Executors and trustees may be hesitant or indecisive when administering estates and trusts, especially when the will or trust deed gives them some discretion in carrying out their duties or when they are concerned about balancing the interests of competing beneficiaries – keeping everyone happy.
The Trustee Act permits a trustee, executor or administrator to apply “for the opinion, advice or direction of the court on a question respecting the management or administration of the trust property or the assets of a will-maker or intestate.” The court also has the inherent jurisdiction to supervise trusts, to protect the welfare of the beneficiaries.
It may be tempting for an executor or trustee to seek court approval for any decision or exercise of discretion. It would be comforting to have a judge give his or her blessing to a proposed course of action. However, it is not the court’s job to consider and approve every decision of an executor or trustee. When is it appropriate to involve the court in decisions that should be made by executors and trustees?
Prior court decisions suggested that section 86 of the Trustee Act allowed an executor or trustee to seek the advice, opinion or directions of the court on a legal question, and then act on that advice. The section was not intended for the court give advice, for example, in a situation where there was a conflict between interested parties, such as competing beneficiaries.
However, the Court went beyond merely advising on legal questions in Toigo Estate (Re) 2018 BCSC 936. In Toigo, the deceased created a spousal trust which provided that the net income of his estate would be paid to his wife during her lifetime. The will also permitted the trustees to encroach on the capital of the estate in favour of his wife, in the trustees’ uncontrolled discretion. The residue of the estate was to be divided between the deceased’s children and grandchildren after his wife’s death, but in a manner which would provide that that there would not be an equal distribution amongst the grandchildren.
The wife asked the trustees for a significant encroachment into the capital (tens of millions of dollars), in order the engage in her own estate planning, which would provide for a more equal distribution of the deceased’s estate amongst the grandchildren.
The trustees were clearly permitted to make the encroachment (and had uncontrolled discretion to do so). However, they still wanted the court’s “opinion, advice or direction” as to whether they should proceed.
The court held that it had the jurisdiction to approve the encroachment under s. 86 of the Act or the inherent jurisdiction of the court to supervise trusts, and they approved the encroachment. The court held that because of the magnitude of the encroachment, the court could provide advice on this “momentous decision”.
In making the decision, the court asked the following questions:
- Does the trustee have the power under the trust instrument and the relevant law to make the “momentous decision”?
- Has the trustee formed the opinion to do so in good faith and is it desirable and proper to do so?
- Is the opinion formed by the trustee one that a reasonable trustee in its position, properly instructed, could have arrived at?
- Is the Court certain that the decision has not been vitiated by any actual or potential conflicts of interest?
Executors and trustees should consider whether they ought to apply to the court for a stamp of approval when taking drastic or “momentous” action in relation to the administration of estates or trusts. There are other options to protect executors and trustees, such as requiring that all beneficiaries sign release and consent documents before taking the proposed course of action. However, this may not always be practical or possible, especially if some beneficiaries refuse to sign such a document.