In the recent decision of Fitzhenry v. Stevens (“Fitzhenry”),[1] ONSC 5645 (CanLII), the courts were asked to decide whether an estate trustee was entitled to additional compensation on top of the fees she had already received over several years. This decision lays out the two approaches that are used to calculate an estate trustees’ compensation; the percentage approach and the “five factor” analysis. Additionally, this decision provides an interesting commentary on the duties that an estate trustee owes to the beneficiaries of an estate.
Facts:
Mr. Fitzhenry (“the Deceased”) died in 2019, leaving an estate of 25 million dollars in trust for his children and grandchildren. Linda Stevens (“the Applicant”), was appointed as the estate trustee of this trust in 2008. The applicant had been paid approximately $250,000 in trustee fees for her work, which, broken down, amounts to $200 an hour or $1,000 a day.[2]
On top of these paid trustee fees, the applicant claimed an additional; “$266,679.94 for the fiscal years 2019 through 2022, as well as $50,521.53 for care and management of the trust property from 2013 to her resignation in 2022” as an estate trustee.[3]
Turning to section 61(1) and 61(5) of the Trustee Act:[4]
Allowance to trustees, etc.
61 (1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.
Where allowance fixed by the instrument
61 (5) Nothing in this section applies where the allowance is fixed by the instrument creating the trust.
The court cited that as per s.61(5), “if a trust deed fixes trustees’ fees, the deed governs”.[5] The trust deed of the deceased states;
“The Trustees shall be entitled to charge and shall be paid first out of the income derived from the Trust Fund and, if necessary, secondly out of the capital thereof, such remuneration for their services as Trustees as shall be agreed but If any beneficiary of this Trust Fund objects to the amount of such remuneration then the remuneration of the Trustees shall be in such an amount as shall be fixed by a judge of the Ontario Court (General Division) at Toronto.”
(emphasis added)
The applicant was under scrutiny by the court for several reasons. Firstly, from this excerpt, it is clear the applicant lacked the requisite authority to withdraw her fees prematurely (often referred to as pre-taking) since she lacked permission from the trust deed, the courts, or the beneficiaries.
Secondly, the applicant failed to discuss her compensation with the beneficiaries, as was mandated by the trust deed. In her defense, the applicant claimed that the deceased did not want such affairs to be discussed with his family members, thus instructing the applicant to withhold such information from his children. This argument failed to sway the court since the applicant had a responsibility as an estate trustee to carry out her tasks, regardless of the pressures from the deceased: “Mr. Fitzhenry had no right to dictate how the trust assets were spent or how the trustees fulfilled their duties – the trustees had powers, authority, and obligations.”[6] If this was not possible, the applicant was entitled to resign.
[26] I suspect that no one told Mr. Fitzhenry what to do with his money. But once the money was settled into a trust, it was no longer his. Legal title to the trust res or assets is vested in the trustees. Beneficial title, the right to use and enjoy the trust property and any fruit it yields, belongs to the beneficiaries as provided for by the trust deed.[7]
Percentage Approach:
The court proceeded to calculate the applicant’s fees, based on the percentages approach, according to Re Atkinson,[8] 1951 CanLII 101 (ON CA):
[35] 2 1/2% percentages against the four categories of capital receipts, capital disbursements, revenue receipts and revenue disbursements along with, in appropriate cases, a management fee of 2/5 of 1% per annum on the gross value of the state.[9]
The trust comprised of two assets; a condominium in Barbados; and, an investment portfolio. The Barbados condominium was purchased for US$3 million by the deceased. The value of the condominium had decreased over the years, and so pressure was put on the estate trustee to sell this asset in a timely fashion. The estate trustees had hired a property manager and a real estate agent to maintain the property, as well as facilitate the sale of the condominium. After three years, the condominium sold in 2020, for US$1.2 million. The condo had taken three years to sell, and only made back 40% of the value it was initially purchased for, with annual losses of $300,000. The court concluded the applicant did not use her full efforts to assist in the quick sale of the condominium and had delegated her duties of the management of the property. The applicant was therefore not entitled to an additional administration or management fee, with Justice Myers stating:
[70] I do not see how Ms. Stevens can be entitled to 2.5% as a full measure of trustee management and pain when 90% of the assets were managed by others who were paid fees to do so.[10]
The second asset of the trust was the investment portfolio. The investment portfolio held approximately $18 million in value. The trust paid fees to two investment managers, while still leaving the responsibility of overseeing the trust assets to the applicant. Instead, the applicant again passed her “supervisory function to yet another professional” by hiring a supervisor who was paid 0.2% of the value of the investment portfolio.[11] Therefore, the applicant was again denied any care and management fees respecting this asset.
Five Factors Approach:
The sum created by the percentages approach is to be cross-checked with the five factors approach, as discussed in Re Toronto General Trust and Central Ont. Railway (1905)[12]:
[35] The size of the trust; the care and responsibility involved; the time occupied in performing the duties; the skill and ability shown; and the success resulting from the administration.[13]
The court used the analysis of the five factors and determined that the applicant was not entitled to additional fees. Her failure to defer to the beneficiaries, pay herself from the trust without permission from the court or beneficiaries, as well as failing to successfully sell the condominium at a reasonable price were reasons for this decision. These choices were reflective of the applicant’s skill and ability shown to manage the trust. Additionally, although the size of the trust was deemed substantial, the “day to day management effort required of the trustees” were minimal.[14] The majority of the tasks were handed off to other professionals, as Justice Myers states:
[121] In all, this was heavily delegated trust administration. The trust has incurred substantial fees for every piece of management otherwise assigned to the trustees. Ms. Stevens has been paid for her time without any accountability. I cannot see how it is fair or reasonable for Ms. Stevens to be paid anything more for her services. [15]
Using the two-system approach, this decision outlines how a court will calculate the compensation owed to an estate trustee. Moreover, it’s clear the courts are likely to frown upon estate trustees seeking additional compensation when many of their tasks were delegated to other professionals.
—
[1] Fitzhenry v Stevens, 2023 ONSC 5645 (“Fitzhenry”)
[2] Ibid at para 9.
[3] Ibid at para 1.
[4] Trustee Act, R.S.O. 1990, c. T.23
[5] Fitzhenry at para 17.
[6] Ibid at para 27.
[7] Ibid at para 26.
[8] Re Atkinson, 1951 CanLII 101 (ON CA)
[9] Fitzhenry at para 35.
[10] Ibid at para 70.
[11] Ibid at para 40.
[12] Re Toronto General Trust and Central Ont. Railway (1905), 6 O.W.R. 350
[13] Fitzhenry at para 35.
[14] Ibid at para 78.
[15] Ibid at para 121.
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Written by: Gabriella Banhara
Posted on: October 23, 2023
Categories: Commentary
In the recent decision of Fitzhenry v. Stevens (“Fitzhenry”),[1] ONSC 5645 (CanLII), the courts were asked to decide whether an estate trustee was entitled to additional compensation on top of the fees she had already received over several years. This decision lays out the two approaches that are used to calculate an estate trustees’ compensation; the percentage approach and the “five factor” analysis. Additionally, this decision provides an interesting commentary on the duties that an estate trustee owes to the beneficiaries of an estate.
Facts:
Mr. Fitzhenry (“the Deceased”) died in 2019, leaving an estate of 25 million dollars in trust for his children and grandchildren. Linda Stevens (“the Applicant”), was appointed as the estate trustee of this trust in 2008. The applicant had been paid approximately $250,000 in trustee fees for her work, which, broken down, amounts to $200 an hour or $1,000 a day.[2]
On top of these paid trustee fees, the applicant claimed an additional; “$266,679.94 for the fiscal years 2019 through 2022, as well as $50,521.53 for care and management of the trust property from 2013 to her resignation in 2022” as an estate trustee.[3]
Turning to section 61(1) and 61(5) of the Trustee Act:[4]
Allowance to trustees, etc.
61 (1) A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.
Where allowance fixed by the instrument
61 (5) Nothing in this section applies where the allowance is fixed by the instrument creating the trust.
The court cited that as per s.61(5), “if a trust deed fixes trustees’ fees, the deed governs”.[5] The trust deed of the deceased states;
“The Trustees shall be entitled to charge and shall be paid first out of the income derived from the Trust Fund and, if necessary, secondly out of the capital thereof, such remuneration for their services as Trustees as shall be agreed but If any beneficiary of this Trust Fund objects to the amount of such remuneration then the remuneration of the Trustees shall be in such an amount as shall be fixed by a judge of the Ontario Court (General Division) at Toronto.”
(emphasis added)
The applicant was under scrutiny by the court for several reasons. Firstly, from this excerpt, it is clear the applicant lacked the requisite authority to withdraw her fees prematurely (often referred to as pre-taking) since she lacked permission from the trust deed, the courts, or the beneficiaries.
Secondly, the applicant failed to discuss her compensation with the beneficiaries, as was mandated by the trust deed. In her defense, the applicant claimed that the deceased did not want such affairs to be discussed with his family members, thus instructing the applicant to withhold such information from his children. This argument failed to sway the court since the applicant had a responsibility as an estate trustee to carry out her tasks, regardless of the pressures from the deceased: “Mr. Fitzhenry had no right to dictate how the trust assets were spent or how the trustees fulfilled their duties – the trustees had powers, authority, and obligations.”[6] If this was not possible, the applicant was entitled to resign.
[26] I suspect that no one told Mr. Fitzhenry what to do with his money. But once the money was settled into a trust, it was no longer his. Legal title to the trust res or assets is vested in the trustees. Beneficial title, the right to use and enjoy the trust property and any fruit it yields, belongs to the beneficiaries as provided for by the trust deed.[7]
Percentage Approach:
The court proceeded to calculate the applicant’s fees, based on the percentages approach, according to Re Atkinson,[8] 1951 CanLII 101 (ON CA):
[35] 2 1/2% percentages against the four categories of capital receipts, capital disbursements, revenue receipts and revenue disbursements along with, in appropriate cases, a management fee of 2/5 of 1% per annum on the gross value of the state.[9]
The trust comprised of two assets; a condominium in Barbados; and, an investment portfolio. The Barbados condominium was purchased for US$3 million by the deceased. The value of the condominium had decreased over the years, and so pressure was put on the estate trustee to sell this asset in a timely fashion. The estate trustees had hired a property manager and a real estate agent to maintain the property, as well as facilitate the sale of the condominium. After three years, the condominium sold in 2020, for US$1.2 million. The condo had taken three years to sell, and only made back 40% of the value it was initially purchased for, with annual losses of $300,000. The court concluded the applicant did not use her full efforts to assist in the quick sale of the condominium and had delegated her duties of the management of the property. The applicant was therefore not entitled to an additional administration or management fee, with Justice Myers stating:
[70] I do not see how Ms. Stevens can be entitled to 2.5% as a full measure of trustee management and pain when 90% of the assets were managed by others who were paid fees to do so.[10]
The second asset of the trust was the investment portfolio. The investment portfolio held approximately $18 million in value. The trust paid fees to two investment managers, while still leaving the responsibility of overseeing the trust assets to the applicant. Instead, the applicant again passed her “supervisory function to yet another professional” by hiring a supervisor who was paid 0.2% of the value of the investment portfolio.[11] Therefore, the applicant was again denied any care and management fees respecting this asset.
Five Factors Approach:
The sum created by the percentages approach is to be cross-checked with the five factors approach, as discussed in Re Toronto General Trust and Central Ont. Railway (1905)[12]:
[35] The size of the trust; the care and responsibility involved; the time occupied in performing the duties; the skill and ability shown; and the success resulting from the administration.[13]
The court used the analysis of the five factors and determined that the applicant was not entitled to additional fees. Her failure to defer to the beneficiaries, pay herself from the trust without permission from the court or beneficiaries, as well as failing to successfully sell the condominium at a reasonable price were reasons for this decision. These choices were reflective of the applicant’s skill and ability shown to manage the trust. Additionally, although the size of the trust was deemed substantial, the “day to day management effort required of the trustees” were minimal.[14] The majority of the tasks were handed off to other professionals, as Justice Myers states:
[121] In all, this was heavily delegated trust administration. The trust has incurred substantial fees for every piece of management otherwise assigned to the trustees. Ms. Stevens has been paid for her time without any accountability. I cannot see how it is fair or reasonable for Ms. Stevens to be paid anything more for her services. [15]
Using the two-system approach, this decision outlines how a court will calculate the compensation owed to an estate trustee. Moreover, it’s clear the courts are likely to frown upon estate trustees seeking additional compensation when many of their tasks were delegated to other professionals.
—
[1] Fitzhenry v Stevens, 2023 ONSC 5645 (“Fitzhenry”)
[2] Ibid at para 9.
[3] Ibid at para 1.
[4] Trustee Act, R.S.O. 1990, c. T.23
[5] Fitzhenry at para 17.
[6] Ibid at para 27.
[7] Ibid at para 26.
[8] Re Atkinson, 1951 CanLII 101 (ON CA)
[9] Fitzhenry at para 35.
[10] Ibid at para 70.
[11] Ibid at para 40.
[12] Re Toronto General Trust and Central Ont. Railway (1905), 6 O.W.R. 350
[13] Fitzhenry at para 35.
[14] Ibid at para 78.
[15] Ibid at para 121.
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