Executor Made a Mistake in Ontario? Court Relief From Liability

Being an estate trustee means handling other people's money, often while you are grieving and learning as you go. It is common to worry that you invested badly, paid a creditor who should not have been paid, or handed out money too soon.

A mistake does not automatically mean you will have to pay out of your own pocket. Ontario law gives courts some room to forgive honest errors, but that room has limits. This article explains how the protection works, where it stops, and what to do now.

When a trustee can be personally liable

An estate trustee has legal duties in managing and distributing the estate, and exactly how they apply depends on your situation, so it is worth confirming with a lawyer. If a trustee breaches those duties, for example by investing carelessly or distributing in a way the law does not allow, the trustee can be held personally responsible for the resulting loss. Whether that happens depends on the facts, which is why advice early on matters.

When investing, the standard is that of a prudent investor: you must use the care, skill, diligence and judgment a prudent investor would use. There is no fixed list of approved investments, and you may invest in any form of property in which a prudent investor might invest. Directions or limits in the will take priority, because the investment rules do not authorize or require acting against the terms of the trust.

How the court can relieve a trustee

Under section 35(1) of the Trustee Act, the court may relieve a trustee who is personally liable for a breach of trust, wholly or partly, if the trustee acted honestly and reasonably and ought fairly to be excused for the breach and for not obtaining the court's directions. All of those parts matter. Honesty alone is not enough; the conduct also has to have been reasonable.

A similar kind of relief exists for a personal representative who overpays a creditor or claimant, if they acted honestly and reasonably to protect or conserve the estate's assets.

The court decides whether to grant relief, and it can be full or partial. Nothing here guarantees a particular result, so a trustee who has made an error should not assume it will be forgiven.

Protections built into the rules

Several rules reduce the risk before a mistake ever reaches court.

• Investment 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.
• Delegation: a trustee may delegate investment functions to an agent to the same extent a prudent investor might, and the agent must meet the standard expected of someone in the business of investing other people's money.
• Creditor notice: after giving the required notice for creditors to send in claims and once that period has expired, a trustee may distribute having regard only to the claims they then have notice of, and is not liable for claims they had no notice of at that time.
• Expenses: if you believe an expense is properly incurred in carrying out the trust, you may pay it from the estate or pay it personally and recover it from the trust property.

Where the protection stops

Even a properly protected distribution does not always end the matter. A creditor or claimant keeps the right to follow the estate's assets into the hands of the people who received them. That can create difficulty for beneficiaries, and it is a reason to be careful about timing.

Tax is the biggest trap. Before distributing any property, the legal representative must obtain a clearance certificate from the Minister confirming that tax amounts have been paid or security accepted. A representative who distributes without it is personally liable for the unpaid tax, up to the value of the property distributed, and the Minister may assess them at any time.

What to do next

If you think you have made a mistake, stop and take stock before doing anything further. Acting quickly and openly usually helps more than hoping nobody notices.

• Keep accurate records of the estate's assets and transactions, as estate trustees are required to do. On a first passing of accounts, the accounts filed with the court must include a statement of assets at the date of death, together with accounts of all money received and disbursed.
• Write down what you did, when, and why, including any advice you relied on.
• Before distributing any property, obtain the CRA clearance certificate, which is requested on Form TX19 after the required returns are filed and assessed and all income taxes are paid or secured.
• If the estate is registered for GST/HST, also file Form GST352.
• Speak with a lawyer about whether to seek the court's directions or relief, and about passing your accounts.

Frequently asked questions