Is a Trustee Personally Liable for a Breach of Trust in Alberta?

Being named a trustee, whether in a will or another trust document, means looking after property for other people. If something goes wrong and the trust loses money, a common worry is whether the trustee has to pay it back out of their own pocket. Beneficiaries ask the same question from the other side.

In Alberta the answer comes mainly from the Trustee Act, SA 2022, c T-8.1, which replaced the former Trustee Act and was proclaimed in force on February 1, 2023. The answer depends on what the trustee did, what the trust document says, and what a court considers fair.

This article covers the law of Alberta.

The standards a trustee must meet

A trustee must act in good faith and in accordance with the terms of the trust, the best interests of the objects of the trust (the beneficiaries or purposes), and the Act. Subject to s. 35 of the Act, a trustee must also use the care, diligence and skill that a person of ordinary prudence would use in dealing with another person's property. A trustee with specialized or professional skill is held to a higher standard that reflects that expertise.

There is also a duty of loyalty. A trustee must act solely in the interests of the objects of the trust and must not knowingly allow a conflict between personal interest and trust duties, or a personal or third-party benefit, unless the law or the trust instrument permits it. This applies to a trustee who is also a beneficiary. They must not use the office to gain a personal benefit beyond what the law or the trust document expressly permits. A will or trust deed can expressly allow a named trustee to also take as a beneficiary.

On application by a trustee or qualified beneficiary, the court may permit an act that would otherwise breach the conflict rules, or excuse the trustee from liability, if that is in the best interests of the objects. Notice must go to qualified beneficiaries.

Investment losses

A trustee must invest trust funds prudently, aiming for a reasonable return while avoiding undue risk, and must review investments periodically. Whether a particular loss leads to personal liability depends on the facts, so it is worth confirming with a lawyer. A trustee is not liable for an investment loss if a reasonably skilled and prudent trustee could have made the same investment decision.

Investment planning must also consider impartiality between classes of beneficiaries, for example someone who receives income and someone who receives what is left later.

Co-trustees, former trustees and sharing the loss

• A trustee is not liable for a co-trustee's breach unless the trustee participated in it through their own acts or omissions.
• A former trustee remains liable for breaches committed while in office.
• Trustees may claim contribution and indemnity from one another.
• The court may order beneficiaries who instigated, requested or consented to a breach to contribute or indemnify the trustee.
• Where trustees must make good a loss, the court determines the amount each must pay.

Staying passive is not a safe approach, because an omission can count as participation. Where a trustee hands work to an agent, the trustee must personally select the agent, be satisfied of their suitability, set the terms, and reasonably and prudently supervise them. A trustee must not delegate the discretion to distribute trust property to beneficiaries.

Court relief and exemption clauses

The court may relieve a trustee wholly or partly from personal liability for a breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused. A beneficiary, trustee or secured party may apply.

A trust document may include an exemption clause. Generally it relieves the trustee of liability according to its terms, but the court may declare it ineffective where the trustee's conduct was so unreasonable, irresponsible or incompetent that the trustee ought not to be relieved.

The trust document generally prevails over a contrary provision of the Act unless the Act provides otherwise, but some rules, such as s. 84, prevail over contrary trust-document provisions.

Asking for directions, and the beneficiary's route

A trustee who is unsure what to do can apply to the court for directions. Following the directions discharges the duty, unless they were obtained by fraud, wilful concealment or misrepresentation. Evidence can be admitted to determine the settlor's intention.

A trustee or beneficiary may apply to the court to determine whether a trustee has failed to perform a duty or to consider a power in good faith. The court may order performance or remove the trustee. The court may also remove a trustee in listed circumstances, including refusal to comply with a court order under s. 81(2). A court can also order that a trustee's accounts be passed.

Beneficiaries also have information rights. A trustee must deliver a report for each fiscal period to qualified beneficiaries within 2 months after the fiscal period ends, and beneficiaries may inspect source documents on written request. Some information need not be disclosed on listed grounds, but a qualified beneficiary can apply to court for disclosure. Time limits for suing over a breach depend on other law and the facts, so ask a lawyer promptly.

What to do next

• Trustees: keep clear records of decisions, investments and payments.
• Read the trust document for exemption clauses and any permission to benefit personally.
• Avoid conflicts, and get court approval or directions where the right course is unclear.
• Beneficiaries: find out whether you are a qualified beneficiary, meaning you have a vested beneficial interest or have given written notice that you want to be one and have not withdrawn it, because many reporting and notice duties run to qualified beneficiaries.
• Raise concerns early and in writing before considering a court application.
• Speak with an Alberta lawyer about your options and any time limits before acting.

Frequently asked questions