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Trustees' Rights to Indemnification
Listen to Trustees' Rights to Indemnification.
This week on Hull on Estates, Suzana and Ian celebrate the 100th episode of Hull on Estates with the first part of a two episode discussion on a trustee's right to indemnification.
Comments? Send us and 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.
This week on Hull on Estates, Suzana and Ian celebrate the 100th episode of Hull on Estates with the first part of a two episode discussion on a trustee's right to indemnification.
Comments? Send us and 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.
2008 Award of Excellence
Each year the Ontario Bar Association (OBA), Trusts and Estates Section, considers candidates for its Award of Excellence. Last year, the Section paid tribute to Brian Schnurr as the recipient.
The Award for Excellence was created to recognize exceptional contributions and achievements by members of the OBA to the area of trusts and estates.
Any Trusts and Estates Section member of the OBA in good standing, as well as former members of the section who have retired or been appointed to the bench, but not including current officers of the Executive of the Trusts and Estates Section or the Executive of the OBA, are eligible to be nominated.
The criteria for the award is demonstrated leadership in the trusts and estates bar through knowledge, experience, skill, commitment, passion and strength of character, plus all or some of the following:
• academic excellence through teaching at the Bar Admission Course, lecturing at a law school, participating in Continuing Legal Education and/or academic writing;
• participation in the OBA Trusts and Estates Section Executive or the Law Society of Upper Canada on wills, trusts and estate matters; and
• contribution to the development of wills, trusts and estate law.
Any member of the Trusts and Estates Section of the OBA in good standing is eligible to nominate a candidate by submission in writing, together with a curriculum vitae outlining the nominee's qualifications. The nominator must indicate that the candidate has been advised of the nomination prior to the nomination deadline and has consented thereto. The Award is typically presented at the Section’s Annual Awards dinner in late Spring.
Nominations must be filed by 4:00 p.m. on Friday, January 25, 2007 to:
Peter Guennel, Sections Coordinator
Ontario Bar Association,
20 Toronto Street,
Suite 300,
Toronto, Ontario
M5C 2B8
Fax: 416-869-1390
For more information, and/or to obtain a Nomination Form, please contact Peter Guennel at (416) 869-1047, ext 340, or email at pguennel@oba.org or by visiting on line at http://www.oba.org/en/admin/awards_en/tru_award.aspx.
Thanks for reading.
Craig
Executor Obligations - Hull on Estate and Succession Planning Podcast #92
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This week on Hull on Estate and Succession Planning, Ian and Suzana discuss what to anticipate as an executor and how to ensure that you are well prepared for your duties.
Hold the bun - The Trust of Dr.Robert Atkins
You know a trust has the potential to run off the rails when the beneficiary refers to the trustees as "The Three Musketeers".
After his untimely death in 2003, Dr. Robert Atkins' widow sold his business netting proceeds of some $420 million. In his will, the famous diet guru set up two trusts: (i) a spousal trust that would benefit his wife, holding 90% of his assets, and (ii) a research foundation which would get the remaining 10%.
Cue the sword clanging of the three musketeers: a self-described entrepreneur, an accountant, and a lawyer, who befriended Ms. Atkins and became the widow's closest advisors as well as trustees for the spousal trust (replacing the two trustees who had been appointed by Dr. Atkins). It is reported that Ms. Atkins subsequently agreed to pay each of them $1.2 million per year (excluding bonuses), signed them to 10-yr contracts, and allowed each of them to take out a $5 million life insurance policy on her life, naming themselves as beneficiaries.
Fast forward to a Wall Street Journal online report that a lawsuit had been filed by the Musketeers accusing Ms. Atkins of improperly firing them. Ms. Atkins and her new spouse asked for the trio to be removed as her trustees and further sought reimbursement of some of their fees. The relationship between the Musketeers and Ms. Atkins began to disintegrate in 2006 when Ms. Atkins met her new spouse to be, who himself then became increasingly involved in her finances. When the Musketeers balked at her new spouse's demands to encroach for an additional $100 million for Ms. Atkins (above and beyond her $15 million annual income), he started making noise about having them removed as trustees.
$420 million.
That's a lot of bread.
Have a great weekend,
David
Considerations in Changing Trustees: Structure of the Removal and/or Replacement of a Trustee
With the end of the week comes my final blog in my series this week on considerations to take into account when changing trustees.
Negotiated structures dealing with the retirement, removal and replacement of a trustee may include, or be a combination of, a deed, court order, preparation of accounts, a passing of accounts application, a release, indemnification, Judgment on the passing and Minutes of Settlement (Agreement) dealing with the resolution of the disputes arising therefrom.
A situation where a trustee wishes to retire and the administration of the trust has been simple, straightforward and has been substantially completed by the trustees to the satisfaction of all beneficiaries, who are sui juris, and there are no outstanding liabilities of the trust, will be completely different than one where beneficiaries are seeking to remove and replace a trustee for misconduct and/or in the context of a very complex administration.
The structure of the former situation might be a deed with an appropriate release (if an accounting by the trustees has been provided to the beneficiaries who, with the benefit of counsel, all consent and approve of same in writing, and the trustee’s compensation has been agreed to and taken).
The structure of the latter might include an Application to the Court to remove and replace the trustee on notice to all co-trustees and those with a financial interest. As part of the Application, an order would most likely be sought requiring that the outgoing trustee pass his accounts within a certain time period of the date of the order.
An order removing the trustee should address, amongst other things, the following: (i) the individual(s) being removed and the capacity being removed from; (ii) the appointed substitute trustee or, alternatively, confirmation that the remaining trustees will continue; (iii) the vesting of the trust property in the new trustee and/or the continuing trustees; (iv) that the outgoing trustee shall prepare formal accounts in accordance with the Rules of Civil Procedure and file those accounts and an Application to pass accounts within a certain period of the date of the order as to the date of removal; (v) the manner of compensating the new trustee; (vi) directions required, if necessary, to facilitate any of the above; and (vii) how the costs of the Application are to be dealt with.
In the end, the circumstances of each particular case will dictate which structure is most appropriate and prudent.
Have a nice weekend. Craig
Negotiated structures dealing with the retirement, removal and replacement of a trustee may include, or be a combination of, a deed, court order, preparation of accounts, a passing of accounts application, a release, indemnification, Judgment on the passing and Minutes of Settlement (Agreement) dealing with the resolution of the disputes arising therefrom.
A situation where a trustee wishes to retire and the administration of the trust has been simple, straightforward and has been substantially completed by the trustees to the satisfaction of all beneficiaries, who are sui juris, and there are no outstanding liabilities of the trust, will be completely different than one where beneficiaries are seeking to remove and replace a trustee for misconduct and/or in the context of a very complex administration.
The structure of the former situation might be a deed with an appropriate release (if an accounting by the trustees has been provided to the beneficiaries who, with the benefit of counsel, all consent and approve of same in writing, and the trustee’s compensation has been agreed to and taken).
The structure of the latter might include an Application to the Court to remove and replace the trustee on notice to all co-trustees and those with a financial interest. As part of the Application, an order would most likely be sought requiring that the outgoing trustee pass his accounts within a certain time period of the date of the order.
An order removing the trustee should address, amongst other things, the following: (i) the individual(s) being removed and the capacity being removed from; (ii) the appointed substitute trustee or, alternatively, confirmation that the remaining trustees will continue; (iii) the vesting of the trust property in the new trustee and/or the continuing trustees; (iv) that the outgoing trustee shall prepare formal accounts in accordance with the Rules of Civil Procedure and file those accounts and an Application to pass accounts within a certain period of the date of the order as to the date of removal; (v) the manner of compensating the new trustee; (vi) directions required, if necessary, to facilitate any of the above; and (vii) how the costs of the Application are to be dealt with.
In the end, the circumstances of each particular case will dictate which structure is most appropriate and prudent.
Have a nice weekend. Craig
Considerations in Changing Trustees: Liability/Accounting
Today’s blog is the third in my series this week dealing with considerations to take into account when changing trustees.
Whether a trustee or co-trustees have properly administered a trust is obviously a crucial factor in negotiating the removal and replacement of a trustee, and will effect the manner in which a new trustee may be appointed.
In considering a trustee’s potential liability in respect of his or her administration of the trust, the trustees and beneficiaries ought to consider the trustee’s conduct, whether that conduct met the standard of care required, and if not, whether the conduct is exonerated by statute or the terms of the trust.
When a trustee breaches his duty, he may be liable to the beneficiaries for any losses that occur as a result of the breach. When such a breach occurs, the Court, further to s. 35 of the Trustee Act, 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.”
Trustees, outgoing and incoming alike, ought also to carefully review the terms of the trust as the trust may contain provisions that limit the liability of the trustee.
Exculpatory clauses may limit the extent of the trustee’s personal liability to the value of the assets of the trust instrument and/or may protect the trustee by raising the level of culpability required to be found personally liable.
A trustee should be cautious, however, if he or she is relying on an exculpatory clause in a trust to exonerate him or her from liability as such clauses may be held to be invalid, especially where they are broad, or attempt to completely exonerate any and all conduct of the trustee, including liability for acts of gross negligence, intentional wrongdoing, fraud or dishonesty.
The best way, however, for an outgoing trustee (and new trustee) to limit any liability that may be visited upon him or her as a result of the administration of the trust to the date of the retirement, removal and replacement is for the outgoing trustee and his or her co-trustees, if any, to pass their accounts. Assuming the accounts are passed, not only will the new 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 outgoing trustee will have been afforded the proper protection of the Court order.
Thanks for reading. Craig
Whether a trustee or co-trustees have properly administered a trust is obviously a crucial factor in negotiating the removal and replacement of a trustee, and will effect the manner in which a new trustee may be appointed.
In considering a trustee’s potential liability in respect of his or her administration of the trust, the trustees and beneficiaries ought to consider the trustee’s conduct, whether that conduct met the standard of care required, and if not, whether the conduct is exonerated by statute or the terms of the trust.
When a trustee breaches his duty, he may be liable to the beneficiaries for any losses that occur as a result of the breach. When such a breach occurs, the Court, further to s. 35 of the Trustee Act, 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.”
Trustees, outgoing and incoming alike, ought also to carefully review the terms of the trust as the trust may contain provisions that limit the liability of the trustee.
Exculpatory clauses may limit the extent of the trustee’s personal liability to the value of the assets of the trust instrument and/or may protect the trustee by raising the level of culpability required to be found personally liable.
A trustee should be cautious, however, if he or she is relying on an exculpatory clause in a trust to exonerate him or her from liability as such clauses may be held to be invalid, especially where they are broad, or attempt to completely exonerate any and all conduct of the trustee, including liability for acts of gross negligence, intentional wrongdoing, fraud or dishonesty.
The best way, however, for an outgoing trustee (and new trustee) to limit any liability that may be visited upon him or her as a result of the administration of the trust to the date of the retirement, removal and replacement is for the outgoing trustee and his or her co-trustees, if any, to pass their accounts. Assuming the accounts are passed, not only will the new 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 outgoing trustee will have been afforded the proper protection of the Court order.
Thanks for reading. Craig
Considerations for Changing Trustees: Who Should be Involved
In yesterday’s blog regarding considerations to take into account when considering the change of a trustee of a trust, I noted that today’s blog would deal with who (or what parties) should be involved in that decision.
Whether the trustee is to be removed (and replaced) by way of deed or by way of Court order, any co-trustee and anyone having a financial interest in the trust should be notified of the change and provided with the deed (if the removal can be done by way of deed: see sections 2-6 of the Trustee Act) and any other materials that may be necessary to remove the trustee by way of deed, or served with the application materials if the removal (and replacement) is to proceed by way of Court order. As such, the make-up of these parties should be considered prior to proceeding with the change, as one or more of these parties may, amongst other things, object to or challenge the removal (and replacement) of the trustee, have claims in respect of the administration of the trust and/or dispute the trustee’s compensation.
It may be that a litigation guardian may need to be appointed for a minor(s) and/or for an incapable party. In such a case, the Office of the Children’s Lawyer or the Office of the Public Guardian and Trustee may need to be served with the application materials so that they may have the opportunity to respond or become involved, as appropriate.
Rule 9 of the Rules of Civil Procedure addresses proceedings by or against a trustee while Rule 7 regulates the bringing of proceedings by or against parties under disability. It may also be that a representation order, pursuant to Rule 10, is required as the proceeding impacts on persons who are not before the Court and who cannot be brought into the litigation because they are unborn or unascertained, or because they cannot be readily found or served.
Thanks for reading. Craig
Whether the trustee is to be removed (and replaced) by way of deed or by way of Court order, any co-trustee and anyone having a financial interest in the trust should be notified of the change and provided with the deed (if the removal can be done by way of deed: see sections 2-6 of the Trustee Act) and any other materials that may be necessary to remove the trustee by way of deed, or served with the application materials if the removal (and replacement) is to proceed by way of Court order. As such, the make-up of these parties should be considered prior to proceeding with the change, as one or more of these parties may, amongst other things, object to or challenge the removal (and replacement) of the trustee, have claims in respect of the administration of the trust and/or dispute the trustee’s compensation.
It may be that a litigation guardian may need to be appointed for a minor(s) and/or for an incapable party. In such a case, the Office of the Children’s Lawyer or the Office of the Public Guardian and Trustee may need to be served with the application materials so that they may have the opportunity to respond or become involved, as appropriate.
Rule 9 of the Rules of Civil Procedure addresses proceedings by or against a trustee while Rule 7 regulates the bringing of proceedings by or against parties under disability. It may also be that a representation order, pursuant to Rule 10, is required as the proceeding impacts on persons who are not before the Court and who cannot be brought into the litigation because they are unborn or unascertained, or because they cannot be readily found or served.
Thanks for reading. Craig
Considerations in Changing Trustees
There are a variety of reasons for the removal and replacement of a trustee, some voluntary on the part of the departing trustee, others involuntary. A trustee might decide to retire or resign from his or her position. On the other hand, a trustee may need to be changed as a result of, amongst other reasons, the trustee’s death, incapacity, bankruptcy, the conduct of the trustee or the relationship of the trustee and the beneficiaries of the trust. Depending on the circumstances, the removal and replacement of the trustee may be done by way of deed or by way of court order.
The transition of the outgoing trustee and of an incoming trustee may be critical to each trustee as well as the beneficiaries of the trust, perhaps for very different reasons. The requirement (or not) to apply to Court to change trustee(s), the satisfaction of the administration of the trust to date, the outgoing trustee’s accounts, a passing of accounts, the vesting of the trust’s assets in the new trustee and/or any co-trustees, the trustee’s compensation, who is an appropriate replacement and the provision of releases and the indemnification of the trustees involved are all considerations, amongst others, for those involved.
It is noteworthy to distinguish between the removal and replacement of a trustee and the removal and replacement of a personal representative of a deceased person’s estate because of the different ways that they are treated. A trust instrument may provide for the retirement, removal and/or replacement of a trustee. If there are specific provisions in the trust instrument for the retirement, removal and/or replacement of a trustee they will govern. To the extent the trust instrument does not govern the issue, generally, sections 2 to 8 of the Trustee Act R.S.O., 1990, c. T. 23. (the “Act”) apply to the removal and replacement of trustees, while section 37 of the Act relates to the removal and replacement of personal representatives.
The balance of this week’s blogs will focus on certain considerations to be taken into account when negotiating the retirement, removal and/or replacement of a trustee. More specifically, I will touch on considerations involving the parties who should be involved with the negotiation, liability considerations and structures of the removal and/or replacement.
Thanks for reading.
Craig
The Removal of Estate Trustees - Hull on Estates #78
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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.
Click "Continue Reading" for the transcribed version of this podcast.
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.
Click "Continue Reading" for the transcribed version of this podcast.
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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Hull on Estates Podcast #51 - The Trustee's Power to Encroach on Capital
Listen to "The Trustee's Power to Encroach on Capital"
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During Hull on Estates Episode #51, Ian Hull and Suzana Popovic-Montag discuss the circumstances surrounding a trustee's power to encroach on capital.
Ian and Suzana cover various principles which affect the power to encroach including the Armchair rule of construction, the Evenhand approach and the concept of malafides.
They also touch on various cases including the U.K. case of Gisbourne v. Gisbourne, and Fox v. Fox Estate (1994), 5 E.T.R. (2d) 174 (Ont. Ct. (Gen. Div.))
For more information on the power to encroach, see Ian's article in Estates, Trusts & Pensions Journal, "Discretion to Encroach: Do the Beneficiary's Personal Resources Matter?"
