In the ordinary course both the Estate Trustee1 and the Attorney for Property2 are entitled to be compensated for their work. What happens if they don’t follow the common law or statutory obligations that oblige an Estate Trustee or an Attorney for Property to keep proper accounts? What happens if they wrongfully take money or breach other obligations on them? Do they still get compensated or do they just get less money? Have the courts provided a clear red line that disentitles a trustee from receiving compensation?
“Where a trustee has committed a breach of trust, the court may in its discretion either allow him full compensation, or deny him all compensation, or allow him a reduced compensation. Where his compensation is reduced or denied, this is done not for the purpose of imposing a penalty on him for committing a breach of trust but on the ground that he has not properly performed the services for which compensation is given.”
The operative phrase is that a court “may deny him all compensation”. The question still remains – at what point will the court exercise its discretion to deny him all compensation. What follows is a selected analysis of the relevant statutes and law that attempts to determine when the courts will deny all compensation.
Both an Estate Trustee and an Attorney for Property have a duty of loyalty, prudence and good faith.5 They both have a duty to keep proper accounts and be ready to provide them whenever required to do so.6 The case law has evolved regarding the extent to which the failure to comply with this fiduciary duty has reduced and/or eliminated the Estate Trustee’s and or the Attorney for Property’s entitlement to compensation. Initially, negligence did not disentitle a trustee to compensation.7 But the case law evolved and courts started to show a willingness to reduce and/or deny compensation.8
While Canadian courts eventually overcame their reluctance to even reduce compensation there is recent case law demonstrating a reluctance to entirely eliminate compensation for misconduct by an executor or attorney for property.9The resistance to a total elimination of compensation for misconduct was highlighted in the Assaf Estate case (Assaf).10 In Assaf, Justice Strathy reviewed the evidence and concluded that the Estate Trustee forged a signature on an escrow undertaking and that his affidavits were false, at least to the extent that he tendered a forged document as proof of his statement that Park had breached an undertaking to keep the document in escrow. The question then was: what is the effect of this on the trustee’s compensation? The Estate Trustee claimed $87,967.97 in compensation for his administration of the estate for over two decades. The beneficiaries asked that the court order that no compensation be paid. Their request was based on a fundamental breach of the estate trustee’s fiduciary duties including forging documents and perjury. Justice Strathy asks our question, “In these circumstances, should the court apply an inflexible rule, depriving Bosada of compensation altogether, to show that it will not condone deceit by trustees? Or should the Court attempt to strike some balance between the gravity of the act and the harm done?”11 His analysis is instructive when considering what factors the court takes into account when considering whether to disentitle an executor to compensation:
“155 I have concluded that Mr. Burton’s conduct was appropriate in the face of considerable challenges and, having listened to the recordings of some of William’s messages left on Mr. Burton’s telephone, I would echo Justice Greer’s description of William’s conduct as “egregious”.
156 There must, however, be some sanction imposed on the estate trustee for his misconduct in committing forgery and perjury with the intention of discrediting William. As William has noted, this allegation was particularly serious in light of his history and previous conviction for perjury. I realize that the imposition of a sanction will fall on Bosada’s widow, Ms. Tsuji, and this is a matter of considerable regret. I also realize that in all probability Bosada took on the task of estate trustee at the request of his sister, Vivian, and his nephew, William, and that he was probably trying to do them a favour. No doubt the administration proved to be a nightmare to him and he endured bullying, abuse and extreme provocation from William. That said, he had responsibilities to all the beneficiaries and to the Court and it would be inappropriate to allow him full compensation.
157 The question is whether Bosada should be deprived of compensation altogether or whether he should be given some allowance for his efforts.
158 Bosada was estate trustee for almost 20 years, from July, 1985 until his death in 2004. The accounts in question are for the period of April 6, 1998 to October 31, 2003. During the period from 1998 onwards, Bosada and the estate were under constant siege by William and the battle was not being fought according to the Marquis of Queensbury Rules. But for the willingness of Bosada to stand up to William, and the tenacity of Mr. Burton, William would have steamrolled over them. Ultimately, the estate and the beneficiaries benefited from Bosada’s efforts to protect the assets of the estate from the unrelenting attacks of William and Vivian.
159 This does not justify Bosada’s actions which are, frankly, inexplicable. Nevertheless, there is no evidence that Bosada’s acts caused any harm to the estate itself. The evidence of Meyer, which is the only specific evidence on the point, does not satisfy me that there was real harm to the estate. I am not satisfied that any court order in the long history of the estate was the result of Bosada’s false affidavit evidence. Nor am I satisfied that the result of any of the proceedings would have been different, had the Kruger Report or its conclusions been disclosed at any time.
160 It seems to me that there are three options. One would be to grant full compensation, regardless of the misconduct, on the basis that no harm was done to the estate itself. I decline to do this, because it would condone serious misconduct by a trustee who owed duties not just to the estate and the beneficiaries but also to the Court.
161 At the other extreme, I could refuse compensation altogether. I have concluded that this would be unduly harsh to Mr. Bosada and it would fail to recognize his substantial service to the estate in the face of challenging circumstances.
162 I have therefore decided to take the third option — the middle ground — and propose to reduce the trustee’s compensation to $42,500.00, which is about one-half of the amount I would have awarded, but for his misconduct. I think this is a reasonable balance between giving the trustee some compensation for his considerable efforts and expressing the Court’s disapproval of what appear to be isolated and inexplicable acts of misconduct.
It appears that for Justice Strathy the tipping point was set out in paragraphs 160 – 161, where notwithstanding the necessity to ensure that the court does not condone misconduct by granting full compensation it would be unduly harsh not to take into account an executor’s substantial service to the estate in the face of challenging circumstance. From Assaf we see when a court will not disentitle an executor to compensation. But when will a judge say that the behaviour is so bad that compensation is totally denied?
In 2008, there was a case in Manitoba where compensation was denied. The case was Budgell v. Hartley Estate and the court concluded that the attorney for property’s behaviour warranted the denial of compensation. The behaviour did not appear so much more egregious than other cases where compensation was merely reduced.12.
The court’s evolving views on what line has to be crossed for the court to deny a trustee compensation was on display in Zimmerman v. McMichael Estate.13 In this case, the executor did not comply with his duty to provide an accounting and breached his fiduciary duties. For our purposes let’s focus on two of Justice Strathy’s observations:
1. 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. Where a trustee is found to have failed to keep proper accounts and to have been grossly indifferent to his/her fiduciary obligations, he/she may be disentitled to compensation”14
2. “…I referred to the following statement in Rodney Hull and Ian Hull, Macdonell, Sheard and Hull on Probate Practice, 4th ed. (Toronto: Carswell, 1996), [where] the authors state, at pp. 358-59:
The conduct of an executor or trustee in carrying out his or her duties may be such as to justify the Court in depriving him or her or the right to remuneration; and an executor must make a proper accounting as a condition precedent to being awarded compensation. But only exceptional misconduct should deprive him or her of the right to remuneration . . . In general, although an executor may be guilty of neglect and defaults, these, if not dishonest, and capable of being made good in money, do not deprive the executor of the right to compensation although they may influence the amount allowed.15
This passage will drive those who seek certainty in the law crazy. Arguably, Justice Strathy has provided three different answers to our question.
Answer 1 – Proper Accounting is condition precedent to compensation.
Justice Strathy says “a proper accounting is a condition precedent to being awarded compensation”. So if the records are a shambles and the Court is “unable to assess the conduct” then no compensation will be awarded.
Answer 2 – Where a trustee is found to have failed to keep proper accounts and to have been grossly indifferent to his/her fiduciary obligations, he/she may be disentitled to compensation.
Here Justice Strathy seems to add a caveat. In order to be disentitled to compensation the trustee not only has to have failed to keep proper accounts, but s/he has to have been grossly indifferent to his/her fiduciary obligations.
Answer 3 – only exceptional misconduct and dishonesty disentitle a Trustee to compensation.
His Honour quotes the seminal text Macdonell, Sheard and Hull on Probate Practice for this proposition.
So what did Justice Strathy’s decision establish? Let’s see how it has been interpreted.
In 2012, there was an Ontario case by the name of Aragona v. Aragona (Guardian of).16 In this case the Guardian of property made cash withdrawals of $122,534.40 from his mother’s account without explanation. No compensation was awarded. Instead he was ordered to pay $132,628.33 and repay $12,699 to mother’s estate. The guardian argued that what he did was really not so bad and there were only improper withdrawals totalling $56,254, which he was prepared to repay to the estate. Moreover, only exceptional misconduct should disentitle a Guardian to compensation. He submitted that nothing of the kind was shown here. He relied on Assaf Estate, Re,  O.J. No. 1086 (Ont. S.C.J.), where Justice Strathy awarded 50 percent of an executor’s normal compensation where the executor forged a signature and swore three false affidavits. The judge disagreed,
“I reject the request of Beniamino Aragona for compensation. This is not a case like Assaf Estate, Re, supra. In that case, Strathy J. was prepared to allow a trustee 50 percent of his normal compensation, even though he had sworn false affidavits and forged a document, because there had been no harm done to the estate itself. The trustee had rendered substantial service to the estate in the face of unwarranted attacks by one of the beneficiaries. In the case before me, the guardian of property has adversely affected the estate. As noted, he has helped himself to large amounts of money. The investment account has been reduced to a fraction of its original size, with no convincing explanation. This case is much closer to Zimmerman v. McMichael Estate (2010), 103 O.R. (3d) 25 (Ont. S.C.J.), in which Strathy J. awarded no compensation for a guardian of property, where significant amounts of money had disappeared from an estate without adequate explanation. [emphasis added]
Aragona seems to clarify that disentitlement to compensation is warranted when an executor or attorney is guilty of misconduct and where there has been harm to the estate. Harm to the estate seems to be the red line. A case in point is Villa v. Villa.17 Here two brothers were fighting over their mother’s headstone. One brother sought to have the other pass accounts for the time frame when he was acting as an attorney for property. Section 32(6) of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (“SDA”) requires an attorney to keep proper accounts, which is virtually identical to the obligation of an estate trustee. The SDA also defines the Attorney for Property as a fiduciary18of all transactions involving the property in accordance with the regulations. Just like an estate trustee, the attorney for property must retain his records until he is discharged by the court on a passing of accounts.19 The Attorney for Property intermingled his assets with his mother’s and made improper investments. However, the judge concluded that, “…since he did not maliciously misuse access to these funds he is entitled to compensation for the ongoing effort and grief of trying to resolve the assets of this modest Estate with his brother …”.
In Testa v. Testa,20 two brothers sued a third asking the court to force the attorney for property to provide an accounting with respect to their mother’s assets. They alleged that the attorney for property breached his fiduciary duty. The attorney acknowledged that he did not comply with his obligations to provide accounts in accordance with the SDA, but excused the non-compliance because a propane explosion destroyed all the records. The court rejected the explanation and stated,
“I do not accept this explanation. Even if I accept his explanation that he was precluded from entering his property for 3 or 4 weeks and during that time, his records were destroyed or removed, had he moved diligently, he could have reconstructed most records from bank records, particularly while these matters were fresh in his mind. Instead, Tony’s evidence was, in most cases, that he had no recollection of transactions, including one that exceeded $150,000. As Strathy J (as he then was) stated in Zimmerman v. McMichael Estate, 2010 ONSC 2947 (CanLII), the problem is of Tony’s own making and he alone is to blame for the lack of evidence to support his position.21
With respect to compensation, the court noted,
In Zimmerman v. Fenwick, 2010 ONSC 2947 (CanLII) at paragraph 34, Justice Strathy stated that a proper accounting is a condition precedent to being awarded compensation, as “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”. I have found that Tony has failed to provide a proper accounting; even at trial he is unable to explain significant transactions. I further have found that Tony breached his fiduciary obligations as attorney. Tony’s counsel urges me to award a reduced compensation and points me to Villa v. Villa, 2013 ONSC 2202 (CanLII) and Stiko v. Gauthier (Estate), 2014 ONSC 5671 (CanLII). However, this case is much more akin to Aragona v. Aragona, 2012 ONSC 1495 (CanLII)22. Although Tony did “take care” of his mother’s finances while she was in Villa Columba, at the same time he breached his fiduciary duty through the creation of an inter vivos trust that materially worsened her financial situation and materially improved his. He made no distinction between her resources and his. As a result, I deny him compensation as attorney.23
Our question was when is a Trustee Disentitled to Compensation? The case law does not give us a clear redline. To date, it appears as if courts have not disentitled a trustee from receiving any compensation just because he/she breached his/her fiduciary duty. Courts have reduced compensation in those circumstances, but not ordered a disentitlement. What about Strathy’s comments that “a proper accounting is a condition precedent to being awarded compensation”? And His Honour’s comments that if the records are a shambles and the Court is “unable to assess the conduct” no compensation should be awarded? Perhaps these comments are sufficient guidance, but to date in every case where a trustee was disentitled there was a causal connection between the misconduct and the material worsening of the estate. That was why Justice Strathy declined to disentitle the Trustee in Assaf and did decide to award no compensation in Zimmerman.
Given the aging of the population, the vulnerability of the elderly and incapable and the greed of some trustees we have no doubt that there will be further court cases clarifying what the judicial redline on this issue is in the future.
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- An estate trustee is the personal representative appointed by a testator is his/her will. In the context of an intestacy the estate trustee is appointed by the court. ↩
- Under the Substitute Decisions Act every person with the capacity to do so may appoint an attorney for property and personal care. ↩
- See paragraph 103 of Simone v. Cheifetz, 1998 CarswellOnt 3200; 1998 CarswellOnt 3200, (1998) O.J. No. 3267, 24 E.T.R. (2d) 74. ↩
- The publication is called The Law of Trusts, 4th Ed., Vol. 3A and the quote can be found at p. 316. ↩
- See paragraphs 29 and 30 of Zimmerman v. McMichael Estate, 2010 CarswellOnt 3481, 2010 ONSC 2947, 57 E.T.R. (3d) 101which is also available online at http://canlii.ca/t/29vpj . The attorney for property’s obligation is set out under s. 32 of Substitute Decisions Act, 1992, S.O. 1992, c. 30 (“SDA“) and the Estate Trustee’s duties in this regard were set out by Justice Cullity in Banton v. Banton, 1998 CanLII 14926 (ON SC), (1998) O.J. No. 3528, 164 D.L.R. (4th) 176 (Gen. Div.), at paras. 151 and 152. ↩
- In paragraph 31-33 of Zimmerman Justice Strathy states,
(31)A trustee has an obligation to keep proper accounts. A trustee must keep a complete record of his/her activities and be in a position at all times to prove that he/she administered the trust prudently and honestly. He/she must have the accounts ready and give full information whenever required: Carmen S. Thériault, Widdifield on Executors and Trustees, 6th ed. (Scarborough, Ont.: Carswell, 2002) at p. 13-1; Waters’ Law of Trusts in Canada, above, at p. 1063; Sandford v. Porter, (1889) O.J. No. 43, 16 O.A.R. 565 (C.A.).
(32) An attorney for property has the same obligations. An attorney must, in accordance with the regulations established pursuant to the SDA, keep accounts of all transactions involving the grantor’s property: s. 32(6). Section 2(1) of O. Reg. 100/96 relating to the SDA provides that the accounts maintained by an attorney shall include, among other things:
2(1) . . . (a) a list of the incapable person’s assets as of the date of the first transaction by the attorney or guardian on the incapable person’s behalf . . .;
(b) an ongoing list of assets acquired and disposed of on behalf of the incapable person, including the date of and reason for the acquisition or disposition and from or to whom the asset is acquired or disposed;
(c) an ongoing list of all money received on behalf of the incapable person, including the amount, date, from whom it was received, the reason for the payment and the particulars of the accounts into which it was deposited;
(d) an ongoing list of all money paid out on behalf of the incapable person, including the amount, date purpose of the payment and to whom it was paid; (and) (page36)
. . . . .
(h) an ongoing list of all compensation taken by the attorney or guardian, if any, including the amount, date and method of calculation.
(33) Section 6(1) of that regulation provides that an attorney shall retain the accounts and records required by the regulation until he/she ceases to have authority and the attorney is discharged by the court on a passing of accounts under s. 42 of the SDA. ↩
- See Widdifield on Executors and Trustees, 11 — EXECUTOR’S COMPENSATION, Contributing Editor: Margaret E. Rintoul, Editor: Carmen S. Thériault, 11.5 — MALADMINISTRATION BY TRUSTEE where the authors refer to a series of cases for the proposition that the early cases stood for the proposition that even in the face of willful errors or blatant breach of fiduciary duties did not disentitle a trustee to his compensation including King, Re (1970), 15 D.L.R. (3d) 285 (Ont. C.A.), . Simpson v. Horne (1880), 28 Gr. 1 (Ont. H.C.) and McMillan v. McMillan (1874), 21 Gr. 369 (Ont. Ch.) and Kennedy v. Pingle (1880), 27 Gr. 305 (Ont. H.C.). ↩
- See Widdifield on Executors and Trustees, 11 — EXECUTOR’S COMPENSATION, Contributing Editor: Margaret E. Rintoul, Editor: Carmen S. Thériault, 11.5 — MALADMINISTRATION BY TRUSTEE where the authors refer to a series of cases demonstrating the evolution of the law towards reducing compensation. These cases include Irwin v. Robinson (2007), 2007 CarswellOnt 6368 (Ont. S.C.J.), Bigras Estate, Re, 2011 CarswellBC 1943 (B.C. S.C.) ↩
- Sworik (Guardian of) v. Ware 2005 CarswellOnt 3549 (Ont. S.C.J.). ↩
- Assaf Estate (Re), 2009 CanLII 11210 (ON SC), http://canlii.ca/t/22rqq . ↩
- See paragraph 154 Assaf. ↩
- 2008 CarswellMan 403 (Man. Master). ↩
- 2010 ONSC 2947 (Ont. S.C.J.) ( Zimmerman) ↩
- See paragraph 34 in Zimmerman. Justice Strathy Widdifield on Executors and Trustees, above, at p. 13-7; Gibson (Re), (1930) M.J. No. 34, (1931) 1 D.L.R. 159 (C.A.); Picov Estate (Re), (2000) O.J. No. 682 (S.C.J.). ↩
- See paragraph 34 of Zimmerman. ↩
- 2012 ONSC 1495, 2012 CarswellOnt 2936, 2012 ONSC 1495, 2012 CarswellOnt 2936, 214 A.C.W.S. (3d) 268, 76 E.T.R. (3d) 238. (Aragona) ↩
- Villa v. Villa, 2013 ONSC 2202 (CanLII), http://canlii.ca/t/fx8jk. (Villa) ↩
- See section 32(1) of the SDA. ↩
- See paragraph 6 of Villa and section 6(1) of the SDA to retain all records and accounts until he ceases to have authority and is discharged by the court on the passing of accounts under s. 42 of the SDA. ↩
- Testa v Testa, 2015 ONSC 2381 (CanLII), <http://canlii.ca/t/gh5k9>, (Testa). An important aspect of this case, which is not the subject matter of the blog is found at paragraphs 17-18. Following the grantor’s death and where the attorney and estate trustee are one and the same person, there can be no true accounting as between the attorney and estate trustee. As a result, courts have permitted beneficiaries and others in this circumstance to seek leave, as “any other person” under s. 42(4), to apply to the court for a passing of the attorney’s accounts for the period the attorney acted prior to the grantor’s death. See paragraph 52 of Ontario Court of Appeal decision in Spar Roofing & Metal Supplies Ltd. v. Glynn 2016 CarswellOnt 6407, 2016 ONCA 296, (2016) O.J. No. 2152, 265 A.C.W.S. (3d) 250, 348 O.A.C. 330, 401 D.L.R. (4th) 318. ↩
- See paragraphs 55 and 56 of Testa. ↩
- Leave to appeal denied. See Aragona v. Aragona, 2010 ONCA 863 (CanLII), <http://canlii.ca/t/2dz3n> ↩
- See paragraphs 167-171 Testa. ↩