Acting In Own Interest Proves Costly for Estate Trustees

I have previously written that accepting the role of estate trustee can be more headache than honour. This is especially true when the estate trustee is also a beneficiary who will benefit under the terms of the will and who may increase his or her benefit by making certain decisions as estate trustee. A recent case* demonstrates how acting in the interest of a trustee proved costly for both trustees.

The deceased left a small estate consisting primarily of her principal residence and a few small bank accounts. She named two of her six children, Peter and Heidi, as estate trustees. Peter was granted an option to purchase the principal residence for 70% of its fair market value and was required to communicate the agreement to do so within a set time. If he chose not to purchase the property, there was a set order in which the remaining children could purchase the property. Peter would still obtain 30% of the purchase price.

The funds from the estate, after removing Peter's 30%, were to be divided into six equal shares. Four of the deceased's children were to receive a full share each and four grandchildren were to receive a half share each to complete the distribution. Because the estate was relatively modest, this meant that each of the remaining beneficiaries had a fairly small inheritance.

As two of the grandchildren were minor, their shares were to be held in trust until they reached the age of 25 unless the trustees decided to distribute early.

Peter timely communicated his intention to purchase the property but failed to include the price and the date by which the purchase had to close. He did so, because he was unsure when he could sell his existing property to raise the necessary funds. This delay had significant repercussions for the Estate.

It was only after accepting the option to purchase the property, and more than a full year after decease that the trustees applied for probate of the will. This delay also had repercussions for the Estate.

Before Peter's purchase of the property could close, one of the minor beneficiaries Lena, requested that her distribution be released early. At 21, she was supporting herself while paying for her post-secondary education and wanted the money to complete her education. The trustees refused, arguably for reasons linked to historical grievances. In response, Lena commenced an application for Dependant's Relief under the Succession Law Reform Act. This application froze Estate assets making a distribution to the beneficiaries impossible until the litigation was resolved.

An application for Dependent's Relief under the Succession Law Reform Act must be made within six months of the grant of probate. If a potential dependant fails to do so, the estate trustees are not responsible for any distributions to beneficiaries made and the dependent may find the estate distributed. Practically speaking, however, by delaying the application for probate, the trustees had extended the six-month limitation period and made the estate, and therefore the beneficiaries, vulnerable to the claim for Dependent's Relief.

The trial judge found that the delay related to the transfer of the property was solely for the benefit of Peter. Moreover, that delay prevented funds from being in the Estate and available for early distribution to Lena. It was further found that the trustees would have made the early distribution, thereby preventing the Dependent's claim application.

The judge ruled that the trustees were responsible for the litigation costs related to defending the claim made by Lena. Additionally, in the subsequent cost award, the judge ruled that the beneficiary who challenged the actions of the trustees should have 60% of his costs paid (approximately $14,000) by the trustees in their personal capacity and 40% paid by the Estate.

Acting in the interests of Peter, with respect to the timing of the sale of the property, was costly for the trustees. Not only were the trustees personally responsible to pay the costs of defending the Dependent's claim, they personally had to pay a significant share of the beneficiary's costs. Moreover, the trustees were also required to pay a large portion of their own costs.

The Lesson: If you are one of two trustees, it is best to remove yourself from any estate decision that might benefit you directly or indirectly. Alternatively, seek agreement from all the beneficiaries as to whether the proposed action is acceptable. Failure to do so, could result in you having to defend your actions and personally pay for doing so, thereby eliminating any benefit you hoped to gain.

*Author's Disclosure: I acted for the beneficiary in this matter and, as such, my interpretation of the decision and costs award may demonstrate a small bias.

Estate of Ingrid Loveman, deceased, 2016 ONSC 2687 https://www.canlii.org/en/on/onsc/doc/2016/2016onsc2687/2016onsc2687.pdf

Estate of Ingrid Loveman, deceased, 2017 ONSC 3194 decision on costs unreported

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