What Happens If a Trustee Dies or Loses Capacity in Ontario?

A trust or an estate usually depends on one or two people to run it. If the only trustee dies, or becomes unable to manage their own affairs, beneficiaries can be left wondering who can sign, who can pay the bills and who holds the assets in the meantime.

This article explains in plain language what generally happens, what the trustee's job involves, and what steps beneficiaries often take. The answer in your situation depends on the wording of the will or trust document and the facts, so it is a starting point, not a substitute for advice.

Why a gap in trusteeship matters

A trustee is the person with legal control of the trust property. If the trustee is gone, there may be nobody with clear authority to deal with banks, buyers or tenants.

For an estate, the job of the estate trustee is to collect the assets, pay taxes and debts, and distribute the remainder according to the will and the law. Those tasks still need to be done even if the person doing them has died or can no longer act.

Where a replacement can come from

There is usually more than one possible route, and which one applies depends on the document and the situation. Commonly people look at three places.

• The will or trust document itself, which may name a backup or alternate trustee, or explain how a successor is chosen.
• A co-trustee, if there is more than one, who may be able to continue the work depending on the document.
• The court, which for an estate may appoint an estate trustee where there is no will, where no trustee is named, or where the named trustee asks for confirmation.

If the document names no alternate and no co-trustee is available, an application to the court is often the practical route. Whether the court can step in and on what terms depends on the specific type of trust, so confirm this with a lawyer.

Death compared with loss of capacity

The two situations feel similar, but they are not identical. After a death, a successor is needed. When a trustee loses capacity, there can be an in-between period in which the person is still formally the trustee but cannot act, and it may be unclear whether an attorney under a power of attorney can step in. How this applies depends on your situation, so it is worth confirming with a lawyer.

Ongoing duties while the question is sorted out

Tax deadlines do not pause. A resident express trust that is not a listed trust must file a T3 return every year, even with no income. The T3 return and any balance owing are due no later than 90 days after the trust's tax year-end. A late filing where no tax is unpaid can carry a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500.

Where children, or people not yet born or identified, have an interest in an estate, the Office of the Children's Lawyer may become involved. It must be served on an application to pass estate accounts where a minor or unborn or unascertained person has an interest. It can also ask an estate trustee for accounts and supporting records, and may ask the court for an order requiring the trustee to bring an application to pass accounts if there is no response or the accounts raise concerns.

Can the beneficiaries end the trust instead?

Sometimes the easier answer is to wind the trust up rather than replace the trustee. Under the rule in Saunders v. Vautier, beneficiaries of full legal capacity who together hold all the beneficial rights, with the consent of everyone with an interest, may end a trust, and contingent interests are not enough. A sole competent adult who is absolutely entitled can collapse the trust.

Whether this is available in your case depends on the facts, including who the beneficiaries are and what the trust is meant to achieve. Ending a trust early can also have tax consequences, so get advice first.

What to do next

• Locate the will or trust document and read what it says about alternate or successor trustees.
• Make a list of the assets, accounts, and upcoming bills or tax deadlines.
• Find out the trust's year-end and whether a T3 return is due.
• Do not move or spend trust assets informally; keep clear records of anything that must be paid.
• Identify every beneficiary, including children and anyone whose interest depends on a future event.
• Speak with an Ontario estates lawyer about the right route to appoint a replacement.

Frequently asked questions