What Duties Does a Trustee Owe to Trust Beneficiaries in Ontario?

If you have just been named a trustee, or you are a beneficiary wondering whether a trustee is doing the job properly, the same question comes up: what exactly is the trustee supposed to do? A trustee holds property that does not belong to them personally, and that comes with obligations.

This article explains the main duties in plain language, with a focus on the ones you can see in practice: acting in the beneficiaries' interests, treating them fairly, keeping records and meeting tax reporting deadlines. The exact scope of any trustee's duties depends on the trust document and the facts, so a lawyer should confirm how this applies to your situation.

What a trustee is actually responsible for

A trustee is the person or company that legally holds and manages trust property for the benefit of the beneficiaries. The trustee is not meant to treat the property as their own. In the estate setting, an estate trustee must collect the assets, pay taxes and debts, and distribute the remainder according to the will and the law.

A court may appoint an estate trustee where there is no will, no trustee is named, or the named trustee asks for confirmation. However someone becomes a trustee, the job is a duty to others, not simply a title.

Loyalty and fairness: the core duties in plain words

A trustee holds property for the benefit of other people, which is why the way a trustee handles it can be looked at closely. What that requires in a particular case, including how a trustee should deal with more than one beneficiary, depends on the trust document and the facts, so it is worth confirming with a lawyer.

How these ideas apply in a specific case depends on the wording of the will or trust and on the facts. Some trust documents give a trustee wide discretion, and that changes how a dispute is likely to be looked at.

Record keeping and reporting to the beneficiaries

Good records are the trustee's best protection and the beneficiary's best source of information. If a trustee cannot show where money went, questions follow. For estates involving children or unborn beneficiaries, the Office of the Children's Lawyer can ask an estate trustee for accounts and supporting records. If the trustee does not respond, or the accounts raise concerns, it may ask the court for an order requiring the estate trustee to bring an application to pass accounts.

Records also feed into tax reporting. When a trust allocates income to beneficiaries, that income is included in their income and deducted from the trust's income, and it is reported on T3 slips. A beneficiary who has received nothing and has seen nothing may reasonably ask what the trustee is doing about this.

Tax filings are part of the job

Trustees often overlook that a trust is its own taxpayer. A resident express trust that is not a listed trust must file a T3 return every year, even with no income. Other trusts must file in particular situations, such as when they have tax payable, dispose of capital property or have a taxable capital gain. A trust that allocates income to beneficiaries must file if its total income is more than $500, if more than $100 is allocated to a single beneficiary, if it distributes capital to a beneficiary, or if it allocates income to a non-resident beneficiary.

The T3 return and any balance owing are due no later than 90 days after the trust's year-end. Most trusts that file must also include Schedule 15, which gives beneficial ownership information on trustees, settlors, beneficiaries and controlling persons. Listed trusts are generally exempt from that schedule.

• Late-filing penalty where there is no unpaid tax: $25 a day, with a minimum of $100 and a maximum of $2,500.
• Knowingly or through gross negligence making a false statement or omission, or failing to file under the trust reporting rules, can lead to a penalty of the greater of $2,500 and 5% of the highest fair market value of trust property in the year; this does not apply to listed trusts.

A trust can also be taxed differently depending on who receives the income. A trust can deduct income that becomes payable to a beneficiary in the year, and the beneficiary includes it in their own income, so tax is paid by the beneficiary on income paid or payable to them and by the trust on income it retains.

Special situations that change what a trustee should do

Some beneficiaries need extra care. If a child is to receive $35,000 or less, the money usually need not go into court and may be paid to a parent the child lives with or the person with lawful custody; above $35,000 the money is paid into court unless a court-appointed guardian of property is in place.

For a beneficiary on ODSP, the type of trust matters. Under an absolute discretionary trust, the trustee has absolute and sole discretion over payments, and the trust is not counted as an asset. Payments to the recipient are generally income in the month received unless an exemption applies, and those exemptions depend on an annual report of trust transactions. A trustee in this position should get advice before making any payment.

What to do next

• Read the will or trust document closely and note what the trustee may and may not do.
• Open a separate account for trust money and keep every statement and receipt.
• Make a list of the trust's assets, debts and beneficiaries, including anyone who is a minor or on ODSP.
• Confirm the trust's year-end and put the 90-day T3 deadline in your calendar.
• If you are a beneficiary, ask the trustee in writing for an update, and keep a copy.
• Speak with a lawyer or accountant before making large payments, selling property or deciding that no return is required.

Frequently asked questions