Before agreeing to take on the role of Estate Trustee, the named individual should consider carefully the fact that it is a difficult, time consuming and often thankless job. For the uninitiated, the myriad responsibilities – from gathering information on assets and liabilities, to assembling tax information and completing tax returns, to managing relationships with and among beneficiaries (many of whom will assume your job is simple and should have been completed much more quickly than is possible) – can be overwhelming. There are an almost unlimited number of ways in which an Estate Trustee can make mistakes – even when trying his or her best to do what is required. For the most part, the law is not kind to Estate Trustees who err when performing their responsibilities. The thanks a Trustee can get for her hard work? Legal complaints by frustrated beneficiaries resulting in a finding that the Trustee is personally liable for costs incurred or losses suffered by the Estate. When this happens, the Trustee can be forgiven for feeling there is some truth to the cynical expression “no good deed goes unpunished”. Are there are circumstances in which an Estate can suffer losses as a result of the Trustee’s mistakes without resulting in personal liability attaching to the Trustee? Fortunately for Trustees, the answer is yes, but this is not a result commonly achieved.
At common law, a Judge may relieve a Trustee of liability where the court determines that the mistake was “innocent” and made in good faith. “Innocent” mistakes tend to be those made as a result of ignorance, but will not include a situation in which the Trustee uses trust / estate funds for any purpose beneficial to the Trustee himself. Examples of mistakes that may, in some cases, be forgiven include the Trustee making distribution of estate funds to an incorrect beneficiary, making payment of unreasonable expenses, paying improper claims asserted against the estate or making investments of estate funds that do not comply with investment restrictions imposed by the Will. While this list seems to cover many of the types of mistakes a Trustee can make, the Court does not easily relieve Trustees from liability in these circumstances as the general expectation is that Trustees should not make mistakes in performing their duties.
Relief may also be available to a Trustee under s.35 of the Trustee Act which provides:
If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.
The good news, then, for an Estate Trustee who makes an innocent mistake in fulfilling his obligations is that there is some chance it may not result in the Trustee being required to pay for it financially. The bad news, however, is that this defence is not often successfully employed. The best defence is therefore always taking care and receiving proper advice every step of the way.
If at all in doubt of his ability to manage the job, a named Estate Trustee’s response to the request to accept the role should be “thanks, but no thanks”.