Should Professional Trustees be Held to a Higher Standard?

In view of the complexity and time that may be required to administer an estate or act as trustee of a trust, it sometimes makes good sense to appoint a professional trustee to act as executor of a will or as a trustee in a trust (for simplicity I will refer to executors, administrators of estates and trustees of trusts as “trustees” although there are some technical differences in their roles). Trust companies are in the business of acting as trustees, have systems in place for doing so, employ experienced personnel, and hold themselves out as experts. They of course charge for their work. Some lawyers and other professionals also act as trustees as part of their business.

British Columbia law currently does not make a distinction between the standard of care owed by a family member acting as a trustee, perhaps acting gratuitously, and that of a trust company, perhaps charging over a hundred thousand dollars for its services, to the beneficiaries of the trust if it is alleged that the trustee has been negligent in the trustee’s handling of the trust assets resulting in a loss.

As I wrote in  previous post, the Supreme Court of Canada said in Fales v. CanadaPermanent Trust Co., [1977] 2 S.C.R. 302, that “[t]raditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd v. Whiteley[2], at p. 733;Underhill's Law of Trusts and Trustees, 12th ed., art. 49; Restatement of the Law on Trusts, 2nd ed., para. 174) and traditionally the standard has applied equally to professional [sic] and non-profes­sional trustees.”

It should be noted that section 96 of the Trustee Act does allow the court to relieve a trustee from personal liability for a breach of trust if the trustee “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach,” and as happened in Fales, the court may use this provision to relieve a family member or other trustee who is not a professional trustee from liability while holding the professional trustee responsible to pay for any breach of the duty of care. In Fales, the Supreme Court of Canada relieved the will-maker’s widow from liability, while holding the professional co-trustee liable for loss occurring as a result of the trustees failing to sell the shares of a company within a reasonable time.

But the effect of section 96, while allowing the court to relieve a non-professional cotrustee of liability, does not raise the standard of the professional trustee to any higher level than the "man of ordinary prudence."

The will-maker, or settlor of a trust, appointing both a family member and a professional trustee to act as co-trustees can also relax the standard of care for a non-professional trustee in a will or trust, while holding the professional trustee to the standard of “a man of ordinary prudence,” but I suspect this is rarely done.

One of the recommendations the Uniform Law Conference of Canada, in its Uniform Trustee Act which may form the basis of new legislation in British Columbia to replace the current Trustee Act, is to hold professional trustees to a higher standard of care.

Section 26 of the Uniform Trustee Act says:

Duty of care

26 (1) In the administration of a trust, a trustee must act in good faith and in accordance with the following:

 (a) the terms of the trust;
 (b) the best interests of the objects of the trust;
 (c) this Act.

(2) Subject to section 31, in the performance of a duty or the exercise of a power, whether the duty or power arises by operation of law or the trust instrument, a trustee must exercise the care, diligence and skill that a person of ordinary prudence would exercise in dealing with the property of another person.

(3) Despite subsection (2) but subject to section 31, if, because of a trustee’s profession, occupation or business, the trustee possesses or ought to possess a particular degree of care, diligence and skill that is relevant to the administration of the trust and is greater than that which a person of ordinary prudence would exercise in dealing with the property of another person, the trustee must exercise that greater degree of care, diligence and skill in the administration of the trust.

The commentary to section 26(3) is as follows:

Subsection (3) constitutes a change from the present law, which applies the same standard of care to all trustees, regardless of the degree of skill or knowledge they have or profess to have. Professional trustees managing trusts for a fee are common today. Professional trustees hold themselves out to the public as having particular skills to carry out estate and trust administration for remuneration. Subsection (3) requires these trustees, subject to the provision of this Act respecting the standard of care regarding the investment of trust property, to be held to a standard of care corresponding to the degree of knowledge or skills they bring, or ought to bring, to the task of trusteeship. The same criterion applies to trustees of commercial and business trusts. The duty to exercise special skills and knowledge under subsection (3) applies to trustees who have or should have them, regardless of whether they hold themselves out to the public as having them.

Similarly, with respect to the standard of care of a trustee in making investments, section 31 of the Uniform Trustee Act provides:

Standard of care

31 (1) In investing trust property, a trustee must exercise the care, diligence and skill that a prudent investor would exercise in making investments.

(2) Despite subsection (1), if, because of a trustee’s profession, occupation or business, the trustee possesses or ought to possess a particular degree of care, diligence and skill that is relevant to the investment of trust property and is greater than that which a prudent investor would exercise in making investments, the trustee must exercise that greater degree of care, diligence and skill in investing trust property.