Trustee Breach of Trust in Ontario: Remedies for Beneficiaries

If you are a beneficiary and suspect a trustee is misspending money or managing the trust badly, you may not know what counts as a breach or what you can do about it. A bad outcome is not always a breach, and a breach is not always easy to prove.

This article explains the standards trustees are held to, the protections they may rely on, and the court steps open to beneficiaries. Every case turns on the trust terms and the evidence, so a lawyer should review yours.

What can count as a breach of trust

A breach generally means a trustee did something the trust or the law did not allow, or failed to do something it required. The trust document is the starting point. The Trustee Act's investment powers do not authorize or require a trustee to act inconsistently with the terms of the trust.

In investing trust property, a trustee must use the care, skill, diligence and judgment of a prudent investor. A trustee must consider listed criteria when planning investments, must diversify to an appropriate extent, and may obtain investment advice. A trustee may also delegate investment functions to an agent.

• Investing without a sensible plan or without appropriate diversification.
• Spending trust money on things the trust does not allow.
• Paying oneself without authority.

Some payments are proper. A trustee may pay a trust expense personally and recover the same amount from the trust property, though the court may later disallow the expense. A trustee is also entitled to a fair and reasonable allowance for their care, pains and trouble and the time spent, fixed by a judge of the Superior Court of Justice. That rule does not apply where the instrument creating the trust fixes the allowance.

Protections a trustee may rely on

A trustee is not liable for an investment loss if the conduct that led to the loss followed an investment plan or strategy that a prudent investor could adopt. A court may also relieve a trustee wholly or partly from personal liability for a breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused.

That second relief does not apply to losses from investing trust property. For those losses, the trustee relies on the plan-or-strategy protection. The practical point is that a poor investment result alone may not be a breach, but a missing or unreasonable plan can matter.

Getting answers: passing of accounts

The first step is often to see the accounts. A person who appears to have a financial interest in an estate may bring a motion for an order requiring the estate trustee to pass accounts. A trustee who wants to pass the accounts may file them in the office of the Superior Court of Justice.

To pass accounts, the trustee files the accounts verified by affidavit, a copy of the certificate of appointment, and any earlier judgment on passing of accounts. The court then issues a notice of application to pass accounts. It must be served on everyone with a contingent or vested interest, at least 60 days before the hearing in Ontario, or at least 75 days before if outside Ontario.

A beneficiary who objects to the accounts must serve and file a notice of objection at least 35 days before the hearing date. Where a minor or unborn person has an interest, the Office of the Children's Lawyer must be served, and it represents the child and does not take instructions from the parents. Form numbers have been revised, so confirm the current forms with the court.

Replacing or removing a trustee

The Superior Court of Justice may appoint a new trustee or trustees, either replacing or adding to existing trustees. For personal representatives such as executors, the court may remove them on any ground on which it could remove any other trustee and appoint someone else in their place.

A new trustee may also be appointed in writing where a trustee dies, stays out of Ontario for more than 12 months, refuses or is unfit to act, or is incapable of acting. A trustee who is unsure how to proceed may apply to the court for its opinion, advice or direction on managing trust property, without starting an action. Other remedies, such as ordering repayment, depend on the facts and are worth discussing with a lawyer.

Deadlines and next steps

The general limitation period is two years from the day a claim was discovered. A claim is discovered when the claimant knew, or reasonably ought to have known, of it. No proceeding may be started more than 15 years after the act or omission, but that 15-year period does not run while the defendant wilfully conceals the loss, and the claimant must prove the concealment. The two-year period does not run while the claimant is a minor, or is incapable of starting a proceeding, and is not represented by a litigation guardian.

• Get a copy of the trust document or will.
• Ask the trustee in writing for an accounting and keep their reply.
• Keep a dated record of what you noticed and when you noticed it.
• Do not confront the trustee in ways that could harm your position; speak with a lawyer first.
• Ask a lawyer whether to seek a passing of accounts, replacement of the trustee, or both.

Frequently asked questions