Law Times

Law times • OctOber 22, 2012 Removing trustees not so easy FOCUS B BY MICHAEL McKIERNAN Law Times fended removal applications. "It isn't as easy as somebody may eneficiaries who can't get along with their estate trustees may have to grit their teeth and carry on, say lawyers who have de- think," said Marni Pernica, an estates and tax litigator with Aird & Berlis LLP. "It is quite a high threshold and when you look at the case law, particularly in more recent years, it' sometimes where the court is going to go." She was addressing an audience of s really hard to figure out trusts and estates lawyers at an Ontario Bar Association program on Sept. 25 on removing trustees. Trustees can renounce their office bringing an application to have a trustee removed, you will be facing an uphill battle to convince the court why your circumstances are so egregious that the trustee ought to be removed, daughter to remove the dead man' an associate at Fraser Milner Casgrain LLP in Toronto. "The key factor that still seems to pre- vail is if the trustee is able to carry out his or her duties impartially and objectively despite whatever the complaints are for that trustee to continue. nica said the facts of each case are crucial to a judge' arise out of hostility between the beneficia- ries and the targeted trustee, she said. "Making mere allegations of hostility isn't without going to court as long as they have done no work on the estate admin- istration. They must bring a court appli- cation if they want to vacate the position later than that, but co-trustees and ben- eficiaries can also apply to have them re- lieved of their duties by the court. David Lobl, another speaker, said the Since the test for removal is so open, Per- s decision. A number of applications " going to be enough. There really has to be specific circumstances and evidence. Hav- ing said that, if you're defending, I wouldn't just rely on the fact that the affidavit evi- dence filed by the applicant isn't good. I would still recommend putting forward all the evidence you have because it' specific. Courts are reluctant to interfere with a testator' courts would traditionally do that only when there had been a finding of mis- conduct. While the list of reasons for removal has expanded widely to include factors such as bankruptcy, conviction of a criminal offence, incapacity, breach of trust, and conflict of interest, none of them guarantees removal. In fact, Lobl said the courts can forgive breaches of trust if the judge believes the trustee was acting reasonably and honestly. "It' s clear that if you are a beneficiary " s so fact pointed pursuant to the terms of a will or a trust, the court will be reluctant to remove you, so I think that works in your favour. Conflict of interest allegations are a par- s intention, so if you were ap- ticularly common feature in removal ap- plications because trustees are frequently also beneficiaries under a will, according to Pernica. She pointed to a 2010 case to show the leeway courts will give trustees who find themselves in awkward positions. In Johnston v. Lanka, Ontario Superior Court Justice Laurence Pattillo denied an application by the deceased' s spouse and " said Lobl, estate trustees. One of the trust- s siblings as ees co-owned a busi- ness with the deceased and sought to exercise a buyout clause trig- gered by his death. She sent reporting letters to other beneficiaries ex- plaining the transaction and informing them that she would recuse herself from any deci- sion made by the estate in relation to the share sale. Nevertheless, surviving her daughter cried foul, but Pattillo con- cluded removal wasn't necessary. "While the purchase does create a con- spouse and respond the 'Making mere allegations of hostility isn't going to be enough,' says Marni Pernica. flict, her recusal from decision-making in respect of the transaction is sufficient to remove it," the judge wrote in his decision. "There are creative ways to work around it and if you are alive to the issue of conflict, and you want to remain as trustee, there are ways you can recuse yourself from these isolated conflicts," said Pernica. When the conflict becomes intrac- table, Lobl said trustees should seriously consider removing themselves from their position. "Don't have the opposing side coming " comes to court right away when the con- flict was noticed and asks to be removed, I think it would be a good argument that the costs are not to be borne by the trustee. Despite holding the higher ground in much leaning away from the automatic pre- sumption that the costs are to come out of the estate. I think it will be determinative on the circumstances of the case as to whether or not the costs should come out of the estate. If you have a trustee who finds himself in an intractable conflict and that trustee are less likely to find themselves personally liable for the cost of the removal application. "The courts are very proactively " removal applications, Pernica said she al- ways asks her trustee clients if they're sure they want to carry on. "Some people want to continue and Page 13 they're adamant, but I think the dis- cussion should at least be had. Clearly, whether or not the court finds there' enough hostility to remove you, there's to court to have the application brought so that you're the respondent. Be the ap- plicant, come to court, and the courts will look much more favourably on you. In addition, Lobl said trustees who s enough conflict that it could be an issue and do you really need the grey hairs in your life? In the event your client decides not to defend, they can negotiate the terms, get a waiver, pass accounts, get an indemnity — all the things that you do to protect yourself when you're ceasing to be a trustee or executor. " LT "When you've had cancer, every day is a gift."-Chris Taylor "Thanks to the groundbreaking research, the care of Dr. Messner and the compassion of the whole team at the Princess Margaret Hospital, I'm here today." A gift left in your Will can save lives. If cancer is your cause, support one of the top 5 cancer research centres in the world. To learn more about planning your gift, call 416-946-2295 or email legacy@pmhf.ca See Chris Taylor's story at www.pmhf.ca PrincessMargaret_LT_Oct22_12.indd 1 www.lawtimesnews.com 12-10-11 4:00 PM

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