Trustee Cannot Be in Conflict With Duty

Trustee Cannot Be in Conflict With Duty

Equity will not allow a person who is in a position of trust to carry out a transaction where there is a conflict between his or her duty and his or her interest.

It is a rule of universal application that no trustee shall be allowed to enter into engagements in which he or she has, or can have, a personal interest, conflicting, or which may possibly conflict, with the interests of those whom he or she is bound by fiduciary duty to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness, or unfairness, of the transaction; it is enough that the interested parties object. It may be that the terms on which a trustee has attempted to deal with the trust estate are as good as could have been obtained from any other quarter or better, but so inflexible is the rule that no inquiry into that matter is permitted. It makes no difference whether the contract refers to real estate, personalty, or mercantile transactions, as the disability arises not from the subject matter of the contract, but from the fiduciary character of the contracting party. Broadly speaking, the reason for the rule is that the trustee should not be placed in a position in which his or her interests are liable to conflict with his or her duty to the cestui que trust. This reason applies equally to a person acting as an agent of the trustee.

For example in Butcher Estate v Hamilton 1997 CarswellBC 1917 (B.C. S.C.) a mother transferred substantial sums of money to her daughter. The transfers were not an  outright gift to the daughter, but were intended to be held in trust by her to use for care of mother and father. The mother and father lacked mental capacity at time of transfers. The daughter breached her  duty as trustee by dealing with funds as though her own.

Trustees Must Sell For Market Value

Trustees Must Sell For Market Value

Estate trustees must obtain fair market value for the assets it sells.

It is trite law that an estate trustee has a fiduciary duty to act in the best interests of an estate and its beneficiaries, and in that regard, whether a professional or non-professional, an estate trustee must exercise the standard of care employed by a person of ordinary prudence in managing his or her own affairs.

This includes an obligation, when liquidating estate assets, to obtain fair market value for the assets being sold, with that value generally being the highest price available in an open and unrestricted market, between informed and prudent parties, acting at arms length and under no compulsion to act, expressed in terms of money or monies worth.

The traditional method of arriving at fair market value is to expose the asset for sale in the marketplace.. Baer v. Baer, 2014 CarswellOnt 10281 (Ont. S.C.J.).

See, for example: Beatrice Watson-Acheson Foundation v. Polk, [2006] O.J. No. 2518 (Ont. S.C.J.), at paragraph 53, and authorities cited therein; Fales v. Canada Permanent Trust Co. (1976), [1977] 2 S.C.R. 302 (S.C.C.), at p.315; and Krentz Estate v. Krentz, [2011] O.J. No. 1124 (Ont. S.C.J.), at paragraph 54.

This includes an obligation, when liquidating estate assets, to obtain “fair market value” for the assets being sold, with that value generally being the highest price available in an open and unrestricted market, between informed and prudent parties, acting at arm’s length and under no compulsion to act, expressed in terms of money or money’s worth. The traditional method of arriving at fair market value is to expose the asset for sale in the marketplace. See Ontario (Attorney General) v. Ballard Estate (1994), 20 O.R. (3d) 189 (Ont. Gen. Div. [Commercial List]), at paragraphs 38-39 and 50.

Bare Trusts

The Liability and Duties of a Trustee of Bare Trust

Scoretz v Kensam Enterprises Inc 2017 BCSC 1356 was an action for breach of trust brought by the beneficiary of a bare trust  and discusses the liability and duties of a trustee of a bare trust.

The Court found that the trustee was liable in damages for failing to hand over the  shares when directed to do by the beneficiary who suffered damages as a result.

40      In Waters Law of Trust in Canada, 3rd ed. (Toronto: Thomson Carswell), 2005, the learned author makes this statement regarding the nature of a bare trust and the duties of a bare trustee:

The usually accepted meaning of the term “bare,” “naked” or “simple” trust is a trust where the trustee or trustees hold property without any duty to perform except to convey it to the beneficiary or beneficiaries upon demand. It is true, of course, that so long as a trustee holds property on trust he had the duty to account for the property, keeping it secure and unharmed. The trustee cannot divest himself of this duty, and, if that is his sole duty, he must transfer that property to the beneficiary on demand. . . .

(at pp. 33 and 34)

41      In Bronson v. Hewitt, 2010 BCSC 169, Goepel J. (as he then was), made this statement regarding the nature of a bare trust:

In Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 64 O.R. (2d) 65 at 75, the Ontario Court of Appeal described a bare trust and the role of its trustee as follows, quoting from Maurice C. Cullity, “Liability of Beneficiaries-A Rejoinder” (1985-86), 7 E. & T.Q. 35 at 36.:

The distinguishing characteristic of the bare trust is that the trustee has no independent powers, discretions or responsibilities. His only responsibility is to carry out the instructions of his principals  the beneficiaries. If he does not have to accept instructions, if he has any significant independent powers or responsibilities, he is not a bare trustee.

(at para. 636)

42      In Bronson, supra, Goepel J. held that a trustee breached the terms of the trust which had required the trustee to return the trust property on demand when the trustee required the beneficiaries to sign a release and indemnification before releasing proceeds of a share transaction. I find that what was prohibited in Bronson, supra, is prohibited here.

43      As a bare trustee, Kensam was obligated to deliver the trust property upon demand and, as the principal of Kensam, Mr. Sai was required to take whatever steps that were required so that Kensam would make such a delivery to Mr. Scoretz. The failure to deliver the LIM Shares to Mr. Scoretz when they were demanded constitutes a breach of trust. The failure to deliver the Napier Shares to Mr. Scoretz when they were demanded also constitutes a breach of trust.

44      I am also satisfied that Kensam and Mr. Sai have acted other than in accordance with the obligation to act in the interests of Mr. Scoretz to the exclusion of the separate interests of Kensam and Mr. Sai.

45      One of the fundamental duties owed by a bare trustee to a beneficiary was set out by Gow, J. in MacDonald v. Thompson (1988), 26 C.C.E.L. 269 (B.C.S.C.) in the following statement:

A trustee in his dealings with one who has an interest in the fund which the trustee administers is under a duty to that someone of exceptional honesty. The standard is known “fiduciary” and was recently described by our Court of Appeal in Litwin Construction (1973) Ltd. v. Peter Pan et al., [1988] B.C.J. No. 1145 (No. CA006245/6/7 June 28, 1988) at p. 23 as follows:

It arises where the obligation that is undertaken or imposed is the obligation of loyalty or selflessness arising from the fiduciary having entered a relationship where the other party is entitled to expect that the fiduciary will act in the other party’s interests, or in the interests of both parties (where those interests coincide), to the exclusion of the fiduciary’s own separate interests (where those interests are opposed), and where the fiduciary has the power to affect the other party’s interests in a legal or practical sense, giving rise to a position of vulnerability in the other party.

In order to perform properly that fiduciary duty a trustee when considering and dealing with the interest of that someone must rid himself of bias (prejudice) and be scrupulous to act with fairness and impartiality c.f. Boe v. Alexander, (supra), at pp. 113-114

(at paras. 73 and 74)

46      The standard of care and diligence required of a trustee was also set out in Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302 where Dickson J., on behalf of Court stated:

Traditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd v. Whitely, at p. 733; Underhill’s Law of Trusts and Trustees, 12th ed., art. 49: Restatement of the Law on Trusts, 2nd ed., para. 174) and traditionally the standard has applied equally to professional and non-professional trustees. The standard has been of general application objective though, at times, rigorous.

(at p. 315)

47      A beneficiary is entitled to expect that a trustee will act in his or her best interests to the exclusion of the interests of a trustee: Litwin Construction, supra at p. 95.

Trustee Removal

9 Legal Principles of Trustee Removal

Two Ontario cases summarize the law relating to the removal of a trustee appointed by a will and would likely be followed as the law in British Columbia.

In Chambers Estate v. Chambers 2013 ONCA 511, the court found that a testator’s wishes as to who should act as trustee should only be interfered with in rare circumstances.

In Radford v. Wilkins, 2008 CanLii 45548 (ONSC), Quinn J. set out the legal principles that apply in an application to remove an estate trustee.

9 Principles of Trustee Removal

  1. The Superior Court of Justice has inherent jurisdiction to remove trustees
  2. An application to remove an executor may be made by any person interested in the estate of the deceased
  3. The choice of estate trustee is not to be lightly interfered with
  4. There must be a clear necessity warranting the removal
  5. The removal of an estate trustee should only occur on the clearest of evidence and there is no other course to follow
  6. In deciding whether or not to remove an estate trustee, the court’s main guide should be the welfare of the beneficiaries
  7. The applicant must show that the non-removal of the trustee will likely prevent the trust from being property executed
  8. Removal is not intended to punish past misconduct
  9. Friction alone is not a reason for removal

Trustee Personally Liable For Trust Contract

Trustee Personally Liable For Trust Contract

In Johnson v North Shore Yacht Works Corp. 2017 BCSC 1229 the court held that a trustee of a trust was personally liable for a contractual debt that was entered into by the trust.

 The case concerned responsibility for the costs of repairs carried out to a yacht that was an asset of the Chester Allison Johnson Alter Ego Trust (the “trust”). The plaintiffs are the trustees of that trust.
They claimed that the defendant had undertaken to complete the repairs for a fixed-price amount of $80,000, and claimed damages for wrongful seizure and negligent storage.
The defendant counterclaimed for all of its parts and labour charges and storage costs.
 Reasons for Judgment released November 3, 2014, indexed as Johnson v North Shore Yacht Works Corp., 2014 BCSC 2057, awarded net damages of $118,219 plus costs on the counterclaim against the plaintiff trustees.
Information obtained on an examination in aid of execution  indicated that substantially all of the assets of the trust had been transferred to its sole beneficiary, and that the trust was insolvent.
The defendant then registered a certificate of judgment against two parcels of land owned in whole or in part by Mr. Johnson,
It is a long-standing principle of trust law that a trustee is personally liable on contracts into which it enters on behalf of the trust. The trustee’s remedy is to seek indemnity from the trust for that liability. The only exception to the trustee being personally liable is where he has specifically contracted to limit his liability to the assets of the trust.
The authorities bear this out: see, for instance, Benett v Wyndham (1862), 4 DeG F & J 259 (CA); Muir v City of Glasgow Bank (1879), 4 App Cas 337 (HL); Davis v Sawkiw (1983), 38 OR (2d) 466 (H Ct J); Pettit, Equity and the Law of Trusts, 12th ed (2012) at pp 413-414; and Underhill and Hayton, Law Relating to Trusts and Trustees, 18th ed (2010), p. 1066, para 81.5.
 In Hall v MacIntyre, [1934] 2 WWR 145 (BCCA), Chief Justice Macdonald put it this way:
It is well-understood law that an executor or trustee who makes a contract in relation to his trust is personally liable to the contractor for the price agreed upon.

Executor/Trustee Must Decide and Not Delegate

Executor/Trustee Must Decide and Not Delegate
While a trustee or executor may retain an agent to perform a particular duty or give them advice, if the will permits delegation of such duties, the executor, trustee must ultimately make the decision about the course of action.
The leading decision on the matter is McLellan Properties LTD v. Roberge 1947 SCR 561 at 566 – 567:
The general rule that one who accepts the position of trustee undertakes to perform personally those duties requiring the exercise of his discretion is subject to certain exceptions. A trustee by the terms of his appointment may be permitted to delegate some or all of those duties. Again, if in the circumstances it would be regarded as prudent for a person in the ordinary course of business to delegate the performance of those duties, a trustee is permitted to do so: Speight v. Gaunt [(1883), 22 Ch.D. 727 (C.A.)]….

These authorities illustrate the general rule and the exceptions thereto founded upon the necessities of prudent business management…

In Re Hatfield Estate (1986), 5 B.C.L.R. (2d) 297 (C.A.), the Court held that trustees may not delegate a power involving the exercise of personal discretion unless they have the authority to do so (see discussion in 0847395 B.C. Ltd. v. Guilbride Estate 2009 BCSC 847 at paras. 64-69; see also Haughton v. Haughton Estate (1995), 80 O.A.C. 273 (C.A.)).

According to Eileen E. Gillese in The Law of Trusts, 3d ed. (Toronto: Irwin Law, 2014) at 160:

If delegation is permitted, trustees may use agents, but they are still responsible for making all decisions. In other words, ultimate decision making rests with the trustees; all they are entitled to do is have the particular agent perform a particular duty or give advice. Trustees, while permitted to delegate some of their duties, may not delegate all of them since that would amount to an abdication of responsibility.

Trustees Breach of Trust Excused

Trustee Act: Trustees Breach of Trust Excused

Section 96 of the Trustee Act allows the court to excuse a trustee for negligence or breach of trust when handling estate assets if the trustee acted honestly and reasonably.

Section 96 states as follows:

96. If it appears to the court that a trustee, however appointed, is or may be personally liable for a breach of trust, whenever the transaction alleged to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, then the court may relieve the trustee either wholly or partly from that personal liability.



Like trustees, pursuant to section 96, executors may be excused of liability in appropriate circumstances: see Brown v. Brown, 2011 BCSC 649.

To be excused, a trustee must satisfy all three elements in section 96:

  1. he or she must have acted honestly;
  2. must have acted reasonably;
  3. and the court must find that, in the circumstances, it would be fair to excuse the trustee for the breach and for failing to obtain directions from the court: Langley v. Brownjohn, 2007 BCSC 156 at para. 61.

The burden rests with the trustee who is seeking the protection of section 96 to prove that his or her actions are worthy of the exercise of the court’s discretion to excuse the trustee for the breach: Langley, supra, at para. 63.

In exercising its discretion pursuant to section 96, the court will consider factors including {Langley, supra at para. 66):

In Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302 (“.Fales”), the Court discussed the duties of trustees. The principles in Fales apply to executors: see Madock v. Greater, 2010 BCSC 567 at para. 61 and Re Ili/lis Estate, 2015 BCSC 208 at paras. 76- 77.

As set out in Fales, it in large part it reflects the longstanding principles regarding the duties of a trustee:

Traditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd v. Whiteley [(1887), 12 App. Cas. 727.], at p. 733; Underhill’s Law of Trusts and Trustees, 12th ed., art. 49; Restatement of the Law on Trusts, 2nd ed., para. 174)

Removal of Executor/Trustee For Conflict of Interest

Removal of Executor/Trustee For Conflict of Interest

As a BC estate lawyer, I am often asked to remove an executor/trustee. Re Ching 2016 BCSC 1111 is one of several cases where the courts have indicated their reluctance to remove an executor for a perceived conflict of interest. The executor/trustee was however removed and replaced as the conflict of interest was “disabling” to her performance as trustee as opposed to the interests of others.

[22]        The authorities indicate that even a “perceived” conflict of interest between an executor’s personal interests and her obligation to administer the trusts in the will in the interests of the beneficiaries may cause this court to intervene to appoint a new executor or an administrator to avoid even the appearance of conflict. In para. 53 of her response to civil claim filed in the asset recovery action Gini alleges that:

[24]        The executor makes several arguments to support her continuation in that role. She submits, firstly, that the estate is complex and that she has “the most knowledge” of its assets among the three sisters. In my view, this consideration cannot outweigh the conflict between her obligation as executor to call in the assets of the estate and her own interest in asserting that significant assets, that are alleged in the asset recovery action to belong to the estate, actually belong to her.

[25]        Secondly, she submits the testator’s choice of executor ought to be respected. I accept that is a compelling factor and this court has often expressed its reluctance to remove an executor when a conflict of interest is alleged.

[26]        In Parker v. Thompson (Trustee), 2014 BCSC 1916, Hinkson C.J.S.C. at para. 37 wrote the following:

[37]         I accept the principles pertaining to the removal of an estate trustee set out by Madam Justice Nolan in Haines v. Haines, 2012 ONSC 1816 at para. 10 as equally applicable to the removal of the trustee:

In Johnson v. Lanka, 2010 ONSC 4124, (2010), 103 O.R. (3d) 258 at para. 15, Pattillo J. summarized the principles that should guide the court’s discretion in deciding whether to remove estate trustees:

(1) the court will not lightly interfere with the testator’s choice of estate trustee;

(2) clear evidence of necessity is required;

(3) the court’s main consideration is the welfare of the beneficiaries; and

(4) the estate trustee’s acts or omissions must be of such a nature as to endanger the administration of the trust.

[27]         The outcome of each application for the removal of an estate trustee will depend on its own facts. The evidence satisfies me that the administration of the estate is endangered if the executor continues to be faced with the conflict of interest inherent in that role.

[28]        Thirdly, the executor submits she has not been guilty of any misconduct in her duties as executor. I make no finding on evidence before me that there has been misconduct but, in my view, even without misconduct the conflict is egregious.

[29]        The executor, lastly, submits that she had little opportunity to administer the trusts before she was prevented from doing so by the notice of dispute. The evidence is that the executor had taken a number of steps to administer the trusts and again those steps illustrate the conflict which has arisen.

[30]        I conclude that Gini, so long as the asset recovery action continues, cannot perform her role as executor without inevitably suffering from a disabling conflict between her own personal interests, as she sees them, and the interests of others.  

[31]        There will be an order that Solus Trust Company Ltd. be appointed administrator of the estate of the testator pending the outcome of the asset recovery action; an order vesting the assets of the testator in Solus Trust for that purpose; an order that Solus Trust is entitled to be paid its fees and disbursements for its administration services in accordance with Schedule A attached to these reasons; and, an order that Pamela and Gini are each entitled to be paid their respective costs of the present application on a full indemnity basis from the estate.

Qualified Disability Trusts in B.C.

Qualified Disability Trusts in B.C.

Reprinted with the kind permission of the following presenters who are experts in Disability law.



As of August 2015, there were approximately 96,000 people receiving disability assistance in BC.

The Ministry (SDSI) will provide about $976 million in disability assistance in 2015-16, an increase of 162% since 200102.

Funding of more than $5 billion a year is being allocated towards programs and services for people with disabilities.

Government has set a goal of making B.C. the most progressive place in Canada for people with disabilities with the Accessibility 2024 plan.


  • When an estate plan needs to include a beneficiary with a disability, many practical, tax and disability benefit issues must be considered.
  •  SDSI provides disability assistance to Persons with Disabilities (PWD) who require financial or health support and are unable to fully participate in the workforce.
  • Proper planning will ensure that beneficiaries with disabilities continue to receive disability assistance


  • To achieve a greater level of certainty, estate planning will often involve the use of Trusts.
  • Notwithstanding recent legislative and policy changes, Trusts continue to be a very effective vehicle in planning for individuals with disabilities.
  • In particular, they offer great value where the person with a disability is unable to manage money for themselves due to capacity issues and/or has a higher level of susceptibility to exploitation
  • Trusts also preserve access to provincial disability benefits.


  • Funds in a trust are not treated as an asset of a person receiving disability assistance. The beneficiary continues to qualify for assistance.
  • Trusts provide a way for a person on PWD or their family to transfer and safeguard assets. The trust can cover disability-related costs now and in the future while the beneficiary remains eligible for disability assistance


Changes in Federal Income Tax Act (effective January 1st, 2016)• Bill C-43, which received Royal Assent on December 16, 2014, introduced a new type of trust to benefit individuals with disabilities: the Qualified Disability Trusts (“QDT”).

•      QDT: one of two exceptions where a testamentary trust, during its lifetime, will be taxed at a graduated rate instead of at the highest marginal rate (47%) on income generated in the trust.

•      The other exception is known as a “Graduated Rate Estate” (GRE) which only have graduated tax rates for a maximum of 36 months


  • “Electing Beneficiary”
  • Defined in subsection 122 (3) as a beneficiary of the trust that qualifies for the disability tax credit in their taxation year that ends within the trust’s taxation year; and
  • Does not make a QDT election with any other trust.
  • Electing beneficiaries must be a “named” beneficiaries


  • The trust must be resident in Canada for the tax year.
  • The trust must make a joint election with a “qualifying beneficiary” to be a QDT.
  • At the end of the taxation year, the trust must have arisen on, and as a consequence of, a particular individual’s death.


Late Filled Election

  • One of the pitfalls of the QDT election is that there is no relief for a late filed election. This means that if your client does not elect to have the trust treated as a QDT on time, the trust will be taxed at the highest marginal rate for the year.

Must be named beneficiaries

  • The QDT definition specifically requires that electing beneficiaries be named beneficiaries in the instrument under which the trust was created. This may not always be true with a testamentary trust.

Recovery Tax

  • A QDT may be subject to a recovery tax under subsection 122(2) of the ITA in respect to a previous year.
  • A QDT recovery tax will be triggered if any of the following occur:

a)      None of the beneficiaries at year- end is an electing beneficiary for the previous year.

b)      The trust ceases to be resident in Canada.

A capital distribution is made to a non-electing beneficiary.

When a trust does not qualify as a QDT tax-efficient investing becomes important.

Strategies to consider when planning for the use of a QDT:

Have the person with the disability as the only beneficiary to ensure the recovery tax will not apply.

Be mindful that an electing beneficiary may only make the election with one trust for each taxation year. As examples, planning can be done to benefit from the QDT election by:

  • Having the insurance proceeds paid to the estate instead of a trust.
  • With multiple trusts, choosing the trust with the highest income the QDT.
  • Ensure that an electing beneficiary has the capacity to make a joint election to be QDT.
  • Such in election may be difficult to make in the case where an electing beneficiary does not have the capacity to make such an election. In such a case, a court appointed guardian may be required in order to successfully make the election.
  • Life insurance trusts may be QDTs. As proceeds of life insurance may be significant, it would be prudent to consider whether such trust should be designated as the QDT.
  • If a spouse is eligible for the DTC, it is possible for a testamentary spousal trust to qualify as a QDT.

Liability of Trustees

Liability of Trustees

Daum v Clapci  2016 BCCA 176 recently discussed the liability of a trustee for failing to properly insure a hotel that burned  stating inter alia.

The test for liability is essentially one of honesty and reasonable man prudence in administering the estate affairs as if they were his or her own.


23      The trial judge described Mr. Clapci’s decision to eliminate replacement insurance coverage for the Hotel as “recklessness”, but he found that this conduct was not linked to Mr. Clapci’s duties as a trustee and therefore did not constitute a breach of trust. In reaching that conclusion, the trial judge relied on Waters’ Law of Trust in Canada, 4th ed., at page 932 and following.

24      Professor Waters at pages 931 and 932 states that “[t]he duty of loyalty requires the avoidance of situations where that duty conflicts with the self-interest of the fiduciary” but “should not encompass activities which are so remote from the task undertaken that they could not in any reasonable assessment be said to be forbidden”. 

Equity has come to take the view that the solution is provided by an examination of the scope of the agency or task undertaken. If the person who owes fiduciary duties is acting outside the scope of the task he has undertaken – that is, in a manner which has nothing to do with his task – then he will not be required to hand over to the principal any profit which he has made or to desist from any intended activity which would render him profit.

Even by narrowing the principle in this way, however, there are bound to be difficult questions of fact as to whether the particular fiduciary was indeed in the circumstances acting within the scope of his activity when he made a profit for himself, or was positioning himself to make such an intended profit. But the difficult questions of fact which have ceaselessly troubled the courts cannot be avoided; they are inseparable from the application of the principle of conflict of interest and duty.

Professor Waters notes at page 906:

[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.