This week on Hull on Estates, David Smith and Natalia Angelini talk about the duties an estate trustee he or she is charged with from the moment of a testator's passing. Duties include locating the will, making funeral arrangements and being responsible to see the intentions of the testator preserved.

Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.

Dealing with Estate Issues That Arise Immediately Upon Death - Hull on Estates Podcast #135

Posted on November 4^th, 2008 by Hull & Hull LLP

Natalia Angelini: Hello and welcome to Hull on Estates. You’re listening to Episode #135 on Tuesday, November 4^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.

David Smith: Hi and welcome to another episode of Hull on Estates. I’m David Smith.

Natalia Angelini: And I’m Natalia Angelini.

David Smith: If you want to be heard on Hull on Estates, you can participate by leaving us a comment. E-mail us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com. Hello, Natalia.

Natalia Angelini: Hi David. How are you?

David Smith: You know I’m okay. I’ve got a bit of a cold so my voice is about an octave lower than usual, but we’ll do our best today. So today, Natalia, we thought we were going to talk about the issue of what duties an estate trustee is charged with from the minute the deceased passes away.

Natalia Angelini: Right. It’s a really interesting topic because it’s a time when I think the estate trustee has to act fairly quickly to do a number of things, and I think the first of those is locating a Will.

David Smith: That’s right and I suppose at the outset too, we should give a little plug to Paul Trudelle of our office who has given a paper.  And there’s a webcast available on the website dealing with this issue as well. We’re, in our podcast, going to try and explore in a little more detail some of the issues that Paul touched on in his discussion.  So we commend that webcast to you. So I guess, what’s the first issue that usually arises for the estate trustee?

Natalia Angelini: I think the first can definitely be finding the Will of the deceased, because the first thing the estate trustee wants to ascertain is what the deceased’s testamentary wishes were.  And so that’s definitely an important thing to look for.

David Smith: That’s right and of course, you know everybody keeps their stuff somewhere different. In some cases, it’s a safety deposit box. In other cases, it’s a filing cabinet, under the mattress. It will depend on the person.  So if the executor is charged with the responsibility to look for the Will, they’re going to look in the obvious locations, and hopefully be able to find the Will.  And of course, the lawyer plays a role, because if the lawyer is known, he or she might have a copy of the Will.

Natalia Angelini: Right, exactly, so it’s a good idea to make inquiries with the lawyer of the deceased if you know who that lawyer is, or perhaps looking through the deceased’s personal papers, you can determine who the lawyer is and contact him or her that way.

David Smith: Right and you know, if you get into a situation where there’s just no luck finding a Will, you can advertise in the Ontario Reports.  That happens on occasion, we all see lawyers do that on the odd occasion.

Natalia Angelini: Right.

David Smith: When someone says, yeah, I knew so and so had a Will but I didn’t know who drew it.

Natalia Angelini:  Um hm. So I think aside from finding the Will, and probably one of the next things that the estate trustee is going to definitely be thinking about is making funeral arrangements.

David Smith: That’s right. And in the cases of an unexpected death, obviously that’s going to probably be a situation where the executor’s got to take some action of their own accord. Of course, with older people and people who are contemplating their own death through illness or what-have-you, or some other really sad situation, we’re seeing more and more that people will prepay their funeral or have them organized ahead of time.  But in most instances, the estate trustee is going to have to deal with this, you know, obviously rather unpleasant task, and certainly it’s the foremost concern.

Natalia Angelini: Absolutely.  And with respect to payment of the funeral, I think it’s helpful to note that those costs are of priority payment and come out of the assets of the estate.  So if it’s not prepaid then at least the estate trustee hopefully has assets available to make that payment.

David Smith: Well that’s right and it’s probably worth just making the point at this stage too, that the government provides a death benefit of $2,500.  And really that’s there primarily to fund the cost of the funeral or to contribute towards the cost of the funeral.

Natalia Angelini: Right, that’s a good point. In dealing with the funeral, I think this is a real interesting one, especially if you’ve maybe got a dispute between family members as to how it should happen, and potentially that may even differ with what the deceased has set out in his or her Will, and you’ve got a really interesting situation about how this deceased person is going to be put to rest.

David Smith: Well you’re right Natalia and we’ve seen situations where it’s potentially very emotionally volatile. You can have a situation where you have religion sometimes clash with the intentions of the testator. There’s one case where, the name escapes me, but Rick Bickhram of our office recently, I think a couple of weeks ago, blogged on a case where a deceased person named her boyfriend as executor. He was charged with acting as executor and intended to cremate her remains. The family, for religious reasons, opposed that and this matter ultimately went to Court and the Court decided that it was in the authority of the executor to make that decision.

Natalia Angelini: Right, and during Paul’s talk, he went through a few cases dealing with this issue and it seems to be that the consensus of the Court is that the duty of an estate trustee includes that duty to dispose of the body and that the estate trustee really has final say.

David Smith: Right, and you know that really seems to be a very settled law. Unfortunately, I think you’re still going to see cases go to litigation on this in the odd instance, not because the outcome is ever really going to be in question because the law seems so settled that the estate trustee can do what he or she wants.  But I suppose if I’m a bit cynical, for settlement purposes, someone might start that litigation in the hopes of arriving at some kind of compromise. So you know, certainly that’s an issue which regrettably can result in litigation on the odd situation.   But, you know, we keep repeating the same refrain which is that the executor has that responsibility.  And it’s worth also mentioning I think, Natalia, that you can say whatever you want in your Will about how you would like your remains to be disposed of; the reality is that the executor does not have to follow those, does he or she?

Natalia Angelini: Absolutely.  He or she does not, but interestingly though, his or her duty is to dispose of the body in a manner suitable with the estate of the deceased.  So even though the estate trustee may seem to be able to do whatever he or she wants, there’s definitely going to be criticism of a trustee who just, you know, goes ahead and, for instance, has an elaborate $50,000 funeral where the deceased has a fairly modest estate.

David Smith: Right. I think generally it’s expected that the funeral will be commensurate with the size of the estate, so I think that’s a really good point.  And also, there’s just a moral duty, I think, in this situation, where you’d expect the executor to do what the testator wanted.

Natalia Angelini: Right.

David Smith: It’s probably worth doing a little segway here, while we’re on this topic. I mean, this has to do now with the issue of donation of body parts.  And, of course, there’s legislation in Ontario that deals with that, right Natalia?

Natalia Angelini: There is. It’s the Trillium Gift of Life Network Act and it’s an interesting piece of legislation that allows a person to consent to the donation of their own body, or body parts, upon death.

David Smith: That’s right. So we’ve all sort of seen the situation where the consent card is kept quite often with someone’s driver’s license and this is an important priority.  And, of course, it plays an important role in given the success of transplant surgeries and what have you, that this is obviously an important legislative prerogative that this kind of intention can be preserved, even if it’s not contained in the Will.

Natalia Angelini: Right. And a spouse or other family members can also give their consent, even if the deceased hasn’t done so during his or her lifetime. So the difference here, I think, with the ability to dispose of the body, is that the family members seem to get priority over the wishes of the estate trustee.

David Smith: Right and it’s obviously a specific situation but it’s important to know because it’s the one significant departure from the common law rule that the executor’s decisions are paramount. 

Natalia Angelini: And frankly, it makes sense to me anyway.

David Smith: Oh, absolutely. I don’t see how we can quarrel with that. So you know, harking back to our topic for the day which is the executor’s duties, again it all boils down to fiduciary duty, doesn’t it Natalia? I mean really the executor’s got to make sure that he or she does what is necessary to see the intentions of the testator preserved.

Natalia Angelini: That’s right and I think it’s important to note particularly with this issue of disposing of the body, the estate trustee has to do so in a dignified way.  And so I think that’s in keeping with fulfilling his or her fiduciary duty. 

David Smith: Good point. Okay, so I guess we should move on to a couple of more issues, just given our limited amount of time that’s left.  And we were going to touch on children and pets, in that order. So let’s talk about children briefly speaking. It’s possible in your Will, isn’t it, to speak to guardianship?

Natalia Angelini: That’s right. Under the Children’s Law Reform Act, you can appoint someone to have custody of your child upon your death, and I think sometimes people do this, and they put this provision in their Will and I’m not sure that they’re always aware that this has some limited value.

David Smith: That’s right. The appointment is valid for 90 days but, of course, it’s important to note that if anybody else is entitled to custody and is not named in the Will, that that person obviously has a right to exercise custody and it might be pointed out that an application for custody can be commenced within that 90 day period.  And so, to some extent the wishes of the guardian, with respect to their children in their Will is somewhat precatory, isn’t it, in that it’s subject to other considerations.

Natalia Angelini: That’s right, but I think it may give some assistance to the family and to the children, really, so they know I guess who they’re going to be spending time with, at least in the short-term.

David Smith: True. And I guess the important point too is, in all likelihood, the custodial parent in their Will will say that if they die, in all likelihood, they’re going to appoint the other parent as the guardian of the children. I suppose you could have a situation where there are two parents, where one parent dies and provides in his or her Will that the guardian for the children is someone other than the other parent.  And obviously in that situation, the other parent is going to have something to say about that. 

Natalia Angelini: Absolutely, I’ve seen that type of case and I think, unsurprisingly, the other parent proceeded with an application in the Family Court for custody and that issue was resolved that way.

David Smith: Now the last point is in keeping with our concern about issues arising immediately upon death, of course, lots of people have pets.  And lots of Wills provide for pets as beneficiaries.  And pets need to be fed and watered, so obviously the executor’s got to look after that.

Natalia Angelini: That’s right and like you said, that’s definitely got to happen at the get go because we don’t want pets to be neglected.  And they’re usually, especially if they’re in a Will, very near and dear to the deceased’s heart.  So it’s important to make those arrangements.

David Smith: Right. And that’s going to also require the executor to act quickly as you pointed out. So good point as well, and Paul, in his paper, talks about crops and perishables. If you’ve got a business that’s running fresh produce for instance, and the business owner dies, any other perishable products, obviously it’s important to keep the electricity on, to keep things refrigerated and all of those sort of important things that have to do with ensuring that any inventory of the estate does not go to waste, because ultimately, the executor is going to be accountable to the beneficiaries, right, for what happens.

Natalia Angelini: Exactly. And I think, I guess the one thing to remember is, it’s so important for the estate trustee, I suppose to know, as far in advance as possible, whether he or she is a trustee and what the assets of the estate are and what the circumstances are so they can do their best to act as quickly as possible.

David Smith: Absolutely. That’s the biggest part of good estate planning, isn’t it? And it makes the job so much easier. And we should point out, too, that if it’s just an insurmountable job for the executor to take on, maybe you renounce.

Natalia Angelini: Right, or get a, if the estate assets can justify it, get a trust company in place or instead.

David Smith: Especially if there’s a business there, yeah, so I think that’s an important point to leave our listeners with is, you know, if you’re named as executor, you’re not duty bound to take on the job at all costs. If it’s not a realistic possibility for you to carry on the task, consider renouncing.

Natalia Angelini: Absolutely. Good point, David. So, I think that brings us to the end of this week’s discussion. Thanks for listening and thanks for joining me today, David.

David Smith: It was a pleasure, Natalia. I really look forward to podcasting with you again soon.

Natalia Angelini: And we look forward to hearing from our listeners. You can send us an e-mail at hull.lawyers@gmail.com. Be sure to visit our blog at estatelaw.hullandhull.com. where you’ll find even more information and discussion on today’s practice of estate law. We hope that you enjoyed the show. I’m Natalia Angelini.

David Smith: I’m David Smith. Until next week, 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.

/mem

Most of us probably do not like to think about our funeral and final resting place. However, when it comes time to preparing a Will, many individuals will ask their lawyer to include burial instructions, such as a wish for cremation or to be buried in a particular cemetery. It may come as a surprise to learn that in Ontario, such instructions are not binding on the estate trustee. It is the estate trustee who has the right and obligation to bury a deceased person, even in the face of objections from family members. The authority for this comes from an English case decided over 100 years ago, Williams v. Williams (1882), 20 Ch. D. 659, where it was held that there is no property in a dead body, and so a person cannot by will dispose of their own dead body. An estate trustee, however, has the right to custody and possession of a deceased’s body until it is properly buried. 

Have a great day!

Bianca La Neve

This week on Hull on Estates, Paul Trudelle and Diane Vieira discuss compensation for work done by estate trustees and estate solicitors.

Case citation:

Rooney Estate v. Stewart Estate 2007 WL3019262 (Ont. S.C.J.), 2007 CarswellOnt 650

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 Estates blog.

Becoming an Executor After Death - Hull on Estates Podcast #115

Posted on June 17^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to Episode 115 of our podcast, on Tuesday, June 17^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.

Ian Hull: Hi, this is Ian Hull.

Suzana Popovic-Montag: And Suzana Popovic-Montag.

Ian Hull: And we are thrilled to be back on Hull on Estates. Before we get into this, we have to remind everyone that Suzana’s voice may be affected slightly today in the podcast. She has just suffered a broken wrist and has full access to everything except a fairly immobile right arm which I understand she is right-handed.  So any errors and omissions in today’s podcast are entirely related to the bad wing.

Suzana Popovic-Montag: And God knows, I’m always looking for an excuse.

Ian Hull: So, we’re excited to be on Hull on Estates. We’ve had some really interesting episodes before this one and a great one with Dave Smith last week.  But why don’t we just remind everyone to please feel free to call in on 206-350-6636.

Suzana Popovic-Montag: And you can find that number in our show notes if you didn’t catch it, along with our e-mail address which is hull.lawyers@gmail.com.  And, of course, you can feel free to visit our blog as well, at estatelaw.hullandhull.com.

Ian Hull: Well Suzana, we enjoy doing our podcasts weekly on Hull on Estates and Succession Planning, and in the past series that we’ve been working on, in that podcast venue, we’ve been focusing on estate administration issues and how to better be prepared to be an executor. Our last few podcasts have been dealing with estate accounting issues, but prior to that we had focused a lot of our attention on what are the early stage steps that we must consider or we think we must consider, and we tell our clients to consider, when they take on the heavy burden of being an executor. So I thought today would be a good opportunity to go through some of the practical early steps and I think we want to focus on the steps for a very specific period in time.

Suzana Popovic-Montag: And that period, of course, is the one just after being advised of the death.  And the first question that comes to us as a lawyer is, who is our client? Ultimately, you know, we’ve got someone who comes in to us, they’ve got a copy of a Will, and the Will appoints an executor or it doesn’t, or there is no Will.  And the question is, how do we assist the individual who is sitting across from us right from the get-go?

Ian Hull: And at that point, I always like to focus on what possible roles that individual or that group of individuals has in the process. An easy example for me is when you have a situation where you might have a surviving spouse as named executor, plus you have the family accountant and you have the family lawyer, who have been trusted advisors of the deceased.  And, of course, the surviving spouse who is typically financially significantly impacted by the Will. And in that scenario at that first meeting and that first consideration, who your client is, is very important, because that surviving widow will have separate individual, if financial interests, that need to be considered. And I think an easy example is the case of Reed vs. Reed Martin, probably ten years ago now, but where the Court essentially had set out the practice being that if you have a surviving spouse, you probably need to, as the lawyer for the estate, tell that surviving spouse about this delineation, this personal interest, and this fiduciary interest that she has.

Suzana Popovic-Montag: And I guess no one could really tell the client better, Ian, than you, having actually argued that case from what I recall.

Ian Hull: Well it was one of the few cases that I actually won, but the case stands for the proposition that a surviving spouse, when making an election or obviously a Succession Law Reform Act claim, is really essentially precluded from acting as a trustee.  And that’s sort of a stark example of how you want to initially talk about and consider who is your client.

The next issue which is maybe a bit morbid but you’ve been given the job of an executor and morbid is your life, the physical issues and the urgent physical issues that arise.

Suzana Popovic-Montag: And I guess what you’re eluding to there, Ian, is the fact that in most cases, I would say almost these days, people are actually signing organ donor cards and providing for the use of their body upon their death.  And how an executor is going to deal with that, in light of firstly, the emotional issue of dealing with the death at all; and secondly, possibly competing family abuse on whether or not those issues of the deceased should, in fact, be respected.

Ian Hull: And this whole question comes from the fundamental obligation of an executor to have “control and custody of the body”. You typically won’t have probate at that moment in time, but you will have the obligation to deal with the body. The transplant issue is a great example of a complex scenario that you’re going to probably have to consider.  And the basic issue, too is, of course, getting the funeral organized and dealing with what can be family dynamics as to cremation or burial and sometimes the Will doesn’t speak to it, and those kinds of things. So the physical issues about that are important.  And, you know, in terms of the transplant issue, of course, there’s the possibility that there is some tension as to whether or not, of course, transplant is required for some of the organs.  But there are other physical issues as well.

Suzana Popovic-Montag: One of the things that it just sort of brings to mind, Ian, is the very first case that I worked on when I came to Hull & Hull, and that was actually what we morbidly call ‘the fight over the body’.  And it was a situation where I personally, as someone who hadn’t had a lot of experience in estates, was shocked to find that the executor can determine the funeral arrangements and that he or she can trump any of the family member’s wishes in that regard. So I know that that certainly surprises people even when I advise them in the course of meetings, as well. It’s a very powerful right that an executor really does have.

Ian Hull: So one of the things that we’re going to talk about is the financial steps, and we’ve got sort of a few bullet points at the end of this podcast we want to talk about.  But one of the things that sort of stems from that is the need…a lot of financial institutions require…is the need for the death certificate. And the death certificate can play actually an unusually important role in an estate administration at this early, urgent, immediate stage. For example, if you want to create some cash flow to pay some funeral bills and so on, often banks will require presentation of a death certificate and a copy of the Will, not probate, usually, for the payment of that, and also insurance companies. If you want to get the cash flowing on the insurance company side, a death certificate can be vital. So getting the death certificate again, is important. The funeral directors are usually careful about just handing out a death certificate to just anyone. They want to make sure you have jurisdiction to receive the death certificate.

Suzana Popovic-Montag: And that really is a particularly timely issue of consideration these days when we see a lot of talk about the impetus to really know your client, so to speak. And financial institutions are looking for validation of the fact that they’re dealing with someone who is authorized to speak on behalf of the estate, as are lawyers as well.  And so just being able to demonstrate that is a really key issue.

Ian Hull: Alright, so that’s some of the immediate, there are lots of other immediate issues that come to mind.  But let’s turn, so we have enough time in this podcast to sort of fit this all in, and talk about what would be, we would consider, the immediate financial issues.

Suzana Popovic-Montag: And I guess what you’re eluding to there, Ian, is just actually right from the get-go, stepping into the home of the deceased, their prior place of residence, and dealing with the issues right off the beginning. Like cancelling, for instance, deliveries of newspapers, subscriptions of papers, suggesting that a family or friend can stay at the home just to take care of the home in the meantime, removing and securing any valuables and putting them in safekeeping.

Ian Hull: And one of the things that I will do, I would tell my executor clients to do two other immediate steps as well with the house, and that is, (1) change the locks. It makes people crazy sometimes.  Obviously in certain circumstances this is not appropriate.  But remember you are charged with, like you are charged with the care and custody of the body, you are charged with care and custody of the property, and often, in a lot of estates, the main asset is the home. So, if you don’t take the basic steps like changing the locks, I think it can be problematic. 

And the other twist is, is that I encourage my executors to grab a video camera and walk through the house with the video camera to determine the assets and the chattels, I mean, in terms of what’s in the house with more certainty. And the final subtext of that is, of course, there are lots of houses such as Waddington’s and Sotheby’s and so on, that will come in and create a comprehensive inventory of each and every item in the house, with valuations, which can cost a little bit of money sometimes, but can be a very, very useful evidentiary tool as an executor and one that is too often overlooked at this immediate, urgent stage.

Suzana Popovic-Montag: Another thing that I think is really important right from the get-go is to make sure that any property owned by the deceased is properly insured including their home, their cottage, any other properties they might own, cars, other forms of vehicles and that. It’s very important to make sure that that insurance is in place and that it continues on properly.

Ian Hull: Okay, well I think those are sort of…obviously this is, we’re dealing with a very specific point in time in an estate administration and every estate administration has its own twists and turns.  But in preparing for this podcast, we sat down and tried to highlight some of what we find are matters that end up being contentious later and therefore, are helpful to be alerted to now. So if you have the job of executor, it seems to me, don’t forget that that job starts immediately; a lot of these steps are urgently required and once you get over that hump, an administration can be done in a timely but not as stressful environment.

Suzana Popovic-Montag: Well I think that brings us to the end of this podcast, Ian. It was great being back on Hull on Estates with you. I’d like to remind our listeners to again, please feel free to give us any feedback at 206-350-6636.

Ian Hull: And, of course, we look forward to hearing from you. An easy way to get to us is hullandhull.com, our webpage and that links you in to all of our blogs and podcasts.  But feel free to e-mail us at hull.lawyers@gmail.com.

Suzana Popovic-Montag: Thanks very much, Ian.

Ian Hull: Thanks, Suzana.

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.

/mem

The court held that the Estate Trustee is responsible for:

1.         arranging for the funeral and disposition of remains;

2.         locating the will and instructing the solicitor to apply for the appropriate grant of appointment;

3.         locating all the assets of the estate, including making arrangements to secure, preserve, and dispose of such assets in accordance with the terms of the will;

4.         advertising for creditors and paying all debts of the estate including the filing of appropriate tax returns;

5.         preparing a set of accounts for the approval of the beneficiaries or the court, as is required; and

6.         distributing the estate.

The court noted that, generally, the role of the solicitor is to apply for a certificate of appointment for the trustee and to attend upon a passing of accounts. The Estate Trustee is entitled to pay these legal expenses out of the Estate.

The Estate Trustee can claim compensation for carrying out his or her duties. That compensation may also include reimbursement for professional help. However, the Estate Trustee cannot claim compensation for services provided by others whose services are charged to the estate.

Problems can arise where the solicitor performs work that falls within the Estate Trustee’s responsibilities. While this is permissible, the court will ensure that the estate is not being doubly charged. Further, the court will not normally allow a solicitor to charge solicitor’s rates for trustee work.

In the decision, the court cautions that the “solicitor should not perform trustee’s work unless instructed to do so by the trustee. If such a request is made, the solicitor should advise the trustee that he will render an account to the trustee personally for doing her work. Generally, the estate is not liable to pay this account; rather, it falls to the trustee to pay out of her compensation.”

Thanks for reading.

Paul Trudelle

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

Prior to July 1999, trustees were required to make investments pursuant to the “statutory legal list” provided for in the Trustee Act. This had the effect of holding trustees accountable for each particular investment, rather then the investment portfolio as a whole. The principle was further illuminated by the anti-netting rule, which stated that a trustee, who committed a breach of trust, was not entitled to set off a gain in one transaction against a loss in another. However, through recent amendments to the Trustee Act, the statutory legal list was repealed and replaced with the Prudent Investor Rule.

The Prudent Investor Rule reflects the modern portfolio approach to investments, the emphasis being on the prudence of the portfolio as a whole as opposed to each particular component. This theory is captured in Section 27(5) of the Trustee Act. Section 27(5) requires “a trustee to consider … the role that each investment plays within the overall trust portfolio”. Furthermore, under section 27(6) “a trustee is required to diversify the investments of the trust property. It appears that under the modern portfolio approach, a trustee would not be breaching the standard of care, should he or she invest a substantial amount of trust assets into a single security. As described above, section 27(6) requires that the trustee consider diversifying the portfolio, which is necessary if the Prudent Investor Rule is to be followed. To conclude my topic, tomorrow I will consider the liability of a trustee with respect to the investment of trust assets.

Thanks for reading,

Rick

With the recent plummet in the stock market, I believe many trustees are considering how the stock market losses have affected the trust investments and what action they should take in the circumstances. 

Section 27 of the Trustee Act addresses the standard of care for trustees when investing assets held in a trust. Section 27(1) states, “in investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments”. Section 27(2) states that “a trustee may invest trust property in any form of property in which a prudent investor might invest”.

Section 27(1) and (2) outlines the prudent investor rule. When investing trust assets, a trustee must comply with the prudent investor rule to protect himself or herself from liability.   Section 28 of the Trustee Act, emphasizes this point as it states that a Trustee will not be liable for losses arising from investments if the standard of the prudent investor is met. Nevertheless, the issue remains how does a trustee meet the “prudent investor” standard? In keeping with this theme, tomorrow I will address how a trustee’s investment performance may be assessed.

Thanks for reading, and have a great day!

Rick

The Removal of Estate Trustees - Hull on Estates Podcast #78

Posted on September 25^th, 2007 by Hull & Hull LLP

Paul Trudelle: Hi and welcome to Hull on Estates. You’re listening to Episode #78 on Tuesday, September 25^th, 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.

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.

“To say that brother and sister do not get along in this case is an understatement. There is plenty of mistrust, suspicion and bitterness to go around. The applicant blames her brother for high-handed and unilateral conduct. He claims he has acted improperly. On the other hand, [brother] blames his sister for being non-communicative and hard to get along with. He was compelled to take the steps that he did because his sister which not deal with him.”

The quote is from Hill v. McLoughlin, 2007 CanLII 1334 (Ont. S.C.). There, brother and sister were co-estate trustees and residual beneficiaries of their mother’s estate. As a result of the above-noted mistrust, sister brought an application to have brother removed as an estate trustee.

The court found that while there was friction and hostility between brother and sister which hindered the administration of the estate, it was not satisfied that brother committed a breach of trust as alleged, or was in a conflict of interest.

The court stated that where the deceased has expressly appointed trustees, a court should be loath to interfere with the testator’s expressed intention except on the clearest of evidence that there was no other course to follow. The expressed wishes of the testator should be respected and not interfered with lightly. It is only where a court determines that the welfare of the beneficiaries requires removal and replacement of trustees that the court should undertake such action. It is not any mistake or neglect of duty on the part of the trustees which would lead to their removal. It must be shown that the non-removal of the trustee will likely prevent the trust from being properly executed.

While the court did not order removal of the brother, it did not condone his actions. The court required that the brother undertake certain steps, such as provide specific information to the sister.

On the issue of costs, judge ordered that each party should bear their own costs.

It is often hard for siblings or others to get along and cooperate in the administration of an estate. Further, actions taken by trustees, out of spite or otherwise, can serve to exacerbate the mistrust that already exists. Knowing that the courts will not automatically step in and remove an estate trustee in the circumstances should encourage the parties to an estate to act reasonably and simply get the job done.

Thank you.

Paul Trudelle

An extended family can include a spouse, former spouse whether legal or common-law, children and their respective spouses (and former spouses), grandchildren and their spouses (and former spouses), siblings, nieces and nephews, extra-marital partners and other dependents, whether related to you or not. It is possible that any one of the above-noted people might bring a claim against the estate, or raise a dispute. Jealousy amongst family members and/or the anticipation or expectation that they are to or will receive all or a portion of the estate, however unwarranted, may lead to family members taking unreasonable positions with respect to claims they feel they have against the estate.

In making an estate plan then, it is critical to have any and all agreements that may affect your estate plan prepared before you die. These agreements could include separation, marriage, co-habitation, partnership, employment and shareholders agreements depending on the nature and make up of your estate.

While the secrets one has from a family may be extremely touchy, emotional or just difficult to disclose or deal with, their disclosure following death may lead to demands against the estate. An extra-marital relationship, an illness of whatever kind not known to the family, a relationship with a caregiver or promises made to caregivers regarding their compensation can be examples of such secrets. For instance, a friend or family member may be assisting with one’s errands or day to day care. If promises are made to the family friend or relative that they will be “looked after” upon one’s death, then they may make a claim against your estate following your death if their relationship with you and/or compensation is not clearly known.

Another example might be where the major assets in the estate are real estate. The beneficiaries of those assets might well get into an unnecessary argument over the handling of such assets if there is not enough cash to pay for the liabilities (i.e. taxes, expenses) that might arise upon death. This circumstance could be avoided with the purchase of sufficient life insurance to cover these liabilities upon death.

Your choice of a personal representative for your estate should also be given serious consideration. The beneficiaries of your estate will no doubt be critical of the executor and trustee appointed under your Will if the executor and trustee are perceived to be biased to certain family members.

The causes of estate litigation discussed in yesterday’s and today’s blogs are not an exhaustive list. The causes discussed are not in and of themselves a legal basis to make a claim against the estate. Having said that, if one does not have a well planned estate plan, the causes discussed can often lead to family members or others who believe that they deserve or are entitled to a portion of the estate to look for a basis upon which to challenge your Will or bring a claim against the estate for dependent’s relief under the Family Law Act, breach of contract or perhaps constructive trust.

Have a great day.

Craig.

Being a director of a corporation may require an entirely different skill set than a trustee, and may require specialized expertise that the trustee may not have. Since often a trustee becomes a director only as an afterthought, it may well be that the testator has not thought through the fact that the same person will need to fulfil both roles. If the executor also happens to be a shareholder of the corporation and keeps the estate assets invested in the corporation, there may be an obvious avenue for argument by the beneficiaries that the director used the estate assets improperly to enrich his interest in the corporation.

One way to avoid this conflict would be simply to choose not to accept the role of an executor and trustee at all. In addition to the common law fiduciary duties applicable to directors there are numerous liabilities imposed on them by statute in the corporate, labour, environmental and taxation areas. This is another reason to potentially refuse to accept a role as trustee if it were victate also accepting a role as a director. The following factors, among others, can lead to inherent conflicts of interest faced by a trustee director:

1. Risk - successful corporations, in order to be successful, need to take significant risks, but any executor who takes substantial risks with trust assets is exposing him or herself to complaints by the beneficiaries and potential personal liability.

2. Income/Capital - a corporation will often reinvest income or profit over time in order to ultimately benefit the corporation, but in most estate situations there is an income beneficiary who will take all the income from the trust. The need to pay out income and the fact that an income beneficiary will likely immediately complain if the income stops, can mitigate the corporate objective of ensuring there are sufficient assets in the corporation to grow the corporation over time.

3. Time Lines - corporations are theoretically immortal as long as the corporation is successful. Trusts for the most part have a defined end point, usually the end of life of a specific person. Investing in a corporation over an extremely long term may make perfect corporate sense, but for a trust there may well be different timing considerations in play.

During the testator's life his or her assets will have been invested as the testator saw fit, for instance in risky but high return ventures. That entrepreneurial approach tends to be inconsistent with estate and trust principles, where somewhat conservative investment principles tend to be more suitable. For example, diversification is so important in trust administration that it has been enshrined in section 27 of Ontario's Trustee Act, but diversifying may have been the last thing on the testator's mind during his or her lifetime. Some of the fundamental duties of executors and trustees are:

1. the executor must obey the provisions of the Will; 2. the trustee must act impartially between beneficiaries; and 3. the trustee must exercise ordinary care and prudence.

(a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

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.
  

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. --------