Can a Trustee Invest Trust Money However They Want in Ontario?

Trust money is not the trustee's own, so a trustee cannot invest it however they please. Ontario's Trustee Act sets out a standard of care for investing.

This article explains that standard in plain words, what it asks of a trustee, and how the law treats investment losses. The trust document itself can matter, so a lawyer can confirm how it applies to your trust.

The prudent investor standard

Under Trustee Act s. 27(1), a trustee investing trust property must use the care, skill, diligence and judgment of a prudent investor. The question is not whether an investment made money, but whether the trustee went about it carefully.

In plain words, the standard looks at the trustee's process. A trustee who thinks through the choices, gets help where it is needed and acts with the care a sensible investor would use is in a very different position from one who simply gambles with money that belongs to the beneficiaries. Whether a particular choice meets the standard depends on the facts, so it is worth confirming with a lawyer.

Planning, diversifying and getting help

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.

• Have a plan for the trust's investments rather than making ad hoc choices.
• Spread investments appropriately instead of concentrating them.
• Consider getting investment advice.
• Keep records of decisions and the reasons for them.

Written records matter because they show how a decision was reached. If a beneficiary later questions an investment, a trustee who can point to a plan and the reasons behind it is better placed to explain what happened.

The terms of the trust still matter

The Trustee Act's investment powers do not authorize or require a trustee to act inconsistently with the terms of the trust. A trustee should read the trust document carefully before investing.

The trust document may also deal with how the trustee is paid. 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 section does not apply where the document creating the trust fixes the allowance. A trustee may also pay a trust expense personally and recover the same amount from the trust property, although the court may later disallow the expense.

When investments lose money

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 can sometimes relieve a trustee from personal liability for a breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused. That relief does not apply to losses from investing trust property, so the trustee relies on the plan-or-strategy protection instead.

Holding a trustee to account

Beneficiaries who are worried about how money is being invested have some options. 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 of dealings with the trust may file them in the office of the Superior Court of Justice.

Rules 74.17 and 74.18 of the Rules of Civil Procedure govern the passing of estate trustees' accounts, and with necessary modifications they also apply to other trustees. The trustee files the accounts verified by affidavit, and the court then issues a notice of application to pass accounts. The notice and a draft judgment must be served on everyone with a contingent or vested interest, at least 60 days before the hearing if service is in Ontario. A beneficiary who objects to the accounts must serve and file a notice of objection at least 35 days before the hearing date.

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

Time limits apply to claims. The general limitation period in Ontario is two years from the day a claim was discovered, and 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. There are exceptions, including where the defendant wilfully conceals the loss, and where the claimant is a minor or incapable of starting a proceeding and has no litigation guardian. Because deadlines can end a claim, it is sensible to get legal advice early.

What to do next

• Trustees: read the trust document and write down an investment plan.
• Consider professional investment advice and keep a record of it.
• Beneficiaries: ask for statements showing how the money is invested.
• If you are unsure of your duties or rights, speak with a lawyer. A trustee can also ask the Superior Court of Justice for advice or direction on managing trust property.

Frequently asked questions