In this writer’s work, teaching professionals the nuances of working with seniors, one of the questions asked in class is ‘Have you been an executor?’. As you might expect, many have been, yet very few were aware of the personal liability they took on. None were aware of the Executor’s Insurance offered by ERAssure out of Kitchener, ON. IF you choose to be an Executor/Trustee, make sure you are ready for the work involved, and make sure you are protected.
Written on August 19, 2014 – 8:30 am | by Corina Weigl
Over the years since All About Estates has existed there have been several blogs dealing with the roles and responsibilities of acting as an executor/trustee, as well as the potential liability an executor/trustee faces. As estate planners we work with our clients in understanding the “job” of being an executor/trustee so our clients can make an appropriate selection. We also work with our clients in recommending that they include an exculpation clause in their Will that will protect their chosen executor/trustee from liability. The question we often get asked is how far do those clauses go to provide protection. Like many things with the law – an appropriate exculpation clause will strive to achieve a balance between providing the executor/trustee with protection and ensuring the interests of the beneficiary are protected; the pendulum ought not to swing too far in either direction.
Recently the Ontario Court of Appeal in Penman v. Penman, 2014 ONCA 83 (CanLII) considered an appeal by a co-trustee of a decision of the Superior Court of Justice finding her, and two other co-trustees, personally liable for the amount of $453,048.20 plus interest. [Note, the co-trustees were held to be jointly and severally liable as well.] At issue was the extent of protection provided by an exculpation clause in a trust indenture. The decision serves as a reminder that the personal liability of acting as a trustee is real. If you take on the “job” you must be active in fulfilling your duties.
The case involved a claim for recovery of trust funds that were found by the Superior Court of Justice to have been wrongfully removed. The Court found that a co-trustee had delegated the exercise of discretion as it related to the investment of trust funds to her two co-trustees but then failed to make any inquiries regarding their investment of the trust funds. Ultimately the Superior Court found the co-trustee had abdicated her duties entirely by improperly delegating all of her powers, duties and authority to her co-trustees. In addition, the Court found she had wilfully neglected her duties because she allowed her co-trustees to manage the investments for a period of many years without any inquiry on her part that the funds were being properly administered. In fact, she admitted she did not review materials provided to her but simply signed documents put before her.
The co-trustee put forward several arguments including that she was protected by the exculpation clause in the trust such that she could not be liable. The clause at issue was a common provision found in trusts and Wills providing as follows:
“The Trustee [sic] shall not be responsible for the acts or defaults of each other or for any error in judgment or for any act of omission or commission not amounting to actual fraud in the management and administration of the Trust Property. The Trustee shall not be personally liable for any monies to become due from or by any claims against the Trust Property or upon any investment executed by the Trustees under the provisions hereof.”
In particular, the co-trustee focused on the wording that she could only be liable for omissions that amounted to fraud.
The Court of Appeal disagreed and ultimately confirmed the Superior Court of Justice’s decision that she was personally liable. An exculpation clause cannot protect a trustee when she has improperly delegated her discretion, authority, power or duty. In circumstances such as this the co-trustee “did not function as a co-trustee of the trust” such that she was not protected by the clause. The Court of Appeal confirmed the approach of reviewing exculpation clauses with a view to striving to achieve a balance between the settlor (or testator’s) freedom to protect trustees and the court’s jurisdiction to protect beneficiaries. Where a trustee improperly delegates discretion or acts in contravention of the power granted to them, an exculpation clause will not protect them.
The upshot here is – taking on the role of executor or trustee is a serious endeavor – you are a fiduciary and you owe a duty to the beneficiaries. Even with appropriate protections in place, you must make sure you understand what your roles and responsibilities are and what the extent of your powers are. You ought to be involved in all matters requiring decision. Taking on the “job” with a view to being passive will expose you to potential personal liability. If you do not feel you have the time or desire to assume the job and all that it entails, you might consider renouncing the position before you begin to act.