The Role and Duties of a Trustee in Ontario: What You Are Taking On

Being asked to serve as a trustee is an honour — and a significant legal responsibility. Whether you have been named in a will to manage a testamentary trust, or you have agreed to act as trustee of a living trust, you are stepping into a role governed by Ontario's Trustee Act, decades of case law, and strict fiduciary standards.

Many people accept trusteeship without fully understanding what it requires. This article explains the core duties of an Ontario trustee, the investment standard trustees must meet, what they can be held personally liable for, and what questions to ask before agreeing to serve.

What Is a Trustee?

A trustee is a person (or institution) who holds and manages property for the benefit of one or more beneficiaries. The trustee is the legal owner of the trust property — but does not own it for their own benefit. Every decision the trustee makes must be made in the interest of the beneficiaries, not themselves.

This separates legal ownership (the trustee's name on the account or title) from beneficial ownership (the beneficiaries' right to enjoy the property and its proceeds).

The Core Fiduciary Duties

A trustee owes fiduciary duties to the beneficiaries — the highest standard of duty known to law. These include:

1. Duty of Loyalty

A trustee must act in the interests of all beneficiaries — not in their own interest, and not preferring one beneficiary over others without clear authorization from the trust document. Self-dealing (buying or selling trust property to yourself, or to entities you control) is generally prohibited.

2. Duty to Invest Prudently

Ontario's Trustee Act imposes the prudent investor standard: a trustee must invest trust assets as a prudent investor would, having regard to:

• The risk and expected return of the portfolio as a whole
• The needs of current and future beneficiaries
• The diversification of the portfolio
• The liquidity requirements of the trust

This does not mean being overly conservative. A trustee who leaves all trust assets in a low-interest account when better (appropriately risk-adjusted) returns are available may be as liable as one who makes reckless investments.

A trustee is expected to obtain professional investment advice unless they have the expertise to manage the portfolio themselves.

3. Duty to Keep Accounts

Trustees must maintain accurate, up-to-date records of all trust transactions: what came in, what went out, and what remains. Beneficiaries have the right to request an accounting. If the trustee and beneficiaries cannot agree on the accounts, either can apply to court for a passing of accounts — a formal review by the court.

4. Duty to Keep Trust Property Separate

Trust assets must never be mixed with the trustee's personal assets. A trustee who co-mingles funds is personally liable for any resulting loss — and may face more serious legal consequences.

5. Duty to Act Personally

Unless the trust document specifically authorizes delegation, a trustee must make decisions personally. You cannot simply hand off the role to someone else. However, administrative tasks (custody of assets, investment management under direction) can typically be delegated, and the Trustee Act provides some authority to do so.

6. Duty to Act Impartially

If there are multiple beneficiaries with different interests — for example, a surviving spouse who receives income and adult children who receive the remainder — the trustee must balance both sets of interests. Decisions that benefit the income beneficiary at the expense of the remainder beneficiary (or vice versa) must be justified and documented.

Filing Tax Returns

Every trust is a separate taxpayer under the Income Tax Act. The trustee is responsible for:

• Filing an annual T3 trust return (even if the trust earned no income in some years — verify current filing thresholds with CRA)
• Issuing T3 slips to beneficiaries who received taxable distributions
• Complying with the expanded trust reporting rules (disclosing trustees, beneficiaries, settlor, and other information — see the bare trust reporting article)
• Filing the trust's final return when the trust winds up

Failure to file trust returns carries CRA penalties. If a trustee does not have accounting expertise, hiring a tax professional to prepare the returns is appropriate and the cost can be paid from trust funds.

Trustee Compensation

Ontario law allows trustees to receive "fair and reasonable" compensation for their work unless the will or trust document limits or eliminates compensation. What is fair and reasonable depends on:

• The complexity of the trust administration
• The skill and experience the trustee brought to the role
• The time spent
• The results achieved
• Industry practice in the area

Corporate trustees (trust companies) charge set annual fees. Individual trustees should document their time and expenses carefully. Compensation paid to a trustee is income in the trustee's hands for tax purposes.

Personal Liability

Acting as trustee carries real personal liability risk. A trustee can be held personally responsible for:

• Investment losses caused by imprudent decisions
• Failure to properly distribute trust assets
• Tax penalties resulting from unfiled or incorrect trust returns
• Breach of fiduciary duty (self-dealing, favouring one beneficiary, etc.)

A trustee who faces a potential claim can apply to court for directions before acting — this protects the trustee if they follow the court's guidance. Where there is genuine uncertainty about the proper course of action, do not guess — seek legal advice.

Should You Accept the Role?

Before agreeing to act as trustee, ask:

• Do I understand what assets are in the trust and what they are worth?
• Do I understand what the trust document requires me to do?
• Do I have the time and expertise to manage trust investments responsibly?
• Am I capable of maintaining accurate records and filing tax returns?
• Do I understand who the beneficiaries are and what their needs might be?
• Am I comfortable being personally liable if something goes wrong?

If the answer to any of these is no, consider whether a professional co-trustee or sole professional trustee would better serve the beneficiaries — and the estate owner's intentions.

Frequently asked questions