Is a Trustee Personally Liable for Trust Losses in Ontario?

Being a trustee means looking after property for other people, and it is natural to worry about what happens if something goes wrong. A market drop, a missed step or a payment made in good faith can leave a trustee wondering whether they will have to cover the loss from their own money.

The answer depends on what kind of mistake it was. Ontario law treats investment losses differently from other breaches of trust, and the trust document itself matters too. This article explains the main rules in plain terms so you know what questions to ask.

When a trustee can be personally responsible

A trustee holds property for the beneficiaries and must follow the terms of the trust and the law. A loss that follows a possible breach of trust can lead to questions about whether the trustee is personally responsible for it. Whether that happens depends on what the trustee did, why, and what the law and the trust document say about it.

Not every loss is a breach. A trust can lose value through ordinary market movement even when the trustee has done everything properly. The rules below help separate those situations.

Investment losses and the prudent investor standard

When investing trust property, an Ontario trustee must use the care, skill, diligence and judgment of a prudent investor. A trustee must consider the criteria listed in the Trustee Act when planning investments, must diversify to an appropriate extent, and may obtain investment advice. A trustee may also delegate investment functions to an agent.

The protection is meaningful. 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. This is why a written plan and a record of the reasons for decisions are so useful.

The trust document can change the picture. The Trustee Act's investment powers do not authorize or require a trustee to act inconsistently with the terms of the trust.

Other breaches and court relief

For breaches that are not investment losses, 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. Honesty alone is not enough. The trustee must also have acted reasonably.

That relief does not apply to losses from investing trust property. For those losses, the trustee relies on the plan-or-strategy protection instead.

Protecting yourself while you act

• Pay trust expenses from the trust where you can. 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.
• Ask the court for guidance when you are unsure. A trustee may apply to the Superior Court of Justice, without starting an action, for the court's opinion, advice or direction on managing trust property.
• Consider passing your 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.
• Know that 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.

Trustees are also entitled to a fair and reasonable allowance for their care, pains and trouble and the time spent, which a judge of the Superior Court of Justice fixes. That does not apply where the document creating the trust fixes the allowance.

Removal, replacement and time limits

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

Claims against a trustee are also subject to deadlines. The general limitation period is two years from the day a claim was discovered, meaning 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. That 15-year period does not run while the defendant wilfully conceals the loss, and the claimant must prove the concealment. The two-year period also does not run while the claimant is a minor, or is incapable of starting a proceeding and is not represented by a litigation guardian.

Tort actions by or against a deceased person's executor or administrator have a separate rule and must be brought within two years of the death. Which deadline applies to a particular claim is worth confirming early.

What to do next

• Gather the trust document, account statements and any investment plan or advice you received.
• Write down what decisions were made, when, and why.
• Do not pay yourself back or move money to cover a loss until you understand the consequences.
• Consider asking the court for advice or directions if the situation is unclear.
• Speak with a lawyer early, especially if a beneficiary has raised a concern, since deadlines may already be running.

Every trust and every loss is different. A lawyer can review the document and the facts and explain where you stand.

Frequently asked questions