Lanari v. Kay, 2019 ONSC 1506

Facts

The mother died on December 10, 2015 leaving eight children, one of whom predeceased her, leaving a daughter. Of the eight children, four (the applicants) wanted the three estate trustees named in the 2012 Will removed. The three named estate trustees opposed their removal as did one of the children (the respondents).

The three estate trustees had personal claims against the estate for alleged debts owed to them in the amount of approximately $160,000. In addition, the estate trustees had failed to acknowledge that a property (the “Battlefield Property”) that had been severed from another property in 2008, was held in trust by one of the estate trustees, pursuant to a Trust Agreement in order to comply with the provisions of the Planning Act. The estate trustees had claimed they were not aware of any title or beneficial ownership in respect of the Battlefield property, and asserted it was not part of the estate.

Legal Principles

Justice Sweeny stated that the Trustee Act provides the court with authority to remove executors or trustees and to appoint new trustees. Sweeny J. cited Low J. in the 2004 decision Beatrice Watson-Acheson Foundation v. Polk[1] for the legal principles that a clear case of conflict of interest justifies removal. “The welfare of the beneficiaries must be the paramount consideration. As well, conduct by the trustee that endangers the trust property or that shows a want of honesty or lack of proper capacity to carry out the trustee’s duties are grounds for removal.”

Analysis

The Battlefield Property

The Hon. Justice Sweeny noted that this conduct “…with its denial and obfuscation increased legal fees incurred by the estate trustee and also the legal fees incurred by the beneficiaries who were making reasonable requests with respect to an estate..”.

Justice Sweeny found that the trustees had engaged in improper conduct. The failure to acknowledge and consider a beneficial ownership in real property to be an asset of the estate also raised questions about their ability to act honestly and in good faith in fulfilment of their fiduciary duty.

The court found that the respondent’s assertion that she held the Battlefield property pursuant to the terms of an inter vivos trust was in direct conflict with the estate’s position that it is part of the estate, and, therefore, she should be removed as estate trustee. The fact that the other two trustees supported Trisha’s position and did not advocate on behalf of the estate was sufficient grounds to remove them as trustees, as well.

Animosity between Trustees and Beneficiaries

Justice Sweeny also found that the estate trustees had not been balanced in their treatment of the beneficiaries, requiring one of the beneficiaries to issue a claim to preserve her rights regarding repayment of a debt, while others were not so required and the estate agreed not to raise a limitation defense despite possible limitation issues. While animosity between a beneficiary and trustee may not be sufficient to remove a trustee, Justice Sweeny found that the animosity between the beneficiaries was such that it had affected the administration of the estate, as the failure to provide disclosure had increased the time spent by legal representatives of the trustees and beneficiaries, thereby increasing legal fees and, therefore, was a serious concern.

Conflicts of Interest and Increased Legal Fees

As two of the respondent estate trustees had personal claims against the estate for alleged debts owed to them, they were also in a conflict of interest with the estate. The estate trustees had made a claim personally against the lawyer who drafted the mother’s Will. Justice Sweeny determined that personal claims should not be funded by the estate and the estate trustees should have separate representation. This would increase the costs to the estate for their own personal benefit. Respondents were receiving legal advice and representation with respect to their role as estate trustees and also personally. They had personal claims for services and loans made prior to Anne’s death; they claimed that the Battlefield property was held in trust for the benefit of certain of the respondents; and they had a personal claim against the drafter of the Will.

Conclusions

The court ordered the removal of the respondent estate trustees and appointed David Thompson as estate trustee at the hourly rate of $250.

Takeaway

While a court will not lightly remove an estate trustee chosen by the testator, they will do so when there are clear conflicts of interest. Taking positions contrary to the position of the estate and having claims against the estate are the types of conflicts of interest that will warrant removal. Animosity between executors and beneficiaries that affects the administration of the estate by increasing legal costs also can lead to removal. Finally, conduct that shows a want of honesty and good faith in carrying out their fiduciary duties are also sufficient grounds.

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[1] Beatrice Watson-Acheson Foundation v. Polk 2006, 24 E.T.R. (3d) 124 (Ont. S.C.) at para 55.