Is Someone Named in a Lawsuit as both an Executor and Personally Separate Persons?

 It is common for a person to be named in an estate lawsuit to be named personally and as an executor or administrator. For example, in British Columbia, in a wills variation claim, it is necessary for the plaintiff to name the executor of a will as well as all the beneficiaries (and anyone else who is entitled to apply to vary the will). If the same person is both the executor and a beneficiary, their name may appear twice: once as executor and once as a beneficiary. The claim may say “Jane Smith v. John Smith as executor of the will of Mary Smith and John Smith in his personal capacity.” (Someday I need to come up with cleverer names for my examples.)

John Smith may be represented by two different law firms, so that one may look after his personal interests as a beneficiary, and the other in respect of his duties as executor. But is John Smith, the executor a different person in law than John Smith, the beneficiary?

The answer is “no, he is not.”

This is succinctly explained by Madam Justice Francis in the Court of Appeal in Rasner v. Berger, 2026 BCCA 166. Laurie Rasner, in her capacity as executor of her stepmother, Adele Hurtig’s will brought a claim asserting that Ms. Hurtig’s son, Richard Berger, held a condominium on a resulting trust for Ms. Hurtig’s estate. She was not successful, and the trial judge ordered that she personally pay costs to Mr. Berger.

Ms. Rasner wanted to appeal against the order that she personally pay costs to the Court of Appeal. Because a party does not have an automatic right to appeal a cost order, she applied for leave to appeal. Her argument was that she was not personally a party to the suit (having brought the claim as executor), and costs should only be awarded against a non-party in exceptional circumstances.

Madam Justice Francis, who heard the application for leave to appeal, did not grant leave, holding that the application did not meet the tests for leave to appeal, which she set out in paragraphs 13 and 14 as follows:

[13]         In these circumstances, the test is:

1)    whether the proposed appeal raises questions of principle that extend beyond the parameters of the particular case;

2)    whether the questions of principle are of significance to the practice; and

3)    whether the proposed grounds of appeal are arguable.

Singh v. Singh, 2025 BCCA 309 at paras. 23–25.

[14]         Given the limited scope of appellate review of cost orders, leave will generally not be granted unless a question of principle is involved: Yung v. Jade Flower Investments Ltd., 2012 BCCA 168 at paras. 18–20 (Chambers). This Court will not interfere with a trial judge’s exercise of discretion on the issue of costs “unless persuaded that the trial judge misdirected him or herself on a matter of legal principle, or that the trial judge’s decision is so clearly wrong as to amount to an injustice”: Seminoff v. Seminoff, 2007 BCCA 403 at para. 2 (Chambers).

Ms. Rasner argued that the principle involved was “whether a judge is prohibited from ordering costs against an executor in their personal capacity, absent special circumstances, on the basis that an executor is, if not named personally as a party to the litigation, a non-party.” (Paragraph 15)

Justice Francis rejected this argument on the basis that Ms. Rasner was a party, even though Ms. Rasner was named in her capacity as executor. She wrote,

[16]         With respect, I find the applicant’s statement of principle to be premised on a misunderstanding of the nature of an estate. Trusts and estates are not juridical persons capable of suing and being sued. A trust is a type of relationship, namely, the fiduciary relationship that exists between trustee and beneficiary. When a personal representative commences litigation on behalf of an estate, they are not asserting a separate legal personhood. The often-used analogy is that they are the same person, wearing a different hat. Because the executor who commences a lawsuit in their capacity as executor is not a different legal person than the executor in their personal capacity, they are not a non-party in the latter capacity.

Ghag v. Ghag

Last month, I wrote that the courts in British Columbia are reluctant to interfere with a trustees discretion when the trust instrument gives the trustee a wide discretion to make distributions to beneficiaries.  I used the case of Re Zaleschuk as an illustration of the deference courts often show to the exercise of a discretion. But,  as you will see below, there are limits to a court's deference to trustees, especially when the trustees prefer their own interest.

In Ghag v. Ghag, 2021 BCCA 106, Madam Justice Griffin set out the principles as follows:

[47]         A trustee’s exercise of wide discretion under the express terms of a trust will rarely be interfered with by a court. Nevertheless, there are grounds that may justify the court’s interference in the exercise of a trustee’s discretion. As summarized by Professor Waters, the court may interfere in the exercise of discretion by a trustee where:

a)    the decision is so unreasonable that no honest or fair‑dealing trustee could have come to that decision;

b)    the trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make; or

c)     the trustees, in having done nothing, cannot show that they gave proper consideration to whether they ought to exercise the discretion.

(Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed (Toronto: Carswell, 2012))

Sukie Ghag settled a family trust for the benefit of his wife, Charmaine, and his four children, after he was diagnosed with brain cancer. 100 Class A common shares of Abby Pharmacy Ltd. were held in the trust. He appointed his son Brendan as trustee and Charmaine as the alternate trustee. The terms of the trust included the provision:

… The Trustee shall exercise the powers and discretions given to him in what he deems to be the best interests, whether monetary or otherwise, of the Beneficiaries, whether or not such exercise may have the effect of conferring an advantage on any one or more of the Beneficiaries at the expense of the other Beneficiaries ….

 [emphasis in decision.]

Brendan Ghag took $100,000 out of the trust bank account, and he distributed 55 Class A common voting shares to himself, 15 Class A shares to each of the other children, and none to Charmaine. He also caused the company to allot 150 Class B common voting shares, ranking equally with the Class A shares, to himself.

Charmaine Ghag and the other three children brought a petition to remove him as trustee and appoint Charmaine, for an accounting, and for an order voiding the transfer and allotment of shares.

While consenting at the hearing of the petition to his removal as trustee, and to an accounting, Brendan alleged that the share transactions were in furtherance to a secret agreement he had with his father. He claimed that his father intended for him to receive control of the company in a tax-efficient way, and for his mother to receive no interest in the shares or voting rights.

In the Supreme Court, at 2021 BCSC 815, Mr. Justice Tammen heard the petition and granted the relief sought including declaring the transfer and issuance of shares void. He found that by acting in accordance with the alleged secret agreement, Brendan

took into consideration irrelevant and inappropriate considerations in exercising his discretion as trustee.  In addition, his decision to apportion the majority of the trust assets to himself and to exclude entirely one of the named beneficiaries is one that no even‑handed, fair minded trustee could have made in the exercise of his discretion.

The Court of Appeal upheld Mr. Justice Tammen’s decision. 

Re Zaleschuk

 

Discretionary trusts are often drafted broadly permitting the trustees “absolute and uncontrolled discretion.” This may be so, even when the will maker or settlor had in mind creating a benefit for one beneficiary. Courts are reluctant to interfere with the trustee’s discretion in such cases, as long as the trustee is acting reasonably and in good faith.

In a recent case, Re Zaleschuk, 2022 BCSC 943, Justice A. Ross declined to remove trustees who had refused various requests for funds made by a beneficiary’s mother on behalf of the beneficiary. After Kenneth Zaleschuk (“Kenneth Sr.”) was diagnosed with cancer in 2014, he settled a trust for his son, Kenneth Jr., a young adult who had a learning disability and was unable to live independently. Kenneth Sr. was the initial trustee, and named his sisters as his successor trustees. His sisters became the trustees following Kenneth Sr.’s death in 2015.

Kenneth Jr. lived with his mother Marina Zaleschuck. She and Kenneth Sr. and divorced and there was evidence from Kenneth Sr.’s lawyer and financial advisor that in settling the trust, Kenneth Sr. was concerned about protecting the funds from his former spouse, and making sure there were sufficient funds for his son for life.

The trustees refused several requests from Marina for funds for Kenneth Jr. including funds for a motorized scooter, glasses, massage and acupuncture treatments, a new phone, a new laptop, travel expenses for a trip to Europe and a new headboard.

A petition was filed for Kenneth Jr. to remove his aunts as trustees and replace them with his mother. Although the petition was brought in his name, the trustees alleged that the litigation was being driven by his mother who had a power of attorney for him.

The trustees had provided funds totaling about $26,000 for Kenneth Jr. including travel expenses for trips with his sister, Marie, glasses and a helmet. They provided reasons for denying Marina’s requests including that she did not follow the procedure they put in place for requests, that they considered that some expenses were for items he did not need or, in the case of the scooter, potentially dangerous, and that some of the expenses were potentially covered under his disability benefits. They were willing to step aside as trustees provided that a professional trustee was appointed, but opposed Marina becoming the trustee.

In declining to remove the trustees, Justice Ross found that they were acting properly within the scope of their discretion. Justice Ross wrote:

[80]         Despite the criticisms leveled by the petitioner, I note that:

a)    the Trustees have released Trust funds to the benefit of Kenneth Jr. for travel and other items;

b)    they have considered and rejected other expenditures on the basis that they were not in Kenneth Jr.’s best interests (e.g., the motorized scooter) or they were unsure whether the Province may be reimbursing the expense;

c)     their actions have resulted in the capital increasing by more than $200,000 since 2015.

[81]         Although complaints have been leveled regarding the decisions of the current Trustees, I accept their submission that the Trust Deed imbues them with the full discretion to decide whether to pay amounts out of the Trust. On that point I accept this overarching submission of the Trustees:

They are exercising their discretion (as provided in the provisions of the Trust Deed) to make sure that there are sufficient funds to care for Kenneth Jr. for the rest of his life. At present, Kenneth Jr. lives with his mother and his regular expenses are covered by his disability benefits paid by the Province. At some point in the future, he will not be able to rely on living with his mother. The Trustees are administering the Trust in a fashion that will best ensure that there are funds available for his care in his later years. The Trustees submit that the Trust Document provides them with the full discretion to make those decisions.

Avoidable Legal Expenses in Estate Disputes

 

Its easy for legal expenses in emotional estate disputes to get out of hand. Some are surprised when I tell them that legal expenses can be in the hundreds of thousands of dollars. Although I generally associate expenses in that range with cases that go through a full trial, even without a trial, disputes can result in disproportionate expense. In some cases much of the expense can be avoided by forthright, early communication among the parties.

My point is illustrated by a recent assessment of lawyers’ bills in Mulder Estate, 2022 BCSC 406. This dispute was between the daughter of the deceased will-maker and her two brothers. The daughter, Leondra Ponnusamy, was named as the executor, and all three were beneficiaries of their mother’s estate. Her brothers, Ronald Mulder and Robert Mulder, asked for records of their mother, Alma Mulder’s bank accounts predating her death. Their sister refused, taking the position that as executor she did not have provide records of transactions that occurred before death. They claimed that she failed to repay $20,000 in loans. The also claimed that $35,000 that their mother had given to her was a loan, which she had to repay, rather than a gift, as she claimed. They further alleged that she received another $150,000 from their mom, and that she owed that amount to the estate.

Ultimately the dispute was settled out of court, after she did provide records, including records showing that she did not receive $150,000 and that she repaid the $20,000. But by then, the parties had incurred combined legal bills of about $300,000 in a $1.3 million estate. The sister had two lawyers involved, and the brothers had one lawyer.  

Although the Registrar did reduce the bills to some extent (25% for one lawyer, 20% for another and 5% for the third), the main point is that most of this could have been avoided.

Registrar Nielsen disagreed with the position the executor took initially that she had no obligation to provide disclosure of records prior to her mother’s death. She had a fiduciary duty, or in other words a duty of loyalty, to beneficiaries, and the circumstances called for full disclosure. Had she done so at the outset, the dispute could have been resolved with far less expense.

Registrar Nielsen wrote:

[63]         During the course of her evidence, the executor stated that she did not want her brothers seeing the per-death financial records as Ron and his wife Tammy had meddled in Alma’s finances while she was alive, and Alma had confided in Leondra that she resented this. Disclosure of the records would essentially be an affront to her mother’s memory. It is difficult to equate this stance with the definition and duties of a fiduciary provided by Dr. Waters [from Waters’ Law of Trusts in Canada, 4th ed].

[64]         In my view this was a case that cried out for full financial disclosure at the outset when it was first requested. The executor was both executor and beneficiary, and she had a pre-death history of receiving both gifts and loans from the deceased. Her relationship with her brothers had been fractured before she became executor, and Alma had indicated to Ron that Leondra was having financial difficulties. Mistrust in these circumstances was inevitable. It was not, in the words of Dr. Waters, “in the interests of the estate, or the beneficiaries” to withhold the financial information in these circumstances, from two of the three beneficiaries. 

[65]         When the executor is also a beneficiary, the fiduciary duty is particularly high when there is a pre-death history of loans and gifts to the executor by the deceased. She had a duty to identify and collect any unpaid debts owed to the estate. She alone had exclusive access to the financial records. Ron and Rob had no right to access those records without her consent, or court order. Without disclosure of the pre-death financial records, they were completely in the dark with respect to any debts owed to the estate, real or imagined.

[66]         As the litigation progressed needlessly, select financial records were disclosed, as the executor saw fit, to prove the allegations of the beneficiaries to be incorrect, or “false”, as submitted by counsel for the executor. Once disproved, the allegations were eventually withdrawn, although not as quickly as the executor would have liked.  

The brothers could also have brought an application to court to get the disclosure to get the documents early on.

What I find remarkable is that, although none of the parties were challenging their own lawyer bills, it took 24 days of hearing time for the bills to reviewed. We don’t know how additional expense the parties incurred arguing about each other’s lawyer’s bills.

Registrar Nielsen noted:

[72]         Following 24 days of evidence and argument in the within proceeding on what should have been the relatively narrow topic of legal fees, with the benefit of hindsight, there is no doubt in my mind that early disclosure of the financial records, when first requested, would have nipped the lion’s share of the subsequent litigation in the bud. The savings to the estate in legal fees would have been considerable. It may have also preserved what was left of the sibling’s fractured, but civil personal relationship.

Banton v. Banton (Part 4)

This is my fourth post, on the decision in Banton v. Banton, 1998 CanLII 1496, a case involving Muna Yassin who married George Banton when she was 31 and he, 88. The dispute was between Ms. Yassin in George Banton’s five children. I described in my first post Mr. Justice Cullity’s finding that two wills Mr. Banton made leaving his estate to Ms. Yassin were invalid on the grounds that he did not have the requisite mental capacity to make the wills, and that she exercised undue influence over him. In my second post, I outlined Mr. Justice Cullity’s finding that Mr. Banton’s marriage to Ms. Yassin was nevertheless valid, which had the effect of revoking the will Mr. Banton made before the marriage in which he left the residue of his estate to his five children. Because Mr. Banton died without a valid will, Ms. Yassin was entitled to a large portion of his estate. In my third post, I discussed a trust created for him by his sons using a power of attorney he had granted to them. If the trust had been found valid, then most of Mr. Banton’s assets would have gone to his children on his death, instead of falling into his estate. But, Mr. Justice Cullity set aside the trust.

The “in the past episodes” of my post is getting a little long. So I will conclude this series in this post.

There is one more twist.

In 1992, Mr. Banton and his two sons, George Jr. and Victor Banton, signed an agreement pursuant to which the residence he owned was transferred into his sons’ names to hold in trust. The beneficiaries of the trust were George and his then wife, Lily Banton (who died before he married Ms. Yassin) during their lives, following which the residence or proceeds of sale were to be held in trust for Mr. Banton’s five children. Mr. Banton signed a transfer of the residence to his children as trustees. Mr. Banton told his sons that he did this to protect the residence. Lily was not capable of managing her affairs, and Victor and George Jr. Banton signed a consent to the transfer on her behalf as her attorneys under an enduring power of attorney. I will refer to this trust, as Mr. Justice Cullity did, as the Residence Trust.

After Mr. Banton moved into a retirement home, Victor and George Jr. Banton sold the residence, and gave the proceeds of about $200,000 to their father. It was apparent that they did not understand the significance of the Residence Trust, and considered the residence and the sale proceeds to belong to their father, despite the agreement they had all signed.

Mr. Justice Cullity found from the evidence including the clear language of the trust document that Mr. Banton intended to create a trust. He also found that the trust met the requirements that the trust assets and beneficiaries were certain.

But what about the fact that the trustees, Mr. Banton’s two sons, appear not to have understood the Residence Trust and acted inconsistently with it in transferring the sale proceeds to their father? The fact that the trustees did not understand the Residence Trust was not relevant to the questions of whether it was a valid trust. Mr. Justice Cullity wrote at paragraph 167:

[167]      The effectiveness of the agreement to create a trust of the residence, and its proceeds, does not, of course, depend upon the understanding or intention of Victor and George Jr. as the named trustees. Their failure to understand the responsibilities that the agreement purported to impose upon them might have allowed them to disclaim the trusteeship, but this would not have destroyed the trust, if it was otherwise validly constituted: Mallott v. Wilson, [1903] 2 Ch. 494 (Ch. D). Subject to the effect of section 21 of the Family Law Act, R.S.O. 1990, c. F.3, which I will refer to below, the question whether the trust was validly created depends, in my judgment, entirely upon the intention of George Banton at the time, and not after, the trust instrument was executed.

Further at paragraph 170:

[170]      Quite apart from the restraints imposed by the parol evidence rule, there is nothing to suggest that George Banton did not have the intention expressed in the document at the time it was signed, except the fact that the intended trustees considered him to remain the owner of the property and he subsequently accepted their cheque for the proceeds of sale. Neither of his sons claimed to have any legal knowledge or to understand how the trust would achieve its purpose of protecting the property. They simply accepted what they were told by their father and Mr. Harrington [the lawyer who prepared the documents]. Their evidence that they regarded the property as his is completely consistent with their attitude towards his financial affairs generally. They were prepared to assist him by seeing that the property and the other funds he placed in joint names were used for his benefit and they were not interested in obtaining benefits for themselves or any others of his children and grandchildren during his lifetime. In my judgment, that, by itself, is not enough to justify me in ignoring the unequivocal terms of the document George Banton signed—a document prepared by a solicitor at George Banton’s request for a specific purpose and capable of achieving that purpose only if it reflected his intention to divest himself of his property and create a trust. Although it purported to have, and was capable of having, effect inter vivos, its terms were quite consistent with those of his will dated January 30, 1991, which Mr. Harrington had also prepared. The fact that the trustees did not understand the legal effect of the document and that, as far as they were concerned, the property “belonged” to their father during his lifetime, is not to the point.

When they transferred the proceeds of sale of the residence to their father, Mr. Banton’s sons, George Jr. and Victor Banton, breached the terms of the Residence Trust. Neither they nor George Banton had the power to terminate the trust. Although the trustees had the power to expend trust funds for their father’s benefit, in this case they gave no consideration to whether the funds were required for his maintenance and support. The Residence Trust did not give then authority to hand over the proceeds to them.

Mr. Justice Cullity wrote at paragraph 173,

[173]      When Victor and George Jr. delivered the proceeds of sale to George Banton, this was not because they had determined that he required the funds for his maintenance and support. They did not consider this question. They ignored the terms of the trust agreement and the interests of the beneficiaries in remainder and simply delivered the proceeds of sale to him because they considered them to belong to him and because, probably, he wished to receive them. In so doing, they acted outside the scope of their power, ignored relevant considerations and took irrelevant considerations into account. Accordingly, the payment of the funds to George Banton cannot be justified under the terms of the trust agreement and must be set aside if the provisions of sections 21 and 23 of the Family Law Act on which counsel for Muna relies do not affect the validity of the trust.

Ms. Yassin sought to argue that the Residence Trust was invalid on the grounds that it prejudiced Lily Banton’s rights under Ontario family law. Mr. Justice Cullity rejected these arguments, and held that even if the Residence Trust could have been set aside at Lily Banton’s behest, Ms. Yassin did not have standing to advance a claim on the basis of Lily Banton’s rights.

Mr. Justice Cullity held that, because Mr. Banton’s sons had breached their obligations as trustees by paying the proceeds of sale of the residence to their father, they had an obligation to restore the proceeds to the Residence Trust. This was accomplished by tracing those proceeds into the trust they created in 1994, which was invalid.

The result is that the proceeds from the sale, or investments made with those proceeds, will go Mr. Banton’s five children under the terms of the Resident Trust. They do not form part of Mr. Banton’s estate, and will no portion of them will go to Muna Yassin as an intestate heir.

The outcome of this case is that Ms. Yassin was found entitled to receive some of Mr. Banton’s wealth as his lawful wife as an intestate heir (the amount is not clear from the decision). But by settling the Residence Trust, Mr. Banton had removed about $200,000 from his estate, and those funds went to his children.

Johnson v. North Shore Yacht Works Corp.

In British Columbia, a trustee acting in the administration of a trust is generally entitled to be reimbursed for his or her reasonable expenses out of the trust assets. But what if the trustee makes a contract in respect of the trust assets, and there are insufficient assets in the trust to pay the amount owing? Might the trustee have to pay the shortfall out of his or her own pocket?

The answer is that unless the trustee has limited the trustee’s liability in the contact, he or she will be out of pocket.

This point is illustrated by the recent decision in Johnson v. North Shore Yacht Works Corp., 2017 BCSC 1229.

Garfield Johnson and Robin Macfarlane are the trustees of the Chester Allison Johnson Alter Ego Trust (which I will refer to simply as the trust). They contracted with North Shore Yacht Works Corp. (which I will refer to as North Shore) to repair a yacht which was an asset of the trust. Ultimately, more money was spent on the repairs than what the yacht could sell for. Mr. Johnson and Mr. Macfarlane as trustees sued North Shore, and North Shore made a counter claim against both Mr. Johnson and Mr. Macfarlane as trustees, and against Mr. Johnson personally. Mr. Justice Grauer ultimately found Mr. Johnson and Mr. Macfarlane in their capacity as trustees liable to North Shore for $166,219, but dismissed the counter claim against Mr. Johnson personally. (The contract dispute is reported at 2014 BCSC 2057.)

Some of the judgment debt to North Shore was satisfied by the seizure and sale of the yacht, but there remained a significant shortfall of over $140,000 and there were no assets left in the trust.

Mr. Johnson and Mr. Macfarlane argued that North Shore was not entitled to collect from them personally. Two or the arguments they advanced were that North Shore knew it was dealing with them as trustees, and Mr. Justice Grauer had dismissed the counter claim against Mr. Johnson personally.

Mr. Justice Grauer held that North Shore was entitled to collect from the trustees’ own assets. They had not limited their liability to the trust assets in the contract. The significance of finding that they were liable as trustees is that they are then entitled to be indemnified out of the trust assets for the liabilities, but it does not negate their personal responsibilities to satisfy the judgment. If the judgment had been against Mr. Johnson personally, he would not have been entitled to be indemnified out of the trust assets.

Mr. Justice Grauer wrote at paragraphs 8 through 10 and paragraphs 14 and 15:

[8]             The defendant [North Shore] submits that it is a long-standing principle of trust law that a trustee is personally liable on contracts into which it enters on behalf of the trust.  The trustee’s remedy is to seek indemnity from the trust for that liability.  The only exception to the trustee being personally liable is where he has specifically contracted to limit his liability to the assets of the trust.

[9]             The authorities bear this out: see, for instance, Benett v Wyndham (1862), 4 DeG F & J 259 (CA);  Muir v City of Glasgow Bank (1879), 4 App Cas 337 (HL); Davis v Sawkiw(1983), 38 OR (2d) 466 (H Ct J); Pettit, Equity and the Law of Trusts, 12^th ed (2012) at pp 413-414; and Underhill and Hayton, Law Relating to Trusts and Trustees, 18^th ed (2010), p. 1066, para 81.5. 

[10]         In Hall v MacIntyre, [1934] 2 WWR 145 (BCCA), Chief Justice Macdonald put it this way:

It is well-understood law that an executor or trustee who makes a contract in relation to his trust is personally liable to the contractor for the price agreed upon.

...

[14]         The plaintiffs [Mr. Johnson and Mr. Macfarlane] then assert that a trustee should not be liable in his personal capacity where the defendant was aware that it was dealing with him in his capacity as a trustee, relying on Gordon v Roebuck, [1992] OJ No. 1499 (CA) at para 16.  I had dismissed the counterclaim against Garfield Johnson in his personal capacity because of my finding that the defendant was aware, if somewhat vaguely, that the yacht was owned by a trust or an estate, not by Mr. Johnson personally.

[15]         But the conclusion in Gordon was that judgment should not be entered against the trustee in his personal capacity when the other party knew it was dealing with a trustee.  I agree it should not, and that was the basis on which I dismissed the claim against Mr. Johnson personally.  A judgment against the trustee qua trustee permits the trustee to seek indemnity from the trust.  A judgment against the trustee in his personal capacity would deprive him of that ability.  The distinction is therefore important.  Here, the issue is quite different: where the trustee is found liable qua trustee, can the judgment creditor execute against the trustee’s personal assets thereby giving rise to the right to claim indemnity?  In my view, the Gordon case does not address that issue.  The authorities cited above do. 

When acting as a trustee, it is important to keep in mind that a trust is not a separate legal person like a corporation. Usually, directors are not personally liable for contracts made on behalf of a corporation (there are exceptions). In contrast, trustees act personally and as this case demonstrates may end up personally on the hook for commitments they make as trustees. 

Leniuk Estate: Can a Trustee for a Minor's Property be Appointed Under the Family Law Act if there is a Trustee Appointed by Will?

I have written before about Part 8 of British Columbia’s Family Law Act which allows someone who holds money or other property for a minor to deliver the property to the child’s guardian if it’s value is under a prescribed amount (currently $10,000), or if the value is greater allows an application to court for an order appointing someone as a trustee for the minor to receive and hold the property.

In a recent decision, Leniuk Estate, 2016 BCSC 159, the Supreme Court of British Columbia held that an executor of a will who is appointed a trustee in the will to hold the share of a minor beneficiary cannot apply under Part 8 to appoint the minor’s guardian as a trustee pursuant to section 179 of the Family Law Act.

In his will and codicils, Arthur Leniuk left 20% of his estate to be divided among his grandchildren, one of whom is 16 years of age. The value of her share is about $15,000. His will contained some fairly common clauses dealing with the interests of minor beneficiaries:

4.         IF ANY PERSON should become entitled to any share in my estate before attaining the age of nineteen (19) years, the share of such person shall be held and kept invested by my estate and the income and capital or so much thereof as my Trustee in her absolute discretion considers necessary or advisable shall be used for the benefit of such person until he or she attains the age of nineteen (19) years. 

5.         I AUTHORIZE my Trustee to make any payments for any person under the age of nineteen (19) years to a guardian of such person whose receipt shall be a sufficient discharge to my said Trustee.

Mr. Leniuk’s executors and trustees wished to appoint the minor grandchild’s guardian to hold the funds in order to allow them to wind up the estate without having the estate incur further administrative costs for them to wait until the minor attained the age of 19. Until then, neither the minor nor the minor’s guardian has the authority to give a release to the executors and trustees.

Mr. Justice Punnett held that section 179 does not apply when a will or trust document appoints a trustee. It is not intended to override wills or trusts. It would apply, for example, when someone dies without a will, and a beneficiary on an intestacy is a minor. In that case, the court could appoint someone to hold the funds for the minor in place of the Public Guardian and Trustee.

Mr. Justice Punnett wrote at paragraphs 13 through 15:

[13]         Section 176 provides that a guardian, simply because they are a guardian, is not a trustee of a child’s property. As a result someone else can be trustee of the child’s property. Hence, a trust instrument, such as a will, that states a guardian is to receive a child’s property and is empowered to grant a discharge is not contrary to the section. Indeed s. 176 by its very wording recognizes this as it provides “by reason only of being a guardian”. (Emphasis added)

[14]         In my opinion the FLA provisions were not intended to, nor do they, override trust instruments. For public policy reasons, the Legislature saw fit to provide that the FLA address the situation where there is property to which a child is entitled but the child only has a guardian and there is no existing trustee. In circumstances where the property exceeds the prescribed amount in the small property exception the child’s guardian is not deemed to be the child’s trustee simply because they are a guardian. An application to the Court is required in order to determine who the appropriate trustee should be. Section 179 provides the factors the Court should consider when appointing a child’s trustee. Similar to other provisions in the FLA, the best interests of the child are paramount. An example of a situation when this might occur would be if a child received property from a relative who died intestate.

[15]         Given the significant repercussions if the FLA provisions were intended to override existing trusts, in my opinion the legislature would have addressed that explicitly. Since the FLA provisions when dealing with “small property” were clearly addressing issues of proportionality I cannot accept that it was intended that existing trusts would have to apply to appoint a guardian a trustee in order to deliver property to a child. The potential number of applications would undoubtedly be significant and the cost substantial. In addition it would result in an inappropriate layering of trustee on top of trustee. Finally, it would be contrary to the express terms of the trust representing the wishes, in this case, of the testator.

He wrote further at paragraphs 21 through 24:

[21]         To assert that children’s property advanced to a guardian by anyone is caught by these sections extends the FLA provisions beyond their purpose and the problem they were intended to address. The purpose of these sections is to ensure that there is a trustee to protect the interests of the child, whether that is the guardian as trustee or another person does not matter. The point is to have someone responsible for the infant’s funds and to address the fact, that often for various practical reasons, it is desirable for the guardians to have the funds. Where there is no trustee and where the property exceeds a certain value, the guardian can be appointed as trustee.

[22]         This is not a situation where there is uncertainty over who is the infant’s trustee. It is the trust instrument (the Will) that establishes the trust and names the trustees. It is the terms of that instrument that govern the trust. As long as the trustees comply with the terms of the trust they are protected. In accepting a receipt from the guardian they would be acting in accordance with the terms of the will and the trust and as a result that would be a valid discharge.

[23]         The trustees are in this instance attempting to delegate their duties as trustees to a third party. In effect they are seeking an order that amounts to a variation of the Will.

[24]         As a result, where the trust instrument addresses the issue of advancing funds, whether income or capital, to a guardian and addresses the obtaining of a valid receipt there is no need for a court application.

Does paragraph 24 of the reasons for judgment mean that the executors and trustees may payout the funds to the guardian and a receipt is sufficient to discharge them from liability? Although that would be a good practical result if the amount is $15,000, I have some doubts as to whether the above-quoted clause in the will would protect the trustees if the amount were say $150,000. I understand this type of clause to be intended to allow trustees to make payments to a guardian for the minor’s benefit, such as a school band trip, or tuition, but in making the payments, the trustees are exercising a discretion of their own. Arguably, handing the whole of the funds (if a large amount) to a guardian is not an exercise of discretion, but rather would also be an unauthorized delegation of their duties.

One thing to consider in estate planning is to draft the provisions of a will allowing payments to guardians to include the whole of the funds payable to the minor beneficiary.

The other problem for the executors and trustees is that even if the payment to the guardian discharges their obligations to the minor in respect of the amount of the payment to the minor, the guardian cannot approve their accounts and waive the requirement of section 99 of the Trustee Act that they pass their accounts within two years of the date of probate. The minor may waive the requirement to pass accounts when she attains the age of 19, but if she does not, and the trustees have distributed the estate, they may be out of pocket in funding the expense of passing their accounts before the court.

What can executors and trustee do if he or she does not want to continue holding the funds for a minor beneficiary?  In Leniuk Estate, the amount is relatively small and the beneficiary is 16. But in other cases, executors and trustees may have the responsibility of holding substantially larger funds for a longer period.  The will may provide for successor trustees, in which case one or more could be appointed in accordance with the will. Alternatively, trustees may apply to court under section 31 of the Trustee Act to appoint successor trustees. In either case, a trustee may pass his or her accounts before the court, and in the case of an executor, may apply for a discharge pursuant to section 157 of the Wills, Estates and Succession Act. 

Amendments to Probate Rules Include Provision for Substitution of Personal Representative on Death

As I wrote acouple of weeks ago, the probate rules were amended effective July 1, 2015. Among the changes is a new provision dealing with the procedure for appointing a new personal representative (executor or administrator) when the deceased’s personal representative dies before completing the administration of the estate.

The new provision, Rule 25-14 (1.2) reads as follows:

Substitution of personal representative in the event of death

(1.2)If a deceased's personal representative dies, a person may apply in accordance with Part 8, subject to any directions given by the court under subrule (8) of this rule, to be substituted as the personal representative by filing 

(a) a copy of the death certificate of the personal representative,

(b) an affidavit setting out the request to be substituted as the personal representative and specifying the right to be appointed as personal representative on the basis that the person is one of the following:

(i)   the alternate executor;

(ii)   entitled to apply for administration of the estate in accordance with section 130 of the Wills, Estates and Succession Act;

(iii)   entitled to apply for administration with will annexed in accordance with section 131 of that Act, and

 

 

(c) an affidavit confirming delivery of the affidavit referred to in paragraph (b) to

(i)   every person who was entitled to notice under the original application, and

(ii)   any executors who

(A)  did not receive notice of the original application, and

(B)  have an equal or greater right to apply to be the personal representative.

 

As I read this provision together with Part 8 of the Supreme Court Civil Rules, which deals with how applications are made to court, in most cases, a person applying under this section (or his or her lawyer) will need to appear for a hearing before a judge or court master. Part 8 contemplates a hearing unless the order is one that may be made without notice or by consent of all of the parties. In most cases there will be persons to whom notice must be given, and it is not always convenient to have all parties sign a consent order, or there may be minors or others without capacity to consent.

Unless contested, the hearing should be straightforward, but with the need to appear, and wait in court while other matters are heard, the expense may be higher than if the order could be obtained by desk order (without a hearing).

The application may be made by an alternate executor, if the first named executor dies after probate. It may also be necessary if there are two executors, but he will provides that if one dies, and alternate is appointed. If there is no alternate named, then another person may apply to be appointed as an administrator.

Section 130 of the Wills, Estates and Succession Act sets out the order of priority for appointment as an administrator if there is no will, while section 131 sets out the order of priority if there is a will, but there is no executor or alternate executor willing and able to act. These sections are as follows:

Priority among applicants — intestate estate

130  If a person dies without a will, the court may grant administration of the deceased person's estate to one or more of the following persons in the following order of priority:

(a) the spouse of the deceased person or a person nominated by the spouse;

(b) a child of the deceased person having the consent of a majority of the children of the deceased person;

(c) a person nominated by a child of the deceased person if that person has the consent of a majority of the deceased person's children; 

(d) a child of the deceased person not having the consent of a majority of the deceased person's children; 

(e) an intestate successor other than the spouse or child of the deceased person, having the consent of the intestate successors representing a majority in interest of the estate, including the intestate successor who applies for a grant of administration; 

(f) an intestate successor other than the spouse or child of the deceased person, not having the consent of the intestate successors representing a majority in interest of the estate, including the intestate successor who applies for a grant of administration; 

(g) any other person the court considers appropriate to appoint, including, without limitation, and subject to the Public Guardian and Trustee's consent, the Public Guardian and Trustee. 

Priority of applicants — administration with will annexed

131  If a person dies leaving a will, and the executor named in the will renounces executorship or is unable or unwilling to apply for a grant of probate, or if no executor is named in the will, the court may grant administration with will annexed to one or more of the following persons in the following order of priority: 

(a) a beneficiary who applies having the consent of the beneficiaries representing a majority in interest of the estate, including the applicant;

(b) a beneficiary who applies not having the consent of the beneficiaries representing a majority in interest of the estate;

(c) any other person the court considers appropriate to appoint, including, without limitation, and subject to the Public Guardian and Trustee's consent, the Public Guardian and Trustee.

Finally, if the “chain of executorship applies” (see my previous post), it will not be necessary for anyone to apply under Rule 25-14 (1.2). If the executor dies after receiving an estate grant, but before completing the estate administration, and the will does not name any other executor or alternate executor willing and able to apply, the executor of the now deceased executor may complete the administration. The executor’s executor will need to probate the will of the deceased executor.

The authority of the executor’s executor is confirmed in section 145 of the Wills, Estates and Succession Act:

Executor of deceased executor

145  If a deceased will-maker was an executor of a person who died before the will-maker, the executor of the deceased will-maker has all the rights, powers, rights of action and liabilities of the deceased will-maker with respect to the estate of the deceased person.

Fraud on the Power: TLC The Land Conservancy of British Columbia v. The University of British Columbia

In her will, dated February 15, 2007, Jessie Binning, expressed the hope that her home, designed by her late husband, architect and artist, Bertram Charles Binning, would be preserved as a historic site.  Specifically, her will provided:

(i)         the lands and buildings at 2968 Mathers Crescent, West Vancouver, British Columbia, … which my late husband, B.C. BINNING and I used as our residence (the “Residence”), have been designated a National Heritage Site and have been listed on the heritage inventory of West Vancouver, British Columbia;

(ii)        it is my hope that the Residence and historic household furnishings will be preserved for historical purposes;

(iii)       if my Trustees decide it is feasible and practical to do so, to establish a foundation or other organization, society, association or corporation (the “Entity”), as my Trustees decide, and to transfer any interest (the “Property”) I have in the Residence, along with those household furnishings selected by my Trustees, to the Entity to hold, maintain and use the Property and those household furnishings for those purposes it decides are desirable;

(iv)       if the Property is transferred to the Entity and, due to unforeseen circumstances, the Entity decides it is no longer feasible or practical to retain the Property and it subsequently sells the Property, it is my hope that it will give the net sale proceeds to the B.C. BINNING MEMORIAL FELLOWSHIP FUND, administered by THE UNIVERSITY OF BRITISH COLUMBIA, for the purpose of creating additional scholarships to be awarded by it each year from the income earned by those proceeds;

(v)        if my Trustees decide not to retain the Property and historic household furnishings, the Trustees will sell the Property, and sell or otherwise dispose of those household furnishings, and give the net sale proceeds to the B.C. BINNING MEMORIAL FELLOWSHIP FUND, for the purpose of creating additional scholarships to be awarded by it each year from the income earned by those proceeds;

She also provided in her will that if the Entity were established, the residue of her estate would be divided equally between the Entity and the B.C.Binning Memorial Fellowship Fund, or if the Entity were not established it would go to the Fellowship Fund.

Mrs. Binning died in May 2007.

Her executors and trustees sought to give effect to Mrs. Binning’s hope that the residence, or the Binning House as it is known, would be preserved for historic purposes. The practical difficulty they faced was that after various bequests were paid out of her estate there was no residue left to pay to a new Entity to maintain the Binning House.

A more practical alternative would be to donate Binning House to an established entity to maintain, such as the TLC The Land Conservancy of British Columbia, which I will refer to as TLC. The problem is that the will did not give the executors and trustees the authority to do so.

After receiving legal advice from their lawyers, the executors and trustees decided to incorporate a non profit society. They then transferred title to the Binning House to the new society, which in turn, immediately transferred the title to the TLC. The new society also executed a deed of gift giving TLC the residence “for the purpose of restoring, developing and preserving the Binning House, formerly the home of B.C. Binning, for historical purposes with a view to educating the public and commemorating the site”.

In this way, the executors and trustees sought to both follow the letter of the will, by setting up a new entity and transferring the Binning House to the new entity, while finding a more practical manner of giving effect to Mrs. Binning’s hope to preserve the historic residence. Clever. Perhaps, too clever?

Unfortunately, TLC has had some significant financial problems in recent years, and has sought protection under the federal Companies’ Creditors Arrangement Act. When TLC received an offer to purchase the Binning House for $1.6 million to a collector of Bertram Binning’s art, it applied to court for approval of the sale, with the proceeds to be used to assist with TLC’s restructuring.

The University of British Columbia did not oppose the sale, but took the position that the proceeds should be paid to UBC for the B.C. Binning Memorial Fellowship Fund. UBC argued that executors and trustees acted outside of the scope of their authority in transferring the Binning House to TLC indirectly through the new society.

UBC was unsuccessful in the Supreme Court of British Columbia, and appealed to the British Columbia Court of Appeal.

In reasons released earlier this week, in TLC The LandConservancy of British Columbia, v. The University of British Columbia, 2014 BCCA 473, the Court of Appeal found that the executors and trustees had committed a fraud on their powers under the will by transferring the Binning House to the TLC through the new society. Despite the strong term “fraud,” this does not mean that they acted dishonestly, but rather that what they did was beyond the scope of their powers under the will. Mr. Justice Tysoe explained what a fraud on the power is at paragraphs 42 and 43:

[42]         In order to succeed in having the transfer of the Binning House declared void, UBC had the onus of proving that the transfer was a fraud on the power contained in the Will authorizing the Trustees to transfer it.  The phrase “fraud on a power” is a term of art, and it does not connote fraud in the usual sense of dishonesty.  This is explained by Geraint Thomas in Thomas on Powers, 2d ed. (Oxford: Oxford University Press, 2012) at para. 9.03:

The doctrine of fraud on a power is not founded upon a state of conscience imputed to the donee in equity.  Dishonesty of some kind is often present, but it is not essential.  Indeed, the donee’s intention or motive may be perfectly honest.  Thus, the doctrine may apply where the donee honestly believes that, by his exercise of the power, he is disposing of the property in a more beneficial manner, or in a way which is consonant with what he believes would have been the real wish of the donor of the power …
[Footnotes omitted.]

[43]         The parties are agreed, as they were before the chambers judge, that the two basic elements of a fraud on a power are as set out in Thomas on Powers at para. 9.02:

 (a)      “a disposition beyond the scope of the power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power;” and

 (b)      “a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose”.

Mr. Justice Tysoe found that the will required that the executors and trustees would need to determine whether it was practical and feasible not only to establish the Entity and transfer the Binning House to it, but also that it was practical and feasible for the Entity to hold, maintain and use it. But in this case the executors and trustees knew it would not be feasible for the society they incorporated to retain the Binning House in view of the fact that there was no cash available to do so.

Although the executors and trustees transferred the Binning House to a new Entity, the purpose of doing so was so that the Binning House would end up with TLC, which was not an “object of the power,” or in other words, a beneficiary of Mrs. Binning’s will. Although the executors and trustees acted in good faith, they had an ulterior purpose when they incorporated the new society and transferred the Binning House to it. In this sense, they exercised their powers fraudulently.

Mr. Justice Tysoe wrote at paragraph 67:

The Trustees had received legal advice from the Estate Lawyers that the Binning House could not be transferred directly to TLC or, in other words, TLC was not a proper object of the power given to them under the Will.  The Trustees then set out to do indirectly that which they knew could not be done directly.  They transferred the Binning House to the New Society with the intention that the New Society would immediately transfer it to a non-object, TLC.  The Trustees deliberately used the power in the Will for the purpose of benefiting a non-object.  They used it for an ulterior purpose.

 The Court of Appeal ordered TLC to transfer the Binning House back to Mrs. Binning’s estate. The result is that when it is sold, the net proceeds will go to UBC for the B.C. Binning Memorial Fellowship Fund.

Uniform Trustee Act Provisions for Remuneration

The British Columbia Government appears to be considering passing new legislation modeled on the Uniform Conference of Canada, Uniform Trustee Act. As I wrote before, the Ministry of Justice was requesting comments on the Uniform Trustee Act.

Among the changes that may be brought by new legislations are changes relating to remuneration for personal representatives of estate, and trustees.

Currently, under section 88 of the Trustee Act, there is a statutory ceiling for the fees that personal representatives (executors of wills and administrators of estates) and trustees may charge of 5 per cent of the aggregate value of an estate or trust, including income and capital and a care and management fee of 0.4% of the average market value of the assets. This is a ceiling and in many cases the courts awards lower percentage based on the Judge’s or Registrar’s assessment of what amount is reasonable in all of the circumstances. It should also be noted that you can allow your personal representative or trustee to charge a higher percentage by sayings so in your will or trust or in a separate contract.

In contrast, the Uniform Trustee Act would not set a statutory ceiling on remuneration that a court may award. Instead, the Uniform Trustee Act sets out the factors that the Judge or Registrar may consider. The Uniform Trustee Act would preserve the right of a will-maker or settlor of a trust to determine the amount of compensation by will, by the trust agreement, or by contract.

The Uniform Trustee Act would permit a personal representative or trustee who is a profession to charge fees for professional services in addition to remuneration for acting as the personal representative or trustee. This would change the law in British Columbia. Currently unless expressly permitted in the will or trust, a lawyer or other professional acting as a personal representative or trustee may not charge professional fees in addition to remuneration for acting as a personal represent or trustee unless the will or trust expressly authorizes professional fees.

Section 64 of the Uniform Trustee Act reads as follows:

64 (1) A person is entitled to fair and reasonable compensation to be paid out of the trust property for services rendered as trustee of the trust.

(2) As part of the compensation to which a trustee is entitled under subsection (1), a trustee who

(a) has professional skills, and
(b) has rendered services to the trust, apart from those generally associated
with the office of trustee, that required the exercise of those professional
skills

is entitled to charge fees at reasonable rates for those services that are reasonably necessary for the purpose of carrying out the trust.

(3) The trustees of a trust are not presumed to be entitled to equal compensation under subsection (1).

(4) On application by a trustee during the administration of the trust or on the passing of accounts, the court may determine the amount of compensation to which the trustee is entitled under subsection (1).

(5) In determining a trustee’s compensation, the court may consider the following:

(a) the gross value of the trust property at the time compensation is claimed;
(b) any change in the gross value of the trust property since compensation was last claimed or the trust was created and the portion of that change attributable to decisions of the trustee;
(c) the amount of revenue received and expenditures incurred in administering the trust;
(d) the complexity of the work involved in administering the trust, including whether or not any difficult or unusual questions were raised;
(e) any unusual difficulties or situations encountered in administering the trust;
(f) whether or not the trustee had to instruct on litigation relating to the trust;
(g) whether or not the trustee was required to manage a business, be the director of a corporation or perform other additional roles in administering the trust;
(h) the amount of skill, labour, responsibility, technological support and specialized knowledge required in administering the trust;
(i) the number and complexity of tasks relating to the administration of the trust that were delegated to others;
(j) the time expended in administering the trust;
(k) the number of trustees.

 (6) A trustee may make an application under subsection (4) even if the trust instrument provides for the determination of the amount of compensation.

(7) Subsection (4) does not authorize the variation of a contract, with respect to compensation between a settlor and a trustee, that is not part of the trust instrument, whether or not the contract is incorporated by reference in the trust instrument.

Section 65 would allow a personal representative or trustee to receive interim remuneration before the amount is approved by the beneficiaries or the court provided that at least one beneficiary is a capacitated adult. The personal representative or trustee must give notice to “qualified beneficiaries,” which means beneficiaries with a vested interest in the estate and trust, and any contingent beneficiaries who have given notice that they wish to be included as qualified beneficiaries. If the Court ultimately approves a lower amount of remuneration, then the personal representative or trustee must repay the difference (section 68).

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.

Trustees' Duty to Diversify Investments

The British Columbia Court of Appeal removed a trustee for lending all of the trust funds in one trust to a related trust, finding that the investment was an improvident one. In reaching its decision in Miles v.Vince, 2014 BCCA 289, the Court of Appeal found that it is implicit in a trustee’s duty to exercise the care, skill, diligence and judgement of a prudent investor that the trustee diversify investments held in a trust.

William Vince settled two trusts, one of which he named the William Vince Family Trust, and the other, the Vince Insurance Trust. He settled the family trust in 2006 while he was healthy, and he transferred the shares of three companies, each of which owned real estate on Main Street in Vancouver. He settled the insurance trust after he was diagnosed with cancer, and that trust received the proceeds of his life insurance policy of over $2 million following his death in June 2008.

The terms of the family trust gave the trustee the discretion to make income and capital payments to Mr. Vince’s three children. The terms of the insurance trusts also gave the trustee discretion to make income and capital payments, but both his widow, Cynthia Miles, and his three children were the beneficiaries of the insurance trust. Both trusts provided that on a division date, 80 years after the creation of the trust or such earlier date as the trustee decides, the capital would be divided among the three children.

Mr. Vince’s sister, Marilynn Vince, became the trustee of both trusts.

 Ms. Vince as trustee of the family trust endeavoured to carry out her brother’s vision to develop the Main Street properties. She commissioned a report to determine the best way to maximize the best use of the properties, incorporated a non-profit housing society, and arranged financing from B.C. Housing of $5,550,000 to purchase another property and develop the Main Street properties.

She also lent funds from the insurance trust to the family trust to help finance the development. The initial loan was for $1,170,000, but there were further loans, and with accrued interest, the amount owing from the family trust to the insurance trust was $2,135,485 as at December 31, 2012.

The main security for the loan from the insurance trust consisted of second mortgages in the Main Street properties. But under the terms of the mortgages, the insurance trust could only enforce them if B.C. Housing, which held first mortgages consented, or if B.C. Housing commenced foreclosure. Furthermore, the Provincial Rental Housing Authority had an option to purchase the properties, and if it exercised the option, the Insurance Trust would have to deliver a discharge of its mortgage without requiring payment.

From 2008 to 2012, the trustee made payments to Ms. Miles and paid expenses for her and the children from the Insurance Trust, but then stopped.

Ms. Miles applied to the Supreme Court of British Columbia to remove Ms. Vince as trustee of the insurance trust, but her application was dismissed.

She appealed to the Court of Appeal.

Madam Justice Levine for the Court of Appeal wrote the reasons for judgment removing Ms. Vince. In doing so, she considered the different purposes of the two trusts. When he settled the family trust, Mr. Vince intended to create social housing and develop the Main Street properties. But he settled the insurance trust at a time when he was ill with cancer, and he intended the insurance trust to provide for his widow and children following his death.

She held that by putting all of insurance trust assets into an illiquid real estate development, she endangered the insurance trust assets, and Ms. Vince did not meet the standard of a prudent investor.

Although the Trustee Act does not expressly require a trustee to diversify the trust assets, Madam Justice Levine adopted Professor Donovan Waters’ analysis of the prudent investor standard set out in the Trustee Act in Waters’ Law of Trusts in Canada, 4^th ed., as follows:

[61]         Professor Waters notes (at 1008) that in 1997 the Uniform Law Conference of Canada promulgated the Uniform Trustee Investment Act, 1997, which imposed an obligation for trustees to diversify investments and provided a list of factors which a trustee may consider in making investment decisions.

 [62]         He describes the “prudent investor” standard as used in the B.C. Trustee Act, (at 1018):

The reference to the “prudent investor” is intended to bring into the picture the requirements of modern portfolio theory, which teaches that one must first decide what is the level of appropriate level of risk, and then seek to maximize the return within that constraint.

 [63]         He points out that diversification is implicit in the prudent investor standard, based on modern portfolio theory (at 1019-1020):

It is true that in some jurisdictions, particularly those retaining the prudent man standard, there is room for argument as to whether the trustee has the duty to diversify. The new prudent investor standard, based on modern portfolio theory, leaves less room for argument; diversity is inherent in modern portfolio theory. Even so, the circumstances of a trust might be inconsistent with diversification. For example, if a trustee expected to hold property only for a few weeks, it might not be prudent to expose the assets to the volatility which inheres in equity investments.

 [64]         Unlike other jurisdictions in Canada, B.C.’s Trustee Act does not expressly impose a duty on trustees to diversify investments in accordance with modern portfolio theory (see The Trustee Act, 2009. S.S. 2009, c. T-23.01 s. 26; Trustee Act, R.S.O. 1990, c. T. 23 s. 27(6); Trustee Act, R.S.N.S. 1989, c. 479 s. 3B; Trustee Act, R.S.P.E.I. 1988, c. T-8 s. 3.1).

[65]         As Professor Waters suggests, however, the “prudent investor” standard implicitly brings modern portfolio theory into play, and thus requires the trustee to assess the level of appropriate risk and whether diversification is required.

Madam Justice Levine also found that in making the loan, Ms. Vince put herself as in a conflict of interest as trustee for both trusts. The loan was now in default, but if Ms. Vince as trustee of the insurance trust demanded payment of the loan, it would put the development in jeopardy.

Furthermore, Ms. Vince as trustee had a duty to maintain an even hand between income and capital beneficiaries. The real estate development had potential for significant profit for the capital beneficiaries, but was not generating income for the income beneficiaries.

The Court has both an inherit jurisdiction and power under section 31 of the Trustee Act to remove and replace a trustee. Madam Justice Levine considered previous decisions in which the courts have exercised their discretion to do so if the trustee has failed to protect the beneficiaries’ interests or jeopardized the trust assets.

Madam Justice Levine summarized her reasons for removing Ms. Vince as follows:

[87]         In this case, the respondent, in her capacity as the trustee of the Insurance Trust, failed to protect the interests of all of the beneficiaries of that trust. By investing all of the trust property in the Loan, she put the trust property at risk, put herself in a conflict of interest, and failed to act with an even hand among the beneficiaries. Her continuation as trustee jeopardizes the proper and efficient administration of the trust.