Executor's Duty to Invest Estate Assets in Ontario

Estates often take months to wind up, and during that time an executor may be holding a large amount of cash. It is natural to wonder whether that money should just sit in an account or be put to work.

This article explains the standard of care Ontario law sets when an estate trustee invests, how advice and delegation fit in, and why the will itself matters. It is general information, not advice on your particular estate.

The prudent investor standard

When an estate trustee invests trust property, the Trustee Act requires them to use the care, skill, diligence and judgment that a prudent investor would exercise. This is a test of how you go about decisions, not a promise of returns.

The Act does not give a fixed list of approved investments. A trustee may invest in any form of property in which a prudent investor might invest. In practice, that means a trustee should be able to explain why a choice suited the estate.

Do you have to invest at all?

The standard above applies when a trustee does invest. Whether and how much to invest depends on the facts: how long the estate will stay open, when beneficiaries are expected to be paid, and what the will says. Under a will, the estate is distributed once the assets have been liquidated and the funeral and burial expenses and any debts have been paid.

If money will be needed soon for debts, taxes or distributions, a short-term approach may be what a careful person would choose. Because every estate differs, it is worth confirming your plan with a lawyer or accountant.

Tax is a good example of why cash may need to stay within reach. Before distributing any property, the legal representative of a deceased taxpayer must obtain a clearance certificate from the Minister, confirming that tax amounts have been paid or that security for them has been accepted. A representative who distributes without the certificate is personally liable for the unpaid tax, up to the value of the property distributed, and the Minister may assess them at any time. The certificate is requested on Form TX19 after the required returns are filed and assessed and all income taxes are paid or secured. An estate with a GST/HST number also needs Form GST352.

Creditors matter too. After giving the required notice for creditors to send in claims, and once that period has expired, an estate trustee may distribute the estate having regard only to the claims they then have notice of, and is not liable for claims they had no notice of. Even so, a creditor's or claimant's right to follow the estate's assets into the hands of the people who received them is preserved.

Advice, agents and the will's terms

• Relying on advice: a trustee who relies on investment advice is not in breach of trust if a prudent investor would rely on that advice in comparable circumstances.
• Delegating: a trustee may delegate investment functions to an agent to the same extent a prudent investor might, and the agent must meet the standard of care expected of a person in the business of investing other people's money.
• The will comes first: the investment sections do not authorize or require a trustee to act in a way that is inconsistent with the terms of the trust, so directions or limits in the will take priority.

Protecting yourself as a trustee

Estate trustees must keep accurate records of the estate's assets and transactions. Notes on why an investment decision was made, and any advice you received, will help if a beneficiary later questions it.

A trustee who is of the opinion that an expense would be properly incurred in carrying out the trust may pay it from the trust property, or pay it personally and then recover it from the trust property. An estate trustee is also entitled to a fair and reasonable allowance for their care, pains, trouble and time spent on the estate, as allowed by a judge of the Superior Court of Justice. Compensation can be settled even when the estate is not before the court in an action, and a judge passing the accounts may allow a fair and reasonable allowance. Where a solicitor-trustee has provided necessary professional services to the estate, the allowance is increased by an amount considered fair and reasonable for those services.

If accounts are passed, notice goes to beneficiaries and other interested persons, and the estate trustee swears an affidavit verifying the accounts. Judgment can be given unopposed once the objection period has expired and no notice of objection to the accounts or to the compensation claimed has been received. Where a beneficiary is a minor, the Office of the Children's Lawyer must be served with an application to pass estate accounts, and it should also be served where an estate has an unborn or unascertained interest.

If a trustee breaches trust but acted honestly and reasonably and ought fairly to be excused, the court may relieve them wholly or partly from personal liability. That is a discretion, not something to count on.

What to do next

• Re-read the will for any investment directions or limits.
• Estimate when debts, taxes and distributions will need cash.
• Keep accurate records of the estate's assets and transactions, and note the reasons for each decision.
• If you rely on investment advice, keep a note of it, because reliance is protected only where a prudent investor would rely on that advice in comparable circumstances.
• Speak to a lawyer if beneficiaries disagree or the will is unclear.

Frequently asked questions