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What to Do When it is Not Practical to Take Appointment or Continue as Trustee of a Testamentary Trust?

What to Do When it is Not Practical to Take Appointment or Continue as Trustee of a Testamentary Trust?

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Posted June 13, 2022

Trust companies are often faced with a dilemma when the fees associated with the administration of a testamentary trust exceed the income generated by it.  Given the interest climate over the past few years this is not an uncommon issue.  At the time of making the will the fees set out by agreement and the anticipated income would have made sense to the testator and the Trust company.  However, time can have a significant impact and a once solid plan may no longer be appropriate such that accepting or continuing with the appointment is not in the best interests of the beneficiary.

For the purposes of this brief article, assume Mrs. X’s will appoints Trust Co. ABC and an individual as co-executors and co-trustees.  Mrs. X’s estate has been administered awaiting a final clearance certificate and the spend thrift lifetime Trust for Mrs. X’s niece and only beneficiary has been funded.  There is no provision in Mrs. X’s will authorizing the resignation nor the appointment of new or additional Trustees. I will limit my comments strictly to the resignation and or replacement of Trustees.

If the will itself does not set out a process for the resignation, replacement or addition of a trustee then recourse may be had to the provisions of the Trustee Act, R.S.O. 1990.

In the case where more than two Trustees have been appointed the Act permits one Trustee to resign by deed:

 2 (1) Where there are more than two trustees, if one of them by deed declares a desire to be discharged from the trust, and if the co-trustees and such other person, if any, as is empowered to appoint trustees, consent by deed to the discharge of the trustee, and to the vesting in the co-trustees alone of the trust property, then the trustee who desires to be discharged shall be deemed to have retired from the trust, and is, by the deed, discharged therefrom under this Act without any new trustee being appointed.

When there is either one or two Trustees appointed in the will one must refer to s. 3 (1) of the Act which provides that:

3 (1) Where a trustee dies or remains out of Ontario for more than twelve months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on the trustee, or refuses or is unfit to act therein, or is incapable of acting therein, or has been convicted of an indictable offence or is bankrupt or insolvent, the person nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust, or if there is no such person, or no such person able and willing to act, the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee, may by writing appoint another person or other persons (whether or not being the persons exercising the power) to be a trustee or trustees in theplace of the trustee dying, remaining out of Ontario, desiring to be discharged, refusing or being unfit or incapable.

There are embedded limitations on the use of this provision to replace a Trustee as opposed to having a Trustee resign pursuant to section 2.  In my example, as there are two trustees, the individual Trustee can replace the Trust Co., as it desires to be discharged of its duties, by writing, relying on the authority of section 3 (1).

This is a consensual process and is not used when parties are forcefully trying to remove a Trustee.

To replace Trust Co. ABC relying on section 3 (1) the trustees would need a trustee resolution, deed of resignation, deed of appointment and consents.

This blog post was written by Heather Austin-Skaret, a Partner in the Wills and Estates, Estate Litigation and Real Estate teams.  She can be reached at 613-369-0356 or at Heather.Austin-Skaret@mannlawyers.com.

 

 

 

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Heather Austin-Skaret

Heather Austin-Skaret

My practice includes estate planning and administration as well as commercial and residential real estate work. I value my long standing relationships with some of Ottawa’s leading real estate agents and mortgage brokers. I enjoy sharing my knowledge and experience with others and enjoy giving presentations and seminars. Over the years, I have developed extensive experience in the area of estate planning and administration, which allows me to assist clients at some of their most difficult times.  I am constantly updating my knowledge as a member of S.T.E.P. and the Ottawa Estate Planning Council. As a true Maritimer, born in Springhill, Nova Scotia, I, of course, headed west. I started my university career at the University of Saskatchewan and then started inching my way back east, stopping to attend and complete my undergraduate at the University of Manitoba in 1990 with a Bachelor of Arts (Honours). I then moved to... Read More

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