Individuals who act as a trustee or an attorney for property are statutorily entitled to compensation for the time and effort they have expended in their respective roles.1 Notwithstanding the entitlement to compensation, courts will not reward individuals who fall below their common law or statutory obligations. The question then, is what actions or omissions must an individual do in order to disentitle themselves from their statutory entitlements to compensation.
My colleagues previously explored this topic back in 20172 and noted that although there is no bright line rule for disentitlement to compensation, one or both of the following general themes are present in the cases wherein a trustee or power of attorney of property was disentitled from compensation:
- failure to provide a proper accounting; and,
- exceptional misconduct and dishonesty.3
This blog aims to provide a review and update on the law as it relates to the first point, a failure to provide a proper accounting, and, also posits whether a court has jurisdiction to disentitle an individual from compensation when the entitlement is derived from a trust instrument or separate agreement as opposed to a statutory entitlement.
I. Setting the Table: Sources of Compensation
A. Statutory Compensation
The Trustee Act provides:
23 (1) A trustee desiring to pass the accounts of dealings with the trust estate may file the accounts in the office of the Superior Court of Justice, and the proceedings and practice upon the passing of such accounts shall be the same and have the like effect as the passing of executors’ or administrators’ accounts in the court. R.S.O. 1990, c. T.23, s. 23 (1); 2000, c. 26, Sched. A, s. 15 (2).
[ … ]
Allowance to trustees, etc.
61 (1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice. R.S.O. 1990, c. T.23, s. 61 (1); 2000, c. 26, Sched. A, s. 15 (2).4
Although Section 61 of the Trustee Act stipulates that a trustee is entitled to such fair and reasonable allowance for the care, pains, trouble, and time expended in administering an estate, it fails to provide a formula or criteria for quantifying this amount. Instead, the following approach as been developed by the case law:5
- Firstly, the court applies the usual tariffs of 2.5% charged on all appropriate receipts and disbursements; and,
- Secondly, the court should check the results against the five factors listed in Toronto General Trust v. Central Ontario Railway.6
As above, a court will first test the compensation using the tariff approach and then cross-check the amount against the five factors set out in Toronto General Trust v. Central Ontario Railway, which are as follows:
- the size of the trust;7
- the care and responsibility involved;8
- the time occupied in performing the duties;9
- the skill and ability displayed;10 and,
- the success resulting from the administration.11
It should be noted that although the tariffs are the first step of the analysis, courts have held that tariffs are ultimately not of “paramount importance” and should not be “slavishly” applied.12 Rather, tariffs serve only as a rough guideline to assist in the computation of what may be considered fair and reasonable compensation for the executor.13 Consequently, each case must be examined on its facts to determine whether the tariffs should be decreased or increased, or even applied at all.14
With respect to individuals acting as attorney for property, section 40(1) of the Substitute Decision Act provides:
40 (1) A guardian of property or attorney under a continuing power of attorney may take annual compensation from the property in accordance with the prescribed fee scale. 1992, c. 30, s. 40 (1).
The “fee scale” referenced above is set out in Ontario Regulation 26/95, section 1 of which provides that an attorney for property shall be paid in accordance with the following guidelines:
- 3% on capital and income receipts;
- 3% on capital and income disbursements; and
- 3/5 of 1% (i.e. 0.6%) of the annual average value of the assets under administration as a “care and management fee”.15
As with individuals acting as an Estate Trustee, individuals acting as an Attorney for Property may also have their compensation subject to a reduction or wholesale disentitlement on an application to pass accounts.
B. Compensation is Fixed by Instrument
The Trustee Act provides:
61(5): Nothing in this section applies where the allowance is fixed by the instrument creating the trust.16
One can envisage three separate scenarios that engage s.61(5): a simple compensation provision in the will or settlement directed to any trustee — original or successor; a compensation provision in the will or settlement directed only to the original trustee reflecting an arrangement agreed to between the testator and the trustee; and, a variation to a testamentary trust in the form of an arrangement which adds a compensation provision to the terms of the settlement of the trust. The last of these is rather theoretical and falls outside the scope of this blog; one would expect that the trustee and beneficiaries would simply enter into a contract on point.
II. Jurisdictional Question When Compensation is Fixed by Instrument17
1. The Question
In considering compensation provisions in wills, or compensation agreements incorporated into wills, it is important to understand that the court’s jurisdiction in respect of enforcement of these provisions or agreements is different than its jurisdiction to set compensation under the Trustee Act. In respect of the former, the jurisdiction is merely one to enforce a provision based on the testator’s intentions and possibly an agreement with the drafting solicitor where trustee remuneration exceeds the statute.
The difference in jurisdiction may seem insignificant, but it has been a contested source of scholarly debate. For example, Professor Oosterhoff writes that “if the will or trust document contains an express provision for compensation, the provision is an absolute limitation upon the allowance that may be made. The court will not look into the reasonableness of the provision, since s. 61(5) of the Trustee Act is a bar to its jurisdiction.”18 Other text writers opine that s. 61(5) displaces the court’s jurisdiction to award reasonable compensation conclusively19 thereby ousting any jurisdiction to determine the appropriate amount of compensation where the compensation is fixed by the instrument.20
As such, there is a question of whether s. 61(5) of the Trustee Act strips the court of its jurisdiction to engage in an analysis to increase or decrease remuneration to an estate trustee as fixed in the relevant compensation provision in the will.
2. Case Review
In answering the above question, a brief review of some of the key cases on this issue is in order.21
In Heron v. Moffatt,22 it was held that where the trust deed provided for a rate of remuneration to the trustee, the court has no jurisdiction to reduce that amount, but without reference to authority or much in the way of explanation or discussion.
Williams v. Roy23 was a case dealing with whether a charitable trust suffered an initial failure and thereafter dealt with trustee remuneration based on a compensation provision which explicitly stated the amount provided was “in lieu of charges for their services”. No additional amount can be ordered on the reasoning that acceptance of the office of executor and trustee with knowledge of the amount of compensation set under the will would not be unfair. Boyd C. held it was equivalent in effect to the older practice of the beneficiaries and the prospective executor and trustee coming to terms prior to taking out probate.
French v. Toronto General Trusts Corp.,24 was a case dealing with an agreement between the beneficiaries and the executor for compensation in lieu of statutory compensation at a higher rate than would be ordinarily paid. The trustee applied for greater compensation than what was agreed to. The court held it had no jurisdiction to deal with compensation in such circumstances — the contract was binding.25
In Re Taylor,26 the testator made a will and also executed a document containing a compensation provision respecting payment to a particular trust company. A new will was made five years later and admitted to probate. Judge Weaver held that the compensation document did not set up the trust and was not incorporated into the will and thus of no concern on the question of compensation.
In Re Anderson,27 a compensation provision was present and limited compensation to 5% of certain accounts. Eventually the executor was removed and a passing of accounts was commenced. The court held it to be binding on the executor in terms of the maximum compensation awardable, but held that deductions could be made based on breach of the trustee’s fiduciary obligations based on taking unapproved profits. Importantly, the court took the approach that it retained jurisdiction to lower remuneration despite s. 61(5) of the Trustee Act.
Finally, in the case of Cheney v. Byrne (Litigation Guardian of),28 the compensation provision in the Will allowed the two appointed executors, who were lawyers, to receive compensation as both a trustee, but also to be paid for legal services provided by their firm. However, the compensation clause did not have a fixed amount or a liquidated amount for the compensation that could be claimed, nor did it list the hourly rate the executors’ firm could charge. Nonetheless, the court found that the provisions were binding upon the court and granted the requested compensation.
What can be gleaned from the above cases is that a court’s ability to increase remuneration is thwarted by s. 61(5) of the Trustee Act, but the court’s ability to decrease remuneration is still present.
The authors of this blog are of the opinion that s. 61(5) of the Trustee Act, properly understood, does indeed strip the court of jurisdiction to increase remuneration. In this sense, the court’s jurisdiction is limited to enforcing the provisions of the will which relieves the court of the need to determine “fair” and “reasonable” compensation. However, this approach does not limit the court’s equitable jurisdiction generally nor its supervisory role with respect to trustees. In particular, the presence of a charging provision does not displace or limit the jurisdiction of the court to hold the provision unenforceable, or, to disentitle the trustee to compensation based on a trustee wrong rather than considerations of “fairness” and “reasonableness”.
Put simply, s. 61(5) can prevent the courts from raising the “ceiling” of compensation, but it still allows the courts to lower or completely remove the floor of compensation. Thus, rather than the court having no jurisdiction respecting trustee remuneration fixed in the will, the court very much retains its general supervisory jurisdiction over trustees notwithstanding s. 61(5) of the Trustee Act.
III. Lack of Proper Accounting by Trustee: Recent Case Review
As set out above, the lack of a proper accounting can be grounds for a court to deny a trustee or Attorney for Property of compensation. One such example is the case of Zimmerman v. McMichael Estate.29 In Zimmerman, the executor did not comply with his duty to provide an accounting and breached his fiduciary duties. Justice Strathy, as he then was, made the following oft cited statement:
A trustee must make a proper accounting as a condition precedent to being awarded compensation. Without a proper accounting, the court is unable to assess the conduct of the fiduciary and to determine the compensation to which he or she is entitled.30
One of the most common issues in an opposed application of passing of accounts is whether there is a “proper accounting”. This is because according to Zimmerman, the lack of a proper accounting can result in a wholesale forfeiture of any entitlement for compensation. However, exactly what deficiencies are required to render an accounting “improper” was not made explicitly clear. The below cases provide some clarity on how the courts have applied the above holding in Zimmerman.
A. Cochrane v. Cochrane, 2021 ONSC 5228
In the very recent decision of Cochrane, the respondent was hit by a car when he was 12 years old and suffered serious injuries. The resulting lawsuit was settled for $475,000 when the respondent was 16 years old and the funds invested in an annuity that would make monthly payments for the remainder of the applicant’s life. The annuity payments were to be paid in trust for the irrevocable benefit of the respondent, and the respondent’s parents, who were the applicants in the matter, would be the trustees. Seventeen (17) years later, the parents brought an application to pass their accounts for the administration of the trust, which was opposed by the respondent on the basis of, inter alia, improper use of funds and lack of proper accounting.
The court began by noting that the parents, as trustees, had “a duty to keep proper records and accounts for the trust” and in fact, it was their “primary duty to account for the trust funds”.31 Despite this duty, the trustees had failed to provide a proper accounting due to a number of deficiencies. More specifically, the court made the following findings with respect to the accounting:
- no receipts or documents were provided to support the majority of disbursements;32
- the manner in which the accounting was prepared added to the length and complexity of the trial due to many of the entries in the accounting and many of the documents in support were misleading or inaccurate; and,33
- a number of entries were entirely fictitious and existed to match other artificially inflated entries.34
Not surprisingly, the court concluded that the trustees had failed to discharge their duty to keep proper accounts and that their actions resulted in an unduly long and complicated trial as a result.35 It should also be noted that the court found that the trustees could not account for over $165,000 that had been received for the applicant and were ordered to repay those funds.36
With respect to how this impacts the trustees’ entitlement to compensation, the court commented as follows:
The amount [the trustees] have claimed in compensation is unreasonable given that they failed to discharge their primary duty to account for the trust funds they received for [the applicant]. Nonetheless, I am satisfied that they should receive some modest compensation related to the receipts and disbursements from the account. I find that [the respondents] are entitled to $15,000 in compensation as the trustees.37
Notwithstanding the fact that the trustees failed to provide a proper accounting, and arguably misappropriated a substantial amount of funds, the court, after citing Zimmer, still determined that the trustees should be entitled to receive compensation, albeit a reduced amount. Such a holding seems clearly in conflict with Zimmerman, which held that a proper account was “a condition precedent to being awarded compensation.”38
One explanation for the outcome in this case is that Justice Davies may have believed that the parents’ failures as trustees were not driven by malice but ineptitude. I would refer to paragraph 11 of the decision wherein her Honour made a point that the parents acting as trustees were loving parents and at every turn they did what they thought was best for the applicant and unconditionally supported the applicant through his recovery while making significant individual sacrifices to do so.
As such, there is doubt that Cochrane will be a valuable precedent for trustees defending their compensation against allegations of improper accounting.
B. Toller James Montague Cranston (Estate of), 2021 ONSC 1347
In Toller, the trustee of an estate brought an application to pass her accounts, which was rejected, inter alia, on the basis that the trustee failed to properly account by failing to produce reimbursement receipts for various expenses. More specifically, the objectors argued that in every instance where a receipt was not provided for an expense incurred by the trustee, the trustee should be ordered to repay the amount to the estate.
In analyzing the objection, the court reviewed Zimmerman and the case of Lanthier v. Cousineau Dufresne Estate and noted that both decisions dealt with a situation where the power of attorney/ trustees failed to keep any records for their substantial cash withdrawals and were unable to provide any explanation for the withdrawals.39 The court in Lanthier did note that an accounting which omits any supporting receipts for substantial cash withdrawals and fails to put forth a reasonable explanation for such withdrawals will be improper.40
The court then determined that both Zimmerman and Lanthier were distinguishable because in the immediate matter the trustee provided an accurate, albeit informal, record of all receipts and disbursements, provided detailed explanations under oath explaining the reasons for each expense, and also produced copious records to justify and corroborate the amount of each expense charged to the estate. The court then held that trustees do not need to provide a perfect accounting and are not required to provide a receipt for each and every disbursement when the expenses can be explained under oath and corroborated by additional evidence.41
C. Tarantino v. Galvano, 2017 ONSC 3535 aff’d on appeal 2019 ONCA 699
In Tarantino, a lawsuit was commenced by two of the three estate trustees against the third trustee, Nellie, due to actions she took as attorney for property for the deceased prior to their passing. In addition to filing a counterclaim relying on quantum meruit, Nellie also sought to obtain compensation for acting as an attorney for property pursuant to section 40(1) of the Substitute Decision Act and in accordance with the fee scale set out in Ontario Regulation 26/95.
The court noted that Nellie had failed to keep contemporaneous accounts in the form prescribed under Accounts and Records of Attorneys and Guardians, O Reg 100/96, but had collected and itemized expenses, as well as provided copies of point of sales receipts, cheques, and withdrawals. Based on the financial records before the court, Justice Kristjanson found that not only had Nellie not misappropriated any money for her own benefit, but she had actually subsidized the care for the deceased with Nellie’s own resources.42 In fact, the court noted that Nellie “was a good daughter” to the deceased.43
Although the accounting provided by Nellie was not in the correct form as required by the applicable regulations, it was clearly decipherable by the court. Notwithstanding this fact, the court found that Nellie was disentitled to compensation due to her failure to keep contemporaneous accounts in the appropriate form. More specifically, the court stated:
Nellie failed to keep contemporaneous accounts as required under the Substitute Decisions Act, which is one of the major responsibilities of an attorney for property. While she has now provided those accounts, due to her poor record-keeping, I find she is not entitled to compensation under thepower of attorney for property.44
The outcome in this case seems more harsh than that in Cochrane despite the quality of accounting being far worse in Cochrane than in this case. Further, and in light of the comments in Toller, which allowed an informal form of accounting, it is surprising to see such an outcome. One can theorize that if Tarantino was decided today and the court had the benefit of reviewing Cochrane and Toller the outcome may be different.
While the holding in Zimmerman that a proper accounting is a “condition precedent” to receiving compensation remains good law in Ontario, the application of this principle varies greatly. Some cases have not disentitled a trustee from compensation even though their accounting was extremely deficient and led to widespread delays and complexity for the parties, whereas others have disentitled compensation on the basis that the accounts were in the incorrect form and created retroactively despite the fact that they were comprehensible and fulsome. As such, regardless of the facts, lawyers will have supporting legal decisions to argue either for or against compensation when there have been deficiencies.
- Trustee Act, R.S.O. 1990, c. T.23, s. 61; Substitute Decisions Act, 1992, S.O. 1992, c. 30, s. 40. ↵
- See: C. Wagner, G. Sidlofsky, and D. Wagner, When is a Trustee Disentitled to Compensation? (September 2017). ↵
- See: Budgell v. Hartley Estate, 2008 MBQB 2020 (Q.B.) Zimmerman v. McMichael Estate,2 010 ONSC 2947 (S.C.); Assaf Estate (Re), (2009) O.J. No. 1086 (S.C.); Aragona v. Aragona, 2010 ONCA 863; Testa v Testa, 2015 ONSC 2381 (S.C.) Villa v. Villa, 2013 ONSC 2202 (S.C.); ↵
- Trustee Act, R.S.O. 1990, c. T.23, ss. 23(1)-(2), 61(1). ↵
- In the Estate of Stefanie Aber, 2015 ONSC 5123 (Div. Ct.) at paras. 16-18. ↵
- Toronto General Trust Corp. v. Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.) ↵
- A large trust militates in favour of a smaller percentage award than the ordinary tariff, because “the usual” percentages would result in a grossly excessive allowance see: Denofrio v. Denofrio, 2012 ONSC 3408 (S.C.) at para. 83; Heron Estate, Re., 1996 CarswellOnt 196 (Gen. Div.) ↵
- A trustee is expected to demonstrate vigilance, prudence and sagacity. The standard is applied to professionals and non-professionals alike see: Fales v. Canada Permanent, 1976 CarswellBC 240 (S.C.C.) at paras. 34, 38. Typically, this factors will count against a Trustee if it can be shown that the Trustee contracted out or delegated administration related work see: Kostiw Estate Re,2009 CanLII 1136 (ON SC) at para. 30 – compensation reduced by ~43% for similar hiring of third parties. ↵
- The court will look at the inclusion or omission of a Trustee’s detailed time dockets to ascertain how much time, if any, was spent on the administration of the Estate. The absence of time dockets is a factor to consider in determining an appropriate level of compensation see: Pascale Estate v. Stark, 2014 ONSC 6684 (S.C.) at para. 32. ↵
- The court will look at whether the trustee accounted to the beneficiaries, kept them apprised of developments, responded to their inquiries, and disclosed the formula for compensation see: Macivor Estate, Re, 2011 ONSC 4175 (S.C.) at para. 33. ↵
- In the Estate of Stefanie Aber, 2015 ONSC 5123 (Div. Ct.) at para. 18, referring to Toronto General Trust Corp. v. Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.) ↵
- Atkinson Estate, Re, (1952) O.R. 685 (ON CA) at para. 17. ↵
- Atkinson Estate, Re, (1952) O.R. 685 (ON CA) at para. 17; Laing Estate v. Laing Estate (1996) O.J. No. 738 (Gen. Div. Ct.) aff’d on appeal (1998) O.J. No. 4169 (ON CA) at para. 27. ↵
- Gordon Estate, Re, (1998) O.J. No. 2153, rev’d on other grounds (1998) O.J. No. 4170 (ON CA) at para. 12. ↵
- O. Reg. 26/95: General ↵
- Trustee Act, R.S.O. 1990, c. T.23, s. 61(5). ↵
- For a more authoritative and in-depth review on this subject please see C.D. Freedman’s paper Drafting and Attacking a Charging Clause in a Will, (2017), 36 Estates, Trusts & Pensions Journal 160. ↵
- A.H. Oosterhoff, C. David Freedman, Mitchell McInnes and Adam Parachin, Oosterhoff on Wills, 8th ed. (Toronto, Thomson Reuters, 2016), at §2.7. ↵
- Donovan W.M. Waters, Mark Gillen, and Lionel Smith, Waters’ Law of Trusts, 4th ed. (Toronto, Carswell, 2012), at §22.II.B. ↵
- See: Carmen S. Theriault, Widdifield on Executors and Trustees, 6th ed. (Toronto, Carswell), looseleaf, at §11.3; Jennifer J. Jenkins, H. Mark Scott, and Edward Olkovich, Compensation and Duties of Estate Trustees, Guardians and Attorneys (Toronto, Carswell), looseleaf, at §3:10; James MacKenzie, Feeney’s Canadian Law of Wills, 4th ed. (Markham, Ontario, Lexis Nexis Canada), looseleaf, at §8.11; Brian Schnurr, Estate Litigation, 2nd ed. (Carswell), looseleaf, at §5.7(e)(v). ↵
- The discussion herein is not comprehensive. ↵
- Heron v. Moffatt, (1879), 7 P.R. 438 (Ont. Master). ↵
- Williams v. Roy, (1885), 9 O.R. 534 (Ont. H.C.). One may note that Boyd C. held that Denison v. Denison (1870), 17 Gr. 306 (Ont. Ch.) in which Spragge C. allowed a variation of charging provision was not to be followed. See also Kennedy v. Pingle, (1880), 27 Gr. 305 (Ont. H.C.). ↵
- French v. Toronto General Trusts Corp., (1923), (1924) 1 D.L.R. 288 (Ont. S.C.). ↵
- See also; Re Anderson., (1924), 55 O.L.R. 527 (Ont. H.C.), reversed 1924 CarswellOnt 189 (Ont. C.A.). ↵
- Re Taylor, (1967) 2 O.R. 557 (Ont. Surr. Ct.). ↵
- Re Anderson, (1985) 53 O.R. (2d) 36 (Ont. Surr. Ct.). ↵
- Cheney v. Byrne (Litigation Guardian of), (2004), 9 E.T.R. (3d) 236 (Ont. S.C.J.). ↵
- Zimmerman v. McMichael Estate, 2010 ONSC 2947 (S.C.). ↵
- Zimmerman v. McMichael Estate, 2010 ONSC 2947 (S.C.) at para. 34. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at paras. 12, 273, 275. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at para. 7. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at paras. 17, 22, 266. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at paras. 21, 266. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at para. 273. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at para. 276. ↵
- Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at para. 276. ↵
- One explanation for this outcome is that Justice Davies may have believed that the parents’ failures as trustees were not driven by malice but ineptitude. I would note that Justice Davies made a point to note in the introduction of her decision she found that the parents were loving parents and at every turn they did what they thought was best for the applicant and unconditionally supported the applicant through his recovery while making significant sacrifices to do so: Cochrane v. Cochrane, 2021 ONSC 5228 (S.C.) at para. 11. ↵
- Toller James Montague Cranston (Estate of), 2021 ONSC 1347 (S.C.) at paras. 54-55. ↵
- Lanthier v. Cousineau Dufresne Estate, 2002 CanLII 2653 (ON SC) at paras. 37-43. ↵
- Toller James Montague Cranston (Estate of), 2021 ONSC 1347 (S.C.) at paras. 57,60,69 ↵
- Tarantino v. Galvano, 2017 ONSC 3535 (S.C.) at para. 144, aff’d on appeal 2019 ONCA 699. ↵
- Tarantino v. Galvano, 2017 ONSC 3535 (S.C.) at para. 1, aff’d on appeal 2019 ONCA 699 ↵
- Tarantino v. Galvano, 2017 ONSC 3535 (S.C.) at para. 144 aff’d on appeal 2019 ONCA 699 (Emphasis added). ↵