Removing a Trustee
If a trustee, after accepting the role of trustee, is unwilling or unable to act or simply wishes to retire from the role the trustee may be removed or replaced. Many times, it is likely that the Deed of Settlement provides for the methods by which a trustee can be removed or replaced. If dealing with a Trust established by a Will, it may be also be provided for in the Will.
Of course, there will invariably be situations in which there is not adequate provision or there is some other issue that requires intervention. In such situations, the Superior Court of Ontario (the “Court”) may be asked to provide the necessary guidance. For the purposes of this blog, we will consider each of these situations.
The Deed of Settlement
To begin, the first place to look to will be the Deed of Settlement as the answer to the question may very well lie therein. In the Deed of Settlement that I typically use, the relevant paragraph reads as follows:
13.3 Retirement of Trustees. If there is only one (1) Trustee, such Trustee may resign only upon an Order of a Court of competent jurisdiction where the Trust Fund has its situs. If there is more than one (1) Trustee then any Trustee may retire on thirty days’ written notice sent by either registered mail, postage prepaid or by telegraph, telex, fax or similar method of communication, charges prepaid to the last known addresses of, or personally served upon, the remaining Trustees and the Adult Beneficiaries who are sui juris, if any, who have received any income or capital from the Trust Fund within the preceding four year period. If a Trustee desires to retire on less than thirty days’ written notice then the remaining Trustees may unanimously agree to accept such shorter notice as they consider appropriate. A Trustee shall cease to be a Trustee and shall be deemed to have retired upon becoming incompetent of managing property.
Because the Trusts I normally form appoint at least three trustees, there will likely be no issue as the trustee who wishes to retire may resign in the manner described above. Obviously, if there is only one trustee or a trustee has become incompetent of managing property the Court will need to be involved. This would also be the case if the Deed of Settlement did not otherwise set out how a trustee is permitted to resign or be retired upon becoming incompetent.
The Trustee Act
If the Court needs to intervene, it appears that in most situations concerning trusteeship the first place the Court will look to is the Trustee Act. Both sections 5 and 37 of the Trustee Act refer to the removal of trustees and executors.
These sections read as follows:
Power of court to appoint new trustees
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. R.S.O. 1990, c. T.23, s. 5 (1); 2000, c. 26, Sched. A, s. 15 (2).
Removal of personal representatives
37. (1) The Superior Court of Justice may remove a personal representative upon any ground upon which the court may remove any other trustee, and may appoint some other proper person or persons to act in the place of the executor or administrator so removed. R.S.O. 1990, c. T.23, s. 37 (1); 2000, c. 26, Sched. A, s. 15 (2).
Who may apply
(3) The order may be made upon the application of any executor or administrator desiring to be relieved from the duties of the office, or of any executor or administrator complaining of the conduct of a co-executor or co-administrator, or of any person interested in the estate of the deceased. R.S.O. 1990, c. T.23, s. 37 (3).
In short, an Order may be obtained by an application of any trustee who wishes to resign. Similarly, if the trustee dies, or is unwilling or unable to act, an Order may also be obtained.
A review of the relevant case law is instructive to see how the Court uses these statutory provisions to order the removal of a trustee.
Relevant Case Law
One notable case with regards to removing a trustee is Venables v. Gordon Estate. In this case, the Helen Venables (“Helen”) made an application for an order removing Peter Lockhart Gordon (“Peter”) as the Trustee for the Estate of Percival Hector Gordon (the “PHG Trust”) pursuant to s. 37 of the Trustee Act.
Helen sought to have Peter removed as the Trustee of the PHG Trust for a number of reasons which included that Peter refused to pay the income of the PHG Trust to Helen and placed himself in a conflict of interest between his fiduciary duty or the interests of the PHG Trust and his personal interests.
While many aspects of this case go beyond the scope of the question to be answered in this paper, the decision does serve to highlight how a trustee’s removal can be justified pursuant to the terms of a Deed of Settlement and the provisions of the Trustee Act. In essence, if anyone who has an express or statutory power to appoint a new trustee purports to replace a trustee on the grounds that the trustee refuses to act, is unfit to act, or is incapable of acting, the Court is able to confirm that decision or make another one, whether or not it is also asked to make a new appointment.
In making its decision, it is apparent that the governing principle on which the Court will rely to determine whether or not a trustee should be removed is the “welfare of the beneficiaries” as originally opined by Lord Blackburn. This is confirmed in Venables v. Gordon, when the Court went on to quote Professor Waters from his text on the law of trust in Canada where he makes the following comments with respect to this principle:
The law of trust in Canada, in reference to Lord Blackburn's guidelines, states:
If it is clear that the continuance of the trustee would be detrimental to the execution of the trust, and on request he refuses to retire without any reasonable ground for his refusal, the court might then consider it proper to remove him. He went on to quote from Story that the acts or omissions must be such as to endanger the trust property, or to show a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.
It is not surprising this prevailing principle has been consistently followed in Ontario. By way of further example, in Elliott Estate (Re), Justice Learner affirmed the law as set out by Lord Blackburn:
Historically, the courts do not take lightly the wishes of the deceased as expressed in testamentary documents. This includes naming of those who shall administer the Estate. The Judicature Act, R.S.O. 1970, c. 228, was amended giving the High Court of Justice the power to remove an executor or administrator by (1896) 59 Victoria, c. 18, s. 4. Essentially, this power has been continued and presently is found in The Trustee Act, R.S.O. 1970, c. 470, s. 37(1).
Thus, in Ontario, it is clear that the Court stands by Lord Blackburn’s original reasoning. Just as he did in year’s earlier, the Court continues to consider the welfare of the beneficiary any time it is asked to consider the removal or appointment of trustees. It, like him, will carefully consider the impact of its decision. As it is stated in Letterstedt v. Broers (1884) 9 APP. CAS. 371 at 387:
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.
In sum, in Venables v. Gordon the Court concludes on this point when it cites MacDonell, Sheard and Hull, Probate Practice 2nd Edition, at p.133 where “it is stated that Lord Blackburn's remarks have been repeatedly referred to but the basic principles therein stated have neither been enlarged or qualified. Subsequent cases simply illustrate the application of those principles to various sets of circumstances. In each case, it seems to be necessary to convince the court that continuance in office of a particular executor, trustee or administrator would be likely to prevent the trust being properly carried out.”
Therefore, the Court will provide the guidance necessary and order the removal or replacement of a trustee where warranted. In so doing, the court will obviously consider the welfare of the beneficiary. However, for the purposes of answering the question this paper it is instructive to look at a decision in which the interests of the trustees were also considered. Specifically, in Evans v. Gonder, the Court removed the trustees who were unable and unwilling to continue acting.
In this case, Margaret and Graeme Evans, as trustees and executors of an estate, appealed to be removed as trustees from a trust without taking any steps to ensure the orderly administration of the estate.
This Order was granted by the Courts based on the following facts:
Pearl Gonder died leaving an estate consisting of $25,000 in cash and a modest house in Hamilton, Ontario. The named beneficiaries were her sister, Margaret Evans, her mother, Katherine Gonder, and her brother, the appellant, Allan Gonder. The Will further directed that the residue of the estate was to be divided equally among the testatrix’s mother, sister and brother. The testatrix named the respondents, Margaret and her husband Graeme, as estate trustees.
The respondents, who live in British Columbia, agreed to undertake the role of estate trustees. A “Certificate of Appointment of Estate Trustees with a Will” was issued to them on September 10, 2008.
In February 2008, the appellant, Allan Gonder, commenced an action against the estate, claiming that he is the beneficial owner of the Hamilton property.
The respondents have been unable to sell the property or to distribute the residue of the estate because of the appellant’s certificate of pending litigation registered on title. The respondents say that, as a result, they have been required to spend some $40,000 of their own money to defend the appellant’s lawsuit against the estate.
The respondents brought a motion under s. 37 of the Trustee Act, R.S.O. 1990, c. T.23 for an order removing them as estate trustees of the deceased’s estate on the basis of their personal circumstances, location, other responsibilities and financial stress. Ms. Evans is in ill health and Mr. Evans has considerable obligations in caring for her and their household.
At the time of the removal motion, the respondents moved for directions seeking, among other forms of relief, an order that the house be sold and the proceeds of the sale be paid into court pending the resolution of the competing interests.
Prior to the motion, the Public Guardian and Trustee of Ontario indicated, in response to an inquiry from respondents’ counsel, that it does not intend to become involved in the Gonder estate. While respondents’ counsel also asked an institutional trustee whether it would be willing to act, the respondents did not file an affidavit suggesting a replacement trustee or file a written consent.
The motion judge found that continued service as estate trustees would work substantial hardship on the respondents, both physically and financially, and that through no fault of their own, they now have a conflict of interest with the heirs because they have become creditors of the estate.
The motion judge held that there was nothing preventing him from ordering that the respondents be removed as executors of the estate. He concluded that s. 37 of the Trustee Act does not require a trustee to provide a replacement before applying to be removed. While s. 37(4) “gave [him] pause”, he concluded that the provision “is aimed at the situation in which one of several trustees is removed. Such a trustee need not be replaced, because the remaining trustees can act. That is not the same thing as saying that the last remaining trustee cannot be removed until a replacement is available”
The motion judge also relied on Mitchell v. Richey,  13 Gr. 445 (U.C. Ch.), for the proposition that no person can be compelled to remain a trustee.
Having concluded that in these circumstances the respondents had made out a case for removal, the motion judge ordered that the respondents’ certificate of appointment as executors be revoked under r. 75.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and that they be removed as trustees pursuant to s. 37 of the Trustee Act.
On appeal, the Court of Appeal agreed that the trustees could be removed. However, it ruled that the motion judge erred by removing them without making alternate provisions for the proper administration of the estate and for that reason alone the matter was returned to the Court to be reconsidered.
In short, the Ontario Court of Appeal confirmed that the trustees could be removed. This case affirms the principle that the beneficiaries must be considered but also highlights the issues surrounding the attempt to remove a trustee when there is no alternative person to replace them as trustee. It is clear that alternatives need to be considered, but a trustee can still be removed because as the Court correctly pointed out it would be difficult to find anyone to act if it was impossible for a trustee to be removed.
In its reasoning, the Court relied on an older decision that stands for the proposition that no person can be compelled to remain a trustee indefinitely. The Court acknowledged that the role of a trustee can be a difficult one, as a trustee must act in the best interests of a beneficiary. However, it went on to state that if such obligations were unlimited, without relief, then no one would agree to become a trustee.
In conclusion, there will certainly be situations in which a trustee, after accepting the role of trustee, is unwilling or unable to act or simply wishes to retire from the role. Many times, in such situations, it is likely that there will be simple method by which a trustee can be removed or replaced. Indeed, it is likely will only need to refer to the Deed of Settlement and carry out the directions within the document itself.
Of course, in a situation where there is not adequate provision or there is some other issue that requires intervention, the Court may provide the necessary guidance. In the end, the interests of the beneficiaries will be considered and any guidance that is given will attempt to allow the best possible outcome in the circumstances to prevail.