22/02/22

CANADA: Court overrules trustees’ discretionary powers.

As published on step.org/industry-news, Tuesday 22 February, 2022.

A recent decision in the Court of Appeal of Ontario (the Court of Appeal) has shed light on courts’ powers to determine the extent of “absolute discretion” of the estate trustees (Walters v Walters, 2022 ONCA 38).

The case examined trustees’ treatment of a will that provided them with “the right to encroach on capital as they in their absolute discretion considered necessary or advisable for the benefit of the income beneficiary”. The trustees were the children of the deceased, Florence Walters, and the income beneficiary was Mrs Walters’ husband, Gerald Walters. The residue of the estate, less capital given to Mr Walters to “ensure his comfort and well being”, went to the children.

Mr Walters asked the trustees to contribute CAD4,000 monthly from the estate to his living expenses in an assisted living retirement community. The trustees considered that he was concealing assets from them and should provide documentary proof of his costs. Until such a time they denied his request, instead offering to exercise their discretion to pay him CAD1,000 on a quarterly basis.

Mr Walters applied to the courts requesting that the terms of the will be enforced, whereupon the courts found that the trustees had a poor relationship with their father and “were being influenced in their decision making by extraneous matters such as…their dislike and distrust of their father”. They were ordered to pay Mr Walters CAD3,875 per month, which they appealed.

The Court of Appeal has now ruled on the matter, considering the testamentary intention of Mrs Walters and the argument that the trustees were exercising their discretion based on “irrelevant considerations” or “extraneous matters”. Although it disagreed with the application judge and found that the trustees had a legitimate distrust of the manager of the retirement community, the court found that the trustees’ exercise of discretionary power was nonetheless “an abuse of discretion”.

“Their dislike of Gerald had nothing to do with his comfort and well-being, and the application judge properly identified this factor as extraneous in nature”, said the judge. “It was irrelevant to the purpose for which their discretion had been granted and ought not to have influenced their exercise of discretion.”

Consequently, the Court of Appeal ordered the trustees to pay Mr Walters a lump sum in arrears, ongoing monthly payments and his costs.