In the recent decision of In the Estate of Alaine Jackson Young, 2012 ONSC 343, the Ontario Superior Court of Justice held that a trust company acting as an estate trustee was entitled to hire investment counsel to assist with the management of the estate’s investments, and the fees for doing so should not be deducted from its compensation.

In the case, a trust company was one of two succeeding estate trustees (“Trustees”).  The Trustees sought an order passing the accounts of the estate for a four year period.  The only objection filed in respect of the accounts came from the Children’s Lawyer, who represented two minor beneficiaries.  

Up until 2008, the Trustees had been investing the estate’s assets in the trust company’s common pool of trust funds (the “Common Funds”).  During this time, the estate did not incur expenses in connection with the management of its investments.  In August 2008, the Common Funds were discontinued and wound up by the trust company.  As a result, the Trustees had to determine how to otherwise invest the estate’s assets.

As the trust company no longer had “in-house” investment expertise and its co-trustee also did not have investment expertise, a decision was made to retain investment counsel (specifically, an investment manager owned by the same parent company as the trust company).  The Trustees obtained the written consent of all the current and contingent adult beneficiaries to engage the investment counsel.  The Trustees also negotiated a discount of the fees normally charged by the investment counsel. 

The Children’s Lawyer objected to the investment counsel’s fees being charged to the capital of the estate, and argued that these fees should be deducted from the compensation claimed by the Trustees.  The Trustees had sought compensation calculated using the usual tariff guidelines. 

The Children’s Lawyer argued that “the management of assets is a core function of a corporate trustee,” and the estate should not have to bear the additional expense necessitated by the “unilateral business decision” of the trust company to discontinue the Common Funds.  The trust company, in turn, argued that given that the complexity of the investment world, that trustees – even corporate trustees – must be able to access professional investment expertise to properly administer an estate and should be fully indemnified for expenses properly incurred to do so.

In the circumstances, the Court agreed with the trust company’s position.  The Court held the prudent investment of the estate’s assets was beyond the expertise of the Trustees and the services of the investment counsel were both necessary and reasonable. The court noted that it was well established that a trustee was entitled to be fully indemnified for all expenses properly incurred during the course of administrating an estate. As such, the investment counsel’s fees were not deducted from the Trustees’ compensation.  In the decision, Mr. Justice Hainey concluded, "In my view, in today’s complex and sophisticated investment market, executors should be entitled to hire investment counsel to assist them in making investment decisions and the fees for doing so should not be deducted from their compensation."

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Saman M. Jaffery – Click here for more information about Saman M. Jaffery