1. Introduction
What is the scope of a trustee’s absolute discretion? Can the trustee, who is also a beneficiary, transfer estate assets to himself as he sees fit? That was the question raised in Reid v Cote et al.[1]
2. Facts[2]
The case concerned the estate plans of Ailean Read (‘Ailean’) and her blended family. Ailean was a successful businesswoman and accumulated a large estate through her property management companies. She died 23 January 2022 and was survived by the Applicant, Jacqueline Reid (‘Jacqueline’), Ailean’s only child, by Jacqueline’s three children, by her common law partner, the Respondent, D’Arcy Cote (‘D’Arcy’), and by the other Respondents, Patrick and Samantha Cote (‘Patrick’ and ‘Samantha’), who are D’Arcy’s children from his first marriage. D’Arcy and Ailean have lived together since 1988.
In 1983, before she met D’Arcy, Ailean incorporated 5611 Ontario Inc (‘5611’) and issued 10 common shares in the company to Jaqueline. In 1987 those shares were placed in the Read Family Trust (‘RFT’). Ailean owned and operated Read Property Management Limited (‘RPML’), which provided property management services to condominium corporations.
After Ailean and D’Arcy moved in together in 1988, the two of them worked together on several projects initiated by Ailean through RPML. In 1994 D’Arcy and Ailean incorporated Darail Holdings Limited (‘Darail’). The two of them, together with Sarah Jennings and Ian Johns, worked on the renovation and restoration of property on Sussex Drive in Ottawa, owned by the National Capital Commission (‘NCC’), and acquired a 50-year lease on the buildings. The parties incorporated 489 Sussex Properties (‘489 Sussex’) in 1993. 5611 owned 50% of the shares in 489 Sussex and Jennings and Johns owned the other 50%. One day after the incorporation of Darail the shares of 489 Sussex were reorganized. Thereafter, Saraham Holdings and Darail each owned 50 Common ‘A’ shares of 489 Sussex.
The directors of Darail were D’Arcy and Ailean. Since Ailean’s death, D’Arcy has been its sole director. However, Ailean was the sole shareholder until 2010. In 2010 D’Arcy was issued $5 in preferred shares but Ailean had full control of the corporation until her death. Darail’s preferred shares were subject to redemption. The common shares were the most valuable.
RFT expired in 2008 and its assets (the 10 common shares in 5611) were distributed to Jacqueline as the trust’s sole beneficiary. Jacqueline then exchanged her common shares into 10 preferred shares, and the 10 common shares were settled into a new trust, the Read Family Trust No 2 (‘RFT2’). The beneficiaries of RFT2 were Ailean, D’Arcy, Jacqueline, and Jacqueline’s children. Most of the income of RFT2 went to Ailean and after her death to D’Arcy. However, the common shares were to pass to Jacqueline after both Ailean and D’Arcy died. Ailean was the original Trustee of RFT2, but D’Arcy became its Trustee when Ailean died.
The Cote-Reid Family Trust (‘CRFT’) was created in 2010 for the benefit of Ailean, D’Arcy, and their families. Its beneficiaries were D’Arcy, Ailean, Jacqueline, Patrick, and Samantha. D’Arcy is now its trustee. Also, in 2010 the shares of 489 Sussex were reorganized so that CRFT held the 50 common shares in 489 Sussex. The other 50 common shares were held by the Johns-Jennings Family Trust. Since then, Darail no longer held the 50 common shares. Instead, it held 600,000 Class ‘B’ Special Shares, and Saraham Holdings held the same number of those shares.
In 2018, Ailean made an important change in the distribution of her wealth. It removed CRFT’s access to the income stream from 489 Sussex. At same time Ailean transferred the 50 Class ‘A’ common shares in 489 Sussex from CRFT to Darail. In consequence, RFT2, which held 10 Class ‘A’ common shares in Darail, became the recipient of the income stream.
Ailean left a Primary Will and a Secondary Will, and D’Arcy is the executor of her estate. The Wills created a Spousal Trust in favour of D’Arcy. The Trust contained the preferred shares Ailean held in Darail. It gave a life interest to D’Arcy with remainder as to 50% to be distributed to Jacqueline and as to the other 50% to be distributed to Patrick and Samantha equally.
D’Arcy claimed that he acquiesced in Alean’s arrangement under which 5611 owned 50% of the shares in 489 Sussex because he believed that Ailean held those shares on behalf of himself and Ailean. He also asserted that the moneys 489 Sussex paid to the NCC was paid with funds that Ailean, D’Arcy, Mr Johns, and Ms Jennings pooled together. However, as the court noted in para 19, D’Arcy ‘did not initiate any proceedings challenging Aileen’s actions on the basis of unjust enrichment and proposing the need to impose a constructive trust over any of her property’.
D’Arcy also claimed that he was entirely unaware of the 2018 change by Alean in the distribution of her wealth. However, he did sign the corporate resolution that approved the transfer of the 50 common shares in 489 Sussex from CRFT to Darail
D’Arcy was firmly of opinion that Ailean’s testamentary intentions were that the wealth generated by 489 Sussex, which belonged to her and D’Arcy, was to be split 50-25-25 between Jacqueline, Patrick, and Samantha. Based on his opinion, he determined to redress what he perceived to be the unfairness of Ailean’s redistribution of her wealth in 2018. Accordingly, on 1 January 2024, D’Arcy transferred five of the ten common shares in Darail to himself in his capacity as trustee and beneficiary of RFT2. He testified that, as trustee, he was entitled to distribute five of the Class ‘A’ common shares that RFT2 holds in Darail to himself, and that he did this so that Patrick and Samantha would receive half of the income stream generated from his involvement with Ailean in 489 Sussex.
Jacqueline brought this Application contesting D’Arcy’s action. In her opinion, D’Arcy violated his role as Trustee of RFT2, defied his fiduciary obligations and a court order to provide an accounting of his management of Ailean’s estate and the other trusts. As a result, she argued that D’Arcy must be removed as trustee of all three trusts and as executor of Ailean’s Wills.
The case raised the following issues:
- As trustee of RFT2, did D’Arcy have authority to transfer five Common Class ‘A’ shares in Darail to himself in his capacity as a beneficiary of the trust?
- Should the Common Shares in Darail be returned to RFT2?
- Should the court remove D’Arcy as the executor and trustee of the Trusts?
3. Analysis and Judgment
3.1 Exercise by D’Arcy of his discretionary powers
Justice Jensen began her analysis by noting that section 2.1 of RFT2 gave the Trustee complete and unfettered discretion to distribute income and capital as he sees fit, and that section 4.2 gives the Trustee ‘the power and authority in her [his] 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 [he] may determine’. Thus, the Trustee was empowered to use the Trust Fund as though he were its sole owner and could transfer any of its assets without obtaining the consent of anyone. However, her Honour went on to state that the case law makes it clear that D’Arcy cannot do whatever he wants with the Trust property. The cases hold that absolute discretion in the exercise of trust powers by a trustee is not without constraints. On this point her Honour referred to and followed Fox v Fox Estate.[3] That case held that if a trustee acts in bad faith by, for example, being guided by extraneous considerations or fails to take into account considerations that he should have taken into account, the matter falls within the scope of judicial supervision and the court will intervene and reverse the decision. Her Honour also referred to Banton v Banton,[4] in which the court made the same point.
Justice Jensen noted that the intention of the RFT2 was clear, namely, that at Distribution Date the Trust Fund shall be paid to Jacqueline if living and otherwise to her issue. Ailean thus intended that when all the preferred shares of Darail are redeemed, Jaqueline, the beneficiary of the Trust, would become the sole owner of Darail. The purpose of RFT2 was confirmed in evidence by its drafter, who also stated that Darcy’s plan to redistribute the shares of Darail to himself was inconsistent with Ailean’s intentions.
Justice Jensen noted that, as Trustee of RFT2, D’Arcy had a fiduciary obligation to respect the intention or purpose of the Trust, and not to rely on extraneous considerations, such as the overall fairness of Ailean’s estate plans, for those considerations were inconsistent with the purpose of the trust. RFT2 was set up to benefit herself, D’Arcy, Jacqueline, and Jacqueline’s children, and no one else. And Jacqueline was to receive the 10 Class ‘A’ Common Shares when D’Arcy and Ailean died.
Her Honour noted that it was clear that Ailean knew what she was doing when she transferred the 50 Class ‘A’ Common Shares in 489 Sussex to Darail in 2018, and she did it with the advice of her accountants and lawyers. She noted that if D’Arcy felt that he had a claim over some of the assets in RFT2, he could have initiated legal action to have the Trusts set aside or to assert a constructive trust. He failed to do so.
Justice Jensen therefore found that D’Arcy did not follow the intent of RFT2 when he distributed the shares to himself because his reason for doing that was to benefit his own children, who were not beneficiaries of the trust. Thus, he had regard to extraneous considerations and did not exercise his discretion in accordance with the intent of the Trust.
3.2 Should the Common Shares in Darail be Returned to RFT2?
By reference to MacDonald et al v BMO Trust Company et al,[5] Her Honour noted that equity provides a wide range of remedies for breach of trust or fiduciary duty. These include an account of profits, equitable compensation, equitable lien, equitable tracing, and constructive trust. But when the fiduciary wrongfully acquires benefits, the conventional remedy is an account of profits or disgorgement. She held that disgorgement is appropriate in this case, so that D’Arcy must return the five Common Shares and any profit he has made on them. If that is not possible, he must pay equitable compensation for the value of the shares and any profit he has made.
3.3 Should the Court remove D’Arcy as executor of the Estate and Trustee of the Trusts?
Justice Jensen noted that the court has an inherent power to remove an executor and a trustee and, by reference to well-known cases, she reviewed the equally well-known principles the court needs to take into account for this purpose. Her Honour listed the following acts of misconduct and breaches:
- breach of fiduciary duties in transferring five common shares;
- failure to communicate with the beneficiaries about the transfer;
- failure to obtain an advance tax ruling and to report the transfer to Darail on Darail’s tax return;
- breach of Shareholder’s Agreement and failure to inform Jaqueline about the transfer;
- apparent misappropriation of a dividend issued to Darail by 489 Sussex;
- failure to provide an accounting;
- draining Darail’s Operating Account;
- RBC froze Darail’s investment account, apparently because of D’Arcy’s mismanagement;
- failure to call a shareholder’s meeting of Darail since Ailean’s death;
- failure to comply with court orders;
- defaulting on pre-authorized payment for insurance premiums.
Her Honour agreed that any of these breaches would be sufficient to remove D’Arcy as executor of Ailean’s estate and as trustee of the Trusts. But she went on to find that as a whole these breaches demonstrated a shocking lack of fidelity to D’Arcy’s fiduciary obligations. Therefore, she concluded that D’Arcy could not be trusted to administer the estate or the Trusts and must be removed.
3.4 Replacement executor and trustee
While Jaqueline might be considered to be a suitable replacement as executor of Ailean’s estate and as Trustee of the Trust, in light of the animosity between her and the other beneficiaries, Justice Jensen, rightly I think, asked for further submissions from the parties on this point.
3.5 Costs
Justice Jensen awarded costs to Jacqueline that was calculated in part on a partial indemnity and in part on a substantial indemnity basis. She went on to hold that because D’Arcy acted unreasonably in his administration of the Trusts and the Estate, he must pay the costs personally.
—
[1] 2025 ONSC 6542.
[2] I apologize in advance for the length and complexity of the facts, but it is necessary for a clear understanding the court’s decision.
[3] 1996 CarswellOnt 317, 28 OR 3d 496 (CA).
[4] 1998 CarswellOnt 3453, para 172 (OCJ (General Division)).
[5] 2020 ONSC 93 para 48.
Written by: Albert Oosterhoff
Posted on: July 29, 2026
Categories: Commentary, WEL Newsletter
1. Introduction
What is the scope of a trustee’s absolute discretion? Can the trustee, who is also a beneficiary, transfer estate assets to himself as he sees fit? That was the question raised in Reid v Cote et al.[1]
2. Facts[2]
The case concerned the estate plans of Ailean Read (‘Ailean’) and her blended family. Ailean was a successful businesswoman and accumulated a large estate through her property management companies. She died 23 January 2022 and was survived by the Applicant, Jacqueline Reid (‘Jacqueline’), Ailean’s only child, by Jacqueline’s three children, by her common law partner, the Respondent, D’Arcy Cote (‘D’Arcy’), and by the other Respondents, Patrick and Samantha Cote (‘Patrick’ and ‘Samantha’), who are D’Arcy’s children from his first marriage. D’Arcy and Ailean have lived together since 1988.
In 1983, before she met D’Arcy, Ailean incorporated 5611 Ontario Inc (‘5611’) and issued 10 common shares in the company to Jaqueline. In 1987 those shares were placed in the Read Family Trust (‘RFT’). Ailean owned and operated Read Property Management Limited (‘RPML’), which provided property management services to condominium corporations.
After Ailean and D’Arcy moved in together in 1988, the two of them worked together on several projects initiated by Ailean through RPML. In 1994 D’Arcy and Ailean incorporated Darail Holdings Limited (‘Darail’). The two of them, together with Sarah Jennings and Ian Johns, worked on the renovation and restoration of property on Sussex Drive in Ottawa, owned by the National Capital Commission (‘NCC’), and acquired a 50-year lease on the buildings. The parties incorporated 489 Sussex Properties (‘489 Sussex’) in 1993. 5611 owned 50% of the shares in 489 Sussex and Jennings and Johns owned the other 50%. One day after the incorporation of Darail the shares of 489 Sussex were reorganized. Thereafter, Saraham Holdings and Darail each owned 50 Common ‘A’ shares of 489 Sussex.
The directors of Darail were D’Arcy and Ailean. Since Ailean’s death, D’Arcy has been its sole director. However, Ailean was the sole shareholder until 2010. In 2010 D’Arcy was issued $5 in preferred shares but Ailean had full control of the corporation until her death. Darail’s preferred shares were subject to redemption. The common shares were the most valuable.
RFT expired in 2008 and its assets (the 10 common shares in 5611) were distributed to Jacqueline as the trust’s sole beneficiary. Jacqueline then exchanged her common shares into 10 preferred shares, and the 10 common shares were settled into a new trust, the Read Family Trust No 2 (‘RFT2’). The beneficiaries of RFT2 were Ailean, D’Arcy, Jacqueline, and Jacqueline’s children. Most of the income of RFT2 went to Ailean and after her death to D’Arcy. However, the common shares were to pass to Jacqueline after both Ailean and D’Arcy died. Ailean was the original Trustee of RFT2, but D’Arcy became its Trustee when Ailean died.
The Cote-Reid Family Trust (‘CRFT’) was created in 2010 for the benefit of Ailean, D’Arcy, and their families. Its beneficiaries were D’Arcy, Ailean, Jacqueline, Patrick, and Samantha. D’Arcy is now its trustee. Also, in 2010 the shares of 489 Sussex were reorganized so that CRFT held the 50 common shares in 489 Sussex. The other 50 common shares were held by the Johns-Jennings Family Trust. Since then, Darail no longer held the 50 common shares. Instead, it held 600,000 Class ‘B’ Special Shares, and Saraham Holdings held the same number of those shares.
In 2018, Ailean made an important change in the distribution of her wealth. It removed CRFT’s access to the income stream from 489 Sussex. At same time Ailean transferred the 50 Class ‘A’ common shares in 489 Sussex from CRFT to Darail. In consequence, RFT2, which held 10 Class ‘A’ common shares in Darail, became the recipient of the income stream.
Ailean left a Primary Will and a Secondary Will, and D’Arcy is the executor of her estate. The Wills created a Spousal Trust in favour of D’Arcy. The Trust contained the preferred shares Ailean held in Darail. It gave a life interest to D’Arcy with remainder as to 50% to be distributed to Jacqueline and as to the other 50% to be distributed to Patrick and Samantha equally.
D’Arcy claimed that he acquiesced in Alean’s arrangement under which 5611 owned 50% of the shares in 489 Sussex because he believed that Ailean held those shares on behalf of himself and Ailean. He also asserted that the moneys 489 Sussex paid to the NCC was paid with funds that Ailean, D’Arcy, Mr Johns, and Ms Jennings pooled together. However, as the court noted in para 19, D’Arcy ‘did not initiate any proceedings challenging Aileen’s actions on the basis of unjust enrichment and proposing the need to impose a constructive trust over any of her property’.
D’Arcy also claimed that he was entirely unaware of the 2018 change by Alean in the distribution of her wealth. However, he did sign the corporate resolution that approved the transfer of the 50 common shares in 489 Sussex from CRFT to Darail
D’Arcy was firmly of opinion that Ailean’s testamentary intentions were that the wealth generated by 489 Sussex, which belonged to her and D’Arcy, was to be split 50-25-25 between Jacqueline, Patrick, and Samantha. Based on his opinion, he determined to redress what he perceived to be the unfairness of Ailean’s redistribution of her wealth in 2018. Accordingly, on 1 January 2024, D’Arcy transferred five of the ten common shares in Darail to himself in his capacity as trustee and beneficiary of RFT2. He testified that, as trustee, he was entitled to distribute five of the Class ‘A’ common shares that RFT2 holds in Darail to himself, and that he did this so that Patrick and Samantha would receive half of the income stream generated from his involvement with Ailean in 489 Sussex.
Jacqueline brought this Application contesting D’Arcy’s action. In her opinion, D’Arcy violated his role as Trustee of RFT2, defied his fiduciary obligations and a court order to provide an accounting of his management of Ailean’s estate and the other trusts. As a result, she argued that D’Arcy must be removed as trustee of all three trusts and as executor of Ailean’s Wills.
The case raised the following issues:
3. Analysis and Judgment
3.1 Exercise by D’Arcy of his discretionary powers
Justice Jensen began her analysis by noting that section 2.1 of RFT2 gave the Trustee complete and unfettered discretion to distribute income and capital as he sees fit, and that section 4.2 gives the Trustee ‘the power and authority in her [his] 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 [he] may determine’. Thus, the Trustee was empowered to use the Trust Fund as though he were its sole owner and could transfer any of its assets without obtaining the consent of anyone. However, her Honour went on to state that the case law makes it clear that D’Arcy cannot do whatever he wants with the Trust property. The cases hold that absolute discretion in the exercise of trust powers by a trustee is not without constraints. On this point her Honour referred to and followed Fox v Fox Estate.[3] That case held that if a trustee acts in bad faith by, for example, being guided by extraneous considerations or fails to take into account considerations that he should have taken into account, the matter falls within the scope of judicial supervision and the court will intervene and reverse the decision. Her Honour also referred to Banton v Banton,[4] in which the court made the same point.
Justice Jensen noted that the intention of the RFT2 was clear, namely, that at Distribution Date the Trust Fund shall be paid to Jacqueline if living and otherwise to her issue. Ailean thus intended that when all the preferred shares of Darail are redeemed, Jaqueline, the beneficiary of the Trust, would become the sole owner of Darail. The purpose of RFT2 was confirmed in evidence by its drafter, who also stated that Darcy’s plan to redistribute the shares of Darail to himself was inconsistent with Ailean’s intentions.
Justice Jensen noted that, as Trustee of RFT2, D’Arcy had a fiduciary obligation to respect the intention or purpose of the Trust, and not to rely on extraneous considerations, such as the overall fairness of Ailean’s estate plans, for those considerations were inconsistent with the purpose of the trust. RFT2 was set up to benefit herself, D’Arcy, Jacqueline, and Jacqueline’s children, and no one else. And Jacqueline was to receive the 10 Class ‘A’ Common Shares when D’Arcy and Ailean died.
Her Honour noted that it was clear that Ailean knew what she was doing when she transferred the 50 Class ‘A’ Common Shares in 489 Sussex to Darail in 2018, and she did it with the advice of her accountants and lawyers. She noted that if D’Arcy felt that he had a claim over some of the assets in RFT2, he could have initiated legal action to have the Trusts set aside or to assert a constructive trust. He failed to do so.
Justice Jensen therefore found that D’Arcy did not follow the intent of RFT2 when he distributed the shares to himself because his reason for doing that was to benefit his own children, who were not beneficiaries of the trust. Thus, he had regard to extraneous considerations and did not exercise his discretion in accordance with the intent of the Trust.
3.2 Should the Common Shares in Darail be Returned to RFT2?
By reference to MacDonald et al v BMO Trust Company et al,[5] Her Honour noted that equity provides a wide range of remedies for breach of trust or fiduciary duty. These include an account of profits, equitable compensation, equitable lien, equitable tracing, and constructive trust. But when the fiduciary wrongfully acquires benefits, the conventional remedy is an account of profits or disgorgement. She held that disgorgement is appropriate in this case, so that D’Arcy must return the five Common Shares and any profit he has made on them. If that is not possible, he must pay equitable compensation for the value of the shares and any profit he has made.
3.3 Should the Court remove D’Arcy as executor of the Estate and Trustee of the Trusts?
Justice Jensen noted that the court has an inherent power to remove an executor and a trustee and, by reference to well-known cases, she reviewed the equally well-known principles the court needs to take into account for this purpose. Her Honour listed the following acts of misconduct and breaches:
Her Honour agreed that any of these breaches would be sufficient to remove D’Arcy as executor of Ailean’s estate and as trustee of the Trusts. But she went on to find that as a whole these breaches demonstrated a shocking lack of fidelity to D’Arcy’s fiduciary obligations. Therefore, she concluded that D’Arcy could not be trusted to administer the estate or the Trusts and must be removed.
3.4 Replacement executor and trustee
While Jaqueline might be considered to be a suitable replacement as executor of Ailean’s estate and as Trustee of the Trust, in light of the animosity between her and the other beneficiaries, Justice Jensen, rightly I think, asked for further submissions from the parties on this point.
3.5 Costs
Justice Jensen awarded costs to Jacqueline that was calculated in part on a partial indemnity and in part on a substantial indemnity basis. She went on to hold that because D’Arcy acted unreasonably in his administration of the Trusts and the Estate, he must pay the costs personally.
—
[1] 2025 ONSC 6542.
[2] I apologize in advance for the length and complexity of the facts, but it is necessary for a clear understanding the court’s decision.
[3] 1996 CarswellOnt 317, 28 OR 3d 496 (CA).
[4] 1998 CarswellOnt 3453, para 172 (OCJ (General Division)).
[5] 2020 ONSC 93 para 48.
Author