Toronto Estate Law Blog : Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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Venturing out into the great beyond this long Victoria Weekend? Is the Thule packed full of musty sleeping bags and the fixin's for S'mores?  Perhaps instead, the allure of a commercial outfitter was simply too much to resist.  You signed the papers, cut the cheque, and now, the adventure-of-a-lifetime lies in wait.

Wise customers always read the fine print, and as a recent article in Outside magazine demonstrates, that adventure-of-a-lifetime might not be the only thing that lies in wait; some of those liability-release waivers pack quite the punch.  As the articles states, the liability-release waiver is a "binding contract that leaves you powerless".  If you refuse to sign on the dotted line, you'll be roasting those S'mores over a hibachi in your backyard. Sign, incur injury and file suit and the results are about as fruitful. Apparently judges toss out 90% of recreation-based lawsuits.

For example, "damages caused by a wild creature in its natural habitat" are often unrecoverable (think shark bites).  And if you are white water rafting, you'll likely be asked to sign a waiver acknowledging the risk of not only falling into the water but knocking heads with your seatmate. The bottom (dotted) line is that waivers are all about assuming acknowledgment of risk especially where the risk is beyond anyone's control.

Have a happy (and safe) long weekend! 

David M. Smith - Click here for more information on David Smith. 

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My blog today is the last in my series this week on protecting a trustee from potential liability.

A trustee may be protected from potential liability based on the conduct of the beneficiaries themselves or by having sought the assistance of the Court. 

If a beneficiary consents to, or concurs in, a breach of trust prior to it being carried out, or he releases the trustee from liability, or in some other way acquiesces in the breach after it has been carried out, he or she may not subsequently claim from the trustee any compensation to the trust for the loss arising. It is the beneficiary’s personal conduct which bars him or her from making such a claim. A beneficiary, who has instigated, requested or consented to a breach, may possibly be required to indemnify the trustee to the extent of the beneficial interest.

In addition, the defence of Laches, which is an equitable doctrine, may be available to a trustee. This doctrine expresses the principle that, if the claimant permits long delay to ensue before he or she brings his action in respect of the trustee’s conduct, the court may dismiss his action on those grounds.

Quite apart from the above defences/protection, the conduct of the trustee may be exonerated if the trustee sought the assistance of the Court before taking an action.

There are situations in which trustees are unsure about their rights and duties or about the meaning of the trust instrument. In the appropriate circumstances the trustee should apply to the court for directions. If the trustee fails to do so, the trustee is at risk of committing a breach of trust. 

A defence that a trustee may assert to an action for breach of trust is that if he or she has received the opinion or directions of the Court, statutory protection is provided under s. 60(2) of the Trustee Act. Section 60(1) provides that a trustee may bring an application to the Ontario Superior Court of Justice for the opinion or direction of the Court on a matter arising in the administration of the trust. Under s. 60(2), a trustee is deemed to have discharged his or her duty with respect to the subject matter of the application, barring fraud, willful concealment or misrepresentation, in obtaining the opinion or direction of the court.

Have a nice weekend, Craig.

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Today’s blog will continue my series this week on protecting trustees from potential liability.

A trustee may incur personal liability arising from his or her administration of the trust. The provision or existence of a release and/or indemnification in favor of the trustee may protect, limit or exonerate the trustee from liability.

With respect to a trustee’s accounts (accounting) for the administration, releases may be sought by the trustee and provided by the beneficiaries in conjunction with a Court order passing the accounts.   Alternatively, the beneficiaries may provide the trustee with a release in lieu of compelling the trustee to pass his or her accounts in Court. Amongst other considerations, when seeking a release from the beneficiary, a copy of the accounts should be provided, either in an informal format or formal format, for the beneficiary’s benefit.  

A trustee may also incur personal liability in tort, in contract, or under statute within the context of administering a trust. If the terms of the trust do not provide for an indemnification of such liabilities, the trustee should consider the nature and extent of the indemnification necessary, whether out of the trust, or possibly the estate property, or from the beneficiaries. It may also be that the trustee may need to obtain a release or indemnification from third parties (perhaps third parties who the trustee properly contracted with in respect of trust assets).

Beneficiaries and/or third parties may agree by way of a release, deed or agreement to the indemnification of the outgoing and incoming trustees in respect of certain liabilities of the trust.

Releases may be sought and provided by beneficiaries in respect of a certain transaction or actions on the part of the trustee.

If the parties cannot agree upon an appropriate indemnification of the trustee, an Order of the Court may be necessary to afford the trustee with protection.

Thanks for reading, Craig.

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Today’s blog is a continuation of my series this week on protecting a trustee from potential liability.

Perhaps the best way for an outgoing trustee (and/or new trustee) to limit any liability that may be visited upon him/her/them as a result of the administration of the trust (or to the date of his or her retirement, removal and replacement) is for the trustee and his or her co-trustees, if any, to pass their accounts.   Assuming the accounts are passed, not only will the trustee know the “starting numbers” and the assets/liabilities for the future administration of the trust (that is start with a clean slate), but the trustee will have been afforded the proper protection of the Court order. 

Requiring an accounting may also be the only way that the beneficiaries can review the administration of the trust and determine whether the administration has been proper or whether misconduct has occurred, negligent or otherwise.

In the event that a trustee is resigning, being removed or replaced, the new trustee may require that the accounts be passed before the new proposed trustee accepts, and consents to, the appointment. 

In addition to a passing of accounts, applying to and obtaining a tax clearance certificate from all applicable tax authorities in respect of the trust will release the trustee from tax liability in respect of the trust to the date of the clearance certificate (absent fraud, willful concealment or misrepresentation).

Thanks for reading, Craig.

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Today’s blog is part II in my series this week regarding the protection that may be available to a trustee against potential liability.

Apart from the provisions of the trust document itself, a trustee’s potential liability may be protected, limited or exonerated in a number of ways by statute.   Some examples are sections 18(1), 20(3), 28 and 29 of the Trustee Act (“Act”). 

Section 28 of the Act provides that a trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor could adopt under comparable circumstances. Section 29 of the Act provides that if a trustee is liable for a loss to the trust arising from the investment of trust property, a court assessing the damages payable by the trustee may take into account the overall performance of the investments.

The application of the Limitations Act should also be considered.

Also, in considering a trustee’s potential liability in respect of his or her administration of the trust, a trustee ought to consider his or her conduct and whether that conduct may be exonerated, if necessary, by the Court under section 35 of the Act. As a way of balancing the rights of beneficiaries with the interest to not overburden trustees, s.35 of the Act holds that when a breach occurs, the Court has the discretion to relieve the trustee of liability in cases where it believes that the trustee acted honestly and reasonably and ought fairly to be excused.

With some exception, the Court therefore has a statutory discretion to grant trustees relief from liability if they have acted honestly and reasonably, and ought fairly to be excused.  

Thanks for reading,

Craig

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A trustee, whether incoming or outgoing, needs to be aware of and consider his or her potential liability as trustee and over the administration of the trust. The trustee’s conduct may be protected, limited or exonerated by the terms of the trust, statute, an Order relieving the trustee of liability, the existence or provision of releases or indemnities, a passing of accounts, the conduct of the beneficiaries, whether indirect or direct, and/or the assistance of the Court. 

My blogs this week will, to some extent, touch upon some of the ways that the potential liability of a trustee can be protected, limited or exonerated.

To begin with, a trustee, whether incoming or outgoing, ought to carefully review the terms of the trust document as the trust document may contain provisions that impact on the potential liability of the trustee.

A trust document may or may not include exculpatory provisions that appear to absolve a trustee from consequences of a breach of trust or abuse of directions.   

Exculpatory clauses can protect the trustee by raising the level of culpability required to be found personally liable. The clause may also limit the extent of the trustee’s personal liability to the value of the assets of the trust instrument.

A trustee should be cautious, however, if he or she is relying on an exculpatory clause in a trust document to exonerate him or her from liability as such clauses can be held to be invalid, especially where they are broad, or attempt to completely exonerate any and all conduct of the trustee. While there is little Canadian caselaw on the issue, relatively speaking, commentators have suggested that the following principles might be adhered to by Canadian Courts: (a) an exculpatory clause will not excuse liability for acts of gross negligence; (b) an exculpatory clause will not excuse liability for willful defaults or intentional wrongdoing; (c) an exculpatory clause will not excuse liability for acts of fraud or dishonesty; and (d) an appropriately drafted exculpatory clause may be effective to relieve a trustee from liability for breaches of trust of lessor culpability than acts of gross negligence, intentional wrongdoing or bad faith.

Thanks for reading.

Craig.

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Comments? Send us an email at hull.lawyers@gmail.com, call us on the comment line at 206-350-6636, or leave us a comment on the Hull on Estate blog.

The Family Conference - Hull on Estates Podcast #96

Posted on February 5^th, 2008 by Hull & Hull LLP

Natalia Angelini: Hello and welcome to Hull on Estates. You’re listening to Episode #96 on Tuesday, February 5^th, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills.  Now, here are today’s hosts.

Natalia Angelini: Hi and welcome to another episode on Hull on Estates. I’m Natalia Angelini.

Allan Socken: Hi and I’m Allan Socken.

Natalia Angelini: If you want to be heard on Hull on Estates, you can participate in our discussion by leaving a comment. Give us a call at 206-350-6636. The number is in the show notes along with our e-mail address: hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.

So Allan, it’s great to be podcasting with you today. It’s our first time together.

Allan Socken: I’m very excited about it, Natalia.

Natalia Angelini: That’s good. We’re going to be talking about the family conference. So perhaps I’ll just set out what it is. The family conference is a professionally mediated conference and it essentially provides a forum whereby a testator can reveal his or her proposed estate plan to intended adult beneficiaries. And the objective is to obtain their approval of the plan. So it’s quite a unique animal, the family conference. It’s really the only formal mechanism in place in estate matters where someone can, you know, look their loved ones in the eyes and explain their plan to them, answer any questions about why they wish to have their plans set out in that manner. And ultimately in an ideal scenario, get agreement on it. So Allan, why don’t you tell our listeners what needs to happen in preparation for a conference.

Allan Socken: Well before the conference, I think probably the most important question to ask is who do you invite to the conference? And the simple answer is you invite all adults who are involved in the estate plan. At least, at a minimum, the people you invite would be the spouse of the person who made this estate plan as well as his children. And I think in inviting these people, it’s really important that you speak to them and have a candid conversation with them, obviously before the conference, explain the purpose of a conference, namely for all the people to appreciate what the person’s estate plan looks like and the reasons as to why they’re leaving certain gifts the way that they are.

Natalia Angelini: And who else can be invited?

Allan Socken: Really, any person who has an interest or involvement in the estate plan of the person.

Natalia Angelini: Right. And that would even include professionals, like the testator’s estate lawyer, their financial planner or accountant, because they certainly can have a critical role in explaining or answering questions dealing with the assets.

Allan Socken: For sure. And I think the other important thing to make mention of is there may be certain circumstances, probably quite frequently, where minor children have an interest in the estate plan. And it’s important to note that minor children should not be included in the family conference. In most jurisdictions, Ontario included, there’s an office known as the Office of the Children’s Lawyer, whose mandate is to protect the interests of minor children. And depending on what the estate plan looks like, it may be necessary to have discussions with them to see if it’s necessary for them to attend the conference as well.

Natalia Angelini: That’s a good point, Allan. So are there any other preparatory steps?

Allan Socken: The only other thing I’d like to make mention of is the question as to where to hold the family conference. Often people think that it may be prudent to hold it at a family member’s house.  But the reason why, I think, it’s not a good idea is, is often when you go to a person’s house, it may turn into a social function and it may lose the business touch that’s essential in planning for this conference. So I think probably the best place to hold a conference would be at the mediator’s office so people can really appreciate the business-like environment that they’re encountering and the importance placed on the family conference.

Natalia Angelini: In addition, it really is like a mediation and you want to be able to have individual caucuses as well as group caucuses. So you need several rooms and breakout rooms and privacy so you can really have it proceed in a meaningful way. So again, I think a mediator’s office or some other kind of office is ideal.

Allan Socken: I think moving along, Natalia, now we should address the agenda that’s put in place before the family conference. I think it’s important to stress to our listeners that an agenda is essential to have so that people are aware of what’s going to be taking place at the conference and so that divergence can be avoided as much as possible. So probably what’s important to include in the agenda is really the overview of the person’s estate plan which would include the proposed new Will, who the executor will be, funeral arrangements, debts of the person, taxation issues, guardianship of minor children, who may be the Power of Attorney and dealing with the distribution of specific assets for the estate.

Natalia Angelini: Right. I think it is critical to have an agenda and the family conference is chaired. And it’s usually chaired by either the testator or the mediator or someone else selected by the testator. So it’s great assistance to them to have an agenda to follow.

Now in respect of how the actual conference works over the course of a day or more than one day, it is much like a mediation.  And, you know, there is, I think, initially, commonly a group meeting where the chairperson goes through the rules of the day. There’s usually a family conference agreement signed which sets out that the mediator is neutral, that he or she is not offering legal advice, that all discussions are without prejudice, and of course, that the mediator is not liable for anything done or omitted at the family conference. So the usual sort of waivers. In addition, a document entitled Rules for Meeting is also signed. And Allan, why don’t you set out what is contained in that document?

Allan Socken: Typically for the Rules of the Meeting, it sets out that the parties understand who’s paying for the mediator’s time but not withstanding whoever is paying for the mediator’s time, the mediator still will be neutral throughout the process. As well, the parties agree that they’ll conduct themselves in a business and professional approach. And in that sense, there’ll be no harsh language spoken either at the other parties or the mediator. And believe me, I’m sure Natalia also can attest to the fact she’s seen certain times where discussions can get pretty heated.

Natalia Angelini: This is true. This is true. And I think in this kind of conference you really want to encourage views to be shared and grievances to be aired, but at the same time, in order for resolutions to come about, you want to make sure that everything is discussed in a cordial manner.

Allan Socken: And just the other thing to make mention of also is one of the rules should also include that all the parties are bound and acknowledge that they’re bound by the Family Conference Agreement. So they can leave whenever they feel like it if they feel progress is not being made. Certainly the mediator will try to keep them there and have the parties agree to at least spend a day there to try to sort things out. But even if the parties want to leave at the end of the day and no agreement can be reached, the parties still agree that all information and all people who were present can’t be subpoenaed in that respect. I think that’s important also to include in the agreement, Natalia.

Natalia Angelini: Good point, Allan. So again, it is a fluid process like any other type of mediation and it really can unfold in a different way depending on the parties and the circumstances.  And if an agreement is not ultimately reached at the end of the day, you can, you know, reconvene on another day if all or some of the people are willing to and you can get an agreement at a later time. What that looks like doesn’t necessarily have to be in accordance with the proposed estate plan. It’s not necessarily an imposition of that plan. The plan can be varied or amended pursuant to the comments and views of the beneficiaries and once an agreement is ultimately reached, it’s papered in a document that’s called The Family Constitution. And Allan, maybe you can expand a bit on that.

Allan Socken: Sure. Basically, you probably remember from law school, Natalia, that we always talk about the constitution as being a living tree.

Natalia Angelini: That’s right. Way back when I do remember.

Allan Socken: Well not surprisingly, The Family Constitution is also a living document that requires amendments from time to time. Because as people move on and age in years, no doubt their estate plan changes and when their estate plan changes, it’s really important that The Family Constitution is also updated. And I think as a preamble to The Family Constitution, it’s important to note that while family members may have different views and opinions, they unanimously - hopefully that’s the goal at the end of the day - that they unanimously decide to create this Family Constitution. And I mean, in certain circumstances, there may be family members who don’t want to agree to The Family Constitution or some people may not even want to have the meeting in the first place. So I think the role of the mediator shouldn’t necessarily be to prevent the family conference from going ahead, but perhaps to engage the people who are willing and interested at first to participate in the conference and hopefully, if success can be achieved there, people who didn’t want to participate in the first place may be inclined to give it another look and perhaps be willing to review the constitution that was agreed to. And even in certain circumstances, they may be willing to sign the agreement, albeit they may expect some changes to be made. But at the end of the day, some progress can happen even if not everyone in the family conference is willing at first to participate. And I think that’s important to keep in mind.

Natalia Angelini: Right, and one benefit to proceeding even if you don’t have everyone’s consensus is that the process can be of real value because it shows a testator’s clear intention as to how he or she wishes to divide his or her assets, which can really deflate any kind of brewing Will challenge at the end of the day. So litigation avoidance is one real positive potential outcome of the conference. And if you actually do get a Family Constitution signed, then it’s a great thing to have because it includes an agreement not to contest the Will. So that’s a great way to avoid litigation or ultimately if litigation is commenced, to use that document in defence of that.

Allan Socken: And just one final point for me to make Natalia, if that’s okay, is probably the most complicated aspect of this family conference is really the need for full disclosure. And for a lot of people, that’s really a difficult thing to do because there may be situations that people are embarrassed to admit or really don’t want to disclose.  For example, extra-marital affairs, not dividing your estate equally among your children.  But at the end of the day, if you want success to be reached with the family conference and you don’t want your Will to be contested or other legal remedies pursued when you die, I really think it’s important that you make mention of these difficult aspects so people can appreciate and they don’t feel as though you’re hiding anything. So while it’s difficult to disclose this information, I really think it’s important to get across that at the end, if you hide it, it will really do more harm than good at the end of the day.

Natalia Angelini: That’s right. I mean the fact is this is a delicate process and it’s not one that I think most people are willing to enter into because I think a lot of us would rather not deal with these delicate and difficult issues during our lifetime and we’ll just wait for everyone else to kind of deal with it after we’ve passed on. So I think people need to have, I think in a lot of cases, it helps to sort of have the courage to go ahead with the process and be open and ultimately, in an ideal scenario, get agreement on the issues or at least, you know, canvass them in an open and honest way.

So well, I think that brings us to the end of this week’s discussion.  Thanks for listening and thanks for joining me today, Allan.

Allan Socken: Thanks Natalia, I had a great time.

Natalia Angelini: That’s great. And we look forward to hearing from our listeners. You can send us an email at hull.lawyers@gmail.com or just pick up the phone and leave us a message on our comment line at 206-350-6636. And again, you can also visit our blogs at estatelaw.hullandhull.com, where you’ll even find more information and discussion on today’s practice of estate law. We hope you enjoyed the show. I’m Natalia.

Allan Socken: And I’m Allan.

Natalia Angelini: And until next time, so long.

This has been Hull on Estates with the lawyers of Hull & Hull.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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As we all know, it is not uncommon for any investor to occasionally experience a substantial decrease in the value of one of the stocks in his or her portfolio.  But what if the investor is a trustee?   

In light of the recent amendments to the Trustee Act which appear to embrace the modern portfolio theory, it will be interesting to see how the Court will utilize this theory to assess a trustee's investment performance. Section 28 of the Trustee Act adopts an approach that is consistent with the modern portfolio theory.  Under this section, a trustee is insulated from liability if “the conduct of the trustee, which led to the loss from the trust, conformed to a plan or strategy, for the investment of the trust property, comprising reasonable assessments of risk and return that a prudent investor could adopt under comparable circumstances”.

Under the “statutory legal list” approach, which I described yesterday, a trustee was limited to investing trust assets in authorized investments.   However, with the development of the prudent investor rule, trustees are provided with a broader range of investment choices, which will likely increase their responsibility in determining an acceptable standard of care.

Presuming that a trustee is found liable for breaching the standard of care, section 29 of the Trustee Act permits a court to assess “the overall performance of the investments” when it is assessing damages.  Based on the language of section 29, it appears that a trustee may be allowed to offset the loss of a bad investment against the gain of a good investment.

The trusts and estates bar will be watching with interest to see how the judicial consideration of the prudent investor rule evolves.

Happy Super Bowl Weekend!  Go Patriots!

Rick

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A common area of complaint stems from an allegation that the executor or trustee was negligent in his or her efforts to administer the assets of an estate or trust. For a comprehensive discussion of the personal liability of trustees, see Maurice C. Cullity, Q.C., "Personal Liability of Trustees and Rights of Indemnification", (1996) 16 E.T.J. 115.

Generally speaking, most claims or objections to accounts arise out of what is perceived by beneficiaries to be negligence or failure on the part of the executor or trustee to maintain a proper standard of care and skill in his or her office. The most common complaints arise out of the following situations:

• investments by the executor or trustee which are not authorized by the will or by the law;
• the failure to provide a proper mix of investments so as to balance competing interests, such as life interests as opposed to remainder interests;
• the negligent or improper investment by the executor or trustee in investments of a speculative nature;
• an executor or trustee can be held liable for not maintaining the value of assets, such as a residence, by effecting proper repairs and would be liable for such neglect;
• executors or trustees must be extremely careful to make sure that all proper considerations are taken into account in making elections under the Income Tax Act, so as to avoid any criticism by the beneficiaries;
• care must be taken by an executor or trustee to ensure that prompt filings of returns are made and that penalties and interest payable on late filings are not incurred; and
• while trustees are seldom culpable for what are perceived by beneficiaries to be unnecessary delays, care must be taken to ensure that damages are not in fact incurred by the beneficiaries by reason of delays caused by inattention.
  

Surcharging of Accounts

A "surcharge" alleges an omission for which there ought to be credit in the accounts. The most frequent surcharges relate to undervaluation of assets, assets not accounted for, non-disclosure of an asset and, in some cases, the incorrect recording of an entry.

Falsification of Accounts

A "falsification" alleges an item on the debit side of the accounts to be either wholly false or, in some part, erroneous. A claim against the estate which does not exist or is not realistic, or a payment by the estate of an account which is excessive, and in some cases, the incorrect recording of an entry, are all examples.

While the above does not purport to be an exhaustive list of the areas of negligence, we hope it serves as a useful starting point nonetheless.

All the best, Suzana and Ian. --------