Those in the estates bar know that it is a very high test to remove an estate trustee. Courts do not lightly interfere with a testator’s choice. However, where an estate trustee is in a conflict of interest and acts in a manner that puts the proper management of the trust property at risk, the test may be met. In Muscat v. Muscat Estate, 2025 ONCA 518 (CanLII) the Ontario Court of Appeal recently upheld the decision of the application judge to remove two estate trustees and order costs against them personally.

The deceased died in 2022 when his son (the respondent on appeal) was almost 17 years old. The deceased’s son was the sole residuary beneficiary. According to the deceased’s last will and testament, the estate is to be held in trust for his son until he turns 25. The estate was comprised primarily of a building and a jewelry business.

About 6 or 7 months after the deceased’s death, an offer to purchase the jewelry business was made. However, the offer came from the romantic partner of one of the estate trustees. A business valuation for the jewelry business estimated its worth at about $515,000. The offer from the romantic partner was for $400,000, noted by the Court of Appeal as “significantly less” than the valuation. When the estate trustees communicated the offer to the respondent he retained a lawyer. The respondent raised a number of concerns, including that the estate trustee was in a conflict of interest due to her romantic relationship with the proposed purchaser. The respondent requested the estate trustee resign. She refused to do so. Instead, the estate trustees took the position that her romantic relationship was “irrelevant” to the offer to purchase and denied that a conflict of interest existed. When the respondent asked for additional time to consider the offer, the estate trustees refused. When the estate trustees recommended that the offer be accepted as the “best available” offer, the respondent commenced the application to remove the estate trustees. The respondent obtained his own business valuations, one of which concluded that the business could be worth as much as $911,550.

On appeal, the estate trustees argued that the application judge erred in removing them to ensure proper management of the trust. The estate trustees argued that they had no obligation to obtain fair market appraisals for the business because they were only communicating the offer to purchase to the respondent. The estate trustees also argued on appeal that they did not have to disclose the romantic relationship to the respondent because he already knew about it.

The Court of Appeal disagreed. It held that the application judge correctly found the estate trustee in a conflict of interest because of her romantic relationship given that the estate trustee stood to gain if her partner’s offer was accepted. The Court of Appeal rejected the estate trustees argument that they had no obligation to obtain fair market appraisals. The Court of Appeal stated:

“A trustee’s duty of loyalty requires that they manage trust assets with honesty and integrity and in the best interest of the beneficiaries. A trustee cannot abdicate that duty and responsibility by purporting to require the beneficiary to approve an offer that places the trustee’s interests ahead of those of the beneficiary.” (para 16)

The Court of Appeal also found that the respondent’s knowledge of the romantic relationship did not excuse the estate trustees’ failure to disclose it. Turning to the costs award against the estate trustees personally, the Court of Appeal held that the application judge did not err. Citing Westover Estate v. Jolicouer, 2024 ONCA 81, the Court of Appeal noted that an estate trustee may be ordered to pay costs personally where they have “acted unreasonably or in substance for their own benefit, rather than for the benefit of the estate.”

Although it is a high bar to remove an estate trustee, it can be met in situations where the estate trustee is in a conflict of interest and acting for her own benefit. The duties of estate trustees to act with loyalty and integrity, and in the best interests of the beneficiaries, cannot be abandoned and then condoned by asking a beneficiary to agree with a decision. A personal costs award against estate trustees will be considered in appropriate cases. The entitlement of estate trustees to be indemnified for costs in litigation is not an absolute rule.