Estate Planning

Protecting a Trustee from Liability (Part III)

By Hull & Hull LLP

Today's blog is a continuation of my series this week on protecting a trustee from potential liability.

Perhaps the best way for an outgoing trustee (and/or new trustee) to limit any liability that may be visited upon him/her/them as a result of the administration of the trust (or to the date of his or her retirement, removal and replacement) is for the trustee and his or her co-trustees, if any, to pass their accounts.   Assuming the accounts are passed, not only will the trustee know the 'starting numbers' and the assets/liabilities for the future administration of the trust (that is start with a clean slate), but the trustee will have been afforded the proper protection of the Court order. 

Requiring an accounting may also be the only way that the beneficiaries can review the administration of the trust and determine whether the administration has been proper or whether misconduct has occurred, negligent or otherwise.

In the event that a trustee is resigning, being removed or replaced, the new trustee may require that the accounts be passed before the new proposed trustee accepts, and consents to, the appointment. 

In addition to a passing of accounts, applying to and obtaining a tax clearance certificate from all applicable tax authorities in respect of the trust will release the trustee from tax liability in respect of the trust to the date of the clearance certificate (absent fraud, willful concealment or misrepresentation).

Thanks for reading, Craig.

Full post as published by Toronto Estate Law Blog on March 11, 2009 (boomark / email).