The recently issued decision of the Court of Appeal of Ontario in Walters v. Walters, 2022 ONCA 38 guides the circumstances under which a court in Ontario can intervene with a Trustee’s decision not to exercise their discretionary powers.
In Walters, the Ontario Court of Appeal was asked to review a lower court’s decision to intervene in the way the Trustees were administering a discretionary trust. The trust was a testamentary trust established by Ms. Janice Walters that provided that her husband, Gerald Walters, was an income beneficiary of the trust and the trust was to provide for his “comfort and well being”, while the residue of the trust was to go to the couple’s three children (the “Trust”). All three children were named Trustees, but one child, whose position aligned with Mr. Walters, asked to be removed as a Trustee before the disagreement made it to trial. At the time of Ms. Walters’s passing, the couple lived apart, and Mr. Walters had said that if his children tried to move Ms. Walters back into the marital home that he occupied, he would file for divorce. The assets that Ms. Walters had at the time of her will were her interest in the matrimonial home, an adjacent piece of vacant land, and a small amount in personal savings.
As an aside, you should know that there are two general categories of trusts. Inter-vivos Trusts and Testamentary Trusts. Inter-vivos trusts are living trusts established when the grantor or settlor, or the person establishing the trust, is still alive. In contrast, a Testamentary Trust is a trust established by a testator in their will and only takes effect upon an individual’s death. Testamentary Trusts are not revocable after they are established, while Inter-Vivo trusts may be revocable or irrevocable depending on how they are established. The Government of Canada provides additional information on trusts on this page.
At trial, Mr. Walters sought an order compelling the two remaining Trustees to encroach on the Trust capital, a discretionary power that was expressly permitted under the terms of Ms. Walters’s will that established the Trust, to pay for his living expenses. Before bringing the matter to trial, Mr. Walters had asked the Trustees to do so, but his request was met with refusal.
The application judge granted Mr. Walter’s request and ordered the two Trustees to make increased monthly payments to their father and make a lump sump arrears payment for the three years leading up to the trial. The application judge also ordered that the Trust cover Mr. Walter’s costs for the application.
In so ordering, the application judge relied on her finding that the Trustees refused to exercise their discretion based on the extraneous factors, mainly their dislike and distrust of their father, Mr. Walters.
On appeal, the court upheld the order granting Mr. Walter’s request for monthly financial support (with a reduction to the amount of the lump payment). Still, it did so based on different reasoning than the application judge.
The appeal court found that the Trustees’ dislike of Mr. Walters had nothing to do with their obligation to ensure his “well-being and comfort” and that, in fact, their refusal to encroach on capital to provide for his comfort and well-being was an abuse of their discretionary powers granted under the will and “legitimately attracted judicial intervention”.
Acting as a fiduciary is, at its essence, acting for the benefit of another person. Both a company and an individual can act as a fiduciary. As confirmed by the Supreme Court of Canada in its leading decision on fiduciary duties, Professional Institute of the Public Service of Canada v. Canada (Attorney General), the fiduciary is obligated “to act in the best interest of the alleged beneficiary or beneficiaries.”
The appeal court in Walters confirmed that:
- effect must be given to the testator’s intentions as ascertained from the language of the will and surrounding circumstances and therefore, trustees must carefully examine the wording of the will or trust instrument
- the courts may interfere with the exercise of a trustee’s discretion if extraneous matters influence the trustee’s decision
In Walters, the Trustees believed that Mr. Walters, who less than eight years before his application had assets of over a million, was hiding assets and was not in actual financial need that would have justified encroaching on the Trust capital that was meant to support him for a potentially lengthy period of time. However, the Trustees could not produce any evidence at trial that would have supported their position. Therefore, it is essential that any allegations that a party wishes to rely on are supportable by verifiable proof; otherwise, the whole process is a waste of resources by all parties.
Overall, the Walters decision highlights how important it is to separate personal feelings from actual obligations, especially when naming a Trustee or acting as a Trustee. Had Ms. Walters appointed a corporate Trustee to oversee the Trust or had her children put aside their feelings to fulfill their mother’s wishes, the Trust may have preserved significantly more assets for future residual distributions.
At Derfel Estate Law, our experienced estate lawyers are always up to date on estate administration requirements and can assist in acting as an Estate Trustee. Contact us by phone at 416-847-3580 or reach us online to discuss your estate needs.