Estate Planning

The Rule in Re Hallett's Estate

By Hull and Hull LLP

In today's blog I will touch upon the rule in Re Hallet's Estate*.  Tomorrow's blog will touch upon the rule in Clayton's Case. The rules stem from situations where a trustee mixes trust funds with their own funds or with a different trust's funds. The rule in Re Hallett's Estate applies where trustees mix trust funds with their own funds.

The principle was enunciated by the court in the case of Re Hallett's Estate (1879), 13 Ch. D. 696 (CA) and is known as the rule in Re Hallett's Estate. The rule states that where a trustee mixes trust money with his or her own money in a bank account and then withdraws money from that account, it is assumed that the trustee first took out his or her own money rather than money belonging to a trust beneficiary. It may be seen that the rule in Re Hallett's Estate is based on the assumption that trustees are honest and act accordingly. Even if they do mix trust funds with their own money, it is not to be presumed that this mixture was intended to defraud the trusts of those funds.

The rule in Re Hallett's Estate is, however, restricted by another rule. A person may only lay claim to a maximum value of the lowest balance in the account during the intervening period. Any amount above the lowest intermediate balance is deemed to be money replenished by the trustee and is considered to be the trustee's own money.

For example then, if a trustee puts $25,000 of trust money into an account containing $10,000 of the trustee's own money, then takes out $15,000 and spends it, the account balance of $20,000 is deemed to belong to the trust. If the trustee then puts $7,000 into the account, raising the balance to $27,000, the trust beneficiaries may still claim only $20,000 from the account. The other $7,000 is deemed to be the property of the trustee. The beneficiaries have a claim in rem to the $20,000 and a claim in personam for $5,000.

Thanks for reading,

Craig

*See: The Law of Trusts, A Contextual Approach (Second Edition) at page 677

Full post as published by Toronto Estate Law Blog on March 31, 2010 (boomark / email).