- A trustee must invest trust funds prudently, aiming for a reasonable return while avoiding undue risk, and must review the investments periodically.
- A trustee is generally not liable for an investment loss if a reasonably skilled and prudent trustee could have made the same decision.
- A will or trust deed generally prevails over a contrary provision of the Trustee Act unless the Act provides otherwise, though some rules, such as s. 84, cannot be overridden by the trust instrument.
If you are a trustee of a trust created under a will, or another kind of trust, one of your main jobs is deciding what to do with the money while it is held. If you are a beneficiary, you may want to know whether the trustee is handling it properly.
Alberta's current Trustee Act (SA 2022, c T-8.1) sets the rules. It replaced the former Trustee Act, RSA 2000, c T-8, and was proclaimed in force on February 1, 2023. This article explains the investment rules in plain terms. Older section numbers and the old investment list no longer apply.
This article covers the law of Alberta.
The core duty: invest prudently and keep reviewing
A trustee must invest trust funds prudently, with a view to obtaining a reasonable return while avoiding undue risk. The trustee must also review the investments periodically.
In practice, that means the trustee does not simply leave money sitting and forget about it, and does not chase high returns with big risks. Investment choices should be revisited as circumstances change.
The standard of care and fairness between beneficiaries
A trustee must use the care, diligence and skill that a person of ordinary prudence would use in dealing with another person's property. This general rule is subject to s. 35 of the Trustee Act. A trustee with specialized or professional skill is held to a higher standard that reflects that skill.
A trustee must also act in good faith, in accordance with the trust's terms, the best interests of the beneficiaries or purposes, and the Act. Investment planning must consider impartiality between classes of beneficiaries, and the Act preserves the trustee's duty to act impartially between them.
This can matter where one person receives income from the trust and another will receive the capital later. How the duty of impartiality applies to a particular trust depends on your situation, so it is worth confirming with a lawyer.
When a trustee is protected from a loss
Not every loss is a breach. A trustee is not liable for an investment loss if a reasonably skilled and prudent trustee could have made the same investment decision.
The test looks at the decision, not just the result. Keeping notes on why investments were chosen and reviewed can help show the process was sound.
Using an investment advisor, and what cannot be delegated
A trustee may delegate to an agent, but must personally select the agent, be satisfied of the agent's suitability, set the terms of the delegation, and reasonably and prudently supervise the agent. A trustee must not delegate the discretion to distribute trust property to beneficiaries.
- Choose the advisor yourself and check their suitability.
- Put the terms of the arrangement in place.
- Supervise reasonably and prudently on an ongoing basis.
- Keep decisions about who gets paid, and when, with the trustee.
The will or trust deed generally prevails over a contrary provision of the Act, unless the Act provides otherwise. Some Act rules cannot be overridden, such as s. 84. Read the document itself before relying on the default rules.
What to do if you are worried, or if you are the trustee
A trustee unsure how to proceed can apply to the court for directions. Following the directions discharges the duty, unless they were obtained by fraud, wilful concealment or misrepresentation. A trustee or beneficiary may also apply to the court to decide whether a trustee has failed to perform a duty. The court may order performance or remove the trustee.
The court may relieve a trustee wholly or partly from personal liability if the trustee acted honestly and reasonably and ought fairly to be excused. An exemption clause in the trust document generally relieves a trustee according to its terms, but the court may declare it ineffective where the conduct was so unreasonable, irresponsible or incompetent that the trustee ought not to be relieved.
- Read the will or trust deed for investment instructions and any exemption clause.
- Keep records of investment decisions and reviews.
- Ask the trustee for the trust's reports; many duties run to qualified beneficiaries.
- Speak to a lawyer before applying to court or acting on a large loss.
Frequently asked questions
Can a trustee only invest in certain approved investments?
The Act requires prudent investing for a reasonable return while avoiding undue risk, with periodic review. The old investment list from the former Act should not be relied on. The will or trust deed may also set its own instructions.
Are professional trustees held to a different standard?
Yes. A trustee with specialized or professional skill is held to a higher standard that reflects that skill. Other trustees must use the care of a person of ordinary prudence.
Can a trustee hand investment decisions to an advisor?
Yes, but the trustee must personally select the agent, set the terms and supervise reasonably and prudently. The discretion to distribute trust property to beneficiaries cannot be delegated.
Can a will say a trustee is not liable for investment losses?
An exemption clause generally works according to its terms. The court may declare it ineffective where the trustee's conduct was so unreasonable, irresponsible or incompetent that the trustee ought not to be relieved.
Sources
- Trustee Act, SA 2022, c T-8.1, ss. 104-105 (King's Printer) — kings-printer.alberta.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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