With minimal restrictions, a testator can appoint whomever they wish as their estate trustee. However, as our avid readers may know, a testator does not always make the best choice. In such cases, section 5 of Ontario’s Trustee Act gives the court the power to appoint a new estate trustee (or estate trustees), either in substitution for or in addition to the existing estate trustee(s). Justice Myers’ decision in Laski v Gallo is a recent example of when a court may exercise its power under section 5 of the Trustee Act.
The deceased died on July 16, 2010. The deceased had three children: Monika Laski, Dorothy Gallo and Renata Kasprzak. In his will, the deceased named Dorothy as his estate trustee and distributed his estate equally between his three children.
In 2010, Dorothy sold the deceased’s house (the estate’s principal asset) for $134,000.00, but did not distribute the sale proceeds to her siblings.
Six years after the deceased died, having not received her inheritance from the deceased’s estate, Monika and her son (a beneficiary under the deceased’s Polish will) commenced proceedings to remove Dorothy as the estate trustee. Renata chose not to participate in the proceedings.
The application was returnable in July 2016, but was adjourned to October 2016 to give Dorothy time to retain counsel. In the meantime, it came to light that approximately $60,000.00 of the funds in the estate’s bank account had been spent. Dorothy had not retained counsel by October 2016 and the hearing was, again, adjourned to December 2016. However, this time, Dorothy was ordered to, among other things, account for the estate assets from the date of the deceased’s death to present.
At the December 2016 hearing, Dorothy explained that, in 2004 to 2005, she conducted “several transactions” with Monika’s husband, and that she “lost everything” as a result. She also explained that she would distribute the estate assets on the condition that Monika and/or her husband settled the 2004-2005 transactions with her. Dorothy further submitted that the majority of the estate should be distributed to her (despite what the will stated) because, among other reasons, she had provided care for the deceased for several years.
Moreover, Dorothy failed to account for the missing funds from the estate’s bank account, stating that she could not afford to hire an accountant.
Justice Myers found that it was in the best interest of all of the beneficiaries to replace Dorothy with Monika as estate trustee. Under section 5 of the Trustee Act, Justice Myers ordered that Dorothy be replaced as the estate trustee because Dorothy:
- was in a position that “prevented her from recognizing or performing her responsibilities as estate trustee”;
- had “intermingled her affairs with her understanding of the administration of the estate”;
- “lacked the proper capacity to execute the duties of her fiduciary position”; and because
- “her inability to account for expenditures of the estate’s funds rendered it inappropriate for her to continue as estate trustee”.
The court also awarded costs to the Monika and her son on a substantial indemnity basis, noting that Dorothy had “wholly misconceived the fiduciary nature of her duties” and had “acted in a conflict of interest to pursue her personal issues ahead of and at the expense of her obligations to the beneficiaries”.
An estate trustee should inform him or herself of their obligations, and should seek advice from a lawyer if unsure. The courts are generally reluctant to interfere with a testator’s intentions when a testator appoints an estate trustee in their will. However, the court will not ignore clear evidence of an estate trustee’s breach of his or her fiduciary duties, keeping in mind that an estate trustee does not necessarily have to act in deliberate misconduct before he or she is replaced.