Feinstein v. Freedman, 2014 ONCA 205, is a recent case that encourages would-be accusers of breach of trust to look and think deeper before declaring wrongdoing …the question put to the court was whether the children of the settlor of RFT, an inter vivos spousal trust, were entitled to have themselves appointed as trustees of said trust under the terms of the trust agreement. RFT’s sole asset was FHI, a company which held most of the real estate previously owned by the settlor. The children were the settlor’s executors and directors of FHI. The main complaint lodged against the children`s appointment as trustees was that they declared dividends in excess of the net annual income of FHI and that this amounted to breach of trust.
In ruling in the siblings favour, the Court of Appeal stated the following principles which stand as lessons for consideration in breach of trust allegations:
1. In order for a court to appoint a new trustee or new trustees, there must be evidence of abuse of discretion, rather than just mismanagement or negligence. Furthermore, there must be dishonesty, an inability to act or management that is clearly unfair to the beneficiaries.
2. In declaring the dividends, the three siblings were acting in their capacity as directors and not as trustees. As directors, relevant legislation entitled them to declare dividends, provided that this does not cause the corporation to become insolvent. Thus the legislation rather than the trust agreement outlined the standard to which their action was to be held and they did not violate the statute by declaring the dividends.
3. Analysis of the three siblings’ conduct should focus on the overall impact on the interests of the capital beneficiaries. Here, there was found to be no significant erosion of capital, the company was fiscally sound with growing capital and significant net income and cumulative dividends over the years did not exceed net income.
If you wish to discuss concerns regarding mismanagement of a trust or unfairness to its beneficiaries, please contact Andrea Kelly.
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Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.