Court Orders Trustee Removed

Court Orders Trustee Removed | Disinherited Vancouver

Sheppe v Harlingten 2018 BCSC 1460 involved a court ordered removal of a trustee pursuant to the beneficiaries of the Harlingten trust which was established when they were children.

Two beneficiaries of the trust lived in a residential property owned by the trust. The trustee wanted the trust to sell the property and invest the proceeds in real estate development that his own company is developing. the two children wished to continue to live in the trust property that had been established for their benefit.

The trustee held the property in trust pursuant to a trust settlement document that also names him as protector, with the power to replace the trustee.

Under the terms of the trust the trustee has broad discretionary powers that include selling, investing or borrowing against the property, favoring one beneficiary over another, and naming additional beneficiaries. Of particular importance to the petition, the trustee is permitted to enter into transactions, on behalf of the trust, with himself for companies in which he has an interest.

The trustee failed to pay taxes on a property owned by the trust, and that property was forfeited to the crown for nonpayment of property taxes.

The petitioners blocked the sale of property, and the trustee responded with scathing and abusive letters to them, as well as naming six additional trust beneficiaries, all members of his extended family.

The court removed the trustee and substituted another.

The trustee did not meet his statutory obligation to act as a prudent investor of trust property. Although the terms of the trust allowed them to enter into a transaction with his own company, the court found that he had done so in terms that he arranged to clearly prefer his own interest, failed to adequately protect those of the trust, and put the assets of the trust at risk.

The Law

A trustee’s powers, however broadly they may be stated, must still be exercised for the benefit of the trust. In Miles v Vince 2014 BC CA 289, the Court of Appeal set at paragraph 54:

In Fales v Canada Permanent Trust Co.(1977 2 SCR 302 the Supreme Court of Canada held that the primary duty of a trustee is to preserve trust assets. This principle applies despite broad discretionary powers given to the trustee in the trust document. Justice Dickson as he then was articulated the standard:

“The standard, of course, may be relaxed or modified up to a point by the terms of the will and, in the present case, there can be no doubt that the co trustees were given wide latitude. But, however wide the discretionary powers contained in the will, the trustees primary duty is preservation of the trust assets, and the enlargement of recognize powers does not relieve him of the duty of using ordinary skill in prudence, nor from the application of common sense.

The Court of Appeal in Miles referred to guidelines to be applied in considering whether to remove a trustee. Those guidelines come from Letterstedt v Broers (1884) LR Cas. 371 (JCPC)

1. If the court is satisfied that the continuance of the trustee would prevent the trust being properly executed, the trustee might be removed. It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate
2. the acts or omissions must be such as to endanger the trust property or to show all want of honesty, or a want of proper capacity to execute the duties, or want of reasonable fidelity
3. in exercising the delicate jurisdiction of removing trustees, the court’s main guide must be the welfare of the beneficiaries. It is not possible to lay down any more definite rule in the matter that is so essentially dependent on details often of great nicety. The court must proceed to look carefully into the circumstances of the case
4. when a trustee is asked to resign, and if 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 that human infirmity would prevent those beneficiary and interested, or those who act for them, from working in harmony with the trustee, if there is no reason to the contrary from the intentions of the framer of the trust to give this trustee of benefit or otherwise, the trustee is always advised by his own counsel to resign.
5. The lack of jurisprudence in respect of the removal of a trustee reflects the trustee when asked to do so, will resign
6. if, without any reasonable ground, the trustee refuses to do so the court might think it proper to remove him
7. friction or hostility between trustees and the beneficiary is not of itself a reason for the removal of the trustees. But were the hostility is grounded on the mode in which the trust is being administered, where it has been caused wholly or partially by substantial overcharges against the trust estate, it is not to be disregarded.

Not every neglect of duty or mistake will result in removal of the trustee. The key question is whether there is or has been endangerment of trust property, whether through a lack of honesty, lack of capacity or lack of reasonable fidelity. Conroy v Stokes (1952) 4 DLR 124 BCCA

Dissension between the trustee in beneficiaries is not necessary a reason to remove the trustee. The questions is whether it would become difficult for the trustee to act with impartiality or whether the friction is of a nature or degree that it prevents, or is likely to prevent, the proper administration of the trust. Radford v Radford estate (2008) 169 ACWS (3d) 688 at paragraphs 112 – 113

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