by L. G. William Chapman, B.A., LL.B.
Although it smacks of the esoteric, the term “trustee” may nonetheless arise not infrequently in daily communication. For example, there is the “estate trustee” (what some may equate with the now historical expression “executor and trustee”), trustee-in-bankruptcy, board of trustees, trust company and a mere trustee. In its broadest sense, a trustee can refer to anyone who holds property, authority or a position of trust or responsibility for the benefit of another (which may in the case of boards of trustees include the public benefit or other charitable purpose). In all cases the trustee may be a natural person or a corporation, whether or not they are a prospective beneficiary.
Whatever the context trustees generally are circumscribed and bound by the same duties. The general and over-riding theory is that trustees must act with the utmost of good faith (uberrima fides). Specifically trustees must be impartial among beneficiaries, invest trust funds prudently, account for actions and keep beneficiaries informed, not profit, not be in a conflict of interest position and administer in the best interests of the beneficiaries. A technical spin-off of these requirements is that an executor must never purchase an estate asset (say, real estate) without court approval. The prohibition is absolute and not circumvented by approval of the beneficiaries.
Additionally it is a little known element of trusteeship that the trustee is not permitted to delegate his or her authority to another. This is captured in the Latin maxim “delegatus non potest delegare” (he who is delegated cannot delegate further). As with many legal principles, the general proscriptions (such as those normally codified in legislation, in this case the Trustee Act of Ontario) may be diluted, modified and extended by the instrument (document) which creates the trust; however, in most instances the laws governing trustees cannot be eliminated completely (such as the duty to account to the beneficiaries). It is important to keep the general principle in mind when assessing the efficacy of one’s last Will and Testament to ensure that provision is made for alternate trustees (executors) if the named persons are unwilling or unable to perform the duties. It is only in the very narrow circumstance that an executor has probated the Will of the deceased that the executor is at law entitled to “transfer” or delegate the stewardship to his or her own executor. Failing that, a court order is required (unless of course an alternate executor is named in the Will).
There are other instances where the nature of trusteeship infuses the relationship between the Parties. Perhaps the most common example is that of a Power of Attorney. To clarify, the term “attorney” does not – as popularized by American television – mean lawyer or what is elliptical for “attorney-at-law”. The word “attorn” means to turn over; to transfer to another money or goods; to assign to some particular use or service. Thus an attorney-at-law is someone to whom you have delegated legal authority. In the context of a Power of Attorney, an attorney is anyone to whom you have transferred authority (empowered with authority) to look after your financial and medical needs while you are alive if you are incapable or unwilling to do so (though incapacity is not necessarily a condition precedent). The distinguishing feature of an attorney, as with any other trustee, is that the attorney must act entirely for the benefit of settlor (the person who empowered the attorney), which may by extrapolation include those who are the ultimate beneficiaries of the settlor’s estate. For this reason it is prudent for the attorney to familiarize himself or herself with the terms of the settlor’s last Will and Testament.
Trustees of whatever description are entitled to be compensated for their work. The general right to compensation appears in the Trustee Act, Sec. 61 “A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice“. In the case of Powers of Attorney, there are specific rules of compensation outlined in a tariff set out in the Regulations to the Substitute Decisions Act of Ontario; viz., 3% capital receipts/disbursements; 3% revenue receipts/disbursements; 3/5ths of 1% of the annual average value of the assets under investment as a care and management fee. Regarding estate trustees (executors) it is not unusual to see the standard of 5% of the estate value being bandied about for compensation, though resistence from the beneficiaries may force the trustee to “pass accounts” in a Court of Law. If the trustee takes no compensation, the trustee is required to exercise the degree of care, skill and diligence of a person of ordinary prudence in the conduct of his or her own affairs. If the trustee elects to take compensation, he or she is held to a higher standard of care and is expected to exercise the degree of care, skill and diligence that a person in the business of managing the property of others (a professional financial manager or investor) is required to exercise. It is possible to stipulate in the constating document (for example, the last Will and Testament) the amount of compensation to which the trustee is entitled (though one should be careful to avoid triggering the renunciation of the nomination of an executor if the compensation is considered inadequate). Commonly trust companies which are asked to act as an estate trustee will require the last Will and Testament to include by reference the trust company’s standard tariff of fees. Attorneys frequently submit an account to the deceased’s estate for compensation particularly where the duties of the attorney have grown over time and often unexpectedly.
Being a trustee is not something which can be imposed upon anyone. That is, in the case of a last Will and Testament, the appointment of a trustee is a nomination only and may be declined. However, once the duty is accepted (whether as an estate trustee or as an attorney) it is not merely an act of resignation which terminates one’s obligations. Very often a court order will be required to effect a replacement if there is no other scheme outlined in the governing document. Because Powers of Attorney now encompass both Property Management (finances) and Personal Care (medical) it is possible to accept nomination for one duty only and not the other if for example one prefers to avoid having to make critical medical decisions.
The duties of trusteeship should not be lightly undertaken. The trustee is often the source of last resort. Consider for example that an estate trustee is personally responsible (to the extent of the assets of the deceased) for any tax liability of the deceased to Her Majesty. For this reason an estate trustee must obtain a Tax Clearance for Distribution Purposes from Canada Revenue Agency before frittering the assets away upon the beneficiaries.
Trusts can be a useful tool by which to insulate one’s assets from exorbitant estate administration costs, but this tool must be balanced by the axiom that it is not possible to do indirectly what cannot be done directly. That is, the trust must always be used legitimately and not as a device to disguise an otherwise specious transaction.
Lastly even in circumstances where the assumption of obligations by a trustee for the benefit of others appears to be very casual (such as those frequently arising in publicly spirited local associations and boards however informal) it may nonetheless be impossible to insulate oneself from personal liability. Merely obtaining a written release from the anticipated participants may do very little to exculpate the trustee. Acting in a fiduciary relationship is a serious business to which important rules of law apply, and it carries with it the expectation of scrupulous good faith and candour.