All About Estates

Removal of Executor/Estate Trustee for Perceived Conflict of Interest

Today’s blog is being brought to you by our guest blogger, Anna Chen

The court may remove an executor/estate trustee under its inherent jurisdiction or under section 37 of the Trustee Act.[1]  In either case, the test to remove an executor/estate trustee is stringent, as the court will not lightly interfere with a testator’s choice of executor/estate trustee.  When the court is asked to remove an executor/estate trustee, it will consider the following principles, amongst others:[2]

  • the welfare of the beneficiaries must be the court’s main guide;
  • the removal must be not only well justified, but must amount to a case of clear necessity;
  • the executor/estate trustee’s acts or omission must be of such a nature as to endanger the administration of the trust; and
  • a conflict of interest in itself is not always sufficient to remove an executor/estate trustee.

In light of the above, in what circumstances can the court remove an executor/estate trustee when there is only a perceived conflict of interest?  One such circumstance is when an executor/estate trustee could be called upon to sue himself/herself in his/her personal capacity on behalf of the estate.  This issue was addressed in Re Becker.[3]

In Re Becker, the three applicants and the respondent were the executors of the (deceased) testator’s estate.  The testator prepared his will in February 1986.  At the time, the value of his estate was $176,000.  The will was placed in the testator’s safety deposit box approximately 10 days after its execution.  The court provided the following summary of the events that followed:

About 11 days after that, on March 21, 1986, the respondent had access to the testator’s safety deposit box. A document, entitled “Gift”, dated the same day (i.e., March 21, 1986) was signed by the testator and provided for “an absolute gift to my good friend Ralph Lewis Hoffman, one hundred and seven thousand dollars ($107,000) consisting of guaranteed investment certificates”. The document was witnessed by a solicitor. Thereafter 10 guaranteed investment certificates, totalling $139,000 were transferred by the testator to the respondent between March 21, 1986 and April 15, 1986. The testator died April 27, 1986.

The applicants intended to bring an action against the respondent to set aside the transfer of the securities.  To that extent, the applicants sought an order to pass over the respondent as executor, alleging that the respondent would be in a conflict of interest in such action to be brought against him personally.

The court granted the application and stated, in part:

… In the case at Bar the perceived conflict of interest is between the executor and his interest in his personal capacity.  If the action is instituted by the applicants it would be against the respondent.  It is self-evident that the respondent, in his capacity as executor, cannot conscientiously (as a plaintiff) attack the gift and the transfer of securities to himself while at the same time maintaining in his personal capacity that the gifts and transfers were proper.  That will not be a potential conflict;  it will be actual.  In making such a finding I in no way prejudge the case.  I simply find the respondent cannot conscientiously act as a plaintiff (in his capacity as executor) in a case in which he will be the defendant.  I find I can make that finding now, and I so find;  therefore, the application is not premature.  The passing over of the respondent is therefore justified and clearly necessary…

… In considering the fitness of the respondent to act as an executor I have considered also the duties of an executor in a general way.  One duty of an executor is to bring in the estate for distribution among the beneficiaries.  It if its perceived, on good grounds, that that important duty is compromised by a personal conflict of interest because the executor will be asked to sue himself to recover what may be a large part of the estate property, he must be passed over. That consideration is particularly important when the action against the executor is for a very significant amount in respect to the size of the estate.

[Emphasis added.]

Takeaway

Not all situations of potential or actual conflict of interest will justify the removal of an executor/estate trustee.  However, where the estate has a potential claim against the executor/estate trustee (i.e. where the executor/estate trustee could be called upon to sue himself/herself in his/her personal capacity on behalf of the estate), the court may intervene to appoint a new executor/estate trustee to avoid even the appearance of conflict.[4]

 

Finally, wishing everyone a Happy Lunar New Year!

 

About Anna Chen

Anna Chen is a member in the Litigation and Private Client Services practice groups at Fasken.  Anna is called to the Bars of British Columbia and Ontario.  She assists clients in both provinces when disputes arise involving wills, trusts, inheritances, estate administration and family property division.  Anna helps to resolve issues through negotiation, mediation and, when necessary, litigation.

 

 

[1]      Section 37 of the Trustee Act, R.S.O. 1990, c. T.23 : https://www.ontario.ca/laws/statute/90t23

[2]      Radford v. Wilkins, 2008 CanLII 45548 (ON SC) – https://www.canlii.org/en/on/onsc/doc/2008/2008canlii45548/2008canlii45548.pdf

[3]      Re Becker, 1986 CanLII 2596 (ON SC): https://www.canlii.org/en/on/onsc/doc/1986/1986canlii2596/1986canlii2596.pdf

[4]      See also, In Re Walter W. Shaw Co. Ltd, 1922 CanLII 97 (SK QB): https://www.canlii.org/en/sk/skqb/doc/1922/1922canlii97/1922canlii97.pdf; Morelli v. Morelli, 2014 BCSC 106: https://www.canlii.org/en/bc/bcsc/doc/2014/2014bcsc106/2014bcsc106.pdf; and Re Ching, 2016 BCSC 1111: https://www.canlii.org/en/bc/bcsc/doc/2016/2016bcsc1111/2016bcsc1111.pdf

About Corina Weigl
Corina Weigl is a partner in the Trusts, Wills, Estates and Charities group at Fasken, a leading international law firm with over 650 lawyers and 9 offices worldwide that offers comprehensive estate planning, estate administration, personal tax planning, charitable giving and estate litigation services. Email: cweigl@fasken.com

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