Estate Planning

Protecting a Trustee from Liability (Part II)

By Hull & Hull LLP

Today's blog is part II in my series this week regarding the protection that may be available to a trustee against potential liability.

Apart from the provisions of the trust document itself, a trustee's potential liability may be protected, limited or exonerated in a number of ways by statute.   Some examples are sections 18(1), 20(3), 28 and 29 of the Trustee Act ('Act'). 

Section 28 of the Act provides that a trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor could adopt under comparable circumstances. Section 29 of the Act provides that if a trustee is liable for a loss to the trust arising from the investment of trust property, a court assessing the damages payable by the trustee may take into account the overall performance of the investments.

The application of the Limitations Act should also be considered.

Also, in considering a trustee's potential liability in respect of his or her administration of the trust, a trustee ought to consider his or her conduct and whether that conduct may be exonerated, if necessary, by the Court under section 35 of the Act. As a way of balancing the rights of beneficiaries with the interest to not overburden trustees, s.35 of the Act holds that when a breach occurs, the Court has the discretion to relieve the trustee of liability in cases where it believes that the trustee acted honestly and reasonably and ought fairly to be excused.

With some exception, the Court therefore has a statutory discretion to grant trustees relief from liability if they have acted honestly and reasonably, and ought fairly to be excused.  

Thanks for reading,

Craig

Full post as published by Toronto Estate Law Blog on March 10, 2009 (boomark / email).