How Must a Trustee Invest Trust or Estate Money in BC?

If you are an executor or trustee in British Columbia, you may be holding money for months or years before it is paid out. Leaving it in a bank account, buying investments or hiring an adviser are all choices, and the law sets out how those choices should be made.

If you are a beneficiary, you may be wondering whether the person in charge is handling the money properly. This article explains the prudent investor rules in the Trustee Act in plain language, along with how a trustee can be protected and how investment results come to light.

This article covers the law of British Columbia.

What a trustee is allowed to invest in

The Trustee Act lets a trustee invest trust property in any form of property or security in which a prudent investor might invest. There is no short approved list to stay within. The question is whether a careful investor would consider the investment appropriate.

There is a limit. The power does not authorize investing in a manner that is inconsistent with the trust. If the will or trust document says something about how money is to be held or used, that wording matters, and a trustee should read it closely before choosing investments.

In everyday terms, an executor who expects to pay the estate out soon will usually think differently from a trustee holding money for a child for many years. The same rule applies, but a prudent investor would make different choices in each case.

The standard of care and the protection for a prudent plan

When investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise. It is a standard of process as much as outcome: what was considered, what was decided and why.

A trustee is not liable for an investment loss if the conduct conformed to a prudent plan or strategy with a reasonable assessment of risk and return. A loss alone does not make a trustee responsible.

Investments are also not assessed one by one. Gains may offset losses when damages are worked out, except where dishonesty is involved. So a beneficiary cannot usually point to the single worst holding and ignore the rest of the portfolio.

• Write down the objectives for the money, such as timing, income needs and tolerance for risk.
• Keep records of why investments were chosen.
• Review the portfolio from time to time and note what you decided.
• Check the will or trust document before acting.

Handing investment decisions to an adviser

A trustee may delegate investment authority to an agent to the degree a prudent investor could under ordinary business practice. Hiring a professional is therefore allowed, but it does not end the trustee's role.

The trustee must set the investment objectives and act prudently in choosing the agent, setting the terms, communicating the objectives and monitoring performance. A trustee who does these things is not liable for the agent's decisions.

There is an exception. Delegation of investment authority is not allowed where the trust requires the trustee to act personally. If the document uses wording like that, hiring an investment manager could itself be a problem.

• Put the investment objectives in writing and give them to the adviser.
• Compare more than one adviser and note why you chose the one you did.
• Agree the terms, including how fees are charged, in writing.
• Ask for regular reports and read them.
• Confirm the trust does not require you to act personally.

When things go wrong, and how accounts bring results to light

The court may relieve a trustee from liability for a breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused. This is not automatic. It depends on the facts, and a trustee who ignored the process above will have a harder time.

Investment results and fees are usually examined when accounts are passed. Executors, administrators, testamentary trustees and judicial trustees must obtain a court order passing their first accounts within 2 years of the grant or appointment. Other trustees may pass first accounts at any time.

The requirement does not apply if all beneficiaries approve the accounts in writing, or if the court directs otherwise. On notice from a beneficiary, a trustee must pass accounts annually. A beneficiary who is concerned about investments can therefore ask to see the accounts rather than guess.

Fees and when the trust document sets the rules

A trustee or executor may receive a fair and reasonable allowance not exceeding 5% of the gross aggregate value of the estate. Separately, an annual care and management fee not exceeding 0.4% of the average market value of the assets may be applied for. Those amounts show up in the accounts and can be questioned.

These allowance rules do not apply where the trust instrument sets the trustee's allowance. If the will or trust sets the payment, that wording governs, which is another reason to read the document first.

What to do next

Whether you are the trustee or a beneficiary, start with the document and the numbers. Many disputes become much clearer once the objectives, the choices made and the fees charged are on paper.

• Trustees: read the will or trust for investment, delegation and payment wording.
• Trustees: keep a written plan, meeting notes and adviser reports.
• Beneficiaries: ask politely for information about how the money is held.
• Beneficiaries: consider whether to approve accounts in writing, only after you understand them.
• Anyone: speak to a lawyer before signing off on accounts or acting on a suspected breach.

Frequently asked questions