Estate Planning

Protecting a Trustee from Liability (Part V)

By Hull & Hull LLP

My blog today is the last in my series this week on protecting a trustee from potential liability.

A trustee may be protected from potential liability based on the conduct of the beneficiaries themselves or by having sought the assistance of the Court. 

If a beneficiary consents to, or concurs in, a breach of trust prior to it being carried out, or he releases the trustee from liability, or in some other way acquiesces in the breach after it has been carried out, he or she may not subsequently claim from the trustee any compensation to the trust for the loss arising. It is the beneficiary's personal conduct which bars him or her from making such a claim. A beneficiary, who has instigated, requested or consented to a breach, may possibly be required to indemnify the trustee to the extent of the beneficial interest.

In addition, the defence of Laches, which is an equitable doctrine, may be available to a trustee. This doctrine expresses the principle that, if the claimant permits long delay to ensue before he or she brings his action in respect of the trustee's conduct, the court may dismiss his action on those grounds.

Quite apart from the above defences/protection, the conduct of the trustee may be exonerated if the trustee sought the assistance of the Court before taking an action.

There are situations in which trustees are unsure about their rights and duties or about the meaning of the trust instrument. In the appropriate circumstances the trustee should apply to the court for directions. If the trustee fails to do so, the trustee is at risk of committing a breach of trust. 

A defence that a trustee may assert to an action for breach of trust is that if he or she has received the opinion or directions of the Court, statutory protection is provided under s. 60(2) of the Trustee Act. Section 60(1) provides that a trustee may bring an application to the Ontario Superior Court of Justice for the opinion or direction of the Court on a matter arising in the administration of the trust. Under s. 60(2), a trustee is deemed to have discharged his or her duty with respect to the subject matter of the application, barring fraud, willful concealment or misrepresentation, in obtaining the opinion or direction of the court.

Have a nice weekend, Craig.

Full post as published by Toronto Estate Law Blog on March 13, 2009 (boomark / email).