Trustee Duties Under Ontario Law: What You Must Do

Being named a trustee can feel like an honour and a burden at once. You are managing property for other people, and the law expects you to do it carefully. Much of the framework comes from Ontario's Trustee Act, along with court rules and tax rules.

This article walks through the main duties in plain language: investing prudently, following the trust document, keeping records, accounting, getting paid and filing taxes. It is general information, and your own trust or will may change how these apply.

Invest with prudence

The Trustee Act sets the investment standard: in investing trust property, a trustee must use the care, skill, diligence and judgment of a prudent investor.

In practice, a trustee must consider the 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.

There is protection if you follow the process. 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. Writing down your plan and the reasons for it is sensible.

Follow the trust document

The Trustee Act's investment powers do not authorize or require a trustee to act inconsistently with the terms of the trust. So the first job is to read the will or trust document closely and follow it.

If there are several beneficiaries and their interests pull in different directions, for example one who receives income now and another who receives what is left later, how this applies depends on the document and the facts. It is worth confirming with a lawyer before you act, and a trustee who is unsure may ask the court for its opinion, advice or direction.

Keep records, account and ask the court if unsure

Careful records are the foundation of everything else. A trustee who wants to pass the accounts of dealings with the trust may file them in the office of the Superior Court of Justice. 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.

If you pass accounts, the accounts are verified by affidavit and filed with a copy of the certificate of appointment and any earlier judgment on passing of accounts. For estate trustees, the notice of application and a draft judgment 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. These rules also apply to other trustees, but only with necessary modifications, so how they apply to a trust that is not an estate is worth confirming with a lawyer. A beneficiary who objects must serve and file a notice of objection at least 35 days before the hearing date. Form numbers have been revised in recent years, so confirm the current forms on the Ontario court forms site.

• Keep every receipt, statement and invoice.
• Record each decision and the reason for it.
• Keep trust money separate from your own.
• Apply to the Superior Court of Justice for the court's opinion, advice or direction if you are unsure how to manage trust property, without starting an action.

Expenses, compensation and tax

A trustee may pay a trust expense personally and recover the same amount from the trust property, but the court may later disallow the expense.

A trustee is entitled to a fair and reasonable allowance for their care, pains and trouble and the time spent, and a judge of the Superior Court of Justice fixes it. That rule does not apply where the trust document fixes the allowance.

On tax, a trust must file a T3 return if it is a Canadian-resident express trust that is not a listed trust. Certain listed trusts are generally exempt from filing under s. 150(1.2) of the Income Tax Act. The list and its conditions have changed over time, so whether your trust qualifies is worth confirming with an accountant. A T3 is due no later than 90 days after the trust's tax year-end. A late return with unpaid tax costs 5% of the unpaid tax, plus 1% for each full month late, up to 12 months.

What to do next

• Obtain and read the will or trust document in full.
• List the trust property and open a separate trust account.
• Write an investment plan, or get investment advice.
• Calendar the T3 deadline and ask an accountant whether a return is required.
• Speak with a lawyer before paying yourself or making big decisions.

Frequently asked questions