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A Reminder of the Rules for Investing

The judgment in Miles v. Vince[1] was issued recently by the British Columbia Court of Appeal and is a reminder of the strict duties trustees face in selecting investments.

The case centred around the investments of two trusts, referred to in the judgment as the Family Trust and the Insurance Trust. The Family Trust was established by the deceased before his death and held shares in three private companies, each of which held properties (the “Main Street Properties”). The Insurance Trust was established on the deceased’s death and held $2 million in life insurance proceeds. Both trusts were discretionary trusts which gave the trustee “absolute discretion” to invest the trust property. The deceased’s wife and three children were the income and capital beneficiaries of the Insurance Trust during its term and the three children were the beneficiaries on the trust’s termination. The three children were the income, capital and termination date beneficiaries of the Family Trust. The trustee for both was the deceased’s sister.

The sister argued that the deceased had told her that his intention in settling the Family Trust and the Insurance Trust was to develop Main Street Properties. In furtherance of this goal,  the sister arranged a loan of $1,170,000 from the Insurance Trust to the Family Trust (the “Loan”), with interest at 10% per annum, payable monthly. However, although interest accrued, it was never actually paid. Additional financing was also obtained from an outside source. The Loan was lower in priority to the additional financing and, around the time the Loan was made, the value of the Loan and additional financing was greater than the value of the Main Street Properties.

The Court of Appeal ultimately found that the Loan was an imprudent investment and a breach of the sister’s duties as trustee of the Insurance Trust. It was incumbent on the sister to consider the interests of all the beneficiaries of the Insurance Trust in investing its assets, including the wife’s interest as an income beneficiary. In advancing the Loan for property development, the sister did not act impartially as between the income and capital beneficiaries of the Insurance Trust. The Court of Appeal disagreed with the sister that the deceased’s intention in establishing the Insurance Trust was to develop the Main Street Properties, finding that the existence of separate trusts suggested different purposes. It also found that Loan placed the sister in a conflict of interest. For example, the decision to enforce repayment of the Loan would be in the best interests of the Insurance Trust beneficiaries but not the Family Trust beneficiaries.

The case is a reminder of the strict duties trustees face in making investments. Settlors wishing to displace these duties should do so as explicitly as possible; the granting of an “absolute discretion” to distribute or invest trust assets is unlikely to be sufficient. It is also a reminder that even with a discretionary trust, there is a duty to consider the interests of the income and capital beneficiaries. This is the case even where their identities overlap, as here where the wife and children were both income and capital discretionary beneficiaries.

[1] 2014 BCCA 289.

About Katie Ionson
Katie Ionson is an Associate at Fasken Wealth Management, Charities and Not-for-Profit Group. As part of her wealth management practice, Katie assists clients with Wills, powers of attorney, trusts, marriage and domestic contracts, and trust and estate administration. She has experience using estate planning to address a variety of client objectives, including income splitting arrangements, asset protection and business succession issues. Katie is engaged in a broad practice in the areas of charities and not-for-profit law, which includes preparing applications for charitable status, assisting clients with transitioning to the new federal or provincial not-for-profit legislation, drafting endowment and gift agreements and advising on administrative and tax-related issues. Email: