LSUC Estate Litigation Practice Essentials: Removal of Executors October 30, 2012 Kimberly A. Whaley/ Erin C. Cowling Whaley Estate Litigation PART I - OVERVIEW While Courts are reluctant to interfere with a testator s intentions and desires as to whom they appoint as their trustees, sometimes situations arise where a trustee must be removed either at their own volition or by another trustee or beneficiary. In addition to the legislated authority in sections 5 and 37 of the Trustee Act R.S.O. 1990, c.t.37 (the Trustee Act ) to remove and appoint trustees and executors, the Court also has inherent jurisdiction to do so. This paper will address a brief overview of grounds for removal of a Trustee, recent case law, procedural references and application materials. The Trustee Act: Removal Provisions Sections 5 and 37 of the Trustee Act apply with respect to the removal of executors/trustees and personal representatives by way of court application. Those provisions are as follows: 5(1) The Superior Court of Justice may make an order for the appointment of a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee. C:\Users\Ken\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\TZUGLRDI\2012 - LSUC Estate Litigation Practice Essentials - Removal of Executors.doc
(2) An order under this section and any consequential vesting order or conveyance does not operate as a discharge from liability for the acts or omissions of the former or continuing trustees.... 37(1) The Superior Court of Justice may remove a personal representative upon any ground upon which the court may remove any trustee, and may appoint some other proper person or persons to act in the place of the executor or administrator so removed. Additionally, section 37(3) of the Trustee Act provides that, any person interested in the estate of the deceased can bring an application for the removal of a personal representative/executor. In addition to these statutory provisions, the court has an inherent jurisdiction to remove and appoint executors. 1 The principles that guide the court s discretion to remove estate trustees are set out in Radford v. Radford Estate, [2008] O.J. No. 3526 (S.C.J.) (para. 97) and St. Joseph s Health Centre v. Dzwiekowski, [2007] O.J. No. 4641 (S.C.J.) (para. 25) and are summarized as follows: 1. The court will not lightly interfere with the testator s choice of estate trustee; 2. Clear evidence of necessity is required; 3. The courts main consideration is the welfare of the beneficiaries; and 1 St. Joseph s Health Centre v. Dziekowski, [2007] O.J. No. 4641 (Ont.S.C.J.) at para.25: The court has an inherent jurisdiction to remove trustees. The extension of the jurisdiction to personal representatives is confirmed by section 37(1) of the Trustee Act R.S.O. 1990, c. T.23. As the section indicates, the principles that should govern the exercise of the jurisdiction are essentially the same. Counsel were in agreement that, despite the great variety of factual differences in the cases decided since Letterstedt v. Borers (1884), 9 App. Cas. 371, the principles stated by Lord Blackburn (at pages 385-387) have consistently been followed. In delivering the opinion of the Privy Council, his Lordship quoted with approval the following passage from s. 1289 of Story's Equity Jurisprudence: But in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce Courts of Equity to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to she a want of honesty or a want of proper capacity to execute the duties, or a want of reasonable fidelity. 2
4. The estate trustee s acts or omissions must be of such a nature as to endanger the administration of the trust. PART II - GROUNDS FOR REMOVAL Renunciation Firstly, if a trustee chooses not to act and a Certificate of Appointment has not been issued, nor, has the trustee taken any steps to administer the estate then the trustee can simply renounce his or her role as trustee. To achieve this, the trustee simply needs to file a Form 74.11 with the court. Importantly, renunciation is only available where no steps have been taken in an administration. Removal If, however, a co-trustee or beneficiary or any person interested in the estate of the deceased wishes to remove a trustee they must bring an application before the court for that removal. The burden is on the applicant to persuade the court as to why the trustee should be removed. Misconduct Grounds Historically, trustees have often been removed for misconduct. In Rose v. Rose 2, the Court set out other actions, inactions and conditions that may render a trustee subject to removal: Misconduct; Lack of bona fides; An inability or unwillingness to carry out the terms of the trust; 2 (2006), 24 E.T.R. (3d) 217 (Ont.S.C.J.) at para. 70. 3
Incapacity; Personally benefitting from the trust; Acting to the detriment of the beneficiaries; or any other ground that shows that the trustee is not fit to control another s property. Grounds Generally bankruptcy of the Trustee (see Foster s Trusts, Re (1886), 55 L.T. 479, Hiebert, Re, [1934] 4 D.L.R. 799 (Sask.K.B.); the trustee being convicted of a criminal offence (see Danson, Re (1899), 48. W.R. 73; Re Drawmer (1913) 108 L.T. 732); the trustee permanently moved out of the jurisdiction (see Somerset Estate, Re, [1928] 2 W.W.R. 697 (Man. K.B.)); incapacity through illness or age or inclination (see Martin s Trusts, Re (1887), 56 L.J. Ch. 229, Galbrait, Re, [1951] 2 All E.R. 470); substantial breach of trust (see Phelps, Ex parte (1742), 9 Mod. 357, McLaren, Re (1922), 69 D.L.R. 599 (Ont.C.A.), Smith, Re (1971), 18 D.L.R. (3d) 405 (Ont. C.A.), Ballentine v. Ballentine (2000), 35 E.T.R. (2d) 165 (Ont.S.C.J.), affirmed (2001), 38 E.T.R. (2d) 165 (Ont.C.A.)); a trustee s lack of appreciation of his or her duties (see Derrick, Re, [1936] O.W.N. 223 (Ont. H.C.), Seaton Estate, Re (2003), 3 E.T.R. (3d) 287 (B.C.C.A.), Waese v. Bojman (2002), 50 E.T.R. (2d) 139(Ont.S.C.J.)); 4
a trustee s inability to agree with a co-trustee (see Shepard v. Shepard (1911), 20 O.W.R. 810 (Ont. C.A.), Curran, Re (1920), 18 O.W.N. 98, Owen Family Trust, Re (1989), 33 E.T.R. 213 (B.C.S.C.), Consiglio, Re (No.1), [1973] 3 O.R. 326 (Ont.C.A.)); dissension with beneficiaries (see Letterstedt v. Broers (1884), 9 App. Cas.371 (South Africa P.C.), Hunter v. Hunter, [1938] N.Z.L.R. 520, Orenstein v. Feldman (1978), 2 E.T.R. 133 (Ont.H.C.), Rose v. Rose (2006) 2006 CarswellOnt 3776 (Ont.S.C.J.) 24 E.T.R. (3d) 217 (Ont.S.C.J.), Radford v. Radford Estate (2008), 2008 CarswellOnt 5297 (Ont.S.C.J.)); undue delays (see Alexander v. Royal Trust Co., [1949] 1 W.W.R. 867 (Alta. C.A.), Derrick Re, [1936] O.W.N. 223 (Ont. H.C.), Martin Re, (1978), 3 E.T.R. 134 (Sask.Surr.Ct.), St. Joseph s Health Centre v. Dzwiekowski (2007), 2007 Carswell Ont 7642 (Ont.S.C.J.)); conflict of interest (see Ingraham v. Hill (1920), 53 N.S.R. 442 (N.S.C.A.), Anderson, Re (1928), 35 O.W.N. 7 (Ont.H.C.), Gronnerud (Litigation Guardian of) v. Gronnerud Estate, 2002 SCC 38, Rufenack v. Hope Mission (2005) 2005 CarswellAlta 379 (Alta.C.A.), Forbes v. Gauthier Estate (2008), 2008 CarswellOnt 4912 (Ont.S.C.J.)); improper behaviour or misconduct or acting in a manner that endangered the estate (see Conroy v. Stokes, [1952] 4 D.L.R. 124 (B.C.C.A), Crawford v. Jardine, [1997] O.J. No. 5041 (Ont. Ct. (Gen. Div.), Burns v. Burns (2002), 46 E.T.R. (2d) 51 (N.S.S.C.) Bartel v. Bartel (2005), 2005 CarswellMan 5
(Man.Q.B.), Mohammed v. Heera (2008) 2008 CarswellOnt 6247 (Ont.S.C.J.)); pre-taking of compensation (see Zucker v. Zucker Estate, 2011 ONSC 7165 (discussed below)). While these are a list of non-exhaustive examples of some grounds upon which a trustee may be removed, it must be remembered that there is no certain rule to each ground. Each removal case will turn on its own facts. While there is no general rule, the key consideration in all removal cases is the welfare of the beneficiaries. This key consideration comes with considerable tradition and precedent and can be relied upon as succinctly state in the case of Letterstedt v. Broers (1884), 9 App. Cas.371 (South Africa P.C.) where Lord Blackburn stated: In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above enunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a matter so essentially dependent on details often of great nicety. But they proceed to look carefully into the circumstances of the case. 3 Moreover, in Rose v. Rose the court stated that: Although misconduct of the trustee is not a prerequisite to removal, something more than mere friction is normally necessary. For example, before making an order for removal of a trustee because of friction with co-trustees, the court must be satisfied that the continued administration of the trust is impossible or improbable. 4 Courts are more reluctant to interfere where there is a dispute between the trustee and a beneficiary as opposed to a dispute between two trustees, where the 3 (1884) 9 APP.CAS. 371 at 387 ( Letterstedt ),see also Anderson Re (1928), 35 O.W.N. 7 (Ont.H.C.)at 8 4 Rose at para. 70 6
courts are more likely to rule in favour of a removal. See Venables v. Gordon Estate, 5 discussed in more detail below. A beneficiary may therefore have considerable challenge before the court to prove sufficient grounds justifying removal. Remember that the trustee does not have to perform to a standard of perfection. Section 35 of the Trustee Act permits the court to excuse the trustee if the trustee was acting reasonably and honestly even if in breach of the trust. WHAT APPROACH ARE THE COURTS TAKING? Overview of Recent Caselaw Zucker v. Zucker Estate 6 In this case the son and daughter of the deceased, Irving Zucker, and beneficiaries of the Estate, brought a motion for, among other things, to remove the sole executor of their father`s Estate. A co-executor had already been removed by a previous court order although no explanation for his removal was provided in the reason. The beneficiaries argued that the sole remaining Executor should be removed for a host of reasons, but, mainly because it was in the best interests of the beneficiaries to do so, so as to ensure an even hand in the administration; additionally, the executor was impecunious, and most importantly, he had helped himself to $1.2 million in Executor compensation before passing accounts and without consent of the beneficiaries. 5 2012 ONSC 956 6 2011 ONSC 7165 7
The Executor argued that he should not be removed as he had already taken out an appointment to pass his accounts and the pre-taking therefore still a live issue. While the fiduciary admitted he was impecunious he advised that he was now in counselling and seeing a psychiatrist. Justice Greer opined that: While not all would agree that an Executor/Trustee or personal representative should be removed when the issue is pre-taking of compensation, Jenkins & Scott in Compensation & Duties of Estate Trustees, Guardians & Attorneys, at 10-9, note that impecuniosity of an Executor can be taken into account. In my view, this Estate cries out for the removal of [the] Executor, given that he is now impecunious. He did pre-take compensation of over $2.8 million with [his previous co-executor]... without good explanation. The Court ordered that the Executor be removed and a lawyer was appointed as his replacement. The Executor was also ordered to explain where the money went into his bank account and where it was spent. Scime v. Murphy 7 A dispute arose between the late Mrs. Mildred Murphy s natural children and her step-children as to the disposition of her estate. Mildred preferred two of her natural children to her step-children in her Will. Her natural son Michael Fines was appointed as estate trustee. One of Mildred s step-children, Kelly Scime, brought an application for, among other things, the removal of Michael as the estate trustee pursuant to section 37(1) of the Trustee Act. The Applicants argued that there were many reasons why Michael 7 2011 ONSC 974 8
should be removed as the estate trustee, including failing to complete proper appraisals and failing to account for a credit card bill in excess of $5,000.00. However, the main objection was that shortly after his mother passed away Michael personally spent over $20,000.00 from the estate and never paid it back. Michael had no explanation for his behaviour and did not defend his actions. The Court observed that one of the main considerations when deciding whether to remove an Estate Trustee was the welfare of the beneficiaries and went on to hold that as Michael had not repaid the Estate... this demonstrates his indifference to the interests of the beneficiaries and warrants him being removed as estate trustee. Michael was ordered to pay the money back with interest. Interestingly, Michael did not contest his removal, nor deny the allegations. His step-sister Kelly was appointed as Estate Trustee. Venables v. Gordon Estate 8 In this case two sons were in conflict over the administration of their grandfather s trust. Their 100 year old mother, Mrs. Venables, was the original trustee, but, her son Peter took over as trustee, as per their grandfather s Will, when she had a stroke and moved into an assisted-living facility. A conflict arose between Peter and Mrs. Venable s second son, Michael over the trust administration. Michael was not a Trustee but he had power of attorney over Mrs. Venables person and her property and was a beneficiary of the trust. The hostility between Peter and Michael was palpable. A successful mediation was held whereby 8 2012 ONSC 956 9
Minutes of Settlement were executed that provided Michael with co-management powers over the assets of the trust. Shortly thereafter the relationship fell apart and the hostility returned. Michael brought this application to have Peter removed as trustee pursuant to s.37 of the Trustee Act which allows a Court to remove a trustee or executor and appoint someone else to take his or her place. In deciding the application, Justice Beaudoin analysed the case law and commentary including Limebeer Estate (Re) [2005] O.J. No. 375 and The Law of Trusts by D.W.M. Waters on the principles governing removal which the court summarized as: (1) the welfare of the beneficiaries; (2) whether there is any danger to trust property; and (3) whether the trustee continuing to act is likely to prevent the trust from being properly administered. The Court added that it will be more likely to interfere where the dispute is as between co-trustees as opposed to a trustee and beneficiary. Justice Beaudoin held however that there was ample evidence that the continued conflict between Michael as beneficiary and Peter as trustee interfered with Peter s proper exercise of his discretion under the Will. This resulted in an interruption in income payments to Mrs. Venables without a legitimate reason. Peter was removed as trustee and a trust company was appointed in his place. An interesting aspect of this case is that Justice Beaudoin observed that the Minutes of Settlement (which gave Michael co-management powers over the assets of the trust) elevated Michael s position so he was more than a mere beneficiary and was effectively a co-trustee of Michael s even though he was not appointed as one under the trust. The Court was therefore also prepared to have removed Peter based on a conflict between co-trustees. 10
Insufficient Grounds The following recent cases are illustrative of instances where a court has decided not to remove a trustee: Johnston v. Lanka 9 In this case the Court refused to remove a trustee. Two beneficiaries brought an application for, among other things, the removal of estate trustees for conflict of interest, hostilities between themselves and the trustees, and failure to fulfill the duties of estate trustees. The conflict of interest argument was based on the fact that one of the trustees purchased certain shares owned by the Estate. However, the Court found that as the share purchase was pursuant to a shareholder s agreement which was entered into with the deceased and as the trustee hired her own counsel to complete the transaction and did not participate in any decisions regarding the Estate s sale of the shares there were not sufficient grounds to warrant removal. On the second allegation of hostility, the Court looked at the evidence before it and stated that while there existed a degree of hostility between the trustees and the beneficiary, it was not to the extent that it would interfere with the trustees proper administration of the Estate or their exercise of their duties. And finally the Court held that the evidence did not establish that the trustees failed to carry out their duties as estate trustees properly or exercised them in a completely impartial or objective manner. The Court found that the trustees spent 9 [2010] O.J. No. 3237 (S.C.J.) 11
significant hours on behalf of the estate; retained the deceased s solicitor and accountant to act for the estate; collected all of the deceased s records and organized them; dealt with tenants and arranged for repair and maintenance to estate property; and, collected the data necessary for the income tax returns. The evidence before the court did not support the removal of the estate trustees. Sentineal v. Sentineal 10 In this case, Frederick Sentineal Senior started a family-run horse drawn carriage business in Niagara-on-the-Lake with his three sons, Fred Jr., Jack and Jeff. In what could be seen as a sign of things to come, Fred Jr. quickly became estranged from his family as a result of disputes arising out of the business. Fred Sr. died in 2004 and his son Jack was appointed the executor of his estate. Jack and Jeff continued to run the family business. In 2005, Jack in his personal capacity and as executor and on behalf of the family business commenced an action against his brother Jeff, and his wife alleging that they were misappropriating funds from the business. After eight days of trial in 2009 the parties entered into minutes of settlement which required Jack to sell certain estate property and to divide the proceeds equally between himself and Jeff. While Jack listed the properties for sale, they had not been sold as of December 2011. Jeff brought this application to have Jack removed as executor for his father s Estate for failing to sell the estate properties as required. 10 2011 ONSC 6007 12
In rendering the decision, Justice Hambly observed that while it had been over 7 years since the death of Fred Sr. and the estate property had still not been sold, the removal of an estate trustee should only occur on the clearest of evidence that there is no other course to follow. Instead of removing Jack as executor, Justice Hambly set a strict timetable that the property should be sold by June 30, 2012, otherwise there will be a heavy onus on Jack to explain why he should not be removed. Gonder v. Evans 11 In Gonder, the two executors had brought a motion for their own removal as they were no longer able to act as executors due to their age, poor health and financial constraints. They also stated that they were in a conflict of interest as they had spent a lot of money defending an action commenced by a beneficiary (claiming a beneficial interest in the only asset of the estate), and therefore were creditors of the estate. The beneficiary who started the action opposed the removal motion. The Court held that s.37 of the Trustee Act did not require a trustee to provide a replacement before applying to be removed and granted the motion for removal. The Ontario Court of Appeal held that while it is open to the Court to not appoint a replacement, the Court at first instance erred by not making alternative provisions for administration of the estate and sent the matter back down to the Superior Court: The motion judge erred not because he removed the respondents as trustees without appointing a replacement. Rather, the error was to remove them without making alternate provisions for the proper administration of the estate. It is for 11 2010 ONCA 172 ( Gonder ) 13
this reason alone that the matter must return to the Superior Court to be reconsidered. 12 The Court of Appeal found in the specific circumstances of this case there were three objectives that ought to have been considered and addressed by the motion judge: (1) ensuring the orderly administration of the estate in the interests of the beneficiaries; (2) recognizing the plight of the respondents; and (3) providing for the timely resolution of the disputes concerning the estate. The Court also held that: The removal of a sole trustee without appointment of a replacement is an extreme remedy, and will be inappropriate in most cases. It will only be available when no other option is realistically available. In our view, given the limited value of the estate, the conflict of interest that the respondents are now in as creditors of the estate, and the lack of viable replacement trustees, this is one such exceptional case. That said, the motion judge was wrong to remove the respondents as trustees without also crafting a mechanism by which the estate could continue to be administered. This is a case that cries out for a practical solution. It is in that spirit that the judge hearing this matter should approach the task. 13 PART III - PROCEDURE To remove an executor or trustee you must bring an application in the Superior Court of Justice in Ontario under Rule 14.05(3)(a) and (c) and rule 75.04 of the Rules of Civil Procedure and sections 5 and 37 of the Trustee Act. If in Toronto, the Application will also be brought pursuant to the Practice Direction Concerning the Estates List of the Superior Court of Justice in Toronto. 12 Gonder at para.25 13 Gonder at paras. 68-70 14
Rule 9.01 of the Rules of Civil Procedure obliges an applicant in removing or replacing an executor or trustee, to name all of the beneficiaries as parties to the application. The application will include a Notice of Application and must be supported by affidavit evidence. As stated above, each removal case turns on the facts of the case as there is no hard and fast rule. Therefore, evidence with supporting documentation showing good reason that the trustee should be removed is best placed before the court in order to enhance your chances of success in the application. Simply bringing an application and alleging misconduct is insufficient. The trustee resisting the removal will serve and file his or her responding affidavit evidence and cross-examinations on the affidavits may or may not take place. If a trustee wishes to appeal an order of removal in Ontario the appeal route is to the Court of Appeal. The time for service of a notice of appeal under Rule 61.04(1) is thirty (30) days after the making of the order appealed from. PART IV - APPLICATION MATERIALS In the Notice of Application, relief which may be relevant and you may wish to consider is listed below: Removal of the Trustee in both capacities, as an executor and as a trustee of a testamentary trust (if applicable). If there already is another co-trustee that is not being removed and order that a substitute trustee is not required to replace the one being removed and an order that all assets of the estate vest in the sole trustee. If a substitute trustee is being appointed include the consent of that trustee in your material. 15
An order that the trustee being removed must pass accounts up to the date of his or her removal. Provide in your application details of or approval of any compensation for new trustee An Order waiving or requiring the posting of a bond for the new trustee Any other specific directions you are seeking from the court. 16