It has long been established in Canadian law that executors and trustees must exercise a high standard of care when administering an estate. A recent Ontario Superior Court decision, Cahill v Cahill, demonstrates what can happen when a trustee is not conscientious in carrying out that duty.
When Thomas Cahill died in 2010, his Will appointed his daughter Sheila and son Kevin to be co-executors and trustees of his estate. The Will also instructed that $100,000 be set aside in a trust fund for their brother Patrick, who would receive $500 per month. Pursuant to the Will, both Kevin and Sheila were instructed to set up the fund. A direction was signed by Sheila and Kevin to this effect, with Kevin being responsible for passing the money on to Patrick. However, the Court argued that the fund was never properly established; instead, what was created was an investment in Kevin’s name, which he appeared to have sole ownership of.
Payments to Patrick came from either Kevin or another brother, Michael. However, these monthly payments ceased in 2014. It was later discovered that Kevin had borrowed the principal remaining in the plan (around $92,000) to invest in a business venture, which later failed, leaving no funds left in the plan. Patrick brought an application seeking the payment the Will entitled him to, as well as the removal of his siblings Sheila and Kevin as executors of the estate.
It was clearly established by the Court that Kevin, in misusing the funds set aside for Patrick, had breached his fiduciary obligations as an executor and trustee of the estate.
Sheila, on the other hand, argued that once she had set up the investment plan for Patrick’s funds, she had discharged her duties and was not responsible for any further eventualities; in this case, her brother Kevin’s misappropriation of the funds. The Court rejected this argument, stating that because the fund had not actually been created, both Sheila and Kevin were jointly and severally liable to ensure the funds were managed properly and distributed to Patrick as per the directions in the Will. It also found that Sheila had virtually no involvement at all in the administration of the estate, particularly when it came to the funds for Patrick. Justice Sylvia Corthorn concluded: “Whenever a trustee fails to carry out her obligations under the trust instrument, at common law, or statute, that failure amounts to a breach of trust. In this matter Sheila’s failure takes the form of abdication of her duties as an executor and trustee of the Estate – essentially delegating her powers, authorities and duties to Kevin”. As a result, the Court ordered Sheila and Kevin to pay back the amount owed to Patrick.
The decision is currently under appeal. Lawyers for Sheila argue that she had in fact acted reasonably and had discharged her duty in establishing the trust fund. She believed that the fund had been created as directed by the Will, and had acted reasonably in concluding that her responsibilities had ended, leaving her brother Kevin in charge of distributing the funds to Patrick. The application seeks to dismiss the charges of liability and requests that she be allowed to resign as co-estate trustee.
The case is a reminder that the role of a co-estate trustee is an important one, and must be treated seriously. There is no excuse for acting passively, shirking responsibilities or claiming ignorance. In addition, co-executors must always work together.
If you have a question about your role as an estate trustee, contact our Wills and Estates Group.