In a recent decision, the Ontario Superior Court of Justice has held that an Executor was negligent in carrying out her duties as an executor and trustee of the Estate, and was personally liable to compensate a beneficiary, when she relied on her Co-Executor to establish a trust fund for the beneficiary as required by the Will, but where the trust fund was never established and the Estate funds intended for the trust fund were dissipated by the Co-Executor.
In Cahill v. Cahill et al, 2016 ONSC 1385 (SCJ), the testator had appointed his daughter, Sheila, and his son, Kevin, as the executors and trustees of his Estate. The Will instructed his executors to set aside $100,000.00 in a trust fund for the benefit of their brother, Patrick. The Will directed that Kevin was to have sole discretion as to the investment of the moneys in the trust fund and that Patrick was to receive $500.00 per month until his death or until the principal was reduced to nil.
The money for the fund came from the sale of the home of the deceased. Sheila and Kevin, as Executors of the Estate, signed a direction by which $100,000.00 was to be paid from the Estate account to London Life. The direction did not inform London Life as to the terms of the trust and made no mention whatsoever of Patrick.
Instead, Kevin opened a non-registered investment plan in the amount of $100,000.00 with London Life pursuant to an application in which Kevin identified himself as the annuitant of the plan and made no mention of Patrick or the trust fund.
The $500.00 per month payments that Patrick was to receive from the fund were never made directly from London Life to Patrick; instead, the payments were made to Kevin or to another brother, Michael, who each in turn would pay the $500.00 to Patrick.
Patrick continued to receive the $500.00 on a monthly basis in this way for 23 months until the summer of 2014 when the post-dated cheques in the amount of $500.00, drawn on Kevin’s personal bank account, that Kevin had provided to Patrick for the June, July, and August payments were returned for insufficient funds.
Patrick then retained counsel to assist him in pursuing the reinstatement of the monthly payments and only then learned that in 2012 Kevin had borrowed the principal then remaining in the plan, being $92,642.99, for his own purchase of a commercial property. Kevin’s business had subsequently failed, his bank realized on the commercial property and there were no funds remaining in the London Life account.
Patrick brought an Application against Sheila and Kevin for payment of his entitlement under the Will on the basis that they had failed to fulfill their respective obligations as the executors and trustees of the Estate and that, in particular, they failed to set aside $100,000.00 for the trust fund for him.
The Court had little difficulty finding that Kevin had no authority to apply Estate funds for his personal benefit as he did in 2012; that his “self-dealing” with the funds was a wrongful and deliberate misappropriation of the funds; and that by such conduct Kevin had breached his fiduciary obligations as an executor and trustee of the Estate.
As regards Sheila, she portrayed herself as a “passive” executor and admitted that she had been content to rely on Kevin, who was a certified financial planner and a chartered life underwriter, to do the vast majority, if not all, of the work required to administer the Estate. With respect to her role as an executor and trustee of the Estate, Sheila’s evidence was that “Kevin assured me that everything was being properly handled.”
Sheila argued that under the Will it was Kevin who was to be the sole trustee of the trust fund for Patrick and that once the $100,000.00 had been directed to be paid to London Life, she had discharged her obligations as an executor and trustee of the Estate and that it was Kevin alone who had any and all further responsibility with respect to the fund.
The Court did not agree, finding that Sheila had not discharged her obligations as an executor and trustee of the Estate. The Court found that no trust fund for Patrick’s benefit was ever set up and that Sheila had failed to ensure that all proper steps were taken to set up the fund. The Court further found that it was not sufficient for Sheila to have merely signed the direction, which made no mention of the trust or its beneficiaries, to pay the $100,000.00 to London Life without ensuring that the fund was properly set up in accordance with the Will.
As for Sheila’s decision to rely on Kevin because of her belief in his qualifications in the field of financial management, the Court held that this fell short of what is required of an executor and trustee of an Estate. In this regard, the Court noted that “The case law is clear that there is no distinction to be made between sophisticated and unsophisticated individuals in the fulfillment of their obligations as executors and trustees.”
The Court further noted that “Whenever a trustee fails to carry out her obligations under the trust instrument, at common law, or statute, that failure amounts to a breach of trust. In this matter, Sheila’s failure takes the form of abdication of her duties as an executor and trustee of the estate – essentially delegating her powers, authorities and duties to Kevin.”
The Court held that Sheila was negligent in carrying out her duties as an executor and trustee of the Estate; that she breached her fiduciary obligations to the beneficiaries of the Estate; and that her negligence and breach of fiduciary obligations caused or contributed to the dissipation of the funds intended for the trust fund for Patrick.
In the result, the Court held that both Sheila and Kevin were liable, jointly and severally, for the dissipation of the funds from the plan and ordered them to now fund the trust fund for Patrick in accordance with the Will by paying back the $92,642.99 that Kevin had removed from the London Life account in 2012 plus prejudgment interest from the date of the removal of the funds.
This case serves as an important reminder that every executor and trustee who accepts the appointment has a duty to actively fulfill the obligations of an executor and trustee of the estate. Each of them must exercise their own judgment and it is not sufficient to rely on co-executors to administer the estate. Furthermore, every executor and trustee of an estate is responsible to the beneficiaries for what occurs in the course of administration of an estate.
Blumberg Segal LLP acts for executors and trustees, and for beneficiaries, involved in Estate disputes. If you have an Estates related issue, we encourage you to contact us.