Executor Investments and Breach of Trust
Estate trustees have investment duties. These duties are defined by courts, statutes and wills. Executors must invest estate funds as prudent investors. Let’s run through some key concepts. Executors don’t want to be sued personally for breach of trust.
My new chapters on investment duties and breach of trust have been released. You can find info on this update at Compensation & Duties of Estate Trustees, Guardians & Attorneys Release 20.
How Executors Invest
Executor investing is different than personal investing. When you invest your own money, you can act on a hunch. You can ignore risks, and speculate on the market. But as executor or estate trustee, you can’t gamble. All investment decisions must demonstrate prudent care, skill, diligence, and judgment.
- all beneficiaries’ needs;
- terms set out in the will or trust;
- economic conditions;
- effects of inflation;
- tax consequences;
- expected returns;
- overall portfolio balance;
- asset special relationship; and
- needs to preserve capital.
Executors Have Fiduciary Duties
That’s a hard word to pronounce -except for lawyers.
What does it mean?
Fiduciaries are persons in control of others’ money. They must be honest and keep records of every penny spent. They have a special legal relationship with beneficiaries to whom they must report.
Executors/ Estate Trustee’s Liability for Breach
Executor and estate trustees can be held personally liable for their investment decisions. They can be held liable when conduct falls below standards of care. Exoneration clauses in wills may protect executors from some mistakes. This does not cover abdication of duty.
Andrew is a trustee and Sarah is a beneficiary. Andrew uses funds from Sarah’s trust to loan money to a friend. Andrew could be charged with a breach of trust. He would be personally liable if the loan was not repaid.
Forgiveness Under the Trustees Act Section 35(1)
Courts may grant trustees relief for technical breaches of trust. This relief is available under section 35(1) of the Trustees Act. Courts can forgive technical breaches if you meet legal tests in section 35.
Judges must agree Andrew acted honestly and reasonably and should be excused.
Before asking for relief under section 35(1), be aware that:
- you have the onus of showing the court why you should be excused;
- you must come to the court with “clean hands”;
- this process is very subjective and decided on a case-by-case basis; and
- section 35(1) does not apply to liability for a loss to the trust from investments.
How Can Executors Protect Themselves?
Although courts have given a broad interpretation to section 35(1), you cannot solely rely on this section to protect you.
Some wills and trusts will have exculpatory clauses relieving you from personal liability for a breach of trust. These clauses do not act as absolute shields and can be overridden for several reasons such as, public policy, ambiguity, and unfairness.
Consult a Lawyer
Do you need a consultation to discuss your duties as an estate trustee? Contact me now.
About Edward Olkovich
Executors facing estate challenges call Ed Olkovich, who is a Toronto Certified Specialist in Estates and Trusts Law. Ed is also an author and edits Carswell’s legal guide Compensation and Duties of Estate Trustees, Guardians and Attorneys. He has resolved estate disputes and probate problems since 1978. © 2017Posted In: Advisors, Estates, Executors, Wills On: June 2nd, 2017