Too often an estate trustee distributes money to the wrong beneficiary or distributes the wrong amount. What happens? Does the recipient have to pay it back? What if the money is already spent? Is there a breach of trust?
My colleague, Mark Gannage, recently helped me think through this problem. The law of unjust enrichment provides that a person who is unjustly enriched at the expense of another must make restitution of that enrichment. However, under the defence of change of position or change of circumstances, the defendant may not liable to the extent that he/she incurred an exceptional expenditure in the honest belief that he/she was entitled to retain the benefit and spend it. The defence is an equitable one and is premised on the basis of preventing an injustice to the recipient.
In Gareau Estate [9 E.T.R. (2d) 25 (Ont. Gen. Div.)], the testator’s will directed that the residue of her estate was to be divided among her nieces and nephews. The estate trustees made interim distributions before discovering that other nieces and nephews existed of whom they had been unaware. The estate trustees applied for interpretation of the will and, if called for by such interpretation, for orders for repayment of moneys paid out of the estate.
The court held that the recipients were entitled to some, but not all, of the money distributed to them. According to the court, where an innocent recipient had so changed his/her position in good faith that it would be inequitable in the circumstances to require him/her to make restitution or restitution in full, repayment would not be ordered. Here, one recipient had used the money to purchase land and a house and could not afford repayment. Another had loaned part of the money for that house purchase and spent most of the rest on a lot. A third recipient used most of the money to renovate her house. None were in a position to make repayment. Equity did not demand immediate repayment. The fair and proper disposition was to impose constructive trusts on the houses and the lot to secure repayment to the estate of the amount of the overpayment.
Other cases show that where a recipient was acting in good faith, had irreversibly and materially changed his/her position, did not spend the money on ordinary and everyday expense, and had undertaken, for instance, some specific project, financial commitment or obligation, he/she did not have to pay the money back.
Where an estate trustee finds him/herself in the position of having wrongfully distributed money, they should demand its immediate return. However, there is no guarantee that the money will be paid back. Faced with that possibility, the estate trustee may be saddled with a breach of trust claim by the rightful beneficiaries. The role of an estate trustee can really be a thankless task.
Thanks for reading,