When more than one estate trustee is named in a will, it often happens that one takes charge and the others trust in him or her to act appropriately. This can be dangerous for the “passive” estate trustee. As a recent case illustrates, an estate trustee is required to do more than simply rely on the others. Estate trustees have a positive obligation to take real, active steps to ensure that the estate is administered according to the will.
Cahill v. Cahill et al.
In Cahill v. Cahill et al, the testator named two of his children, Sheila and Kevin, as his estate trustees. He included a provision in his will that $100,000 was to be set aside for the benefit of another son, Patrick, in a trust fund to be administered by Kevin as sole trustee. Kevin was to invest the funds in Patrick’s trust and pay him $500 per month for the rest of his life or until the fund was exhausted. On Patrick’s death, the balance of the fund was to be divided among the testator’s grandchildren.
Sheila had little involvement in the administration of the estate and allowed Kevin, a Certified Financial Planner, to make most of the decisions. After liquidating the deceased’s home, Sheila and Kevin deposited the proceeds into an estate account with the bank. They signed a Direction to the bank to issue a number of drafts to satisfy various bequests under the will. Among these was a draft in the amount of $100,000 to be paid into an investment plan with London Life. Nothing on the face of that Direction made reference to Patrick or the trust. The London Life plan application form similarly made no mention of Patrick or the trust.
Initially, Patrick received his monthly payments. As he did not have a bank account initially, London Life made the monthly payments to another brother, who then gave the money to Patrick in cash. After some time, the arrangement was changed. London Life began paying the funds to Kevin, who had provided Patrick with post-dated cheques.
Unfortunately, in 2012, Kevin withdrew the balance of the London Life funds and invested them into a loan to himself in order to purchase a commercial property. The loan was to be repaid to the estate at a rate of $500/month, which would then be used to provide Patrick with his monthly payment. The business failed and the cheques to Patrick started to bounce.
Liability of the Passive Estate Trustee
The key issue before the Court was whether Sheila, as co-estate trustee, was liable to Patrick (and the grandchildren) for the failure to properly set up Patrick’s trust. Sheila argued that Patrick’s trust was Kevin’s responsibility, and that she had discharged her duty as estate trustee by signing the Direction to pay $100,000 to the London Life plan.
It was held that Sheila and Kevin were jointly liable. Both were estate trustees and both had fiduciary obligations to the beneficiaries to carry out the instructions in the will. Sheila had an obligation to ensure that Patrick’s trust was properly constituted, and that this duty required more of her in terms of setting up the trust than merely signing the Direction. Accordingly, liability still lay in the hands of both Sheila and Kevin as co-estate trustees, as their duties as executors had not been fully discharged. The Court noted that Sheila could have and should have taken active steps to ensure that Patrick’s trust was set up in accordance with the will.
In addition to the question of liability, the Court was also asked to decide whether Sheila and Kevin were required to pass their accounts and also whether Sheila and Kevin were to be removed as estate trustees (and whether Kevin was to be removed as sole trustee of Patrick’s fund). Given the modest value of the estate, the Honourable Justice Corthorn ordered Sheila and Kevin to provide an accounting to the Court, and the Court would then determine whether a full passing of accounts would be required and whether the proposed substitution of Sheila and Kevin as estate trustees was appropriate. As Patrick’s trust had never been properly constituted, there was no trust from which Kevin could be removed as trustee. The issue of Kevin’s removal as trustee was therefore adjourned, but the Court made it clear that Sheila and Kevin are liable to fund the trust and that it will be administered by an institutional trustee and not by Kevin.
Accepting the role of estate trustee can be risky and the tasks involved can sometimes be complex. If a person named as estate trustee in a will hasn’t begun to act, he or she should be able to renounce the role. However, once a person has accepted the responsibility, he or she must be vigilant in carrying it out. If an estate trustee doesn’t feel equipped to perform the required functions, he or she can seek help from a qualified lawyer.