The Removal of Estate Trustees - Hull on Estates #78
Listen to "The Removal of Estate Trustees"
In this episode, Craig Vander Zee and Paul Trudelle discuss various issues relating to the removal of trustees, including the considerations when negotiating the removal of trustees and their replacement. They discuss Craig's recent presentation at an Ontario Bar Association continuing legal education program.
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Transcription
The Removal of Estate Trustees - Hull on Estates Podcast #78
Posted on September 25th, 2007 by Hull & Hull LLP
Paul Trudelle: Hi and welcome to Hull on Estates. You’re listening to Episode #78 on Tuesday, September 25th, 2007.
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.
Paul Trudelle: Hi Craig, how are you today?
Craig Vander Zee: Good, good Paul, thanks very much. How are you today?
Paul Trudelle: Very good. So we’re well into the end of September now and school is underway and we’re back at work, working hard. How are you settling in?
Craig Vander Zee: Good, I don’t think it’s so much of a question as me settling in, but the kids settling in. I think when we last did our podcast, the kids weren’t back in school. So we’ve had our parent-teacher curriculum night and everything seems to be okay. So…
Paul Trudelle: Very good, very good. So things are working out. And you’ve been working hard as well. I understand that you gave a talk yesterday to the OBA on the removal and changing estate trustees, is that correct?
Craig Vander Zee: Yes, actually it was a full day program run by the Ontario Bar Association Continuing Legal Education Program, which was specifically focused on the topic of Trusts, Trustees and Trusteeships. And I spoke on changing trustees.
Paul Trudelle: So you’re paper, I had a chance to look at that and it’s excellent and I highly recommend it. It talks about the voluntary and involuntary changes to trustees, negotiating the removal and the replacement. So I thought we’d spend some time today talking about that if we could.
Craig Vander Zee: Sure Paul.
Paul Trudelle: So in your paper, you talk about the specific mechanisms for actually removing an estate trustee, either voluntarily or involuntarily. And you talk about the sections of the Act that apply. Rather than get into the details of that today, I thought we would spend some time looking at the second part of your paper, which focuses on considerations to be taken into account when negotiating the removal of estate trustees.
Craig Vander Zee: And I think that that’s something which is certainly interesting to address because many times, if a trustee is wanting to retire or resign or perhaps the beneficiaries or co-trustees want to remove and replace that trustee for whatever reason, justified for conduct on the part of the outgoing trustee or not, thought is given to the actual mechanics of the actual removal and replacement. But not so much the other considerations that go into it. And I think that that’s a good place to start here today, Paul.
Paul Trudelle: Right. So if I do want to resign as an estate trustee, it’s just not enough for me to say I no longer want the job and I’m out. There’s much more to it than that and your paper addresses that and maybe we will another time. But with respect to considerations to be taken into account, what are some of the first things we should think about when talking to a client about removing an estate trustee or appointing a new estate trustee?
Craig Vander Zee: Well, first of all, you certainly have to have a copy of the trust instrument, whether that is a trust document itself or whether it’s a testamentary trust that’s set up by way of a Will. You need to have a copy of the trust document to know what the powers are, because it will be the terms and provisions of the trust instrument that at first instance prevail. It’s only if the trust document doesn’t deal with something or doesn’t deal with something completely that you’re looking at other ways of removing a trustee or replacing a trustee and dealing with these other considerations. So that’s first and foremost: you need to have a copy of the trust instrument.
Paul Trudelle: And my understanding is if you’re looking at a specific trust, they often have provisions for the removal or replacement of trustees built in there and that would be the place to start. That would override the provisions of the Trustee Act, I understand.
Craig Vander Zee: That’s right. I mean, the Trustee Act is, in this regard, in addition to, beyond and above if you will, the terms of the trust. If the terms of the trust are absent of a certain issue, or don’t deal with a certain issue, then of course you look to the Act and you see how the removal is to take place.
Paul Trudelle: Yes, and in many cases when you’re dealing with a Will, my understanding or experience has been that that doesn’t specifically deal with the removal or replacement of trustees. It appoints a trustee, often it doesn’t go into the level of detail that’s required in order to deal with the replacement.
Craig Vander Zee: No, that’s right. I mean, sometimes it’s the reverse. You have a trustee who may the sole trustee or the last surviving trustee and in their Will, they provide for the appointment of someone to become the trustee of the trust when they pass away. So in some ways, it’s the reverse of what you were saying as to how the Will will operate. So that’s a very good point, Paul.
Paul Trudelle: So if I’m looking at the trust document then, whether it’s a trust deed or a Will, that will tell me or help me to determine what process is required for the removal or replacement of the trust, is that correct? And if it doesn’t tell me what the mechanism is, then I would resort back to the Trustee Act for that.
Craig Vander Zee: Well, that’s right. And one thing you have to keep in mind with a trust document. It may in fact provide for someone other than one of the trustees to have a say or authority with respect to the appointment of another trustee. So it could very much in fact empower someone else other than a trustee to deal with the appointment. So you have to be mindful of that. And then you need to look at, once you’ve decided whether you can proceed by way of a deed, that is, without going to Court. Or whether you need to go to Court. You need to decide who’s going to be involved in the process. And if you’re going to Court under Section 5 of the Act, that’s the one that allows for additional trustees and the removal of trustees and the replacement of trustees, then you have to put the co-trustees and all the beneficiaries on notice.
Paul Trudelle: And that’s a requirement under the Rules of Civil Procedure as well.
Craig Vander Zee: That’s right. And the one caveat I’d make to that is you have to be mindful as to whether there’s minors or incapable parties. Because if there’s minors or unborn or unascertained people, then the Children’s Lawyer will need to be involved and put on notice. And of course, then if there is an incapable person over the age of 18, then the Public Guardian and Trustee is put on notice and then they have to form part of the negotiations to the extent that negotiations are necessary to be able to deal with the issue.
Paul Trudelle: Okay, so if I’ve determined what the proper process is, whether I need to go to Court or not and if I’ve put all of the people on notice or involved them in the decision-making, what is the effect of how the trust has been administered on whether I can be easily removed or get removed?
Craig Vander Zee: Well, it’s one thing to want to be removed, maybe retire. It’s another thing for a person to be forcefully removed, because the beneficiaries are discontent or the co-trustees are discontent. But that’s only really one aspect of the whole removal process. You have to be mindful of the potential liabilities and those can be different, depending on your viewpoint. Your viewpoint being who you might be representing in this whole situation. If you’re the outgoing trustee, you would like to make sure that there is no residual liability that’s going to follow you around if you’re simply discharged. That is, there’s been no passing of accounts. A passing of accounts enables someone to provide their accounts to the other parties such that they can be reviewed and then approved by the Court. Once that’s done, the administration of the trust has been approved by the Court. So if there is misgivings or allegations of improper conduct against the outgoing trustee, the outgoing trustee will want to make sure and have that proper protection of a Court Order received by way of a passing of accounts. If you’re the beneficiaries, you may want to have the passing of accounts for a number of reasons, but perhaps as simple as the fact that you don’t know what went on in the administration and before you can criticize the outgoing trustee, you have to know what the administration was all about. The co-trustees would also want to have that same sign-off on liability and an incoming trustee also wants to deal with the issue of liability because they don’t want potential liability from former acts, conduct in the administration to be visited on them, simply because a passing of accounts wasn’t done. So from a liability standpoint, everyone has concerns. One way of dealing with that as I’ve mentioned is a passing of accounts and either having the accounts prepared informally or formally and agreed to by the parties, or physically having an application to pass accounts before the Court as a part of this process.
Paul Trudelle: Can I also deal with the potential liability if I’m a trustee being removed by way of a release or an indemnity from the trust, the beneficiaries of that trust, if I’m outgoing if there is no serious issue with respect to what I’ve been doing as a trustee. Is that one way of dealing with that problem?
Craig Vander Zee: It is, and I think that when you’re looking at residual liability or potential liability for the past administration of the trust, you really want to look at a number of different factors. One is, has there been a breach of a duty? The outgoing trustee unto himself may know or not whether that’s actually occurred. And certainly in speaking to a lawyer that can be confirmed as to their conduct. But then you also look to Section 35 of the Act which relieves trustees of technical breaches and it may very well be that if the trustees acted honestly and diligently and in good faith, that even if it were to go to Court, a Court would agree that that kind of breach can be relieved. And then just touching upon exculpatory clauses. There may be clauses within the trust itself that actually relieve or are intended to relieve the trustee of liability. And the trustee may be aware of those and may be comforted by those, but a trustee has to be cautious in relying on those provisions because, depending on their wording, they may not be enforceable in Canada. And if they allow for a complete exoneration of any kind of conduct on the part of the trustee, then the better view of the law as it stands in Canada is that they’re not going to be valid.
So before you get to a release, there’s those factors which you might take into consideration and then you look towards a release and knowing whether there’s been any misconduct, knowing what the assets are of the estate, knowing that the accounting has been provided to the beneficiaries and at least been approved on in a formal sense, then there might be comfort in having a release rather than a passing of accounts.
Paul Trudelle: So again, the type of protection that I want, be it a passing of accounts or a release for indemnity would depend to a large extent on how the administration of the estate has proceeded, whether my removal is a friendly one, whether it’s going to be on consent or whether I’m being removed for a specific reason or a specific fault on my part, I would guess would be a fair way of putting it.
Craig Vander Zee: That’s right and another factor that you would want to give some consideration to is whether there’s an indemnification being provided to the outgoing trustee that is, and perhaps an incoming trustee as well. There could be liabilities of the trust that are attached to the trust property which are proper liabilities, they just arose in the course of administering the trust and there could be environmental issues with respect to a property that the trustees had no participation in and their conduct was in no way the cause of such kinds of potential liability. And in that situation, the trust may speak to the indemnification of trustees, whether outgoing or incoming, from the trust property. It may very well be that an indemnification could be provided by the beneficiaries. And it could be the case that third parties might provide an indemnification. It could very well be that a trustee in respect of a trust property has contracted with a third party to do something. And the outgoing trustee doesn’t want to bring the responsibilities of that contract as against them personally and in order to do that, they may go to the third party and ask that a new contract be entered into with the new authority for the trust. Or that they be indemnified in respect of the contract. So there’s a bunch of different factors which could be taken into consideration there.
Paul Trudelle: And a number of those factors or considerations would apply to the incoming trustee as well, I presume. If I’m an incoming trustee, I may want a passing of accounts so I know what the assets of the trust are, when I take on the position. I would want to know or have determined what the liability of the prior executors is. We didn’t talk about compensation yet but that’s another substantial issue I, as an incoming trustee, would first of all (a) want to know what the compensation entitlement of the outgoing trustee is and also perhaps nail down what my compensation agreement is with respect to the administration of the estate.
Craig Vander Zee: Well, that’s right. And the incoming trustee will want to protect himself or herself as against again past conduct of trustees and in respect of how that conduct may relate to liabilities on the trust. If you’re a corporate trustee, an outgoing corporate trustee, it would be my strong expectation that they will simply just go ahead and pass their accounts so that they know that the administration has been put before the Court regardless of whether the beneficiaries are prepared to provide releases. It may also be that if the incoming trustee is a corporate trustee, they will require that a passing of accounts be done so that they know, as you’ve mentioned, the starting line for their administration, that they have a clean slate, they know what the numbers are going forward. And it’s at that time too the incoming trustee can negotiate compensation. It may very well be that the compensation is not fixed in the trust document and in that particular situation, the incoming trustee may look at all the factors and weigh them and negotiate the compensation going forward. And in fact, may have that compensation agreement attached to the Court Order removing and replacing the respective trustees.
Paul Trudelle: So there’s a lot of reasons, I guess, that brings us back to the Court Order removing the trustee and the passing of accounts. You want that security of having the Order, although it may not be necessary in all cases. Perhaps in our next podcast, we’ll talk about the specific mechanisms for the removal or replacement and to also talk about some of the steps that may be taken in order to ensure that some of the protections are put in place that we talked about today.
Craig Vander Zee: I think that’s a good idea, Paul.
Paul Trudelle: Okay, thank you very much, Craig.
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.
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