People often choose to appoint more than one Estate Trustee to administer their estate. This is often done with the best of intentions, to allow the Trustees to share the responsibilities since it can be an onerous task for one person to manage. However, appointing multiple Trustees can also complicate matters in some cases. The Trustees may disagree on how to carry out their duties, for example. Or, one Trustee may fail to meet their obligations, creating potential liability issues for the other Trustees, as was demonstrated in a recent Ontario Court of Appeal decision. In this case, the Court confirmed that a co-executor can be held liable where they fail to supervise their counterpart in an estate’s administration.
Co-Executors Fail to Establish Fund for Brother
The testator died in March 2010. In his will, he appointed his daughter and his son as executors and trustees of his estate. They were directed to set aside $100,000 in a trust fund for the benefit of their brother, with the remainder to the testator’s grandchildren. Additionally, the will directed that the brother was to receive a payment of $500 each month from the trust fund, with the son to be the trustee of the trust fund with “sole discretion as to the investment of the monies” in the fund.
However, the daughter and son failed to set aside the money for their brother in a trust.
Instead, the daughter had signed a direction to transfer the funds to a bank, but the son used most of the $100,000 for his own benefit, using it as a “mortgage” for his business premises. However, the business failed, the bank realized on the premises, and there were no funds remaining from the amount.
As a result, the brother sued the daughter and son as executors and trustees and claimed breach of trust. He brought an application for payment of his entitlement under the will. He also sought the removal of his two siblings as executors and trustees of the estate and the removal of the son as trustee of his trust fund.
Lower Court Finds in Favour of Brother
The application judge found in the brother’s favour. She found that the daughter had been negligent. Despite the daughter’s submission that the son had assured her that everything was being properly handled, the application judge held that this had been inadequate and that the daughter could not simply defer to her co-trustee. In fact, the judge found that the daughter had abdicated her duties as executor and trustee of the estate, stating that she had been required to take “real, active steps to ensure that the trust fund was set up in accordance with the will”, but had failed to do so.
Moreover, the application judge found that both the son and the daughter had breached their fiduciary obligations to the beneficiaries of the estate, including their brother and the testator’s grandchildren.
In coming to her decision, the application judge observed that the executors and trustees of an estate, not the beneficiaries, have the onus of establishing that the management and distribution of funds is consistent with the terms of the will. She thus concluded that neither sibling had met that onus and they had failed to take the steps necessary to establish the trust fund. She found that a trust fund for the brother’s benefit was never set aside as directed by the testator.
As a result, the application judgeheld that the daughter and son were jointly and severally responsible for $80,642, being the outstanding principal necessary to fund the monthly $500 payments to the brother, as required under the will.
The daughter appealed from the judgment. She submitted that the application judge erred in concluding that she had not established a trust fund, in holding her liable for losses caused by the son, and in failing to relieve her from liability pursuant to s. 35(1) of the Trustee Act.
Court of Appeal Dismisses Appeal
On the daughter’s first ground of appeal, the court found that the testator’s will clearly described the trust, but it had been incumbent on the son and daughter to establish the trust fund, which they had failed to do. Even though the daughter had transferred the money, that did not relieve her or the son of the obligation to establish a trust. As such, the court held that it had been open to the application judge to make the finding that a trust fund had never been established.
In the daughter’s second ground of appeal, she argued that once the trust was established, she had no further obligation with respect to its management because the will was clear in giving the son sole discretion over the investment of the trust funds, and any liability for the loss therefore rested with him. The court rejected this ground of appeal, concluding:
“Although the will did provide [the son] with the responsibility for investing the monies in the trust fund, this did not absolve [the daughter], as co-trustee, of her responsibility to ensure that the trust fund was properly set up. Further, the testator directed that [the brother]’s trust fund be divided amongst his grandchildren who are living at the time of [the brother]’s death. This obligation to divide any remainder of the trust fund among the grandchildren was a continuing one; it bound [the daughter] and was not confined to [the son] (or his personal representative, should he die).”
Finally, the court rejected the daughter’s third ground of appeal in which she claimed that she should be afforded relief under s. 35(1) of the Trustee Act, because any breach by her was neither dishonest nor unreasonable, but rather reflected an honest mistake. While the court noted that s. 35(1) provides an opportunity for court-sanctioned relief where the trustee “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust”, it also observed that the relief is discretionary. As such, absent any palpable and overriding error, deference was owed to the application judge’s exercise of discretion. The court found that the application judge had given extensive and thoughtful reasons and had been alert to the factual context. As a result, the court concluded that there was no basis on which to interfere with her decision.
In the result, the daughter’s appeal was therefore dismissed.
Get Advice on Your Duties as an Estate Trustee
When a loved one dies, allow the experienced lawyers at Baker & Company to assist you with winding up and administering the Estate. We can offer practical advice and cost-effective services to ensure that the estate is wound up to the best advantage of the beneficiaries. Call us at 416-777-0100 or contact us online for a consultation.