Court Declines to Remove Trustee – Orders Construction of Trust

Court Declines to Remove Trustee

Winkler v Winkler 2012 BCSC 1949 involves an application by the surviving widow of the deceased, in her capacity as comity of the person and estate of the deceased, sought an order that her stepson be removed as a trustee of her late husband’s alter ego trust number three, and that his longtime accountant be appointed in his place. Remove trustee.

The proceeding arose as a result of the breakdown of the relationship between the trustee and the widow.

 

The property consisted of three port Moody properties valued at between eight and $10 million.

The beneficiary of the trust was the wife and for other persons after his death, including his son the trustee, Andrea his remaining children.

The court dismissed the petition to remove trustee and appointment accountant, with leave to amend to obtain construction of the trust instrument. The relationship of the trustee as residual beneficiary was not sufficient to disqualify him from being trustee. His actions were, while lacking transparency from the wife’s perspective, did not indicate imprudence or any violation of the trust.

 

Disagreements concerning the proper construction of the trust is related to what trust property was an advances on capital is a related to the wife’s maintenance, were subject to a further application to construe the trust.

 

The general principles concerning the removal of trustees are set out in cases such as Conroy v. Stokes, [1952] 4 D.L.R. 124 (B.C.C.A.), and Letterstedt v. Broers, [1884] 9 A.C. 371 at 385-387. The jurisdiction to remove trustee is a “delicate” one, and in each case the main guide must be the welfare of the beneficiaries.

[7] The power to remove a trustee is ancillary to the Court’s principal duty of ensuring that the trusts are properly executed. The question in each case is whether the circumstances are such that the continuance in office of the trustee would be detrimental to the trust: Dicks v. Dicks Estate, 2010 NLCA 35 at para. 50, 298 Nfld. & P.E.I.R. 1.

[8] In Rose v. Rose (2006), 81 O.R. (3d) 349, 24 E.T.R. (3d) 217 at para. 70, (Ont. S.C.J.), Lissaman J. enumerated some actions, failures to act, and conditions that render remove trustee, including misconduct, lack of bona fides, an inability or unwillingness to carry out the terms of the trust, incapacity, personally benefiting from the trust, and acting to the detriment of the beneficiaries.

13] In my view, the respondent’s discontinuance of payments in light of the changed circumstances of the children is properly explained. Of course, Louis Winkler also supported his wife of many years from the income from the trust assets, which is entirely appropriate. In light of my disposition of this matter, the court will have to consider whether the respondent’s actions are consistent with his interpretation of the trust. I do not think that a mere potential for a conflict of interest is sufficient reason to interfere with a trustee’s appointment: Re: Estate of Andre Jacques Blitz, Deceased , 2000 BCSC 1596 at para. 25, 35 E.T.R. (2d) 172.

When Can a Will Draftman’s Notes Be Admissible to Interpret a Will Meaning?

Re Hoedl Estate 2012 ONSC 6857 involves the issue of whether the drafting solicitors notes are admissible at a hearing to interpret a will meaning.

The executor of the deceased estate was also the solicitor who drafted the will.

The executor initially advised of one proposed distribution of the residue, and then subsequently advised of the second proposal after checking his notes made at the time of drafting the will.

The executor brought a court application for interpretation of the will in order to resolve the confusion created by the two conflicting proposed distributions of the residue.

One of the residual beneficiaries brought a motion for an order that the lawyer’s notes made at the time of the drafting of the will should not be admitted at the hearing.

That motion was dismissed and the notes were admissible at the hearing.

The court found that the wills meaning was clear and that his words were supported by the contemporaneous notes. The notes would not have been admissible to contradict clear words of the will.

However here if the will was ambiguous and could be read in two ways, and the notes would be admissible as extrinsic evidence to clarify the testator’s intention.

12 In Robinson Estate v. Robinson, 2011 ONCA 493(Ont. C.A.) (CanLII), the court reaffirmed the general principal that extrinsic evidence of a testator’s intention is not admissible in the face of an unambiguous will. However, Juriansz, J.A., speaking for the court, said the following, at para. 24:

Of course, it is always possible that the testator’s expression of her testamentary intentions may be imperfect. When a will takes effect and is being interpreted, the testator is no longer available to clarify her intentions. Extrinsic evidence is admissible to aid the construction of the will. The trend in Canadian jurisprudence is that extrinsic evidence of the testator’s circumstances and those surrounding the making of the will may be considered, even if the language of the will appears clear and unambiguous on first reading. Indeed, it may be that the existence of an ambiguity is only apparent in the light of the surrounding circumstances.

Breach of Fiduciary Duty

Breach of Fiduciary dutyBreach of Fiduciary Duty

In Elder Advocates of Alberta Society v. Alberta, 2011 SCC 24, [2011] 2 S.C.R. 261(S.C.C.), the Supreme Court of Canada concisely described the nature of a fiduciary relationship.

At para. 22, the Court observed that the doctrine relating to fiduciary duty arises out of trust principles. It requires the fiduciary to act with absolute loyalty toward the beneficiary in managing the beneficiary’s affairs.

In general terms, a fiduciary relationship comprises the following characteristics:

 

1. The fiduciary has scope for the exercise of some discretion or power;

 

2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests;

 

3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power: see Elder Advocates of Alberta Societyat para. 27.

 

An estate trustee, such as the defendant, is in a fiduciary relationship with the beneficiaries of the estate. By the terms of the will, the testator creates a trust and places the executor as trustee with authority over that trust. The trustee has the freedom to refuse the appointment; however, when he accepts the appointment he is bound by his fiduciary obligations. Accordingly, he must forsake the interests of all others in relation to the legal interest at stake in favour of the beneficiaries of the trust: Elder Advocates of Alberta Societyat paras. 30 – 31.

Punitive Damages Awarded For Trustee’s Egregious Conduct

Punitive Damages Awarded For Trustee's Egregious Conduct

A trustee’s Egregious Conduct lead to an award of punitive damages of $100,000 against the trustee personally.

Walling v Walling 2012 ONSC 6580 involves a decision where the Ontario Supreme Court awarded $100,000 punitive damages against the trustee of an estate for extremely egregious conduct examples of breach of fiduciary duty. The court in fact awarded twice the amount that was claimed. The testator and his wife divorced prior to his death in 1999. The testator died when his two children were 16 and 12. His estate was to be divided equally between the children when the youngest term of 21, which occurred in 2007.

The testator’s brother, the children’s uncle, was the sole executor and trustee of the estate. The court found several examples of reprehensible conduct in the failure of the trustee to properly administer the estate. In addition to denying the children their rightful inheritance from the estate, the trustee in addition prevented them from attending funeral celebrations and refused their requests for meaningful mementos. The trustees conduct in relation to the estate limited the children’s postsecondary opportunities. The trustee not only grossly mismanaged the estate but also completely ignored court orders.

32 The Supreme Court of Canada commented on the purpose for punitive damages in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595(S.C.C.). The court reflected that “retribution, denunciation and deterrence are the recognized justification for punitive damages” (at para. 111). The Court observed that an award of punitive damages must be:

1. proportionate to the blameworthiness of the defendant’s conduct;

2. proportionate to the vulnerability of the plaintiff;

3. proportionate to the harm or potential harm directed specifically at the plaintiff;

4. proportionate to the need for deterrence; and

5. proportionate to the advantage wrongfully gained by the defendant from the misconduct: see paras. 111-125.

33 In my view, punitive damages are called for in this case. The defendant was completely derelict in his duties to the estate, and therefore to the plaintiffs who are beneficiaries of the estate. The plaintiffs were children when the defendant became the trustee of their father’s estate. Their vulnerability is obvious. The defendant’s sin is compounded by the fact he was an uncle to the plaintiffs, an adult whom they should have been able to trust. Instead, he squandered their inheritance.

34 The defendant’s defaults include failing to offer the children any meaningful mementos of their late father; permitting others to take items from the estate; selling chattels from the estate under value; failing to preserve or properly account for the estate; and failing to distribute the estate. The only reasonable conclusion appropriate is that the defendant converted the funds in the estate to his own use.

35 The defendant also failed to include the children in any funeral ceremonies for their late father and was completely indifferent to their feelings, causing them great distress. One of the children required psychiatric care as a result of this callous treatment.

36 The misconduct of the defendant led to a frustration of the children’s post-secondary education for lack of funds. The enormity of the defaults is quite shocking.

37 The harm is compounded when one looks at the systematic failure of the defendant to comply with any of the court orders issued to secure the defendant’s compliance with the terms of the will and his wanton failure to pay costs as ordered. He embarked on a course of conduct that increased the cost to the plaintiffs of attempting to secure their rights, and delayed any redress.

38 In sum, the defendant’s conduct has been outrageous.

Breach of Fiduciary Duty In Widow’s Reliance On Family

Breach of trust 2

A breach of fiduciary duty was found when following her husband’s death, a widow relied upon  family members  to enter into improvident land transfers based on assertions that the widow relied upon.

It is a fact that families financially abuse each other and often in the nature of a breach of fiduciary duty, such as a power of attorney

Buccilli v Pillitteri 2012 ONSC 6624, involved a family estate dispute after a tragic death where all the parties had a one third interest in a family business.

After the deceased’s death, his surviving widow, on the advice of her brothers-in-law, signed transfers of all her interest in the deceased estate, including the interest in the family business and real property, to one of the defendants in trust, in exchange for receiving a condominium.

Eventually the widow brought court action to set aside the transfer agreement, and the action was allowed on the grounds of undue influence, and other reasons including MISREPRESENTATION. In a nutshell, the court found that there was an inequality of positions of the parties, and the widow relied upon her brother-in-law’s for advice and was misrepresentented to enter into the contract.. The transfer agreement was an improvident bargain whereby the widow gave up her interest in the deceased’s estate, which was worth a very substantial amount, in exchange for a condominium worth only $610,000.Patricia also asks that the Transfer Agreement be set aside on the basis that the widow relied upon the sons in law and they breached the fidciary duty that they owed to her.

FIDUCIARY DUTY 179 Elder Advocates of Alberta Society v. Alberta, [2011) 2 S.C.R. 261 (S.C.C.) is the latest S.C.C. case dealing with the tests for recognition of a fiduciary duty. In Frame v. Smith. \ 19871 2 S.C.R. 99 (S.C.C.) Wilson J. stated her view of when a fiduciary duty has been recognized. Her words have been adopted by the Supreme Court and other courts for many years.

 

Relationships in which a fiduciary obligation has been imposed seem to possess three general characteristics:

 

(1) The fiduciary has scope for the exercise of some discretion or power.

2012 ONSC 6624, 84 E.T.R. (3d) 208,225 A.C.W.S. (3d) 115

The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

In Elder Advocates of Alberta Society, however, McLachlin C.J. stated that as useful as the three “hallmarks” referred to in Frame are in explaining the source fiduciary duties, they are not a complete code for identifying fiduciary duties. She laid down three tests to be applied.
First, the evidence must show that the alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary. What is required in all cases is an undertaking by the fiduciary, express or implied, to act in accordance with the duty of loyalty reposed on him or her. The existence and character of the undertaking is informed by the norms relating to the particular relationship. The party asserting the duty must be able to point to a forsaking by the alleged fiduciary of the interests of all others in favour of those of the beneficiary, in relation to the specific legal interest at stake. The undertaking may be found in the relationship between the parties, in an imposition of responsibility by statute, or under an express agreement to act as trustee of the beneficiary’s interests.
Second, the duty must be owed to a defined person or class of persons who must be vulnerable to the fiduciary in the sense that the fiduciary has a discretionary power over them. Fiduciary duties do not exist at large. They are confined to specific relationships between particular parties. Historically recognized per se fiduciary relationships exist as a matter of course within the traditional categories of tmstee-cestui que trust, executor-beneficiary, solicitorciient, agent-principal, director-corporation, and guardian-ward or parent-child. By contrast, ad hoc fiduciary relationships must be established on a case-by-case basis.
Finally, to establish a fiduciary duty, the claimant must show that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary. In the traditional categories of fiduciary relationship, the nature of the rela­tionship itself defines the interest at stake. However, a party seeking to establish an ad hoc duty must be able to point to an identifiable legal or vital practical interest that is at stake. The most obvious example is an interest in property, although other interests recognized by law may also be protected.
.

The remedy for breach of fiduciary duty is discretionary. The only realistic remedy to make Patricia whole from the breach is that the Transfer Agreement should be set aside and an accounting of profits of the defendants from the lands and developments that were the subject of the Transfer Agreement should be taken and one-third should be paid to Patricia.

Executor Must Renounce In Order to Contest the Estate

Executors fees

Executor Must Renounce to contest the will

It is fairly common in estate disputes that the executor of the will is also dissatisfied with the same will that the executor is by office bound to carry out and enforce. Since in estate claims it is necessary to sue all parties who have an interest in the estate, it then follows that the executor must be named as a defendant in any estate proceeding, and it is a rule of law that an executor cannot also be a plaintiff in his or her personal capacity. This follows from the legal concept that a party cannot be a plaintiff and the defendant in the same court action – one cannot sue oneself.

Further authority for this is Harrison v Harrison ( 1982) 12 ETR 246
It is established that a person cannot sue himself, even in a different capacity. In Pub. Trustee v. Guar. Trust Co., [1980] 2 S.C.R. 931, 19 C.P.C. 157, 7 E.T.R. 287, 115 D.L.R. (3d) 513, (sub nom. Guar. Trust Co. of Can. v. Berry Estate) 33 N.R. 271, it was held that this principle does not mean that a writ issued by an executor against himself is a nullity; rather it only means that he cannot recover judgment against himself. The majority of the Supreme Court, per Estey J., held that the writ in that case was a mere irregularity which was capable of being corrected by substitution of the Public Trustee for the executor as plaintiff. But it was agreed by counsel and accepted by the court that the matter could not have proceeded to trial and judgment had the executor remained on record as both plaintiff and defendant.

The Reverse Onus of Proof When Suing a Fiduciary

Suing a Fiduciary and Reverse Onus Is Important

The duty of loyalty of a fiduciary is protected through onuses. Fiduciaries are held to an irregularly high standard of behavior in civil law due to the nature of their duties. It is the peculiarly unequal position of the parties that results in the reversal of onus onto the fiduciary in most fiduciary relationships. Fiduciary- reverse onus

Typically, the reverse onus works as follows: in asserting a breach of fiduciary duty claim, the plaintiff need only establish a prima facie inference of the fiduciary obligations and the breach. The fiduciary concept then imposes a reverse onus that shifts the burden of proof onto the fiduciaries to disprove the beneficiaries’ allegations.

The reverse onus burden of proof was applied more recently by Satanove J. in Lee Estate v. Royal Pacific Realty Corp., (2003) BCSC 911, where she held that certain relationships and specific categories of actors are presumed by law to be of a fiduciary nature. When such a presumption arises, the onus is on the defendants to rebut that presumption. She explains that even in the case of a real estate agent and a buyer, the court should look at the evidentiary factors which support or contradict the existence of a fiduciary relationship between them, recognizing that the burden of proof will be on the defendants.

Lasky v. ProwaX (1993), 7 ET.R (2nd) 70 (B.C.S.C) is another case where a reverse onus of burden was applied. This case involved the undue influence of a niece over a mentally compromised and hospitalized patient. The niece was able to get the patient to sign over sole possession of the house and cash into her name, in direct contravention of a will executed a month prior. The defence bore the onus of rebutting the presumption in s. 20 of the Patients Property Act (B.C.) that a gift made by a patient is to be deemed fraudulent and void as against the committee if the gift is not made for full and valuable consideration or the donee has notice at the time of the gift of the mental condition of the patient. Although the niece herself was not committee, the dangerous position of the patient and the importance of a protective and accountable fiduciary duty was evident to the judge. The BC Court of Appeal recently approved these cases in their decision Easingwood v Cockroft 2013 BCCA 182.

Court Removes Trustee and In Rare Case No Replacement Trustee Appointed

Court Removes Trustee

Evans v Gonder 2010 CarswellOnt 1240 Ont C.A is unusual in that the court removed a trustee without appointing a replacement, and found that it had the authority to do so.

The case involved a conflict of interest in the trustee necessitating his removal.

In very rare cases where equity demanded that sole trustee be removed but no replacement was forthcoming,
the courts possessed the inherent jurisdiction to order a trustee’s removal and provide for or­derly administration of estate

No single provision of Act, nor Act as whole, ousted inherent equitable jurisdiction of court to remove trustee.

This was true even if such removal would leave trust without trustee, so long as court ensured proper ad­ministration of estate in best interests of beneficiaries

Mitchell v. Richey, [1867] 13 Gr. 445 (U.C. Ch.), stands for the proposition that no person can be compelled to remain a trustee.

The law of trusts is a creature of equity and the Courts of Chancery. In exercising its equitable jurisdiction, a court must ensure that fairness is done for all parties. Equity is “the soul and spirit of all law … equity is synonymous with justice”: William Blackstone, 2 Commentaries on the Laws of England, 2d ed. (Chicago: Callaghan & Co., 1879), at p. 429.

The role of trustee is a difficult one. A trustee must act in the best interests of the beneficiary, even at personal hardship. However, if such obligations were unlimited, and if no relief were available, “no one would undertake the task of trusteeship”: see Donovan W.M. Waters, Waters Law of Trusts in Canada 3d ed. (Toronto: Carswell, 2005), at p. 841.

 

The courts have long recognized an inherent power to remove a trustee when circumstances require. In Letterstedt v. Broers (1881), 9 A.C. 371 (P.C.), Lord Blackburn stated, at pp. 386-87:

[I]f it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts, even if for no other reason than human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustec.it seems to their Lordships that the Court might think it proper to remove him.

In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on the details often of great nicety.

When a sole remaining trustee was removed, the courts normally required a replacement trustee to be appointed. However, this was not intended to impose an additional burden to a trustee seeking to retire: see Courtenay v. Courtenay (1846), 3 Jo. & Lat. 519, at p. 533. Where no replacement could be found by the retiring trustee, the court could take it upon itself to ensure a continued administration. In cases from that era, the court would attempt to locate new trustees itself: see Gardiner v. Dowries (1856), 22 Beav. 395, 52 E.R. 1160.

[28] Alternatively, the court could take steps to obviate the need for a trustee. In Mitchell v. Rickey, Mowat V.C. permitted a sole surviving trustee to retire without appointing a replacement. Rather, he ordered that a receiver previously appointed by the court be continued, and that the trust funds be paid into court to be administered for the good of the beneficiaries.

[29] The case of Barker v. Peile (1865), 2 Dr. & Sm. 340, 62 E.R. 651 illustrates the court’s power to deal with an estate in the best interests of the beneficiaries in circumstances similar to the instant appeal. The case was summarized in the English Reports, at p. 651, in the following terms:

It appeared that the Plaintiff was the surviving trustee of a voluntary settlement – that the trust fund had always been an ascertained fund, but that many questions had arised among the parties claiming the fund, and several suits had been instituted with reference to the settlement, to all of which the Plaintiff had been made a party. The Plaintiff, under these circumstances, being desirous of avoiding further annoyance with regard to the fund, instituted the suit for administration of the fund by the Court, asking to be discharged, and, if necessary, that new trustees of the settlement might be appointed.

In that case the court ordered the discharge of the trustee in these circumstances, and took on the duty of administering the trust itself.

Trustee Discretionary Spending Limited By Court

Closeup of man holding briefcase with money spilling out close to his chest

Trustee Discretionary and the Courts Oversight

The decision of Steven Thompson Family Trust v. Thompson 2012 ONSC 7138, (Ont. S.C.J.) dealt with a contested passing of accounts for the Steven Thompson Family Trust .

The beneficiaries contested the passing and opposed 23 disbursements that had been paid to lawyers and accountants for the Trust

The trustees in turn  relied on the terms of the Trust which stated that they could employ lawyers, accountants and agents, and pay them from the Trust funds.

They also relied upon the very broad exculpatory clause in the Trust Deed which they argued indemnified them from any errors in judgments or mistakes made by them.

Justice McCarthy stated that while the courts have the inherent jurisdiction to limit the operation of an exculpatory clause,

Such clauses will generally be effective as long as the Trustees’ conduct does not constitute gross negligence, bad faith, or wilful misconduct. Accordingly, even if this court should find that the estate trustees breached the terms of the Trust, they should be relieved from liability in the absence of evidence of gross negligence, bad faith or wilful misconduct.

Justice McCarthy reviewed the legal principles applicable to these facts and stated that the law imposes limits on a Trustee exercising a trustee discretionary power.

The existence of an exculpatory clause in a trust document does not necessarily relieve a trustee from exercising fundamental duties which are referred to as “substratum duties”. Justice McCarthy summarized these as being: 

(a) no trustee may delegate his office to others;

(b) no trustee may profit personally from his dealings with the trust property, with the beneficiaries or as a trustee; and

(c) a trustee must act honestly and with that level  of skill and prudence which would be expected of the reasonable man of business administering his own affairs.

An exculpatory clause is not a licence to a trustee to act as they wish.

See more at: http://www.disinherited.com/blog/court-limits-trustee-discretionary-spending-and-rejects-exculpatory-clause-limiting-trustee-lia#sthash.pyFElPWB.dpuf

Executor Compensation Is Taxable Unless Gifted In the Will

disinherited.com has seen innumerable estate disputes concerning the amount of executor compensation and trustee is entitled.

Under the Trustee Act in British Columbia, the maximum is 5% and it would appear that most executors feel entitled to claim this amount.

Executor compensation can be particularly irksome to the other siblings and is often viewed as one child as executor, lording the authority over the others and then being compensated for it.

Considering that executor compensation is normally taxable, and this is often not known to the executor, it can often be helpful to resolve this disputes by considering the income tax implications for personal income tax to the executor that arises.

The payment of executor compensation can be split over two or more calendar years which can affect the personal taxation rate as of result of perhaps lower marginal rates.

Nevertheless the income is taxable unless proper avoidance techniques are employed.

The use of a specific bequest in the will by the testator to the executor, in lieu of executors fees, can often be successfully utilized in avoiding personal tax for compensation.

No reference can be made in the will that the gift is in lieu of executor compensation, but instead the amount set out in the will could instead perhaps equate to the approximate amount that they might be paid in compensation.

There is always the risk that the executor might seek double dipping, but there is a presumption in law to overcome that the specific bequest was given instead of executor compensation.

Another way of avoiding the tax implications, particularly in negotiations or amongst functional families, is to not claim the compensation but instead have the beneficiaries gift an appropriate amount to the executor in recognition of the labor and time incurred.