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Passing of trustee's accounts
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Passing of trustee's accounts99 (1) Unless his or her accounts are approved and consented to in writing by all beneficiaries, or the court otherwise orders, an executor, administrator, trustee under a will and judicial trustee must, within 2 years from the date of the grant of probate or grant of administration or within 2 years from the date of his or her appointment, and every other trustee may at any time obtain from the court an order for passing his or her first accounts, and he or she must pass his or her subsequent accounts at the times the court directs. (2) Despite subsection (1), an executor, administrator and trustee, including a judicial trustee, if so required by notice served on him or her at the instance of a person beneficially interested in the property covered by the trust, must pass his or her accounts annually within one month from the anniversary of the grant of probate or the grant of administration or of his or her appointment, but the court may on application make an order it considers proper as to the time and manner of passing the accounts. (3) If an executor, administrator or trustee fails to pass any accounts under this section, or if his or her accounts are incomplete or inaccurate, he or she may be required to attend before the court to show cause why the account has not been passed or a proper proceeding in connection with it taken and proper directions may be given at chambers or by adjournment into court, including the removal of a trustee and appointment of another, and payment of costs. (4) Subsection (1) does not apply to the Public Guardian and Trustee, if appointed under Division 11 of Part 6 of the Wills, Estates and Succession Act, or to any executor, administrator or trustee under a will if the date of the grant of probate or grant of administration or of his or her appointment is before May 1, 1949. Ontario (AG) v Ballard Estate (ONSC) Facts: Plaintiffs sought an order directing the production of all communications re management of the estate, including all solicitor client communications. Both parties agreed that it didn’t attach viz the trustees as it did between solicitor/beneficiary, but they argued that no beneficiary has a right until the state is administered (ie: procedural and determining what their beneficiary status is) Issue: Do beneficiaries need a proprietary right in order to get information from the executors? Ratio: Beneficiaries do not need to have a proprietary right in order to see the documents. In the instance of a residuary legatee or contingent interest, they still have a right to see the documents as their interest in the estate is still legitimate even if they receive nothing Analysis: It is important to note that, as the trust instrument and the trustees are basically just a conduit through which information flows, so long as a beneficiary is one and the documents are in the possession of the estate, the documents are basically his. Property rights are a red herring as there isn’t any concern with a discovery process as that concerns documents which do not belong to you. The threshold is that there must be prima facie proof that one is or could be a beneficiary, along with showing that the documents were prepared and used in the administration of the estate. If this is met, the production will be warranted Note: This case and other cases historically were predicated on claims of breach of fiduciary duty and lack of good faith. Given the seriousness of these claims, it shouldn’t surprise anyone that the court won’t be big on allowing trustees to keep information secret Holding: production ordered Vadim Schmidt v Rosewood Trust Ltd – Isle of Man as determined by UKPC Facts: Vitali S. set up the Angora and Everest Trust in the Isle of Man with the benefits of being a tax haven close at hand. Vitali was a senior executive in Russias biggest oil company. Vadim wasn’t asking for discovery, but by way of being a beneficiary, he claimed he had the right to know about the trust instruments. The Angora trust had three potential beneficiaries (with stipulations rejecting the ability to add more) While the Everest trust had named beneficiaries and Vitali sent a letter saying that Vadim should be added. Issue: Can the son require information disclosure? Ratio: The court has inherent jurisdiction as a supervisory body to order the production of trust documents. Someone who could benefit, even under a mere power, may be entitled to information. The court must balance the competing interests of different parties when deciding whether to utilize its discretion Analysis: The Angora trust was not clear as to whether Vadim could become a trustee and the Everest trust was very clear that by nature of its non-closed list and the letter, that Vadim could be a trustee. As such, he was entitled to more information about the Everest trust. Vadim was also a kind of administrator of the account, which meant that he was entitled to information which would determine whether breaches of fiduciary duty had occurred such that more funds would have been available for Vitali to distribute. Considering many of the funds of the trust were paid out to Vitali from companies that were ostensibly his, Vadim had a right to make sure that the funds were fully accounted for (if only for the beneficiaries of the Angora trust in an investigatory role) Holding: Remitted down for further investigation Sandford v Porter Facts: Trustee was trying to provide information regarding the administration of the estate, but the beneficiaries were jumping the gun and trying to compel immediate disclosure. The beneficiaries wanted them to drop everything they were doing and produce, otherwise they claim they would be breaching their duty. Issue: How must trustees apport themselves in the disclosure of documentation? Ratio: A trustee must have accounts ready and provide all reasonable facilities for inspection and examination and to give full information whenever required. This duty, however, is governed by what is reasonable in the circumstances according to common sense. Analysis: Here, not only was the estate very complex, but it was actually tied up with other litigation at the time. This militated in favour of the trustees in that they should be given more time to produce documents accordingly. Note: It is stated that the beneficiaries may obtain information respecting the accounts but generally have no rights to the decision-making memoranda of the trustees except where breach of trust is alleged Holding: No breach of duty Jones et al v Shipping Federation of BC Facts: there was a non-contributory pension plan that had the unilateral right for the employers to change it as they felt necessary. If there was a surplus via actuarial error, it should be returned to the employees. After a strike negotiation, the employers agreed to pay more but wanted to use a surplus to finance the new plan. The employees demurred, claiming it belong to them. The trust instrument provided that only the settlor could require an accounting, thereby cutting out the beneficiaries ability to double check their math. Issue: Is the clause which ousts the ability for anyone but the settlors to examine the accounts allowable on public policy grounds? Ratio: No, such a clause is void for public policy reasons Analysis: The beneficiaries need to be able to sue and the ability to compel cannot oust the inherent jurisdiction of the court to administer the trust and supervise it in equity. Consideration: Could you restrict info but not the ability to sue? Holding: Void for PP Powers McPhail v Doulton Facts: Supra Clause 9(a) – The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the company or toany relatives or dependents of any such persons in such amounts at such times and on such condition (if any) as they think fit Consideration: Both lower and appellate courts found a power. Case held to be a discretionary trust which allowed relaxed test viz certainty of objects. Case distinguished due to interrelation between “shall” when read in conjunction with 9(b) and 9(c) Tempest v Lord Camoys Facts: The trustees had the power to buy/sell real property and mortgage trust assets. The beneficiaries wanted the purchase of an estate previously owned by the estate. The trustees were divided on whether they should buy this particular property. As there was a unanimity requirement, nothing was being done. Issue: is this a duty or a power? If they do not exercise it, are they breaching their duty? Ratio: The court will only prevent the utilization of powers from being exercised if done improperly via bad faith, mala fides, negligence, etc Analysis: Here, the duty to invest was accompanied by a power of discretion. By virtue of not buying the land, they were still doing their duty. The court saw no reason to interfere as their unanimity would come to bear on a later property at a later date. Obviously the court will compel a duty coupled with a power to be exercised eventually (As they had a duty to invest), but there was no call for that here Holding: No breach of duty, no removal of trustees Re Floyd Facts: Supra Consideration: The trustees had the utmost discretion in addition to capital encroachment powers. Their decision to rent the florida unit was done in good faith and was not an improper use of their power. Furthermore, they weren’t completely taking away the capital of the trust, and they were honouring the settlors wishes Exercise of Discretionary Powers Turner v Turner Facts: In this case, the trustee was basically acting as a rubber stamp, merely signing documents that were asked to be signed and never informing himself of the duties and powers he had as trustee. Issue: What duties does a trustee come under in the exercise of their trustee work? Ratio: A trustee whom is given a power is bound to exercise that power in a reasonable manner. Where they have discretion to exercise the ability to use a power, they come under a duty to consider the power from time to time and as material facts change. Analysis: Rather than inform himself of any of his duties, the trustee was found to breach by not even considering the exercise of his powers. As the beneficiaries might benefit from this exercise, it is important to consider it from time to time. Holding: Breach of fiduciary duties Fox v Fox Estate Facts: Ralph fox, left his wife 75 of the life interest with his son 25% with capital to the son if he survived. Miriam had the power to encroach in favour of walter or walters children. Walter decided to marry a non-jew (After a bitter divorce to his first wife). Miriam made a will disowning Walter and made such encroachments in favour of Walters children that she basically moved so many things into their favour that walter lost his entire interest. Walter challenged this, the TJ said no improper exercise of power Issue: Where powers are exercised for both good and evil, how will the court treat the use of said powers? Ratio: Salient Points: A trustee may not treat trust property as their own in the exercise of their powers, they may not exercise their power in contravention to the trust instrument, and, depending on the severity of the bad/good mix, their actions may be overturned Analysis: Galligan JA – The prime motivation was deprivation and this is not something a trustee should do on behalf of their beneficiary. Furthermore, against her protestations that it was implied, the will said nothing about discriminating against walter based on who he married (walter married just before his dads death). Even though the ancillary motivation was for the kids, public policy is against this kind of discrimination McKinlay JA: The real problem was that she treated the property as her own (which a trustee is not entitled to do). While she did have a large interest, the property still wasn’t hers per se. Finally, there is most likely an issue with unfair or uneven treatment given the preference shown towards the kids Catzman JA: The power to encroach did not allow her to basically destroy the entire estate, that being said, the mixed good and bad purposes shouldn’t invalidate the whole action. More in line with maintaining trust instrument itself Holding: overturned Pitt v Holt (UK Case) Facts: Pitt was injured in a traffic accident, his wife was appointed receiver. He received a lump sum and annuity which Pitt transferred into a trust. The trust attracted tax charges which would have been avoided if they had used a disabled persons trust. The beneficiaries wanted the settlement voided. They relied on the rule in Hastings-Bass that said the court had the equitable jurisdiction to set aside mistakes made by trustees Historical Note: Any time trustees messed up, they would invoke H-B and the court would revest the property in the trust . This would have the impact of voiding contracts with no penalty, avoiding taxes or charges, etc. Trustees would apply for their own mistakes, have them reversed, and have the costs paid out of the estate Issue: Can the HB rule be invoked? Ratio: The HB rule was overturned. It is not equitable to use the court as an insurance policy, let alone to condone the actions of the trustee that might deprive the trust of revenue. Analysis: Rather than make a mistake and ask for forgiveness, it is far more prudent to seek advice from an advisor and follow it. Here that was what had happened, but the loss was made to lie on the estate, not the trustee as there had been no breach of their duty for seeking expert advice. Ultimately, continuing to allow H-B incentivizes people to not do their due diligence, knowing they have a judicial backstop. The courts still have the discretion to set aside a decision where there has been some sort of illegality or wrongdoing, but this is a more limited remedy than the kind of judicial kindness that had been exercised before Holding: No way jose Judicial Supervision Gisborne v Gisborne Facts: Charlotte was entitled to have reasonable and proper provision made for her clothing, board, lodging, maintenance, ease and support out of the income of the residue of the estate. Walter gisborne actually applied to have his mom found insane (lunatic) which she was. Issues surrounded how much she would be paid out of the estate. Issue: Where the trustees have discretion to devolve funds to the beneficiary, who is best suited to determine which funds should be allocated? Ratio: Where there is no allegation of wrongdoing, fraud, bad faith or breach of duty, the trustees will be the judge of how to properly exercise their power and the court will not interfere. Analysis: The trustees here were deemed to have uncontrolled authority on how to distribute the funds. Because Charlotte had her own funds but had recently been found insane, the trustees only felt it was necessary to give her funds after hers were depleted. Whether or not this is fair, this was within their discretion to do Holding: Valid exercise of powers Edell v Sitzer Facts: Michael Sitzer and his sister Jodi Edell (nee Sitzer) had bad blood pertaining to Paul (grandpa’s) estate planning decision. He tried to negotiate a settlement with them but they were such dicks that he disowned her and gave his entire business to Michael. Paul used his power to encroach to destroy the Jodi Trust which held shares in his company and gave the shares to Michael. He once again made another settlement offer to Jodi which she rejected. Jodi claimed Paul had acted in bad faith and to punish her such that the exercise of his power was not valid Issue: Where a power is used in such a deleterious fashion, can its exercise be upheld? Ratio: Where a claim is made that a trustee exercised their power based on extraneous considerations, the plaintiff bears the onus of proving such considerations led to the improper acts. Analysis: Key factual findings here seem to win the day as Paul’s power to use his powers were sufficiently broad and flexible to be able to be used in order to protect the capital and further the reasons why the power was allowed in the first place. Considering the risk to the business that would occur by virtue of Jodi keeping the PaulCo shares might destroy the business, it wasn’t an unreasonable way to use the power (especially as the complete power to encroach was considered) Note: The “punishment” was clearly not malum in se as Paul had on multiple occasions attempted to settle the issue without litigation and pay out Jodi in order to both accommodate her and keep the business in the right hands. She ultimately forced his hand on the matter. While it still might have been a disproportionate response, she most certainly did not come to equity with clean hand (she was also described as possessive, demanding and hypercritical since a young age, something that apparently only got worse). Holding: No overturning of discretionary use of powers. Rights Seeking Advice, Opinion, and Direction Trustee Act – S.86 Directory: wp-content -> uploads -> gravity forms -> 1-7d6c8355b7f07846e8789d85deabdb60 -> 2016 gravity forms -> Earl E. 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