that is, considerations which are in fact extraneous to the purposes of the testator as set out in the Will.
An example of trustee action based on “extraneous” matters is found in the Fox Estate case. In this case, the mother was named as the estate trustee of her late husband’s estate, and the Will granted her uncontrolled discretion to encroach on the capital of the estate for the benefit of her son’s children. When the son married outside of the Jewish faith, the mother used her discretion to give all of the assets to the son’s children. Galligan J. concluded that the mother had been motivated to exercise her power to encroach by her disapproval of her son’s marriage. He then held that this motivation was entirely extraneous to her duty as executor and that it demonstrated sufficient mala fides to bring her conduct within any reasonable interpretation of this term.
In holding that courts may interfere if an executor’s decision making process is influenced by extraneous matters, Galligan J. relied upon the judgment of Steele J. in Hunter Estate v. Holton (1992), 7 O.R. (3d) 372 (Gen. Div.).
In Hunter Estate, Steele J. outlined the scope of a trustee’s discretion as follows (at p. 379):
Trustees must act in good faith and be fair as between beneficiaries in the exercise of their powers. There is no allegation of bad faith in the present case. A court should be reluctant to interfere with the exercise of the power of discretion by a trustee. I adopt the following criteria in Re Hastings-Bass … as being applicable to the court’s review of the exercise of such power:
Based on my review of the relevant case law, it appears that the general rule is that if the Will provides for unfettered discretion to encroach upon capital, the courts will only reluctantly intervene in the exercise of such discretion unless the trustee has displayed mala fides.
Have a wonderful day!
--Bianca
The term “mala fides” can be broadly interpreted. In the Fox Estate case (discussed yesterday), Galligan J. held that the term means more than just fraud. The term is sufficiently broad to include acts by a trustee based on “extraneous” matters, that is, considerations which are in fact extraneous to the purposes of the testator as set out in the Will.
An example of trustee action based on “extraneous” matters is found in the Fox Estate case. In this case, the mother was named as the estate trustee of her late husband’s estate, and the Will granted her uncontrolled discretion to encroach on the capital of the estate for the benefit of her son’s children. When the son married outside of the Jewish faith, the mother used her discretion to give all of the assets to the son’s children. Galligan J. concluded that the mother had been motivated to exercise her power to encroach by her disapproval of her son’s marriage. He then held that this motivation was entirely extraneous to her duty as executor and that it demonstrated sufficient mala fides to bring her conduct within any reasonable interpretation of this term.
In holding that courts may interfere if an executor’s decision making process is influenced by extraneous matters, Galligan J. relied upon the judgment of Steele J. in Hunter Estate v. Holton (1992), 7 O.R. (3d) 372 (Gen. Div.).
In Hunter Estate, Steele J. outlined the scope of a trustee’s discretion as follows (at p. 379):
Trustees must act in good faith and be fair as between beneficiaries in the exercise of their powers. There is no allegation of bad faith in the present case. A court should be reluctant to interfere with the exercise of the power of discretion by a trustee. I adopt the following criteria in Re Hastings-Bass … as being applicable to the court’s review of the exercise of such power:
To sum up the preceding observations, in our judgment, where by the terms of a trust … a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorized by the power conferred upon him, or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.
Based on my review of the relevant case law, it appears that the general rule is that if the Will provides for unfettered discretion to encroach upon capital, the courts will only reluctantly intervene in the exercise of such discretion unless the trustee has displayed mala fides.
Have a wonderful day!
--Bianca
