Both Executor-Siblings Liable When One of Them Squanders Money Under Dad’s Will
A recent Ontario Court of Appeal case addresses a very straightforward issue: If there are two trustees appointed under a Will, can one co-trustee stand by and do nothing, while the other co-trustee squanders Estate money?
In Cahill v. Cahill the facts were also straightforward, and involved a deceased father and his adult children. When Thomas died in 2010, his Will appointed his daughter Sheila, and his son Kevin as executors and trustees of his Estate. They were directed to set aside $100,000 in a trust fund for the benefit of another brother, Patrick, and to pay him $500 per month from that trust money.
Instead, Kevin spent the $100,000 for his own benefit. Kevin was at liberty to do so because Sheila had informally abdicated her responsibilities as co-trustee, giving him sole discretion over the funds and their management. By her own admission, she had virtually no involvement in the administration of her father’s estate. Kevin assured her that he was handling everything properly, and she made no inquiries of him.
The court found that the obligations of a co-trustee such as Sheila were clear: he or she is not entitled to shrug off the wrongful actions of another co-trustee and claim ignorance. Passive acquiescence was not a defence. Rather, each co-trustee is responsible for the trusteeship, and can be held both jointly and individually liable for everything that is done through the exercise of the trustee’s powers. Their duties arose from the express wishes of the testator under his or her Will, and bBy legislation, they were each entitled to payment out of the Estate for their efforts.
In short – and even though there was no evidence that she acted dishonesty — Sheila was not entitled to unilaterally devolve her responsibilities as co-trustee to Kevin, and therefore remained liable to the Estate unless she could bring herself within the narrow exceptions under the Trustee Act. That legislation allowed for the court-ordered relief from responsibility, provided that Sheila could show that she: 1) acted honestly, 2) acted reasonably, and 3) ought fairly to be excused, in the circumstances.
Typically, “honest” behavior involves active involvement in the affairs and decisions related to administering the trust. “Reasonable” is usually judged according to what an ordinary prudent business person would have done in the circumstances.
Here, Sheila’s conduct was not a mere technical breach but rather a wholesale delegation of her responsibilities to Kevin, without making any inquiries at all. This was not reasonable in the case.
The lower court’s ruling, which held that Shelia had been negligent and that both she and Kevin and breached their fiduciary duties to Patrick and other beneficiaries of their father’s Estate, was confirmed by the Appeal Court. Sheila and Kevin were jointly and severally responsible for almost $81,000, which was the outstanding principal needed to fulfil their father’s testamentary wish to pay $500 per month to Patrick.
For the full text of the decision, see:
Cahill v. Cahill, 2016 ONCA 962