Trustees have a duty to act with loyalty, prudence and good faith.1 Executors who breach their fiduciary duty risk being removed. So let’s review how that might take place.
Under the Trustee Act of Ontario, it is possible for any person with an interest in the estate2 to apply for an order removing a trustee.3 The courts are reluctant to use this power, however, and will only remove a trustee if it is in the best interests of the beneficiaries.4
A recent and striking example of this rule is the Ontario case of Venables v. Gordon Estate.5 In his will, Percival Hector Gordon established a generous trust for his daughter Helen. The income was to be paid to her for her life, with the remainder distributed equally to her two sons, Peter Gordon and Michael Venables. Helen was appointed as trustee, with Peter named as an alternative should his mother become unable to act. At the time of the litigation, the value of the trust was about $570,000.00 and Helen had reached the ripe old age of 100. Not surprisingly, she was having difficulty in carrying out some of her duties as executor.
In mid-September, 2006, Peter notified Michael that he would be taking over as trustee according to their grandfather’s will. This led to almost immediate problem. Peter started taking management fees out of the income account,6 making unauthorized investments,7 and at one point even stopped making payments to his mother.8 Michael, who was Helen’s attorney under a power of attorney, applied to have Peter removed as executor.
Was Peter’s behaviour bad enough for the court to order him removed as the executor of his grandfather’s estate? In a word, yes. This case was different from some previous cases that held that a trustee can only be removed where it is clearly necessary,9 where there is no other course to follow,10 or where non-removal would prevent the proper execution of the trust.11 The court in Venables found that Peter had crossed the redline. The court appointed a corporate trustee to take his place.
The Venables case is interesting to lawyers for several reasons. First, it re-emphasizes the fact that, when deciding whether or not to remove a trustee, the courts tend to focus on the best interests of the beneficiaries and the future administration of the estate.12 Removing a trustee is primarily about protecting the beneficiaries and not about punishing the trustee for past misdeeds. Second, Venables suggests that the courts might be more willing to remove a trustee where the conflict erupts between the trustee and someone who is “more than a mere beneficiary.”13 In Venables, Michael was the litigation guardian and attorney for property of his mother, who was the original trustee. Michael and Peter had also signed a settlement agreement in 2009 pursuant to which Peter agreed to give monthly bank statements to Michael and seek his approval for new investments. The court found: “Even if Michael was considered a mere beneficiary, Peter’s removal would be justified; but Michael stands in an enhanced position.”14 A question that intrigued me was why Michael did not seek his own appointment. Why did Michael want a corporate trustee instead? In our experience, when families argue over who should be executors, the court’s default position is to appoint a neutral estate trustee. I speculate that perhaps – being aware of that, Michael’s counsel may have advised him to take the high road and opt for a corporate trustee.
So what’s the bottom line? Every situation is fact specific and even if you think your situation resembles a case you read about, it would be a mistake to jump to a legal conclusion. However, as a general rule, when considering whether to remove an executor, judges tend to focus on the future administration of the trust, the protection of the beneficiaries and the status of the applicant seeking the executor’s removal. This short review of the law should not be taken as legal advice. Based on my experience in dealing with these cases, they often turn on the specific facts. If you have a legal question relating to something similar, you would be well advised to seek out competent legal counsel to determine your best course of action.
- In addition, trustees have a duty to avoid conflicts of interest, to account, to act gratuitously, etc. The various duties of trustees are outlined in Donovan Waters, Waters’ Law of Trusts in Canada, 3d Ed. (Thomson Canada Limited, 2005) at Chapter 18. See, e.g., Banton v. Banton, (1998) O.J. No. 3528, 164 D.L.R. (4th) 176 (Ont. Gen. Div.). Joint trustees also have a duty to act jointly; that is, unanimously. See A. Oosterhoff, Oosterhoff on Trusts: Text, Commentary and Materials, 7th Ed. (Thomson Reuters Canada Ltd., 2009) at p. 1050-1051. ↵
- Trustee Act, R.S.O. 1990, c. T.23, s. 37(3). ↵
- Trustee Act, R.S.O. 1990, c. T.23, s. 37(1). The court also has an inherent jurisdiction to remove a trustee. ↵
- The classic statement of the rule may be found in Lord Blackburn’s speech in Letterstedt v. Broers (1884), 9 App. Cas. 371 (P.C.). ↵
- Venables (Litigation Guardian of) v. Gordon Estate (2012), 76 E.T.R. (3d) (Ont. S.C.J.). ↵
- Supra, at paras. 12 and 16. By taking management fees out of income, a person entitled to the remainder is essentially preserving his own inheritance at the expense of the life tenant. ↵
- Supra, at para. 17. He executed trades totaling $56,000.00 in one month. ↵
- Supra, at para. 14. ↵
- Re Weil, (1961) O.R. 888 at 889 (C.A.). ↵
- Crawford v. Jardine, (1997) O.J. No. 5041 (Ont. Ct. (Gen. Div.), citing Re Tempest (1866), L.R. 1 Ch. 485. ↵
- Supra, Crawford. ↵
- See St. Joseph’s Health Centre v. Dzwiekowski (2007), 162 A.C.W.S. (3d) 348 (Ont. S.C.J.). ↵
- Venables, supra at para. 32. ↵
- Venables, supra, at para. 36. ↵