Estate Planning

May I Encroach on Your Capital?

By Hull & Hull LLP

Ontario Progressive Conservative Leader John Tory recently opined that Ontario is in a recession. www.cbc.ca/Canada/Toronto/story/2008/03/27/tory-economy.html While Ontario's last economic downturn resulting in a recession was almost twenty years ago, many people still recollect this dismal period as a time when unemployment was high and investment opportunities appeared to be non-existent.

Difficult economic times may be an appropriate instance for trustees to encroach on the capital of the trust for the benefit of a beneficiary. In determining whether a trustee has the power to encroach, one must first look to the specific wording of the Will or the trust instrument. Once it has been determined that the power to encroach exists, it is then necessary to ascertain the scope and extent of this power.

While trustees are generally granted "uncontrolled discretion" in exercising their power to encroach on capital, the scope and power of such discretion is subject to the even-hand principle. A trustee's fiduciary obligation requires him/her to maintain an "even-hand" between income and capital beneficiaries when exercising a discretionary power, unless the trust provisions stipulate otherwise.

Let's hope our economy rights itself in the near future.

Thanks,

Allan Socken

Full post as published by Toronto Estate Law Blog on March 28, 2008 (boomark / email).