All About Estates

Can a trustee demand financial information from a beneficiary?

This Blog was written by: Alicia Mossington (Godin), Estate and Trust Consultant, Scotia Wealth Management 

A trustee is responsible for carrying out the terms of a trust. Choosing the right trustee is essential to the success of any estate plan but it is also incredibly helpful to give them tools and instructions to assist them in carrying out their role. Trustees have a number of powers as well as fiduciary duties which govern all aspects of trust management and administration. Although trustees are often given specific instructions, they often have discretion in the exercise of their powers.

For example, a trustee may have the power to make payments from income or capital to a beneficiary, but they may have discretion to determine whether to actually make a payment. These decisions may not be straightforward, and a trustee may want to take other factors into consideration.

This was one of the questions before the Ontario Court of Appeal in Walters v Walters.[1] Mrs. Walters died in 2016 leaving the residue of the estate in trust for her husband, Gerald Walters. Mrs. Walters appointed her children as executors/trustees. The terms of the trust directed that all income be paid to Gerald and gave the trustees discretion to encroach on the capital “as my Trustees in their absolute discretion consider necessary or advisable to or for the benefit of my said husband from time to time.” Mrs. Walther’s also included :

“(…) I wish to advise my Trustees that my husband’s comfort and welfare are my first consideration and for this reason, it is my desire that my Trustees exercise their powers to encroach on the capital in a manner which will ensure his comfort and well being.”

The trustees (Mrs. Walters children) mistrusted Gerald and denied his request that they encroach on capital to pay his living expenses. Prior to denying the request, the trustees had requested information from Gerald regarding his financial circumstances. This information was either not supplied by Gerald or was vague. In addition to the lack of information from Gerald, the trustees also had a recorded conversation between Gerald and the proprietor of the home where he resided in which Gerald stated that he could “sucker them in pretty good.”[2]

In the Will, the trustees were given absolute discretion in the exercise of their powers. How broad is absolute discretion? The Court was asked to consider what factors the trustees should or could have considered but noted as well that intervention by the Court is only permitted in limited circumstances. Yvonne Mazurak of Fasken, wrote a great article in April examining interference by the court in the exercise of discretion by trustees.[3]

Addressing the question of whether the trustees can consider extraneous factors, the Court of Appeal noted:

  1. the Trustees must first carefully examine the wording of the Will/Trust ; and
  2. absent any other direction in the Will, the Trustee can only satisfy itself that payment of capital to an income beneficiary is necessary or advisable by considering the beneficiary’s financial circumstances.

Ultimately, the trustees may be permitted to make some inquiries to determine what might be “necessary” or “advisable.” In Walthers “the trustees needed to know whether the capital encroachment would go towards the proper purpose of Gerald’s comfort and well-being (…)”.[4]

The Court of Appeal provided additional guidance to drafting lawyers, suggesting that “ideally, testators will state in wills that contain a discretionary trust with a power of encroachment whether the income beneficiary’s resources are to be considered.”

This author has seen some of these guiding principles included, such as:

  • a direction that the funds be used specifically for education including but not limited to post-secondary education pursuits;
  • a direction that funds not be distributed for the purpose of cosmetic, not-medically required procedures;
  • a direction that the beneficiary contribute (to some extent) to their own living or educational expenses, with the intention that the trust funds only supplement and not supplant income the beneficiary earns from other sources.

The job of the trustee is complex, time consuming and often difficult. Any additional information or guidance that a testator can offer could help to ease the burden of administration after the fact.

 

 

[1] Walters v Walters 2022 ONCA 38. Retrieved from: https://www.canlii.org/en/on/onca/doc/2022/2022onca38/2022onca38.html?autocompleteStr=2022%20ONCA%2038&autocompletePos=1.

[2] Ibid, para 16.

[3] For a summary of when the court will intervene with a decision made by a trustee in the exercise of their discretionary power see Yvonne Mazurak’s article: https://www.allaboutestates.ca/walters-v-walters-limits-to-absolute-discretion-and-judicial-intervention-by-yvonne-mazurak/.

[4] Supra note 1 at para 72.

Tagged in:
About Scotiatrust

0 Comments

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.