Recently, in the reported decision, Henderson v. Sands et al. (“Henderson”), the Court confronted the topic of financial risks borne by Estate Trustees, providing they may be required to “pay their own legal and accounting fees up front where the litigation will not result in any financial benefit to the beneficiaries and where the litigation is focused on whether the Estate Trustee should be removed.”
By way of brief summary, in Henderson, the Applicant, a named beneficiary of the estate and a daughter of the testator, sought, amongst other relief, an Order removing the Respondent as Estate Trustee. Further to the application, the Court endorsed Orders on consent requiring the Respondent Estate Trustee to pass their accounts, and setting out a preservation order prohibiting the assets of the Estate to be used for any purpose other than making legitimate tax and liability payments on behalf of the Deceased and subject Estate.
Imposing significant obligations and associated legal and accounting fees, the Respondent Estate Trustee brought a motion to fund their expenses with estate assets that had been frozen by the aforementioned preservation order.
- generally speaking, Trustees are entitled to be indemnified for all costs, including reasonable legal costs in defending an action, and do not require the consent of beneficiaries to pay litigation fees from an estate account; and, that
- there are public policy reasons for indemnifying Estate Trustees, such as that individuals will be hesitant to accept appointments as an Estate Trustee if they are required to personally fund all expenses themselves and then seek reimbursement from the Estate.
Ultimately, the Court distinguished the authorities relied upon by the Respondent Estate Trustee for lacking the context of a preservation order, and dismissed the Respondent Estate Trustee’s motion for funding on the grounds that:
- the Respondent Estate Trustee was acting in their personal benefit in defending their position as the named Estate Trustee. Quoting DeLorenzo v. Beresh, the Court endorsed the position that because the Applicant is required to bear their own legal costs, and the outcome of the litigation may affect each party’s cost consequences, it is preferable that each of the parties bear their own costs until the litigation is completed; and, that
- it is not contrary to public policy to require Estate Trustees to pay their own legal and accounting fees up front where the litigation carries no financial benefit to the beneficiaries and is focused on whether the Estate Trustee should be removed because the actions of the trustee themselves are challenged.
The result of this decision places Henderson alongside its common law predecessors such as Geffen v. Goodman and Toller James Montague Cranston (Estate of), and augments the already complex landscape of obligations, entitlements, and indemnities afforded to Estate Trustees. From a litigator’s perspective, it will be interesting to see the application of this decision moving forward.