Trustee Liability: Can a Trustee Be Personally Sued in Ontario?

Being named a trustee or estate trustee can feel like an honour until the first loss or disagreement. Markets fall, a beneficiary is unhappy, or a decision turns out badly, and you start to wonder whether your own savings are at risk.

In Ontario, a trustee can be personally responsible for a breach of trust, but the law also gives trustees real protections. This article explains the main ones, where they stop, and which habits help. It is general information, not advice on your situation.

The standard for investing trust property

Investment decisions are where trustees most often worry about liability. The Trustee Act sets the standard: in investing trust property, a trustee must use the care, skill, diligence and judgment of a prudent investor.

That standard comes with specific duties. 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.

There is an important limit. These investment powers do not authorize or require a trustee to act inconsistently with the terms of the trust. Read the will or trust document first, because it can narrow what you are allowed to do.

Protection for investment losses

A loss alone does not make a trustee liable. Under the Trustee Act, 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.

In practice, this rewards process. A written plan, reasons for the choices made, and evidence of advice sought all help show that the strategy was one a prudent investor could adopt. The protection is about the plan and the conduct, not about how the market turned out.

Relief for honest mistakes, and its limit

For other breaches of trust, a court may relieve a trustee wholly or partly from personal liability if the trustee acted honestly and reasonably and ought fairly to be excused. The court decides this; it is not automatic.

The exception matters. That court relief does not apply to losses from investing trust property. For those losses, the trustee relies on the plan-or-strategy protection described above.

Expenses, compensation and accounts

Liability worries are not only about losses. 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. Keep receipts and a clear reason for each payment.

A trustee, guardian or personal representative is entitled to a fair and reasonable allowance for 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 itself fixes the allowance. Taking payment without approval or authority is a common source of disputes, so ask before you pay yourself.

A trustee who wants to pass the accounts 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 also bring a motion for an order requiring the estate trustee to pass accounts. Good records make either route far less stressful.

Removal, deadlines and next steps

Trustees who fall short can lose the role. The Superior Court of Justice may remove a personal representative on any ground on which it could remove any other trustee and appoint someone else. The court may also appoint a new trustee, replacing or adding to existing trustees.

Time limits apply to claims. The general limitation period is two years from the day a claim was discovered. 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, but that period does not run while the defendant wilfully conceals the loss. The two-year period also does not run while a claimant is a minor or incapable, and not represented by a litigation guardian. Tort actions by or against a deceased person's executor or administrator have a separate deadline of two years from the death.

• Read the will or trust document and follow its terms.
• Write down an investment plan and the reasons for it.
• Keep every receipt, statement and decision record.
• Get investment advice where the assets justify it.
• Do not pay yourself until compensation is authorized or approved.
• If a decision is unclear, consider asking the court for advice or direction.
• Speak with a lawyer before acting if a beneficiary is threatening a claim.

Frequently asked questions