It’s time to bring Ontario’s bonding requirements on estate trustees into the 21st century, trusts and estates lawyers say.
The province’s Estates Act requires trustees to post a bond worth double the value of the estate when the will names an executor who lives outside the Commonwealth.
In addition, Ontario residents seeking appointment must post bonds when the will doesn’t name them as trustees or the deceased left no will at all.
“The current provisions are really anachronistic. They come from a past where there isn’t proper consideration being given to what is the purpose of the bond and who we are trying to protect,” says Brian Schnurr, a partner with Toronto estate litigators Schnurr Kirsh Schnurr Oelbaum Tator LLP.
“If there’s a foreign executor in Buffalo, they have to be bonded, but if it’s a foreign executor who lives in Tasmania, they don’t because it’s in Australia and it’s part of the British Commonwealth. That just makes no sense whatsoever.”
As long ago as 1991, the Ontario Law Reform Commission recommended changes to the requirements and in April 2010, the Ontario Bar Association revived the cause by writing to the province’s attorney general with suggestions for modernization.
The OBA proposal would eliminate the general bonding requirement for trustees not named in a will and wouldn’t require a bond when at least one trustee is resident in Ontario. However, the bonding would remain in place when vulnerable beneficiaries such as minors or mentally incapable people are involved.
Bonds protect beneficiaries and creditors from negligence or misappropriation by the trustee, but Vincent De Angelis, a Markham, Ont., trusts and estates lawyer who was involved in crafting the OBA submission, says the current rules go over the top in achieving that aim.
“Where there’s no special circumstances such as minors involved, there’s no reason why choosing a trusted family member from outside the Commonwealth should create undue difficulty for one’s beneficiaries,” he says.
“This proposal will allow a trusted family member to be chosen by a testator or by a court as long as there is also an Ontario trustee.
Given the law of fiduciary duty, combined with joint and several liability, the existence of an Ontario trustee will negate the enforceability concerns that may exist with a non-resident trustee.”
According to the OBA submission, the trend in other jurisdictions, including the United Kingdom, New Zealand, and various U.S. states, has been a move away from general bonding requirements. The law reform commission identified the same trend in its 1991 report.
Amy Cull, an associate at Toronto’s Whaley Estate Litigation, says a bond can be an onerous proposition for a trustee, especially when a large estate is involved.
“If you get a large estate with assets in the range of $1 million and an estate trustee with assets of $20,000, you’re going to have difficulty getting a bond,” says Cull. “In one case, we’ve had clients having to mortgage their property.”
Cull notes there are few insurance companies that will issue bonds, and most have policies that prevent them from insuring trustees outside North America.
That creates problems for non-Commonwealth trustees who don’t live in the United States. They represent a growing demographic in Ontario.
“Given the multicultural makeup of the province and immigration from countries in Asia and Africa, it’s more and more likely you’ll have family members acting as trustees who are not from the Commonwealth, which is going to increase the pressure to change the bonding requirements,” says De Angelis.
For those who struggle in vain to get a bond, the difficulty of getting a court to dispense with the requirement compounds their problems. The Estates Act gives judges discretion to exempt applicants from the bonding requirements under special circumstances.
But the legislation is silent on what that might mean and a 2008 decision sets a high standard for dispensation.
In Henderson (Re), Ontario Superior Court Justice David Brown said applicants must file a detailed affidavit with corroborating evidence about the value and debts of the estate as well as extensive information on the beneficiaries, creditors, and deceased.
“The court generally will err on the side of requiring the bond,” says Schnurr. “Even if the beneficiaries are adults and they all say they don’t want the expense of a bond to be incurred and they know and trust the estate trustee, often that’s not enough for the court to dispense with it.”
De Angelis hopes the OBA’s proposed new rules will reduce the burden on trustees by making it easier for them to avoid court.
“It’ll also free up judicial resources for other work and improve the efficiency of the administration of justice, especially since cost-containment measures have become crucial in the justice system,” he says.
Schnurr says the lack of movement on the issue since 1991 may be due in part to the scale of the shift the change would represent.
“There’s probably also a concern that if we tinker with this and reduce the number of circumstances where a bond is required, we may be exposing ourselves to some criticism because there may be examples in the future where beneficiaries have been ripped off by the trustee that would have been covered by bonds in the past,” he says.
But De Angelis says the government’s response has been encouraging. He also notes the OBA has been busy responding to the issues raised. “We do have a draft in the works, which we will submit shortly, so there is some traction,” he says.
“I think the provincial election contributed to the delay somewhat and now that the election is over, we’re looking to see some more progress.”
The province’s Estates Act requires trustees to post a bond worth double the value of the estate when the will names an executor who lives outside the Commonwealth. In addition, Ontario residents seeking appointment must post bonds when the will doesn’t name them as trustees or the deceased left no will at all.
“The current provisions are really anachronistic. They come from a past where there isn’t proper consideration being given to what is the purpose of the bond and who we are trying to protect,” says Brian Schnurr, a partner with Toronto estate litigators Schnurr Kirsh Schnurr Oelbaum Tator LLP.
“If there’s a foreign executor in Buffalo, they have to be bonded, but if it’s a foreign executor who lives in Tasmania, they don’t because it’s in Australia and it’s part of the British Commonwealth. That just makes no sense whatsoever.”
As long ago as 1991, the Ontario Law Reform Commission recommended changes to the requirements and in April 2010, the Ontario Bar Association revived the cause by writing to the province’s attorney general with suggestions for modernization.
The OBA proposal would eliminate the general bonding requirement for trustees not named in a will and wouldn’t require a bond when at least one trustee is resident in Ontario. However, the bonding would remain in place when vulnerable beneficiaries such as minors or mentally incapable people are involved.
Bonds protect beneficiaries and creditors from negligence or misappropriation by the trustee, but Vincent De Angelis, a Markham, Ont., trusts and estates lawyer who was involved in crafting the OBA submission, says the current rules go over the top in achieving that aim.
“Where there’s no special circumstances such as minors involved, there’s no reason why choosing a trusted family member from outside the Commonwealth should create undue difficulty for one’s beneficiaries,” he says.
“This proposal will allow a trusted family member to be chosen by a testator or by a court as long as there is also an Ontario trustee.
Given the law of fiduciary duty, combined with joint and several liability, the existence of an Ontario trustee will negate the enforceability concerns that may exist with a non-resident trustee.”
According to the OBA submission, the trend in other jurisdictions, including the United Kingdom, New Zealand, and various U.S. states, has been a move away from general bonding requirements. The law reform commission identified the same trend in its 1991 report.
Amy Cull, an associate at Toronto’s Whaley Estate Litigation, says a bond can be an onerous proposition for a trustee, especially when a large estate is involved.
“If you get a large estate with assets in the range of $1 million and an estate trustee with assets of $20,000, you’re going to have difficulty getting a bond,” says Cull. “In one case, we’ve had clients having to mortgage their property.”
Cull notes there are few insurance companies that will issue bonds, and most have policies that prevent them from insuring trustees outside North America.
That creates problems for non-Commonwealth trustees who don’t live in the United States. They represent a growing demographic in Ontario.
“Given the multicultural makeup of the province and immigration from countries in Asia and Africa, it’s more and more likely you’ll have family members acting as trustees who are not from the Commonwealth, which is going to increase the pressure to change the bonding requirements,” says De Angelis.
For those who struggle in vain to get a bond, the difficulty of getting a court to dispense with the requirement compounds their problems. The Estates Act gives judges discretion to exempt applicants from the bonding requirements under special circumstances.
But the legislation is silent on what that might mean and a 2008 decision sets a high standard for dispensation.
In Henderson (Re), Ontario Superior Court Justice David Brown said applicants must file a detailed affidavit with corroborating evidence about the value and debts of the estate as well as extensive information on the beneficiaries, creditors, and deceased.
“The court generally will err on the side of requiring the bond,” says Schnurr. “Even if the beneficiaries are adults and they all say they don’t want the expense of a bond to be incurred and they know and trust the estate trustee, often that’s not enough for the court to dispense with it.”
De Angelis hopes the OBA’s proposed new rules will reduce the burden on trustees by making it easier for them to avoid court.
“It’ll also free up judicial resources for other work and improve the efficiency of the administration of justice, especially since cost-containment measures have become crucial in the justice system,” he says.
Schnurr says the lack of movement on the issue since 1991 may be due in part to the scale of the shift the change would represent.
“There’s probably also a concern that if we tinker with this and reduce the number of circumstances where a bond is required, we may be exposing ourselves to some criticism because there may be examples in the future where beneficiaries have been ripped off by the trustee that would have been covered by bonds in the past,” he says.
But De Angelis says the government’s response has been encouraging. He also notes the OBA has been busy responding to the issues raised. “We do have a draft in the works, which we will submit shortly, so there is some traction,” he says.
“I think the provincial election contributed to the delay somewhat and now that the election is over, we’re looking to see some more progress.”