Pre-Taking Executors Fees is Breach of Fiduciary Duty

Pre Taking Executors Fees Is Breach of Fiduciary Duty

Despite holding that the pre-taking of a $70,000 fee by an executor was a serious matter, being contrary to Supreme Court rule 25 – 13, a breach of the executors fiduciary duty, and done without consultation with the beneficiaries or their consent, the court excused the administrator stating that he was not to be held to a standard of perfection judged on the basis of hindsight. The court further found that the executor had acted honestly in believing he was entitled to pre-take a portion of his executors fees. Zadra v Cortese 2016 BCSC 390

The court went on to approve additional remuneration of another $89,000 after reviewing the law and the duties carried out by the executor/trustee.

Pre-taking of fees

[49] The administrator is entitled to remuneration for his work. However, unless otherwise agreed, the amount of remuneration is to be determined by the court pursuant to Rule 25-13 of the Supreme Court Civil Rules. It is a breach of trust for an administrator to take remuneration from the estate without the approval of all the beneficiaries, or before a court order is made fixing remuneration.

[50] In administering an estate, an administrator is not to be held to a standard of perfection judged on the basis of hindsight. The standard of care is reasonableness. In Langley v. Brownjohn, 2007 BCSC 156, the Court addressed the issue of the standard of care in relation to whether a breach of trust ought to be excused. At paras. 64-66, the Court stated:

[64] At page 1258 Waters points out that the question of whether a trustee has acted honestly is not typically an issue in the cases. The more contentious question ordinarily focuses on whether the other requisite elements have been established and, in particular, whether the actions of the trustee can be characterized as being reasonable in the circumstances.

[65] At 1260, Waters describes in general terms what is considered to be reasonable conduct:

Reasonable conduct is what the prudent business person would have exhibited in his own affairs. The court puts itself in the position of the trustee at the time of the disputed conduct, and considers what the prudent business person would have done in the light of the facts as they were then known and the prevailing opinion among business people at the time. [footnotes omitted.]

[66] Among the factors to be considered when determining whether a trustee should be excused are: whether the trustee sought out and/or relied upon the advice of a professional in relation to the impugned conduct; whether the opinion relied upon was correct; the relationship and communication, or lack of it, between the trustee and the beneficiaries leading up to the commission of the breach; whether the breach was merely technical or a minor error in judgment; whether the trustee is a lay person or a professional; whether the trustee has received remuneration; and the quantum of the loss: Fales; Laird v. Lyne Estate (2004), 5 E.T.R. (3d) 132, 2004 BCSC 39; Re: Potter (2000), 32 E.T.R. (2d) 256, 2000 BCSC 628; Linsley v. Kirstiuk (1986), 28 D.L.R. (4th) 495 (B.C.S.C.); Re Heuvels Estate, 2001 MBQB 73; Verma v. Chopra, [1994] O.J. No. 111 (Ont. Ct. Gen. Div.); Re Stoyko Estate, [1992] M.J. No. 587 (Q.B.); Duthie et al. v. Gallagher and Duthie, [1930] 2 D.L.R. 582 (B.C.S.C).

[51] In equity, a trustee had no right to remuneration unless expressly given that right by the trust. In Re Prelutsky, [1982] 4 W.W.R. 309 (B.C.S.C.). The Court stated at para. 8:

What then, of the propriety of the pre-taking? In equity a trustee had no right to remuneration unless expressly given that right in the trust. The basis for that rule being that a trustee claiming compensation is in somewhat of a conflict of interest. In accepting compensation he would, in effect, be benefitting from his own trust. …

[52] The Court further stated at para. 10:

In my view there is no significant distinction between the pertinent section of the Alberta Trustee Act and section 90 of the B.C. Trustee Act. I adopt the reasoning and conclusions of the learned judge and hold that in British Columbia it is improper for a trustee to pre-take trustee compensation without court approval unless all of the beneficiaries are adults and have consented. I also agree that a trustee may estimate its expected allowance and may retain that sum in the trust to ensure a fund to pay the compensation ultimately allowed. The interest earned on that sum’ would, of course, accrue to the benefit of the beneficiaries.

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