The Ontario Court of Appeal’s recent decision in Muscat v. Muscat Estate, 2025 ONCA 518, offers a sharp reminder that even the perception of divided loyalty can unravel that trust. The case demonstrates that trustees who fail to disclose conflicts, ignore professional standards, or act in self-interest risk removal, personal financial liability, and reputational damage.
The Conflict: When Personal Relationships Cloud Fiduciary Judgment
The estate of Dan Muscat was modest in complexity but significant in consequence. Dan’s will appointed Ilinka Armstrong and Dean Tully as estate trustees. His teenage son, Alexander Muscat, was the sole residual beneficiary.
Because Alexander was under 25, his inheritance was to be held in trust until he reached that age. The estate’s principal asset was a jewelry business and its associated building. In early 2023, Ms. Armstrong’s romantic partner, Steve Malizia, offered to purchase the business for $400,000. That offer immediately raised concern. The estate’s probate valuation placed the business at about $515,000, and later appraisals obtained by the beneficiary valued it closer to $911,550.
When Alexander’s lawyer raised the issue of Ms. Armstrong’s apparent conflict and requested her resignation, the trustees refused. Instead, they forwarded Mr. Malizia’s “final offer” and recommended that it be accepted, claiming it was “the best available option.” They gave the beneficiary ten days to decide. The problem was clear: the trustee’s personal relationship with the proposed purchaser created a direct conflict of interest.
Breach of Fiduciary Duty: Failure of Disclosure and Due Diligence
Both the application judge and the Court of Appeal found that the trustees breached their fiduciary duty. Ms. Armstrong’s relationship with the buyer required immediate disclosure and disqualification from decisions involving the sale. The trustees’ refusal to acknowledge the conflict and their insistence on proceeding anyway were fatal errors.
On appeal, they argued that no disclosure was necessary because the beneficiary already knew of the relationship. The Court of Appeal rejected that argument outright, confirming that the duty of disclosure lies entirely with the trustee. A trustee cannot rely on the beneficiary’s awareness; the duty is active, not passive.
The Trustees Failed in Their Duty of Care
- They did not obtain an independent appraisal of the business.
- They conducted no open-market testing or comparison.
- They applied time pressure on the beneficiary without justification.
Consequences: Removal and Personal Cost Orders
The court ordered both trustees removed and required them to personally pay the respondent’s costs totalling $56,693.01. Their appeal was dismissed, and the Court of Appeal added a further $22,703.44 in costs. Although they were spared personal liability for breach of trust under s. 35(1) of the Trustee Act, that protection did not extend to litigation costs.
For Trustees: Lessons Learned and Practical Tips
- Disclose conflicts immediately.
- Seek independent valuations and advice.
- Good faith alone is not enough.
- Know when to step aside.
- Know that beneficiaries have rights and remedies.
What’s Next for Estate Trustees After Muscat
The Muscat ruling signals a shift toward higher standards of conduct for estate trustees in Ontario. Trusteeship must now be treated as a professional, transparent, and accountable role. Key expectations include:
- Acting like a professional fiduciary.
- Being proactive about disclosure.
- Getting independent expert advice.
- Communicating regularly with beneficiaries.
- Understanding that costs now follow conduct.
Final Thought
The post-Muscat landscape emphasizes accountability. Trusteeship is not an entitlement; it is a position of trust that must be preserved through transparency and diligence. Courts will intervene when that trust is breached.
