The Role and Duties of Trustees

The purpose of this fact sheet is to explain the important role of a trustee of a trust. It explains who a trustee is, what powers a trustee has, and the duties that a trustee owes to the beneficiary or beneficiaries of a trust.

The powers and duties of trustees are addressed primarily in the Trustee Act, RSO 1990, c. T. 23, as well as in the common law (i.e., court decisions) and other statutes or rules depending on the type of trust. This fact sheet is a summary only. It is not legal advice, and if you have questions about how to interpret this information, you should consult with a lawyer.

A trust involves three categories of people: the settlor, who is the person who creates the trust; the beneficiary or beneficiaries, who are the people who benefit from the property held in the trust; and the trustee, who is the person who holds and manages the trust property. On occasion, a trustee may also be a beneficiary or settlor, or both.

Typically, a trust involves the creation of a document called a “deed of trust”. The deed of trust is the legal document signed by the settlor and trustee(s) which sets out how the trust should be managed and administered. A trust may also be created under the terms of a person’s will. Throughout this fact sheet, the document that creates the trust, whether it is a deed of trust of a will, will be referred to as the “trust document”.

Although the trustee holds and manages the trust property pursuant to the trust document, the trust property does not belong to the trustee. Rather, it belongs to the beneficiaries of the trust. The role of the trustee is to make decisions about how to manage, invest, and distribute trust property in the best interests of all of the beneficiaries of the trust.

The trustee owes a fiduciary duty to the beneficiaries, which means that the trustee must make decisions based on the beneficiaries’ best interests and must always place the beneficiaries’ interests ahead of their own when managing the trust. A trustee must always act with honesty, care, and in good faith.

If the trust document appoints more than one trustee, the co-trustees must make decisions together unless the trust document otherwise specifies how decisions should be made. If a trustee decides that they do not want to be involved in decisions, they should resign as opposed to simply leaving their duties to the co-trustee(s) to fulfill. A trustee may be personally responsible for any loss that arises due to their co-trustees’ actions prior to their resignation or if they choose not to resign.

The “powers” that a trustee has describe what the trustee is authorized to do to manage the trust property. The trustee has the choice to exercise the power or not. The “duties” that a trustee has describe what the trustee is required to do when managing the trust, either at law or according to what is written in the trust document.

a. Duties of a Trustee

There are five overarching duties that apply to all trustees:

(i) A trustee cannot delegate their role to anyone else.

(ii) A trustee cannot exercise their powers where their self-interest conflicts with their duties.

(iii) A trustee cannot personally profit from their dealings with the trust property.

(iv) A trustee must act honestly and with the level of skill and prudence that others would expect of a reasonable business person managing his or her own affairs.

This fact sheet includes a more detailed discussion of what the general duties mean in practice below.

b. Specific Provisions in the Trust Document

The trust document will set out specific powers and duties that the trustee has. To understand the scope of a particular power or duty, the trustee must look at what the trust document specifically says.

Some examples of the types of powers and duties that might be outlined in the trust document include:

(i) if the trust holds real estate, the deed of trust may give the trustee the power to sell, mortgage or lease the property;

(ii) if the trust holds investments, the trust document may put limits on how, where and in what amount the trustee can deal with those investments;

(iii) the trust document may include specific obligations that describe when and how the trustee has to account or report to the beneficiaries; and

(iv) the trust document may also set out specific procedures that the trustee needs to follow in order to resign as trustee or to appoint a new trustee.

Every trust document is unique and it is important that the trustee read and understand it before agreeing to act as trustee. If a trustee is confused about how to interpret their specific powers and/or duties under the trust document, they should consider consulting a lawyer for advice.

c. Discretionary Powers

Many trust documents authorize the trustee to make certain decisions or perform certain acts that the trustee, in their own discretion, believes are reasonable. “Discretion” means the trustee should use their own judgment to decide whether to do, or not do, an act described in the trust document. It is important that the trustee understand what types of discretionary decisions they are authorized to make because the trustee cannot make discretionary decisions beyond those permitted in the trust document. 

Normally, if a trustee exercises their discretion reasonably and in good faith, they will not be personally liable for the outcome of the discretionary decision. Further, the trustee will not be criticized for lack of training or experience. The test to determine if whether a trustee’s decision was reasonable is whether the trustee objectively acted honestly and with the skill and prudence of an ordinary person.

When a trustee is thinking about using a discretionary power, they should consider the type of information an ordinary person would gather to make a reasonable decision. For example, if the trustee is authorized to make payments out of the trust to a beneficiary for their support, the trustee might find it helpful to request an annual budget from the beneficiary to have an understanding of what the beneficiary’s needs actually are (e.g., if there is a minor beneficiary, he or she may need help paying for school tuition or extra-curricular activities).

If the beneficiary has an interest in a related trust with a different trustee, it may help to talk to that trustee to understand how that trustee is managing payments to the beneficiary and whether or not the payment you are considering making should instead come from the other trust.

a. Duty to Act Personally

A trustee cannot delegate their responsibilities to other people. This means that the trustee needs to personally make any decisions about how to manage the trust. However, a trustee can retain professionals to assist them in the decision-making process. For example, a trustee may hire an accountant, lawyer or financial advisor to advise them about a particular decision. When deciding whether to involve a professional in the decision-making process, it is useful to consider whether an ordinary person would hire the professional to help in the decision-making process. If so, it is similarly reasonable for the trustee do so.

If a trustee hires an agent to help them carry out a task (for example, if a trustee hired a realtor to help them list a property for sale), the trustee is responsible for supervising the agent. The trustee may be responsible for the agent’s errors if they do not carefully choose and supervise the agent to the best of their abilities and to the same extent an ordinary person would.

The most important aspect of a trust is the fiduciary relationship between the trustee and the beneficiaries. A trustee must act exclusively for the benefit of the beneficiaries and must always put the beneficiaries’ interests before their own when managing the trust property. The trustee must always keep the trust property entirely separate from their own. The trustee must avoid situations where they would be in a position of conflict with respect to their personal interests and the beneficiaries’ interests. A trustee cannot benefit personally from how they manage a trust.

There are many situations in which conflicts of interest can develop. A few examples may include a trustee buying property from the trust or thinking about investing trust property in a business or investment vehicle that benefits the trustee personally. When a trustee is deciding whether a conflict of interest exists, they should seriously consider whether there is any way that they would personally benefit from the decision at the expense of any of the beneficiaries.

c. Maintaining an Appropriate Level of Skill and Prudence

A trustee must exercise the care that an ordinary person managing his or her own affairs would. The test to determine whether a trustee has acted appropriately is objective and is not based on the trustee’s personal skills. For example, the trustee has a duty to complete the tax returns for the trust each year, just as an ordinary person would for themselves.

d. Duty to Maintain an Even Hand

A trustee has a duty to treat all beneficiaries equally or “maintain an even hand.” They must not favour one beneficiary over another unless the trust document specifies otherwise.

This can be difficult when beneficiaries have different or unequal interests. For example, a trust might have one beneficiary who has a life interest in a specific asset and another beneficiary who will receive whatever remains of that asset when the lifetime beneficiary dies. The trustee must always “maintain an even hand” between both of those beneficiaries, or in other words, treat them equally, even though the two beneficiaries do not have equal interests in the asset.

e. Investments

When a trustee invests property, the Trustee Act requires that they exercise the care, skill, diligence and judgment that a prudent investor would. This means that the trustee must consider various factors, including:

(ii) the possible effect of inflation or deflation;

(iii) the tax consequences of the investment decision;

(iv) the roles that each investment or course of action plays with the overall trust portfolio;

(v) the expected rate of return from income and the appreciation of capital;

(vi) the trust’s needs for liquidity, regularity of income and preservation or appreciation of capital; and

If the trustee does not have expertise in investing, they may want to hire a professional financial advisor to give investment advice. On a day-to-day basis, a trustee should consider what practical steps they should take to fulfil their investment obligations. Some examples include making sure that they review statements regularly and/or meeting regularly with the financial advisor to ensure that the trust investments continue to be appropriate.

f. Duty to Account

When a trustee decides that he or she wants to pass his or her accounts (i.e., apply to the court for an order confirming they have managed the trust properly for a period of time), the Trustee Act and the Ontario Rules of Civil Procedure set out a process for how to do so.

There is no section in the Trustee Act that specifically requires a trustee to file accounts with the court. However, as a trustee you have a duty to have your accounts in good order and to give beneficiaries an accounting of how the trust property has been managed, when requested. This does not necessarily mean that a trustee must always have formal accounts ready for inspection, but it does mean that a trustee has a positive obligation to keep proper accounts and records and be prepared to show those to the beneficiaries.

In practice, a trustee must keep track of all receipts and disbursements (including, for example, bank fees, minor interest charges, and any fees paid to professionals providing advice to the trustee). A trustee must keep proper records and save any supporting documentation, such as receipts and invoices. A trustee may want to consider preparing an annual statement for the beneficiaries to review and approve each year so that there is transparency in the management of the trust property.

g. Disclosure to Beneficiaries

Generally, if the beneficiaries ask to see any documents related to the trust, the trustee needs to make those documents available for review. Beneficiaries have a right to see this information about the trust because they have an interest in how the trust is managed.

There are three broad categories of information that a beneficiary can ask to see:

(i) the will, deed of trust or other trust document;

(ii) the trust accounts; and

(iii) information showing how the trustee has exercised the discretionary powers that the trust document gives to them to dispose of or manage trust property.

Generally, trustees are not permitted to take compensation unless authorized to do so by the will or deed of trust, an agreement of all the beneficiaries, or by court order. However, in Ontario, trustees have a statutory right to compensation. Section 61 of the Trustee Act sets out two methods for determining what level of compensation a trustee is entitled to.

The first is based on an assessment of the “fair and reasonable allowance for the care, pains and trouble, and the time expended’ by the trustee in managing the trust property. However, there is no statute in Ontario that specifically outlines how trustee compensation must be calculated on this basis. The second method is compensation which is fixed by the instrument creating the trust (i.e. the trust document).

However, the responsibility involved in managing a trust can vary significantly depending on the type and value of the trust assets, the number and location of beneficiaries and the expertise required of the trustee. Since the tariff percentages do not consider the actual time and efforts expended by the trustees, using the tariff percentage calculation can sometimes result in inadequate compensation in the case of a complex trust or disproportionate compensation in the case of a simple trust.

If the trustee is seeking approval from the court of an amount of compensation that differs from the tariff percentages, the court will consider whether the tariff calculation is “fair and reasonable” by examining the following factors:

(i) the size of the trust;

(ii) the care and responsibility involved;

(iii) the time occupied in performing the duties;

(iv) the skill and ability shown by the trustee; and

(v) the degree of success resulting from the administration.

© 2023 Goddard Gamage LLP

The purpose of this Fact Sheet is to provide information to clients of Goddard Gamage LLP and others. This Fact Sheet is not legal advice and should not be relied upon as legal advice. If you are choosing a trustee or are acting as a trustee, you should consult with a lawyer.

Please do not copy or distribute this Fact Sheet without the author’s express permission.