An Estate Trustee owes fiduciary duties to the Estate. They are typically entitled to compensation for their efforts. However, what if the Estate Trustee breaches their fiduciary duties to the estate, for example, by misusing estate funds or not being able to account for the expenses incurred while dealing with the estate assets? Is the Estate Trustee still entitled to compensation? Generally – yes.
Section 61 of the Trustee Act authorizes the Court to award fair and reasonable compensation for care, pains, and time spent on the estate. Inherent in that authority is the Court’s ability to reduce the amount of compensation or order that no compensation be paid. However, before a Court will deny all compensation, on the basis that any compensation would not be fair and reasonable, there will need to be egregious misconduct by a trustee. Additionally, there will likely need to be actual harm to the Estate as a result of the egregious misconduct before compensation will be completely denied.
In the recent Court of Appeal for Ontario case of Benjamin Cochrane Trust, the Court considered, amongst other issues, whether trustees who could not provide an accounting and could not explain 40% worth of expenses paid by the trust that they controlled were entitled to compensation. While this case involved a trust for a live individual rather than an estate of a deceased person, both involve the same principles and analysis.
In the Benjamin Cochrane Trust case, the trustees, parents of the beneficiary administered the trust, received a total of $418,675.25 over 17 years into the trust. The trust funds came from the settlement of their son’s claims from a motor vehicle accident causing a serious brain injury when he was 12 years old and were for his sole benefit. In March 2017, the trust was depleted of all funds. The parents could not explain the spending of $165,531,14 of the trust money.
During a passing of accounts, the parent trustees sought approximately $131,000 in trustees’ compensation, more than 30% of the amount received in the trust (which would be set off from any amount they were found to owe the trust because of their inability to properly account). This was split approximately $33,000 for receipts/disbursements and $98,000 for care/management. After considering the fact that the parents had breached their duties as fiduciaries in that they were unable to account for about 40% of the spent trust money, together with their inability to provide a proper accounting, the Court stated it was satisfied that the parents did do some work for the trust. Compensation of a ‘modest’ amount, $15,000, was awarded, which was to be deducted from the significant amount of money the trustees were ordered to pay to the trust. Nothing was awarded in respect of the requests for $97,823.76 for care/management as they did nothing to invest or manage the funds. Nothing was awarded for the trustees’ legal costs of the passing of accounts court application, given the trustees’ failure to meet their duties caused most of the time and expenses associated with the court proceeding. This was upheld by the Court of Appeal for Ontario.
This result in Benjamin Cochrane Trust shows how the courts will reduce, but not entirely deny, all claims for compensation where there is a failure by trustees to meet their duties that fall short of egregious misconduct.
As an Estate Trustee, you must fulfill your fiduciary obligations, the most important perhaps being to keep proper records so that you can account for your efforts. Being an Estate Trustee can be hard work. Although it would be rare to be denied all compensation for failing to meet your obligations, you should ensure that you do everything necessary to be paid for all of your efforts. A lawyer can assist in ensuring the obligations are met, including record keeping, are fulfilled.