What Is a Trust?

What Is a Trust?

Society of Notaries Public Bc v The Law Society BC 2016 BCSC 1558 provides a definition of what is a trust that has been approved by innumerable courts.

What Is a Trust?

In Waters’ Law of Trusts in Canada (4th ed. Waters, Gillen and Smith, Carswell: Toronto 2012), the authors write the definition of trust emerges from principles in equity:

Another familiar definition, and one that has been cited with judicial approval, is:

A trust is an equitable obligation, binding a person (called a trustee) to deal with property owned by him (called trust property) as a separate fund, distinct from his own private property, for the benefit of persons (called beneficiaries, or, in old cases, cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation.

Approved by Romer L.J. in Green v. Russell, [1959] 2 Q.B. 226, [1959] 2 All E.R. 525 (Eng. C.A.) at 226 [Q.B.], by Cohen J. in Re Marshall’s Will Trusts, [1945] Ch.217, [1945] 1 All E.R. 550 at 219 [Ch.], and approved in Canada in several decisions such as Tobin Tractor (1957) Ltd. v. Western Surety Co. (1963), 42 W.W.R. 532, 40 D.L.R. (2d) 231 (Sask. Q.B.) at 542 [W.W.R.]; Zeidler v. Campbell (1988), 88 A.R. 321, 29 E.T.R. 113 (Alta. Q.B.), affirmed (1998), 91 A.R. 394, 53 D.L.R. (4th) 350 (Alta. C.A.); Ford v. Laidlaw Carriers Inc. (1993), 1 E.T.R. (2d) 117 (Ont. Gen.Div.), varied on other grounds (1994), 12 C.C.P.B. 179 (Ont. C.A.), leave to appeal to S.C.C. refused (1995), [1995] S.C.C.A. No. 34, 191 N.R. 400 (note) (S.C.C.); Boulos v. Boulos (1986), 57 Nfld. & P.E.I.R. 181, 24 E.T.R. 56 (Nfld. T.D.); and by both the trial judge and LeDain J. in the Federal Court of Appeal in Guerin v. R. (1981), [1982] 2 F.C. 385 (Fed. T.D.), reversed (1982), [1983] 2 F.C. 656, 143 D.L.R. (3d) 416 (Fed. C.A.), reversed [1984] 2 S.C.R. 335, 20 E.T.R. 6 (S.C.C.); Goreki v. Canada (Attorney General), 2005 CarswellOnt. 3683, [2005] O.T.C. 712 (Ont. S.C.J.) at para. 56, reversed 2006 CarswellOnt. 1745, 265 D.L.R. (4th) 206 (Ont. C.A.); Alessandro v. R., 2007 CarswellNat. 2019, 2007 CarswellNat 6036, [2007] 5 C.T.C. 2172, 2007 D.T.C. 1373 (T.C.C. [General Procedure]) at para. 62; General Motors of Canada Ltd. v. R., 2008 T.C.C. 117, 2008 Carswellnat 3153, 2008 CarswellNat 454 (T.C.C. [General Procedure]), at para. 39, (affirmed 2009 FCA 114, 2009 CarswellNat 880, 2009 CarswellNat 3282 (F.C.A.); VanDenBussche, supra, note 3, at para. 8.

Who Should Be Appointed Committee

Who Should Be Appointed Committee

The thorny topic of  who should be appointed Committee was discussed in Baker-McGrotty V Baker 2016 BCSC 699.

The case involved a representation agreement appointing a care giver but was signed when the patient was severely cognitively impaired, so it was suspect in it’s validity.

The Court then decided who should be appointed committee under the Patients Property Act and had the following to say:

[37]        In Stewart (Re), 2014 BCSC 2321 (CanLII), Mr. Justice Masuhara helpfully summarized the applicable law as follows:

[27]      The application for an appointment invokes the parens patriae jurisdiction of the court and is governed by an assessment of who will serve the patient’s best interest.

[28]      Section 18 of the Act states that:

A Committee must exercise the Committee’s powers for the benefit of the patient and the patient’s family, having regard to the nature and value of the property of the patient and the circumstances and needs of the patient and the patient’s family.

[29]      As has been observed in other cases, the Act does not prescribe criteria for the selection of an appropriate Committee. However, cases have identified various considerations; see for example: Vranic (Re), 2007 BCSC 1949 (CanLII); Bowman (Re), 2009 BCSC 523 (CanLII); Palamarek (Re), 2011 BCSC 563 (CanLII); Re Matthews, 2013 BCSC 1045 (CanLII); and Sangha (Re), 2013 BCSC 1965 (CanLII). They include:

(a) whether the appointment reflects the patient’s wishes, obviously when he or she was capable of forming such a wish;

(b) whether immediate family members are in agreement with the appointment;

(c) whether there is any conflict between family members or between the family and the patient, and whether the proposed Committee would be likely to consult with immediate family members about the appropriate care of the patient;

(d) the level of previous involvement of the proposed Committee with the patient, usually family members are preferred;

(e) the level of understanding of the proposed Committee with the patient’s current situation, and will that person be able to cope with future changes of the patient;

(f) whether the proposed Committee will provide love and support to the patient;

(g) whether the proposed Committee is the best person to deal with the financial affairs and ensure the income and estate are used for the patient’s benefit;

(h) whether a proposed Committee has breached a fiduciary duty owed to the patient, or engaged in activity which diminishes confidence in that person’s abilities to properly handle the patient’s affairs;

(i) who is best to advocate for the patient’s medical needs;

(j) whether the proposed Committee has an appropriate plan of care and management for the patient and his or her affairs and is best able to carry it out; and

(k) whether a division of responsibilities such as between the patient’s estate and the patient’s person to different persons would serve the best interests of the patient, or would such a division be less than optimal for the patient.

[39]      The above listing is of course non-exhaustive or in any particular order. The inquiry is fact specific and a particular factor may or may not be applicable and may attract different weight depending on the circumstances of a case.

[38]        In Vranic (Re), 2007 BCSC 1949 (CanLII), Madam Justice Ballance made the following apposite remarks:

[91]      The test for selecting an appropriate Committee is determined on the court’s assessment of who will serve the patient’s best interests: Public Trustee v. Thomas James Pollen, [1996] B.C.J. No. 2394; Re Watson, 2006 BCSC 503 (CanLII), [2006] B.C.J. No. 709, 2006 B.C.S.C. 503; Re Leeming (1984), 1984 CanLII 566 (BC SC), 14 D.L.R. (4th) 315 (B.C.S.C.); Re Rempel, 2001 BCSC 735 (CanLII), [2001] B.C.J. No. 1036, 2001 B.C.S.C. 735. Under the current legislative scheme, a declaration of incapacity and the appointment of a Committee has the effect of being a blunt order which results in a far-reaching fundamental loss of an adult’s liberties. The “best interests” test is a familiar one in law and, in particular, in the judicial determination of issues which affect children.

[92]      For sound reasons, that standard quite properly reflects the protective approach of the court in dealing with matters which affect children. Although the test by the same name applies in considering the appointment of a Committee for a mentally incapacitated adult, its application requires a more nuanced approach which acknowledges and takes into consideration issues concerning the adult’s autonomy, his personal dignity, his idiosyncrasies and the way he has chosen to live his life while capacitated. It also takes into account most assuredly any wishes he has validly expressed while mentally competent or lucid about who he would like to act as his Committee or otherwise make decisions on his behalf.

[93]      These factors should also inform the manner in which a Committee performs his or her duties. Additional important factors the court is to consider are, the proposed Committee’s previous involvement with the patient or his family, the proposed Committee’s knowledge and understanding of the patient’s situation and needs, the proposed Committee’s level of experience or capability in performing the duties of Committee, any kind of plan or scheme of the proposed Committee for the management of the patient and any potentially conflict of interest between the proposed Committee and the patient. Re West (1978), 20 N.B.R. (2d) 686 S.C.A.D.; Re Taylor (1982), 13 E.T.R. 168 (B.C.S.C.); Re Watts, [2002] B.C.S.C. 1331 (Master); Finlay v. Finaly (1997), 16 E.T.R. (2d) 216 (B.C.S.C.).

Power of Attorney Special Execution Provisions

Power of Attorney Special Execution Provisions

S. 16 of the Power of Attorney Act allows for special execution provisions for enduring powers of attorney such as when the donor is physically incapable of signing the document and another person wishes to sign on his or her behalf.

Usually the biggest concern is to ensure that the Power of Attorney is in a form that complies with the land title act so that property may be transferred.

In the case of a S. 16 situation the land registry relies on the signature of the officer ( lawyer, notary or other person authorized to take affidavits within BC) and for the officer to insure that the provisions of S.16 Power of Attorney act are met.

S 16 states :

16(2) Subject to subsection (3), an enduring power of attorney may be signed on behalf of an adult if

(a)    the adult is physically incapable of signing the enduring power of attorney,

(b)    the adult is present and directs that the enduring power of attorney be signed, and

(c)    the signature of the person signing the enduring power of attorney on behalf of the adult is witnessed in accordance with this section, as if that signature were the adult’s signature.”

Committeeship Order Terminates Representation Agreement

Caregiver Services: Quantum Meruit

Re Unrick 2015 BCSC 1330 held that an order of committeeship under the patient’s property act terminates both an existing Power of Attorney, as well as a Representation Agreement.

A petition was brought by the 91-year-old patient’s next of kin to have her declared mentally incapable of handling her affairs and herself under the Patients Property Act.. The patient had  granted two friends, a married couple, her power of attorney and appointed them as her  representatives under a representation agreement, as well as  changed her will to to leave her estate two thirds to the friends and one third to the nieces.

The Law

It is clear from the PPA that the existence of a power of attorney or representation agreement is not a bar to the declaration of someone being a patient or the appointment of a committee.  First, s. 3(1) of the PPA makes it mandatory for the court to make the declaration if the criteria are met.  It provides:

3 (1) If, on

(a) hearing an application, and

(b) reading the affidavits of 2 medical practitioners setting out their opinion that the person who is the subject of the application is, because of

(i) mental infirmity arising from disease, age or otherwise, or

(ii) disorder or disability of mind arising from the use of drugs,

(c) mental infirmity arising from disease, age or otherwise, or

(d) disorder or disability of mind arising from the use of drugs, incapable of managing his or her affairs or incapable of managing himself or herself, or incapable of managing himself or herself or his or her affairs, it must, by order, declare the person:

(i) incapable of managing his or her affairs,

(ii) incapable of managing himself or herself, or

(iii) incapable of managing himself or herself or his or her affairs.

The definition of “patient” in the Act is someone in respect of whom this declaration has been made.  (In effect, then, the court declares an incapable person to be a patient.)

[4] Second, the PPA contemplates making a declaration in the face of powers of attorney and representation agreements since s. 19 sets out the consequences of a declaration on those documents:

  1. On a person becoming a patient as defined in paragraph (b) of the definition of “patient” in section 1.

(a) every power of attorney given by the person is terminated, and

(b) unless the court orders otherwise, every representation agreement made by the person is terminated.

[7] In Lindberg v. Lindberg, 2010 BCSC 1127 at para. 49, Wilcock J. identified the following criteria with respect to whether a representation agreement should be allowed to stand after a person has been appointed a patient:

(a) the circumstances in which the representation agreement was executed;

(b) the scope of the representation agreement; and

(c) the basis for the application to set it aside.

[35]    In determining the appointment of a committee, the court’s concern is the best interests of the patient:  Vranic (Re), 2007 BCSC 1949.  In Stewart v. Stewart, 2014 BCSC 2321 at para. 29, Masuhara J. set out a list of considerations with which to assess this.

BC CEAS Is a Wealth of Free Legal Information On Elder Law

elder law 2

The BC Centre For Elder Advocacy and Support (BC CEAS) website contains a Wealth of Free Legal Information on Elder Law Issues.


I have taken the liberty of copying their excellent article on basic Power of Attorney information as an example of the quality of the legal information provided .

Power of Attorney Wednesday, July 28th, 2010 By the legal staff of the BC CEAS Elder Law Clinic

What is a Power of Attorney?

A power of attorney is a legal document that gives another person the power to take care of your financial and legal matters for you. The person you give this power to is called the “attorney,” and you are called the “donor.” (Here, “attorney” does not mean lawyer.)

A power of attorney gives your attorney the authority to take care of only your financial and legal affairs. This could include paying bills, doing banking, or selling real estate on your behalf. It does not allow him or her to make decisions about your personal or health care.

What are Powers of Attorney Used For?

There are many reasons why a person might choose to make a power of attorney.

One reason is that they may need temporary help taking care of their financial matters if they will be away for a while. For example, if you are going on vacation and will need some banking done while you are gone, you can have a power of attorney drawn up giving a family member or other person the power to take care of this while you are away. You could also have a power of attorney drawn up if an illness or injury makes it difficult for you to handle your own financial affairs.

People also commonly make a power of attorney as a form of advance planning, to ensure that a family member or other person of their choice is legally able to take care of their financial affairs if they become “mentally incapable” of managing their own finances in the future.

This kind of power of attorney is often called an “enduring” power of attorney. It continues in effect – or “endures” – even if you become mentally incapable. It is important to know that, if you should become mentally incapable of making a power of attorney, it is “too late” to do so if you don’t already have one in place. You have to plan ahead and do it in advance. If you do not have a legal power of attorney appointing someone to act for you in place when you become mentally incapable, then your loved ones will need to go to court to get “committeeship” (the legal authority to handle your affairs). Going to court is an expensive and time consuming process, and there is no guarantee that the court would decide to grant the legal powers asked for.

An enduring power of attorney is a simple tool that ensures that the person of your choice is able to easily step into your shoes and manage your finances when you become incapable of doing so, without having to go through the court process. To create an enduring power of attorney, you should ensure that the following sentence is included in your power of attorney document: “In accordance with the Power of Attorney Act, I declare that this power of attorney may be exercised during any subsequent mental infirmity on my part.”

Who Should I Name as My Attorney?

You can choose any capable person to act as your attorney, so long as he or she is 19 years of age or older and willing to act as your attorney. It is very important that you give careful consideration to who you choose to act as your attorney. He or she will have significant power over your financial affairs, and significant responsibilities.

Choose someone who you absolutely trust, and who is good at handling money. While most people choose their spouse, child or other loved one to be their attorney, careful thought should always be given to the appropriateness of the appointment.

In addition to the skills and trustworthiness of the person, you might consider whether the responsibility of acting as your attorney could cause undue stress or strain on the person or on your relationship. If you wish, you can choose more than one attorney. If you do this, you need to write in the document whether you want them to have to act together, or whether they can act independently.

You can also name one or more alternate attorneys who can take over if your first attorney becomes unable or unwilling to act. If you have no relatives or friends who are willing and able to serve as your attorney, you can choose a trust company, or the Public Guardian and Trustee (a government official), to act as your attorney.

In either case, you will be charged fees for their services. Your Attorney’s Powers The breadth of your attorney’s powers depend on what powers you give them. For example, if you create a limited power of attorney giving your son only the power to deposit your pension cheques, then your son will have the legal power to do only that – deposit your pension cheques.

However, if you create a general power of attorney that does not have any limits in it, then your attorney will generally have the power to do anything financial or legal that you can do for yourself. This could include, for example, cashing your cheques, withdrawing money from your bank account, dealing with your income taxes or buying or selling property on your behalf. (However, there are special requirements that apply if you want your attorney to be able to deal with real estate property – see Powers of Attorney for Real Estate below.)

Your Attorney’s Responsibilities

Your attorney is legally required to act honestly and in good faith, in your best interests. Your attorney must keep careful records of the financial activities done on your behalf and give the records to you upon your request, and must keep your affairs separate from his or her own.

When Powers of Attorney Start and End

A power of attorney comes into effect as soon as it is signed, however it does not have to be used right away if you do not need help yet.

Make sure your attorney knows when you want him or her to start acting on your behalf. If you prepare a limited power of attorney for a specific purpose or a specified period of time (for example, to handle your banking while you are out of town), your power of attorney will expire when the stated tasks have been completed and/or on the end date noted in the document. If you instead prepare a general attorney, subject to some exceptions your power of attorney will normally continue in effect indefinitely until you revoke it or until you or your attorney die (unless you have named more than one attorney or an alternate to act in the event an attorney dies).

Also, unless you have created an “enduring” power of attorney by including an enduring clause as discussed above, your power of attorney will end if you become mentally incapable.

Revoking a Power of Attorney

As long as you are still mentally capable of doing so, you can normally revoke (cancel) your power of attorney at any time.

To revoke a power of attorney, you should notify your attorney in writing that the power of attorney is revoked effective immediately. Also notify in writing all banks, businesses, organizations and individuals that your attorney deals with, advising them that the power of attorney has been revoked and asking them to destroy all copies of the document they have.

Making a new power of attorney does not automatically cancel an old one. It is possible to have more than one power of attorney in effect at the same time. If you want to make sure you have only one power of attorney in effect, when you make a new power of attorney ensure that you write at the beginning “I revoke any and all powers of attorney I have previously made.”

Banks’ Power of Attorney Forms

Banks often have their own power of attorney forms they want their customers to use. If you have your own power of attorney that covers banking matters, they have no right to require you to use their form. You could ask to speak with the bank manager or, if necessary, call a lawyer. Powers of Attorney for Real Estate If you want your attorney to have the power to sell your real estate property or deal with mortgages or easements for you, there are special requirements. You must sign the power of attorney in the presence of a lawyer or notary (and the lawyer or notary must also sign), and you must register the power of attorney at the land title office and comply with other legal requirements. If you want your power of attorney to include these powers, consult with a lawyer for advice.

Preparing a Power of Attorney Document

There are power of attorney forms in the Schedule to the British Columbia Power of Attorney Act, available online on the Internet. There are also sample BC power of attorney forms and kits available online and in legal publications you can find in the library and in bookstores. However, it is best to get some professional help, especially if you have a complicated or unusual situation.

As noted above, if your power of attorney is to deal with real estate, you must go to a lawyer or notary public.

Pre-planning for Health Care Decisions

A power of attorney covers financial and legal matters only. If you want to plan ahead and choose who will make health care and treatment decisions for you when you no longer can, you can make what is called a “Representation Agreement” naming whoever you want to make those decisions. Nidus Registry for Enduring Powers of Attorney and Representation Agreements The Representation Agreement Resource Centre has an online registry called the Nidus Registry where you can register your enduring power of attorney or representation agreement, if you wish.

The fees are $25.00 for set-up and the first registration, and $10.00 for each additional registration. You can register yourself by going to www.nidus.ca on the Internet, or ask family or friends to help.

You can also phone the Nidus Registry and Resource Centre for help with registering. Their phone number is (604) 408-7414(604) 408-7414. This BC Centre for Elder Advocacy and Support public legal education article was written in 2009. It contains general information only and is not a substitute for getting legal advice about your particular situation.

Section(s): Legal Research Articles, Resources Tags: Power of Attorney, Research – See more at: http://bcceas.ca/power-of-attorney/#sthash.qYASRVHg.dpuf


The Factors To Determine an Executor’s Compensation

In the well-known case of Re Toronto General Trusts and Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.), five central factors should be considered by the audit judge in arriving at the amount of an executor’s compensation. The maximum fee for obtaining probate and distributing the assets is %5 with management of capital charges available over and above that where appropriate.
Those factors are:
(1) the size of the trust;
(2) the care and responsibility involved;
(3) the time occupied in performing the duties;
(4) the skill and ability shown; and
(5) the success resulting from the administration.
The later case of Re Atkinson, [1952] O.R. 685, [1952] 3 D.L.R. 609 (C.A.) added some helpful clarifying comments on the s. 61(1) discretionary power, especially on the use of “percentages” to establish the level of compensation.
The Court said at p. 698 [O.R.]:
If these statutory provisions are properly borne in mind, then in many instances the proper compensation may well be reflected by the allowance of percentages, but the particular percentages applied, or any percentages, are not to be regarded as of paramount importance; they should be employed only as a rough guide to assist in the computation of what may be considered a fair and reasonable allowance; the words of the statute override everything else and that fair and reasonable allowance is for the actual ‘care, pains and trouble, and time expended’. In some estates, indeed perhaps in many, no fairer method can be employed in estimating compensation than by the application of percentages. In others, while percentages may be of assistance, it would be manifestly unreasonable to apply them slavishly and to do so would violate the true principle upon which compensation is always to be estimated.
It can readily be recognized that, depending upon the idiosyncrasies of the particular estate, the care, pains and trouble and time expended may be disproportionate to the actual size of the estate. A small, complex estate may make more demands upon the trustee’s care and time and skill than a much larger estate of a simpler nature; conversely, even in a large estate with many complex problems, assessment of the compensation by the adoption of what might be said to be ‘the usual’ percentages would result in a grossly excessive allowance.

Party Cannot Take Tax Benefit For One Purpose and Deny It For Another

In Rosenthal v Rosenthal, 1986 CarswellOnt 288 (HCJ), it was held that an individual cannot take a position to obtain a tax benefit and then deny that position to obtain a different benefit.

At para 51 of Rosenthal, the court noted that “it is being argued that for the purpose of the Income Tax Act in 1969, the transfer of shares was not a gift, but for the purpose of the Family Law Act in 1986, the transfer of shares was a gift. Such a result should not be condoned by the court on the grounds of public policy alone.”

Further, the husband could not assert for tax purposes that the transfers were not a gift but for division of family property purposes that they were. Thus, the value of these shares form part of the net family property.

The Prudent Investment Standard For Trustees

The Prudent Investment Standard For Trustees

Miles v Vince 2014 BCCA 290 allowed an appeal and removed a  trustee for failure to abide by the Prudent Investor Standard expected of a trustee.

The Trustee had used the funds from an insurance trust for a speculative real estate investment

The Prudent Investor Standard

[52]         The respondent’s legal obligation with respect to the investment of the property of the Insurance Trust is to act as a prudent investor. Section 15.2 of the Trustee Act, R.S.B.C. 1996, c. 464, provides:

In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

[53]         The appellant argues that a prudent investor would not place all of the Insurance Trust’s assets into one investment, but instead, would have a diversified portfolio of investments. The respondent says that she was under no statutory obligation to diversify the investment portfolio or invest the trust funds in any particular manner.

[54]         In Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 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 this standard (at 316):

This standard, of course, may be relaxed or modified up to a point by the terms of a 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, a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense. [Emphasis added.]

[55]         This Court applied Fales to underscore the duty of a trustee to preserve trust assets in Froese v. Montreal Trust Co. of Canada (1996), 20 B.C.L.R. (3d) 193, leave to appeal ref’d [1996] S.C.C.A. No. 399.

[56]         In Froese, an employee was a beneficiary of a pension plan for which he was to receive regular benefits. His employer began to make irregular contributions to the plan, and soon ceased to contribute. As a result, the beneficiary’s pension was reduced significantly.

[57]         This Court held that Montreal Trust, as trustee of the plan, had a duty to inform the beneficiary when it became aware regular contributions were not being made. Chief Justice McEachern, for the majority, held (at paras. 57-58):

The trial judge framed the question as whether there was any obligation to volunteer information to the beneficiary. With respect, I think that is far too narrow. In my view, “true” trustees have obligations of prudence to protect not just the corpus of the trust, but also the interest of the beneficiaries from the ongoing operation of the plan.

I postulate a simple example. Assume that the Company appoints an investment manager, and that that manager instructs the trustee to invest the corpus, or so much thereof as the plan permits, in the subordinated securities of the company. (This is an extreme example because most plans provide investment rules that must be followed.) Absent such rules, can it seriously be argued that a trustee owes no larger, general duty of prudence respecting the trust which transcends the four corners of the agreement? In this respect, I agree with the comments of Dickson J. (as he then was) in [Fales], although stated in a different context. He said, no matter how wide their discretionary powers:

… a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense.

[58]         Section 15.2 of the Trustee Act enacted in statutory form the standard of care for trustees investing trust property. As noted above, it requires an investor to exercise the care, skill, diligence and judgment of a prudent investor.

[59]         The “prudent investor” is also referred to in s. 15.3 of the Trustee Act:

A trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor would adopt under comparable circumstances.

[60]         Professor Donovan Waters discusses the development of the “prudent investor” standard in Canada in Donovan W.M. Waters et al., Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Thomson Reuters Canada Limited, 2012) at 1006-1009.

[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.

Is the Loan a Prudent Investment?

[66]         In my opinion, the respondent trustee did not meet the prudent investor standard by investing all of the Insurance Trust’s assets, through the Loan, in the Main Street Properties.

[67]         The respondent says she consulted the Redden Report before embarking on the development of the Main Street Properties, and considered the information on the potential profitability of the development before making the Loan.

[68]         The respondent did not meet her statutory obligations to act as a prudent investor with respect to the assets of the Insurance Trust by relying on the Redden Report to assess the potential profitability of the development of the Main Street Properties. There is no evidence that she assessed the appropriate level of risk for the Insurance Trust, and then sought to maximize the return within that constraint. Rather, it appears she consulted the Redden Report to assess the development potential and required investment to develop the Main Street Properties, and used the funds from the Insurance Trust to meet those requirements.

[69]         The respondent maintains she was under no statutory obligation to diversify any investments made from the Insurance Trust. As Professor Waters points out, however, the link between the prudent investor standard and modern portfolio theory suggests that a trustee must assess whether diversification is required to preserve the trust assets.

[70]         In my view, prudent investment of the assets of the Insurance Trust required the trustee to consider the interests of all of the beneficiaries, including the appellant’s interest as an income beneficiary, in the context of the circumstances of the settlement of the Insurance Trust by Mr. Vince with proceeds of life insurance for the benefit of his wife and children after he knew he was ill. Mr. Vince’s interest in creating social housing, or his interest in the broader development of the Main Street Properties for market housing and commercial space with a component of social housing, which is what the respondent has embarked on, bears little relation to the creation of the Insurance Trust.

[71]         Had Mr. Vince intended that the proceeds of his life insurance be invested solely in the development of the Main Street Properties for the benefit of his children as the Division Date Beneficiaries, it is likely he would have provided for those proceeds to be settled on the Family Trust. I agree with the appellant that the existence of separate trusts indicates that Mr. Vince had separate intentions with respect to the use of the proceeds of the life insurance. It is a reasonable inference from the surrounding circumstances that Mr. Vince intended the life insurance proceeds to be used to support and maintain his widow and children after his death. It appears the chambers judge conflated Mr. Vince’s intention with respect to the Family Trust with that of the Insurance Trust.

[72]         Had the chambers judge correctly assessed Mr. Vince’s intention with respect to the Insurance Trust, he would not have concluded that investing all of its assets in the Loan was a prudent investment. The Loan is an illiquid asset invested in an illiquid real estate development project. It appears the Main Street Properties do not produce sufficient income to pay expenses including property taxes, as the proceeds of the B.C. Housing financing were used for that purpose. No interest or principal has been paid despite the Loan being due and payable, and there is no evidence of when the Loan will be repaid.

[73]         It is obvious that the Loan is in default. For the respondent to say that no demand has been made demonstrates “the difficult situation” for the respondent, recognized by the chambers judge, that arises if the Loan is in default. Only the respondent can make a demand for payment of the Loan, and as she argues, such a demand would put the development of the Main Street Properties at risk, contrary to her various interests as the primary promoter of that project.

[74]         Further, all of the security on the Loan was subject to the priority of the first mortgage and other security granted to B.C. Housing, including the priority agreement and option to purchase. If the option to purchase was exercised the Loan would have no value. To say that the priority agreement did not have that effect because the conditions under which it might be exercised had not occurred and were “highly speculative” simply ignores the terms of the Loan.

[75]         While the respondent in this case was under no express statutory duty to diversify the investment portfolio of the Insurance Trust, she nonetheless had a duty to act as a prudent investor. For the reasons above, I conclude her investment strategy in this particular case did not meet this standard.

[76]         The investment of the Insurance Trust’s assets into a single, illiquid set of properties has put the Insurance Trust’s assets at risk. The respondent has wide discretionary powers under the terms of the trust, but the respondent failed to undertake an appropriate risk assessment, in the context of the settlor’s intention with respect to the Insurance Trust, before investing all of the Insurance Trust’s assets in the Loan.

[77]         The respondent’s handling of the Insurance Trust assets also breached her duty of impartiality between the capital and income beneficiaries of that trust. The respondent justifies the investment of the assets of the Insurance Trust in the development of the Main Street Properties on the basis that her goal was to maximize the capital growth of the trust property for the benefit of the capital beneficiaries of both trusts. She dismisses her obligation to the income beneficiaries of the Insurance Trust, including the appellant, on the ground that the appellant did not provide financial information as to her needs as requested by the respondent, stating in her factum (R.F. at para. 84):

The extent of the respondent’s duty of even-handedness towards a beneficiary whose interest in the trust is merely discretionary cannot possibly be extended beyond a duty on the part of the trustee to make reasonable enquiries into the financial needs for the discretionary income beneficiaries. The respondent has done this.

[78]         The respondent has provided no authority for, in effect, ignoring the income beneficiaries in investing the trust property, and I find her argument unpersuasive. As noted by Professor Waters (at 1025):

With regard to the trust fund the income beneficiary is looking for the best yield obtainable, while traditionally the capital beneficiary is concerned with the safety of the fund. However, high yield usually means high risk, low yield low risk, and here is the inherent conflict between the interests of these two types of beneficiary. It is the duty of the trustees so to manage the fund that they do the best possible for both, and this means holding an even balance between yield and risk. Unless, and to the extent only that, the trust instrument requires or permits them to do otherwise, they must ensure that the assets originally received into the trust are put into a form which brings about this balance, and that the assets they subsequently acquire, again in the exercise of their power of investment, have the same result.

[79]         In this case, the respondent failed to undertake an investment strategy that balanced the interests of the capital and income beneficiaries of the Insurance Trust. As a result, I find she breached her duty to remain impartial between these beneficiaries.

Executor Ordered to Repay Monies

Executor Ordered to Repay Monies Back to Estate

Executor Ordered to Repay Monies Back to Estate Paid Out Before Expiration of 6 Month Limitation

Stevens v. Wood Estate (Re), 2013 BCSC 2380. Until six months have passed from the issuance of probate of a will, s. 12 of the Wills Variation Act, R.S.B.C. 1996, c. 490 (the “WVA”) prohibits, absent consent or court order, the distribution of any portion of an estate to its beneficiaries.

The question for determination on this application is the appropriate remedy when such a distribution has been made.

However, the case of Etches v. Stephens (1994), 99 B.C.L.R. (2d) 171 (S.C.) [Etches] assists with determining the purpose of s. 12(1) of the WVA.  Etches deals with the precursor to what is now s. 3(1) of the WVA which requires that an action under this Act must be brought within six months from the date of the issue or resealing of probate.  The court stated that this provision must be read alongside the precursor to what is now s. 12(1) which has the same time-limited language.  When the two sections are read together, the reason for the limits become clear (see paras. 9-12, and 15):

  1. The “main aim” of the WVA is “adequate, just and equitable provision for the spouses and children of testators” when a will does not provide for this: see Tataryn v. Tataryn Estate, [1994] 2 S.C.R. 807 at 815.  As such, it must allow those falling within these groups to apply to the court to have the will varied.
  2. If those affected were allowed to apply to court for a variation without any time limit on the action, then there would be the danger that the distribution of the assets would remain uncertain for a prolonged period of time.  Thus there is a limitation period of six months on the action.
  3. On the other hand, if there was not a rule against distributing the assets before the limitation period to challenge the will was expired, then there would be the danger that a legitimate action could be started but the assets would already have been distributed.  This would deprive those affected of an effective remedy and potentially result in an injustice.
  4. Furthermore, without the restriction placed on the administrator of the estate by s. 12(1), it would be possible for that administrator to attempt to thwart a legitimate claim by the dependents under s. 2 of the Act by distributing the assets before an action is brought.

[29]         The purpose of s. 12(1) is to keep the estate intact to ensure that a successful plaintiff is able to recover that to which they may become entitled. A breach of this statutory provision is a serious matter.  It goes to the heart of the legislative scheme.

[30]         Until the six-month limitation period has passed, a beneficiary’s entitlement to a share in the estate is not absolute. It is subject to variation if a successful action is brought under the WVA. Unless consents are obtained, the beneficiaries are not entitled to receive and benefit from their share of the estate until the WVA claims have been resolved or a court order has been obtained.

[31]         Similarly the plaintiff in a WVA action is entitled to have the assets in the estate preserved pending the outcome of their claim. They should not be put in the position of having to pursue after the executor or other beneficiaries to reap the benefits of a successful action.

[32]         Where there is a breach of the statutory provision and funds are distributed contrary to the legislation, the remedy of a claim against the executor or other beneficiaries, after the completion of the WVA action, does not sufficiently protect the successful WVA claimant. Those parties may, by then, be without assets or have taken steps that make it difficult to locate their assets.

[33]         It is the party who has breached the provisions of the statue who must make matters right. This application is not the forum to determine the strength or otherwise of a WVA claim. The WVA claimant is entitled to have the estate reconstituted to its state prior to the wrongful distribution.

[34]         I find that the appropriate remedy for a breach of s. 12 of the WVA is for the party who has breached the provisions to either repay the estate or to post security in the entire amount which has been wrongfully disbursed.

[35]         The Executrix in this matter must make matters right. She must, within 30 days of the date of these reasons, repay the estate or post security in the amount of $202,000, being the amount which she has improperly advanced to the beneficiaries. If the security is not posted within 30 days the plaintiff will be at liberty to seek further relief.

Trustee Removed For Selling Assets Below Market Value and Benefiting

Trustee Removed For Selling Assets Below Market Value and Benefiting

VanKoughnett & Others v. Austin, 2006 BCSC 1856 is authority for the proposition that a trustee removed under section 30 of the Trustee Act where there is potential conflict of interest between the personal interests of the trustee, and those of the beneficiaries, particularly in this situation where the trustee sold assets at far below market value, and the trustee had benefited from her administration of the estate

The Law

The present petition seeks to replace the designated executor and trustee with the alternate named in the will of the deceased.

[20]            The application is brought, in part, under s. 30 and 31 of the Trustee Act, R.S.B.C. 1996, c. 464, and amendments, which provide:

30         A trustee or receiver appointed by any court may be removed and a trustee, trustees or receiver substituted in place of him or her, at any time on application to the court by any trust beneficiary who is not under legal disability, with the consent and approval of a majority in interest and number of the trust beneficiaries who are also not under legal disability.

31         If it is expedient to appoint a new trustee and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, it is lawful for the court to make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.

[21]            The test to be applied in an application to remove an executor on the basis of misconduct is that set out by our Court of Appeal in Conroy v. Stokes, [1952] 4 D.L.R. 124.  To succeed on this basis the evidence must show that the executor acted in a manner that endangered the estate, or that as executor he or she acted dishonestly, without proper care, or without reasonable fidelity.

[22]            Misconduct is, however, not a prerequisite to the court removing a trustee “when the continued administration of the trust with due regard for the interests of the cestui que trust has by virtue of the trustees become impossible or improbable”, Re Consielio Trusts (No. 1) (1973), 36 D.L.R. (3d) 658 at 660 (Ont. C.A.).

[23]            In Hall v. Hall (1983), 45 B.C.L.R. 154, the court granted an application for removal of an executor where the executor’s duties were in conflict with his or her personal interests, estate assets had been endangered by the executor’s conduct, and the executor had benefited at the expense of the estate.