Will's "No Liability" Clause May Not Protect Executor/Trustee Who Fails To Invest Pru
Many wills contain a clause that allows an executor to make investments in his or her sole discretion and simultaneously absolves the executor from any losses that arise because of bad investment decisions. At first blush, many executors believe that this means they have a blank cheque to invest as they wish. A recent court decision demonstrates that this is not the case.
The estate was a relatively modest one with assets of about $574,000 and liabilities of about $207,000. The will instructed the executor to make a number of nominal legacies after which a number of trusts were to be established. The executor liquidated the assets and placed the funds in a margin account. He then spent some money renovating the deceased's house with a view to renting it out to obtain income for the trusts.
The beneficiaries objected to the executor attempt to pass the estate accounts, primarily on the grounds that the executor failed to diversify the investments and purchased stock on margin.
In determining that the executor was liable the court examined the relevant provision in the will which allowed the executor discretion in making investments. The court stated:
Paragraph 3 of the will permits the estate trustee to “retain any portion of my estate in the form in which it may be at my death for such length of time as he in his sole discretion shall deem advisable, and my trustee shall not be held responsible for any loss that may happen to my estate by reason of his so doing.” Paragraph 12 of the will provided that the estate trustee was authorized “to make any investments for my estate that my Trustee considers appropriate without being limited to those investments authorized by law for trustees and my Trustee shall not be liable for any loss that may happen to my estate as a result of any investments made by my Trustee in good faith.” However, these provisions do not override the applicant’s [the trustee's] duty to exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments, or the duty to diversify the investments. The requirements of section 27 of the Trustee Act are not inconsistent with the terms of the will.
Section 27 of the Trustee Act requires a trustee to "exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments." It also requires a trustee "to diversify the investment of trust property to an extent that is appropriate to the requirements of the trust, and general economic and investment market conditions."
The Lesson: Even if a will has a provision allowing absolute and sole discretion, an executor is wise to remember that he or she is not investing his or her own money. Rather that engage in higher risk speculative investments, it is prudent to diversify to ensure that the estate or trust portfolio is protected from volatility in one sector of the market.
Mowry v Groome, 2016 ONSC 7850 https://www.canlii.org/en/on/onsc/doc/2016/2016onsc7850/2016onsc7850.pdf
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