Executors play a pivotal role in administering estates and, where a trust is established under a will, they often assume trustee responsibilities that carry strict fiduciary duties of loyalty, prudence, impartiality, and accountability to beneficiaries. A breach of those duties has serious consequences. Courts may remove or pass over an executor, order a passing of accounts, impose personal (including joint and several) liability for losses, award equitable compensation or disgorgement of profits, trace and recover misapplied assets, and, in egregious cases, grant costs against the executor personally. Understanding the scope of these duties and the potential remedy for breach is essential for both fiduciaries and beneficiaries navigating estate and trust administration.

However, the particular scope of an individual in such a role is not always easy to ascertain. For example, it can be unclear as to the exact scope of a trustee’s absolute discretion to deal with trust assets when they themselves are a beneficiary to the trust. The Ontario Superior Court of Justice recently had to grapple with such a circumstance  in Reid v. Cote et al.[1]

Background

The circumstances of the application are somewhat complex, so I will do my best to succinctly and clearly lay them out.

The application concerned the estate of one Ailean Reid (“Ailean” or the “Deceased”), who had a blended family, and who accumulated significant wealth throughout her lifetime. Ailean’s common law partner, D’Arcy Cote (“D’Arcy” or the “Respondent”) was appointed to be the executor of Ailean’s estate (the “Estate”) as well as the trustee of the following three separate trusts: (1) the Reid Family Trust Number Two (the “RFT2”), (2) the Cote-Reid Family Trust (the “CRFT”) and (3) a spousal trust created by Ailean’s Will.

The Applicant, Jacqueline Reid (“Jacqueline” or the “Applicant”), was Ailean’s only child. D’Arcy had two children from a previous marriage named Patrick Cote (“Patrick”) and Samantha Cote (“Samantha”).

During the Deceased’s lifetime, she ran both her own property management business (the “Sole Business”) as well as a joint property management business with the Respondent (the “Joint Business”). Ailean held most of the equity in both companies, although D’Arcy’s position was that she held it on behalf of both of them in their capacity as common law spouses. Notably however, no application was ever made by D’Arcy against Ailean or her estate for an unjust enrichment claim to this effect.

In 2008, the RFT2 was created, with 10 Common Shares in the Joint Business being settled into it. The beneficiaries of the RFT2 were the Deceased, the Respondent, the Applicant, and the Applicant’s children. The Respondent became the trustee of the RFT2 following the deceased’s passing. The RFT2 effectively became the receiver of the income stream flowing from the Joint Business.

In 2010, the CRFT was created for the benefit of the Deceased, the Respondent, and their respective children. The CRFT was comprised of 50 Common Shares from a business venture entered into through the Joint Business. These Common Shares were particularly valuable, and potentially worth up to $8.75 million.

In 2018, the Deceased transferred the 50 Shares in the CRFT to the Joint Business, effectively making any income from those shares go to the joint business, and the RFT2.

Ailean and D’Arcy executed virtually identical Primary and Secondary Wills in 2012 (the “Primary and Secondary Wills” or “the Wills”). D’Arcy is the Executor of Ailean’s Estate. Jacqueline is the Second Alternate Executor. The Wills created a spousal trust in favour of the Respondent containing the Deceased’s shares in the Joint Business that the Respondent was to have life interest in. Following his death, the residue of the Estate was to be divided into 2 equal parts and distributed to the Applicant and D’Arcy’s children.

Following Ailean’s passing, D’Arcy, acting on the belief that the assets were to be split 50-25-25 amongst his children and the Applicant, transferred five of the 10 Common Shares in the Joint Business to himself in his capacity as Trustee and Beneficiary of the RFT2.

Issues

Justice Jensen of the ONSC identified three main issues that arose on the application:

1. Did the Respondent have the authority to transfer the shares to himself, in his capacity as a beneficiary of the trust?
2. Should the shares be returned to the RFT2?
3. Should the Court remove the Respondent as the executor of the Estate and trustee of the Trusts?

Analysis

Issue 1: The Exercise of the Respondent’s Discretionary Powers as Trustee

The RFT2 provided that the trustee has complete and unfettered discretion to distribute both the income and capital of the trust as she/he sees fit. Furthermore, section 4.2 of the Trust Agreement provides the Trustee with “the power and authority in her absolute and uncontrolled discretion at any time and from time to time to administer the Trust Fund (including any share thereof) in whatever manner she may determine”.

However, Justice Jensen found that in spite of this, the case law indicates that the Respondent could simply do whatever he wanted with the Trust property. The Court cited the seminal case of Fox v. Fox Estate,[2] where the Ontario Court of Appeal held that the exercise of an absolute discretion of a trustee is to be without any check or control, except where there is conduct that amounts to either fraud or mala fides. If mala fides (“bad faith”) is present, the court may step in and remove a trustee for such conduct.

In our case, the RFT2’s trust agreement was clear that the intention of the Deceased was for the RFT2 to ultimately go solely to Applicant, and not the Respondent’s children. The purpose of the structure of the RFT2, was found to be, through evidence from the lawyer who created it, to provide payments to Ailean and D’Arcy without taking away Jacqueline’s ultimate entitlement to the future value of the shares. D’Arcy was clearly aware of this intention.

Additionally, during a meeting following the Deceased’s death where the Respondent advised about the change of terms to the RFT2, he stated that he didn’t intend to respect Ailean’s estate plans and the terms of the Trusts.

As trustee of the RFT2, D’Arcy has a fiduciary obligation to respect the intention and purpose of the trust and therefore his absolute discretion under the trust does not come without constraints. The Court found there to be bad faith on the part of D’Arcy in transferring the shares to himself, as the intention was clearly to do so for the benefit of his own children, who were not beneficiaries of the RFT2. Therefore, the Court held that the Respondent failed to fulfill his fiduciary obligations as trustee.

Issue 2: Should the Shares be Returned to the RFT2?

The Court, citing MacDonald et al v. BMO Trust Company et al,[3] found that equity permits a wide range of remedies for breach of trust or fiduciary duty. One such remedy, is disgorgement. Disgorgement is a legal remedy that requires a wrongdoer to surrender profits obtained through illegal conduct.

Here, the Court found that disgorgement was an appropriate remedy, and ordered D’Arcy to return the five Shares as well as any profit whatsoever that he made on those shares.

Issue 3: Should the Respondent be Removed as Executor and Trustee?

The Court has the inherent power to remove an executor and/or trustee when circumstances require it, such as when the continuance of the trustee would be detrimental to the execution of the trusts under the Will.[4] The Court considered the following principles enumerated in Radford v. Radford Estate,[5] in coming to the conclusion that D’Arcy should be removed as both executor and trustee.

1. the court will not lightly interfere with the testator’s choice of estate trustee;
2. there must be a “clear necessity” to interfere with the discretion of the testator;
3. removal of an estate trustee should only occur in the clearest of evidence that there is no other course to follow;
4. the court’s main guide is the welfare of the beneficiaries;
5. it must be shown that the non-removal of the trustee will prevent the proper execution of the trust; and
6. the removal of an estate trustee is not intended to punish for past misconducts; rather it is only justified if past misconduct is likely to continue and the estate assets and interests of the beneficiaries must be protected.

The Court found that, based on his bad faith actions in relation to the RFT2, the circumstances warranted the Respondent’s removal as trustee for that trust. Notably however, the Court went on to say that there was further misconduct on the Respondent’s part that necessitated his removal as both executor of the Estate and as trustee of the other two trusts. This misconduct included, inter alia:

1. The Respondent’s breach of fiduciary duty in transferring the shares to himself;
2. His failure to communicate with beneficiaries when enacting the transfer;
3. His failure to adequately handle tax implications in regard to the Joint Business;
4. His failure to provide an accounting to the Applicant; and
5. Overall evidence of misappropriation and mismanagement of funds regarding the Joint Business.

Justice Jensen did not take the removal of the Respondent as executor and trustee lightly, given the Court of Appeal’s decision in Chambers Estate v. Chambers,[6] where it was held that courts should not lightly interfere with a testator’s choice of the person to act as their trustee. An estate trustee should only be removed on the clearest of cases where there is no other course to follow. The court went on to say that removal is an unusual and extreme course of action.

In light of the Court’s findings in regard to D’Arcy’s conduct, the Court found that these circumstances reach the level of warranting such a course of action, and saw no other means of preserving the Estate and Trust assets and protecting the beneficiaries. As such, an order was made for the Respondent’s removal. Additionally, given the Respondent’s unreasonable behaviour in the administration of the Trusts and the Estate generally, the Court ordered him to pay both his costs and the Applicant’s costs on a substantial indemnity basis personally.

Final Thoughts

A key reason for the Court’s finding here was the fact that the Respondent did not initiate any equity claim for unjust enrichment in regards to the shares of the various businesses and trusts set up by the Deceased. He argued that he had put a lot of “sweat equity” into the proceeds, and as such, his children should have been awarded equally to the Applicant. However, the Deceased was well within her rights to structure the trusts as she did, and as a fiduciary trustee, he was obligated to follow the intentions of the trust. The Respondent could have potentially achieved a different outcome should he had proceeded in an alternate manner. Courts are very protective towards individuals to whom a fiduciary duty is owed, and any bad faith or breach of that fiduciary duty will, as evidenced by this decision, be taken with the utmost seriousness. This case serves a stark reminder that a trustee and executor must at all times act in the best interests of the beneficiaries and refrain from any inkling of self dealing.

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[1] Reid v. Cote et al, 2025 ONSC 6542

[2] Fox v. Fox Estate, (1996) 1996 CanLII 779 (ON CA)

[3] MacDonald et al v. BMO Trust Company et al, 2020 ONSC 93, 150 O.R. (3d) 95

[4] Trustee Act, at ss. 5 and 7, and R.S.O. 1990. c. T.23, rule 14.05(3)(d) of the Rules of Civil Procedure

[5] Radford v. Radford Estate [2008] O. J. No. 3528, at paras. 97-107

[6] Chambers Estate v. Chambers, 2013 ONCA 511