A case review of Re; McLaren1
If one reviews the secondary authorities2 one of the grounds listed warranting the removal of an executor is “substantial breach of trust”. The case often cited in support of that proposition is McLaren, Re. Interestingly, this case and the others cited3do not use the term “substantial breach of trust”. Nonetheless, there is a certain inescapable logic to the conclusion that a mere technical breach of trust should not warrant the removal of an executor. After all, the real test in these sorts of cases continues to be whether the removal of an executor is in the best interests of the estate. Since 1884, the guiding principle in respect of removing trustees has been “the welfare of the beneficiaries.”4
How “substantial” does the breach of trust have to be before the court will consider the removal of the trustee? The courts have refused to remove trustees who have made an isolated mistake in the exercise of their powers, and as a general rule, technical breaches of trust are not enough, if they have been done with the best interests of the beneficiaries in mind5.
The following is a non-exhaustive list of scenarios where the court has found that the welfare of the beneficiaries has been jeopardized by a substantial breach of trust.
- The failure of an estate trustee to maintain an even hand between beneficiaries can amount to a substantial breach of trust. This could include a failure to maintain an even hand between a life interest and a remainder interest holder6.
- An improper exercise of discretion, such as the decision not to sell an estate asset against the wishes of the beneficiaries, could result in a substantial breach of trust. However, if the terms of the will give broad discretionary powers to the trustees, and if the trustees acted “honestly, reasonably and in good faith”, the court will defer to the testator’s wishes7.
- Substantial personal benefit to the detriment of the estate could amount to a substantial breach of trust. This could occur where an estate trustee occupies estate property, fails to pay rent or contributes to the deterioration of the estate property.8 The courts have removed estate trustees for gaining certain shareholdings and receiving loans at the expense of the estate and without the consent of co-trustees. In such cases, the courts may dismiss the defence of ignorance9.
- The taking of executor’s fees prior to the grant of probate and using estate funds for one’s own investments may also amount to a breach of trust.10
- An estate trustee has been removed for acquiring debt and security of a corporation of which the estate was a substantial shareholder. The trustee’s position as “trustee on one hand and creditor on the other hand” led to a clear breach of trust and led to his removal.11
- Hiding assets from co-trustees and refusing to provide the beneficiaries with a proper accounting, led the court in Ballentine12 to remove one of three trustees.
- An estate trustee has a fiduciary duty to disclose any amounts that are owing to the estate, particularly if the estate trustee is a debtor of the estate13. The estate trustee must also disclose if one’s family members are debtors of the estate14
- An estate trustee who places themselves in a conflict of interest position vis-a-vis the estate by acting as the plaintiff in one action and the defendant for the other action15.
As previously discussed, technical breaches of trust will not lead to removal where they were done with the best interests of the beneficiaries in mind. The Trustee Act provides a list of scenarios whereby an estate trustee will not be considered to be in breach;
- Where a trustee appoints a solicitor or bank manager for the purposes of giving a discharge of any money/property owing to the trust16
- Where a trustee relies on investment advice, if a prudent investor would rely on the advice under comparable circumstances17
- Where an agent (e.g. investment advisor) is authorized to exercise the trustee’s functions and breaches their duty to the trust, the trustee will not be removed however the beneficiaries bring proceedings against the agent18
- If the loss is not related to the investment of trust property, the court has the power to excuse technical breaches of trust either wholly or partly where the trustee 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 breach19
Analysis of the McLaren Case
In McLaren the applicant, her sister and the Official Guardian sought the removal of the four executors who were also beneficiaries. The deceased owned a Virginia property and the only reason this application was commenced was to divest the trustees of the power to sell that property.
The hearing judge, who made the original order under appeal, reviewed the conduct of the executors and found:
- no misconduct,
- no wilful neglect or default,
- no unwarranted delay,
- no dilatoriness on the part of the trustees
However, the hearing judge removed the executors and held that “[serious] technical breaches of duty” had occurred. Firstly, that the executors advanced sums to certain individuals, including the applicant, before setting aside funds amounting to $250,000 to provide income for the widow and daughters of the deceased. Also, the executors had not sold the Virginia property and some small properties in Ontario. Finally, the executors refused to give one of the parties information about the Virginia property which prevented him from making a bid for the property.
The Court of Appeal, however, disagreed. The Court of Appeal held that the executors’ acts were “mere technical breach[es] of trust” and stated as follows:
“Though, in the eyes of the law, the making of the advances was a breach of trust, it was, I think, a mere technical breach of trust within the meaning of secs. 36 and 37 of the Trustee Act, R.S.O. 1914, ch. 121. It is due to these executors and trustees to say that, in making the advances now complained of as a breach of trust, they acted honestly, and did what they, in good faith, believed to be in the best interest of all, and did not prefer one to another. To my way of thinking, these technical breaches of trust cannot fairly be made a ground for removing the trustees from their office or of controlling them in the management of the trust-estate …”.
One author suggests that an estate trustee has 10 general duties.20 Over and above that list, the courts have indicated that the estate trustee has a duty to treat beneficiaries with an even hand.21 The courts have made clear that technical minor breaches of those duties do not warrant the removal of executors. For the applicant/plaintiff seeking the removal of the executor it is imperative to show how the breach of duty or trust was “substantial”. It must be shown that the breach of trust in question substantially hurts the interests of the beneficiaries.
All Posts in This Series
- 1922 CarswellOnt 236, 51 O.L.R. 538, 69 D.L.R. 599.(McLaren) ↵
- Widdifield on Executors and Trustees, 6th Edition15 — RESIGNATION, REMOVAL AND APPOINTMENT OF TRUSTEES Contributing Editor: Elena Hoffstein, Editor: Carmen S. Thériaul (Widdified); Ontario — Estate Administration PROOF OF FACTS Contributing Editor: Megan F. Connolly, Editor: Anne E.P. Armstrong (Armstrong) ; LSUC Estate Litigation Practice Essentials: Removal of Executors October 30, 2012 (Whaley) ↵
- Armstrong only lists McLaren. Widdifield lists Phelps, Ex parte (1742), 9 Mod. 357; Reynolds, Ex parte (1800), 31 E.R. 816 (assignees in bankruptcy); Patterson, Re,(1928) 3 D.L.R. 197 (Ont. C.A.); McLaren, Re (1922), 69 D.L.R. 599 (Ont. C.A.); Smith, Re (1971), 18 D.L.R. (3d) 405 (Ont. C.A.), Martin, Re (1978), 3 E.T.R. 134 (Sask. Surr. Ct.). In Hall v. Hall (1983), 45 B.C.L.R. 154 (B.C. S.C.), Burkett v. Burkett Estate, 2018 BCSC 320, 2018 CarswellBC 479 (B.C. S.C.). In Cooper v. Fenwick (September 27, 1994), Doc. 1658/84, 1994 CarswellOnt 3949 (Ont. Gen. Div.), Ballentine v. Ballentine (2000), 35 E.T.R. (2d) 165 (Ont. S.C.J.), additional reasons (2001), 37 E.T.R. (2d) 169 (Ont. S.C.J.), affirmed (2001), 38 E.T.R. (2d) 165 (Ont. C.A.), Beatrice Watson-Acheson Foundation v. Polk (2006), 2006 CarswellOnt 3806 (Ont. S.C.J.). Videchak v. Giarratano (2010), 2010 CarswellOnt 4806 (Ont. S.C.J.). Lavigne (Litigation guardian of) v. Labelle, 2015 ONSC 7322, 2015 CarswellOnt 17936 (Ont. S.C.J.), additional reasons 2016 CarswellOnt 182 (Ont. S.C.J.).Mardesic v. Vukovich Estate, 1988 CarswellBC 320, 30 B.C.L.R. (2d) 170 (B.C. S.C.). Minshall v. Minshall, 2017 ONSC 2952, 2017 CarswellOnt 6988, 3 C.P.C. (8th) 329, 27 E.T.R. (4th) 98 (Ont. S.C.J.). ↵
- Letterstedt v Broers, (1883-84) LR 9 App Cas 371 (South Africa P.C.) ↵
- Waters’ Law of Trusts in Canada, 4th Ed. at 16.III. In his text Professor Waters says at p. 685-686
“Applying the test of the welfare of the beneficiaries, the courts have refused to remove trustees who have made an isolated mistake in the exercise of their powers. As a general rule technical breaches of trust are not enough, if they have been done with the best interests of the beneficiaries in mind. Omissions and mistakes must be a persistent occurrence if removal is to be justified. … but it is clear from the reported cases that it is hard to dislodge a trustee whose act or acts were honest, believed to be in the best interests of all, and who was not partial.” ↵
- Smith, Re, 1971 CarswellOnt 629 ↵
- McLaren, Re 1922 CarswellOnt 236 ↵
- Martin, Re 1978 CarswellSask 64 at para 1 ↵
- Hall v Hall, 1983 CarswellBC 137 at para ↵
- Burkett v Burkett Estate, 2018 BCSC 320, 2018 CarswellBC 479 ↵
- Cooper v. Fenwick (September 27, 1994), Doc. 1658/84, 1994 CarswellOnt 3949(Ont. Gen. Div.) ↵
- Ballentine v. Ballentine (2000), 35 E.T.R. (2d) 165 (Ont. S.C.J.), additional reasons (2001), 37 E.T.R. (2d) 169 (Ont. S.C.J.), affirmed (2001), 38 E.T.R. (2d) 165 (Ont. C.A.) ↵
- Beatrice Watson-Acheson Foundation v. Polk, 2006 CarswellOnt 3806 (Ont. S.C.J.). ↵
- Videchak v. Giarratano (2010), 2010 CarswellOnt 4806 (Ont. S.C.J.) ↵
- Mardesic v. Vukovich Estate, 1988 CarswellBC 320, 30 B.C.L.R. (2d) 170(B.C. S.C.). ↵
- Section 20(3) of the Trustee Act ↵
- Section 27(8) of the Trustee Act ↵
- Section 27.2(3) of the Trustee Act ↵
- Section 35(1) of the Trustee Act ↵
- I refer the reader to paragraphs 8.13-8.62 of Feeney’s Canadian Law of Wills, 4th Edition. The Author lists ten duties: “The personal representative must:
1. Dispose of the deceased’s body’
2. Schedule all the deceased’s assets and ascertain their value’
3. Arrange to have application made to the court of probate for the issue of proper grant or administration;
4. Complete and file the required succession duty forms, if applicable;
5. Advertise for creditors;
6. Complete and file income tax returns;
7. Pay funeral, legal and testamentary expenses and succession duties and income taxes, if any, as well as pay all outstanding debts and meet all uncompleted obligations of the deceased;
8. Claim all debts due to the deceased and generally collect all the assets;
9. Keep accounts; and
10. Invest assets not properly invested and not required for the immediate purpose of administration. ↵
- See, Options for disgruntled beneficiaries in the face of the rule In Howe v. Lord Darmouth” by Kimberly Whaley. In that article she states,
The even hand rule is a principle familiar to all estate and trust practitioners: In all their dealings with trust affairs, the trustees must act in such a way that, if there are multiple beneficiaries, each beneficiary receives exactly what the terms of the trust confers upon him and otherwise receives no advantage and suffers no burden which other beneficiaries do not share1. In the common event where the testator favours certain beneficiaries more than others, the trustee must still ensure that the manner in which she administers the estate does not favour or burden any beneficiary in a way not prescribed by the will.
Flowing from the even hand rule is the rule in Howe v. Lord Dartmouth which impose upon trustees a duty to convert wasting or unproductive personalty into authorized investments. The rule presumes that the testator had intended to treat the income and capital beneficiaries equitably. Howe v. Lord Dartmouth was adopted with approval by the Supreme Court of Canada in Lottman v. Stanford. ↵