Trustees are there for a reason; exactly as their title suggests, we trust them for who they are and to do what they’re supposed to. But when your relationship with your trustee goes sour—or worse, when they breached their fiduciary duties—does the law give you some remedies to rely on?
Here, we’ll discuss the basics of fiduciary duties and the legal effects when these fiduciary duties are breached by estate trustees. As for the beneficiaries, we’ll also touch on the legal remedies that they can do against breached fiduciary duties.
What are the fiduciary duties of an estate trustee?
Also called a fiduciary, an estate trustee is imposed with a lot of responsibilities. These are either laid down by provincial laws, as established by common law, or as stated in the trust agreement or the deceased’s will.
“An estate trustee has a legal obligation to act with honesty, loyalty, diligence, prudence, and in the best interests of the beneficiaries,” says Philip Bitar, a tax lawyer at Spiegel Ryan LLP. In Québec, this is outlined in section 1309 of the Civil Code of Québec (CCQ).
Generally, here are some of the common duties of an estate trustee under the law:
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act in good faith: to carry out the terms of the trust or the will of the deceased with full honesty and in good faith
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avoid conflict of interest: to avoid any potential conflicts of interest, putting the interest of the trust and the beneficiaries ahead of their own
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be diligent: to act in a reasonable way, like that of a careful and practical person in each situation, in managing the trust’s day-to-day affairs
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be impartial: when there is more than one beneficiary, to act impartially and equally between them
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duty to account: to accurately account and keep the financial records of the transactions made on behalf of the trust and its beneficiaries
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uphold the trust's interest: to always act in the best interests for the benefit of the trust or the beneficiaries
All of these can be summed up in this way: acting for the best interests of the trust and the beneficiaries and not for their own personal profit. When any of these duties are violated, it may result in breached fiduciary duties, with the appropriate legal consequences.
Here’s a video that generally explains the breach of fiduciary duty:
To learn more about breached fiduciary duties, reach out to best personal tax planning and estate lawyers in Canada as ranked by Lexpert.
Standard of care of estate trustees
Common law further explained the responsibilities of an estate trustee by always reiterating the standard of care that they owe their beneficiaries. It’s said that the standard of care of an estate trustee, or a trustee in general, is one of ordinary prudence, as if they're managing their own affairs.
In other court decisions, the standard of care of trustees is stated as follows:
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Norberg v. Wynrib, [1992] 2 S.C.R. 226: The Supreme Court said that a fiduciary, such as an estate trustee, must exercise the power entrusted to them exclusively for the beneficiary’s good and exclusive benefit. This is because the assumption of such duty, which normally resides in the beneficiary, is conditioned on the trustee’s duty to act to always act for the benefit of the beneficiary.
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Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8: When it comes to the trustee’s duty to disclose the trust’s existence, the Supreme Court said that the standard of the trustee is that of honesty, and reasonable skill and prudence. To add, the Court said that when unreasonable disadvantage is caused to a beneficiary because they were not informed of the trust’s existence, this disadvantage must be measured according to the trust’s nature and terms, plus the beneficiary’s entitlement to it.
While these cases are not specific to estate trustees, these legal concepts ring true to them. As always, they must act according to the best interests of the beneficiary, disregarding their personal interests in the trust.
What are breached fiduciary duties?
While breached fiduciary duties can be applied to a lot of areas of law, it usually means the same thing. Here, a person is entrusted by another person or entity to act for their best interest but fails to do so.
Usually, what is involved is the taking care of one’s affairs, money, or property, but the one entrusted to do so falls short of, either deliberately or negligently. When this happens, there are many legal reliefs to turn to.
In the context of estate laws, breached fiduciary duties refer to that material violation by an estate trustee of their legal responsibilities. It can be an act or misconduct (or a series of it) of a trustee that:
- violates the rights of the beneficiaries
- breaches the terms of the trust agreement or the will
- involves the mishandling of the trust’s properties
- benefits personally the trustee, to the disadvantage of the trust
Watch this video to see how estate trustees can breach their fiduciary duties:
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Breached fiduciary duties under provincial laws
“A breach occurs when the trustee acts in their own self-interest, shows favoritism, neglects their responsibilities, or mismanages the estate,” Bitar says.
For instance, he highlights sections 1310 and 1311 of the CCQ, which prohibit the trustee from placing themselves in a position where their personal interests conflict with their duties.
“Specifically, a trustee cannot exercise their powers for their own benefit or that of a third party.”
Trustee’s legal obligations under the trust
However, Bitar adds that while trust in the trustee is essential, it does not override their legal obligations.
“A breach is determined based on actual conduct, not mere suspicion or theoretical concerns, as confirmed in Brassard v. Brassard, 2009 QCCA 898,” he says. As such, “the trustee must always prioritize the interests of the beneficiaries.”
What happens when an estate trustee breaches their fiduciary duty?
As for the legal remedies against estate trustees who breached their fiduciary duties, it’s better to consult an estate lawyer, who can suggest ways to counter these violations.
The common remedies when these fiduciary duties are breached is an estate trustee being:
- removed and replaced with another trustee
- compelled to do a “passing of accounts”
- held liable for damages suffered by the beneficiaries
- imprisoned, when the breach of fiduciary duty amount to a crime
We’ll discuss these legal remedies below.
Of course, these will depend on the circumstances that gave rise to a breached fiduciary duty. Courts will weigh in on the proper penalty on the trustee, based on their specific acts, and even considering the acts of the beneficiaries.
Removal of an estate trustee
One of the immediate go-to remedies against an allegedly erring estate trustee is to remove and replace them. Beneficiaries can apply to the court to have an estate trustee either:
- not appointed for legitimate reasons (e.g. if a trustee is named in a will)
- removed, due to breached fiduciary duties and other legal grounds
- replaced by other qualified persons or entity, as stated by law
The removal of an estate trustee is governed by provincial or territorial laws. This may include the removal of a will’s executor or estate’s administrator. Depending on a province or territory, these persons may have similar or distinct roles.
Bitar says that one of the legal remedies under the CCQ when an estate trustee breaches their fiduciary duties is their removal. Three provisions are relevant for this remedy:
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Section 1290, CCQ: allows the court to remove a trustee for serious misconduct or failure to fulfill their obligations
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Section 1360, CCQ: further permits the replacement of an administrator who is unable or unwilling to perform their duties properly
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Section 1294, CCQ: empowers the court to amend or terminate the trust, if a trust no longer reflects the settlor’s original intent
However, courts are cautious in ordering trustee removal and require substantial evidence of misconduct, he says.
“In Brassard, the court emphasized that removal is only justified when there is clear evidence of a significant breach of duty by the trustee.”
Legal standing to remove a trustee
Not everyone can just go to court and ask that an estate trustee be removed. Most provincial laws would tell us that only those who have legal and financial interest to the trust, the properties left behind, or the beneficiary’s welfare are allowed to do so.
The rule of thumb is that if you want to remove someone as an estate trustee, you must consult a lawyer who knows your local laws. To help you look for one, check out our directory of the Lexpert-ranked best firms for estate law in Canada.
Grounds for removing an estate trustee
Aside from provincial and territorial laws on trusts and their rules of procedure, we can look at common law to find out the grounds for removing an estate trustee. For example, in Ontario, the law for this would be its Trustee Act. Similarly named laws are also present in other provinces, such as in British Columbia.
Here’s a list of the usual grounds, as found in statutes and in common law, to remove an estate trustee:
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Animosity between the trustee and beneficiary: While simple disagreements between them will not result in a trustee’s removal, the animosity must be so grave, that the court will see that there’s possibility that the trustee cannot fulfill their duties properly.
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Conflict of interest on the part of the trustee: When there’s conflict between the interests of the trustee and the trust or beneficiary, then it may lead to breached fiduciary duties. To prove this, the beneficiary must prove that this conflict is significant and has resulted (or will likely result) in the trust or estate being wasted away.
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Misconduct, related to the trustee’s fiduciary duties: Removal of a trustee may not be proper for simple misconduct. However, if it involves the breach of fiduciary duties of a trustee, which is similar to the forms of misconduct under the law, then a trustee’s removal may be called for.
More grounds are found in common law and in provincial statutes, which an estate lawyer near your area would have expertise on. As such, it’s still prudent to consult one if you think your trustee’s act may fall under any of the grounds to remove them from their role.
Compelled to do a passing of accounts
When there are allegations that the estate is being mismanaged, the beneficiary can ask the court that the trustee does a passing of accounts. This can also be done when the estate trustee refuses to do an accounting.
Here, the trustee will account for all of the money which came in and out of the estate to check the alleged claims of mismanagement. If the court finds that indeed there are unexplained expenses or disbursements, or wastage of the estate’s assets, the trustee can be ordered to return to the estate what has been lost.
Suit for damages against an estate trustee
A claim for damages, either for general or special damages, can be filed against the estate trustee for the actual loss and emotional suffering caused to the beneficiaries. The grounds in such a case would be the estate trustee’s negligence, including breached fiduciary duties.
Criminal action on an estate trustee
Aside from civil actions against estate trustees for their breached fiduciary duties, criminal cases can be filed against them. Section 336 of the Criminal Code provides for offense of breach of trust. When found guilty, the penalty for this offense is imprisonment of not more than 14 years.
As stated under the provision, the following must be present to prove criminal breach of trust beyond reasonable doubt:
- the offender is a trustee (although common law interprets the term trustee in a broad manner)
- the purpose of the trust is either for:
- the use or benefit of another person
- a public or charitable purpose
- the offender converts the thing, or any part of it
- the conversion of the thing was:
- for a use that is not authorized by the trust,
- done with intent to defraud, and
- in contravention of the trust
Possible defences against this crime are the following:
- that the offender is not a trustee
- that the offender has no intent to defraud the person or entity whom the trust is made for
- that the conversion by the offender was authorized, impliedly or explicitly
Breached fiduciary duties: estate trustees and beneficiaries beware
When the legal ties between an estate trustee and a beneficiary must come to a bitter end, the law is there to protect the beneficiary and discipline the erring trustee. For either side, asking for the help of an estate lawyer would be necessary, especially when looking into the claims for (and defences against) breached fiduciary duties.
“Lawyers assist beneficiaries by evaluating whether the trustee has violated fiduciary duties,” Bitar says. “They help gather admissible evidence to substantiate claims of misconduct and ensure the allegations meet the legal requirements for serious breaches.”
As for trustees, “lawyers provide guidance on fulfilling their fiduciary duties, addressing conflicts of interest, and responding to allegations,” he adds. Lasty, a “legal counsel helps resolve disputes efficiently, ensuring the estate is administered in the beneficiaries' best interests.”
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