The Trustee's Duty of Even-Handedness Between Income and Capital Beneficiaries in Ontario

Many Ontario trusts are built to serve two different beneficiaries at two different times — a surviving spouse who receives income for life, and children who eventually receive whatever capital is left. That structure works well on paper, but it creates a real tension for whoever is managing the trust. A trustee's duty of even-handedness between income and capital beneficiaries exists precisely because those two groups' interests do not automatically point the same direction.

Understanding this duty matters both for anyone drafting a trust and for anyone who ends up administering one.

Income Beneficiaries vs. Capital Beneficiaries, Explained

Why These Interests Can Conflict

Investment choices that maximize current income — for example, holdings that pay high regular distributions — are not always the same choices that best preserve or grow the underlying capital over the long run. A trustee choosing where to invest trust funds is often, in effect, choosing between what benefits the income beneficiary today and what benefits the capital beneficiary years from now.

What Even-Handedness Requires in Practice

The default duty asks a trustee to pursue an investment strategy that reasonably balances both interests, rather than maximizing one at the expense of the other. In practice, this generally means:

• Considering both current income needs and long-term capital preservation when setting an investment strategy
• Avoiding investment choices driven primarily by favouring one beneficiary category over another
• Documenting the reasoning behind investment decisions, particularly where they could be seen as favouring one side

Importantly, this is a default duty. Where a will or trust document clearly and deliberately directs the trustee to favour one interest — for example, a spousal trust explicitly prioritizing the surviving spouse's income needs — the trustee generally follows that express direction, provided their decisions otherwise remain reasonable and prudent. The document creating the trust can shape or override the default balancing duty; it does not eliminate the trustee's broader obligation to act prudently and in good faith.

Common Scenarios in Ontario Estates

• Spousal trusts: a surviving spouse receives income for life, with children or other beneficiaries receiving the capital afterward. These often include express guidance about how much to favour the spouse's income needs.
• Testamentary trusts for minor children: funds are held and invested until a child reaches an age set out in the will, with the trustee balancing growth against the eventual need to distribute capital.
• Discretionary trusts for a beneficiary with a disability: where a beneficiary has no vested entitlement to specific income or capital, the trustee's discretion is typically broader, and the income/capital tension is less central than in a structured spousal or children's trust.

What Beneficiaries Can Reasonably Expect

Beneficiaries on either side of this balance are entitled to a general understanding of how a trustee is approaching it — not a line-by-line justification of every transaction, but a coherent explanation of the overall strategy and why it treats both interests fairly. A trustee who can explain that reasoning clearly is usually in a much stronger position if a beneficiary ever questions the approach later.

How This Duty Intersects With the Prudent Investor Standard

Even-handedness does not operate in isolation — it works alongside the trustee's separate duty to invest prudently. A trustee has to build an investment strategy that is both reasonable and diversified under the prudent investor standard, and that fairly balances income and capital interests unless the trust document says otherwise. In practice, these two duties usually point toward the same answer: a diversified, well-reasoned strategy rather than an approach chosen to favour one beneficiary or one type of return.

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