SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 02-96/10
DATE: 20120119

RE: IN THE ESTATE OF ALAINE JACKSON YOUNG, deceased

IN THE MATTER of an Application to Pass Accounts

BEFORE: Hainey, J.

COUNSEL:
Clare A. Sullivan, for The Canada Trust Company, Applicant
Sean Graham, for The Children’s Lawyer

HEARD: January 10, 2012

ENDORSEMENT

OVERVIEW

[1] The Applicants are the Succeeding Estate Trustees with a Will in the estate of Alaine Jackson Young (the “Estate”). They seek an order passing the Estate’s accounts for the four year period from May 1, 2006 until April 30, 2010. There is only one objection to the accounts that has been raised by The Children’s Lawyer which is whether investment management fees charged to the capital of the Estate should be deducted from the compensation paid to the Trustees.

FACTS

[2] Alaine Jackson Young died May 13, 1986, having made a Last Will and Testament dated January 28, 1983 (the “Will”).

[3] Canada Trust and Eric Blake Jackson were appointed as Succeeding Estate Trustees with a Will for the Estate (the “Trustees”).

[4] Under the terms of the Will the residue of the Estate is being held in trust for the deceased’s daughter, Marion Alaine Heintzman (“Marion”). During her lifetime she is entitled to the net income of the Estate and the Trustees have no right to encroach upon the capital of the Estate.

[5] Upon Marion’s death the Estate is to be divided among her children then alive, subject to attaining the age of thirty-five. Any portion of the Estate not distributed to Marion’s children is to be divided equally among the children of the deceased’s nephews, Eric Blake Jackson and Philip Bedney Jackson.

[6] The Children’s Lawyer represents two minors, Fraser Douglas Heintzman, who is Marion’s son and Wyatt James Jackson Teff, who is Eric Blake Jackson’s grandchild, and all contingent unborn and unascertained beneficiaries.

[7] The Will does not contain a provision fixing compensation for the Trustees and their compensation has been calculated using the usual tariff. The capital compensation claimed for the four year period is $24,338.44 (approximately $6,000.00 per year) on investable assets of approximately $1.6 million.

[8] Up until August 2008 the Trustees had been investing the Estate’s assets in Canada Trust’s common pool of trust funds (the “Common Funds”). In August 2008, the Common Funds were discontinued and wound up by Canada Trust. As a result, the Trustees had to determine how to otherwise invest the Estate’s assets after August 2008.

[9] The Trustees considered using mutual funds as an investment strategy but determined that the charges associated with such funds would be greater than the fees payable for discretionary portfolio management.

[10] Canada Trust no longer has “in-house” investment expertise and the co-trustee, Eric Blake Jackson, does not have investment expertise either.

[11] The Trustees evaluated a number of alternative options and decided that the preferred investment manager was TD-PIC which is related to Canada Trust because they are both ultimately owned by TD Bank. Canada Trust does not receive any financial or other benefit from fees charged by TD-PIC.

[12] TD-PIC provides the specialized services of private investment counselors who are registered as portfolio managers with the Ontario Securities Commission and are trained in the investment of trust assets. Because Canada Trust is one of the Estate Trustees, TD-PIC does not charge commissions on the purchase and sale of the securities it manages.

[13] The Trustees obtained the written consent of all the current and contingent beneficiaries of the Estate who are sui juris, to engage TD-PIC as a private investment counsel and manager for the Estate.

[14] The Trustees negotiated a discount of the fees normally charged by TD-PIC for its services so that the after tax capital cost on the Estate’s investable assets is approximately $5,375 per year.

[15] While the Estate’s assets were invested in the Common Funds, the Estate did not pay any investment management fees.

[16] The only objections set out in The Children’s Lawyer’s Notice of Objection which remains in issue, is the objection to the payment of investment management fees to TD-PIC of $2,649.97, which represents fees for three months.

THE ISSUE

[17] The sole issue is whether the investment management fees paid to TD-PIC for its services should be deducted from the Trustee’s compensation in their passing of accounts.

POSITION OF THE PARTIES

[18] The Children’s Lawyer argues that the management of assets is a core function of a corporate trustee, such as Canada Trust. Canada Trust made the decision to divest its ability to manage investments by dispensing with the Common Funds. Its unilateral decision created a circumstance whereby private investment counsel was required, at a cost to the Estate, to make investment decisions that had previously been made by Canada Trust as part of its management of the Estate. It is submitted that the Estate should not have to bear this added expense that was only necessitated by Canada Trust’s unilateral business decision to discontinue the Common Funds.

[19] Canada Trust argues that the investment world has changed dramatically and is very sophisticated and complex today. It maintains that estate trustees must be able to access professional investment expertise to properly administer an estate and should be fully indemnified for all costs and expenses properly incurred to do so.

[20] Canada Trust points out that if TD-PIC’s fees are deducted from its compensation, it will be left with nothing (in fact it would be a negative amount) for all of its other services, including the risk it assumes, in administrating the Estate as a trustee.

ANALYSIS

[21] The Children’s Lawyer argues that trust companies are generally perceived by courts to perform investment management services in-house as part of their ordinary compensation. In fact, this is what Canada Trust did until it discontinued the Common Funds. It is submitted that the decision of Misener J. in William George King Trust (Re) stands for the proposition that fees which relate to a core function of a corporate trustee should be deducted from the trustee’s compensation. The court explained this approach as follows:

[49] The management fees paid to Canada Trust are, however, a different matter. Unless they can be justified on the basis of the unusual volume of work required or on the basis of the unusual skill involved - and justification in either way was never attempted in argument - I fail to understand why Canada Trust should receive extra compensation because it enables discounts to be obtained in dealing with the investment portfolio, or because it had the facilities to provide safe keeping for the portfolio, or because it provides the administrative staff for the management of that portfolio. I would have thought that the availability of services of that sort is one of the principal reasons why trust companies have been able to engage so successfully in the business of administering estates and trusts. All of these services are part of the ordinary business expense of corporate trustees for which the “usual” percentage is allowed by way of compensation.

[22] The Children’s Lawyer also relies upon the leading text, Widdifield on Executors and Trustees, 6th Ed., in which the authors summarize the principles that apply to trustee compensation and explain a trustee’s right to reimbursement for payments to consultants and agents as follows:

Fees paid to agents may be charged against the estate if the executor properly hired the agent to perform the work in question: “Generally speaking, executors are not allowed to employ an agent to perform those duties which, by accepting the office of executors, they have taken upon themselves; but there may be very special circumstances in which it may be thought fit to allow them such expenses as they may have incurred by the employment of agents”.

It was remarked in Murphy v. Ritchie, supra at p. 30 that:

Certainly in assessing the “reasonableness” of an expenditure, in light of the statutory requirement of “care, pain, trouble and time expended” the degree of skill held by the specific executor may be highly pertinent. For example, if a non professional executor hires a professional person to render services which he is clearly incapable of performing himself, but are necessary for the proper execution of his duties, and pursuant to securing such professional services the executor seeks reimbursement for expenditures incurred, he should not be denied the right to recover them even though, in reality, there is little “care, pain, trouble, and time expended” by him per se. Conversely, if a skilled, “professional” executor hires a professional person to render services which are perfectly within his capability to perform, or performs them himself but with little effort expended, then it may be considerably less “reasonable” that compensation be allowed.

To the extent that this statement by Richard C.J.CQ.B. appears to affect the level of compensation allowed to an executor (by maintaining at maximum level for an unskilled executor and by reducing it for a professional executor), its correctness is questionable. However, to the extent that it provides that a skilled executor should not be able to charge the estate with expenses for work which he could have performed himself, without cost beyond the normal executor’s compensation, the statement is consistent with the conclusion in Clowater Estate, Re (1993), 49 E.T.R. 184 (N.B. Prob. Ct.) at 189 that a professional executor, such as a trust company, cannot charge for expenses which are part of its duties and which it can perform itself, such as maintaining safe custody of any securities owned by the estate or preparing tax returns, but that such services will be taken into account in assessing compensation. See also Campin Estate, Re (1992), 49 E.T.R. 197 (Ont. Gen. Div.): William George King Trust, Re (1994), 2 E.T.R. (2d) 123 (Ont. Gen. Div.), and Webb Estate Re (1997), 20 E.T.R. (2d) 81 (Ont. Gen. Div.).

[23] It is The Children’s Lawyer’s position that since Canada Trust managed the Estate’s investments prior to 2008 without charging extra for this service it should not be permitted to change this practice “mid stream” and assume that the Estate’s beneficiaries will “pay for it”. It is for this reason that The Children’s Lawyer argues that TD-PIC’s investment management fees should be deducted from the Trustee’s compensation.

[24] I disagree with The Children’s Lawyer’s position. On the evidence before me, I find that neither Canada Trust nor the co-trustee, Eric Blake Jackson, has the necessary investment expertise to prudently manage the Estate’s assets. Further, Canada Trust made a reasonable and prudent decision to engage TD-PIC as private investment counsel and manager for the Estate’s assets and its decision was approved by all of the current and contingent beneficiaries of the Estate who are sui juris.

[25] I agree with Canada Trust that it is well established that a trustee is entitled to be fully indemnified for all costs and expenses properly incurred during the course of administering an estate. See:

CED (Ont 3d), vol. 33, title 144 at 276; Merry Estate v. Merry Estate, 2002 CarswellOnt 3993 at paras 41-43, 48 ETR (2d) 72, 62 OR (3d) 427 (On Sup Ct); Frymer v. Brettschneider, 192 CarswellOnt 468 at para 24, 9 CPC (3d) 294, 10 OR (3d) 157 at 183 (Ont Div Ct); Thompson Estate, Re, [1945] SCR 343 at 356, [1945] 2 DLR 545; and David C. Rosenbaum, “Passing of Accounts: Getting Cost Effective Results Compensation” (2007) OBA 16.

[26] In my view, in today’s complex and sophisticated investment market, executors should be entitled to hire investment counsel to assist them in making investment decisions and the fees for doing so should not be deducted from their compensation. The fact that Canada Trust was able to manage the Estate’s investments in-house through its Common Funds from 2003 until 2008 should not disentitle it from engaging professional investment advice and being indemnified for the cost of that advice after it no longer has that expertise in-house.

[27] In order to carry out their duties under the Trustee Act the Trustees must comply with the prudent investor rule. Section 27.1(1) of the Trustee Act contemplates that an executor may engage an investment advisor in order to manage the estate’s assets as a prudent investor would.

27.1(1) Subject to subsection (2) to (5) a trustee may authorize an agent to exercise any of the trustee’s functions relating to investment of trust property to the same extent that a prudent investor acting in accordance with ordinary investment practice, would authorize an agent to exercise any investment functions.

[28] I am satisfied on the evidence before me that in order to properly carry out their duties as prudent investors, the Trustees require the assistance of TD-PIC. Canada Trust cites the decision of Haley Surr. Ct. J. in Miller Estate, Re:, in support of its position that the investment management fees of TD-PIC should not be deducted from the Trustees’ compensation. In Miller the Court stated:

8. In the past, the Courts have permitted executors to charge against the estate fees paid to solicitors, real estate agents and accountants in tax matters because executors could not be expected to have the necessary expertise to act in these areas. These areas are not necessarily closed. In my opinion, executors in the circumstances of this estate are entitled to retain persons with special expertise in investment matters for reasons similar to those recognized by the Court for the use of solicitors. Investment is no longer a choice between government bonds and blue chip stocks. It requires assessment of many rapidly changing factors in political, economic and financial areas, which in turn requires the assimilation of large amounts of detailed information. The ordinary prudent person in the conduct of his of her own investment affairs turns now as a matter of course to investment counsellors and advisers and it would be unfortunate if executors were not permitted to obtain such advice without deduction from compensation.

[29] In my view the authorities cited by Canada Trust clearly demonstrate that courts are willing to allow payments of investment consulting fees as a proper expense of the estate where the services rendered are clearly beyond the expertise of the trustee and the fees are otherwise reasonable and proper.

[30] On the evidence before me, I find that the prudent investment of the Estate’s assets is beyond the expertise of the Trustees and the retention of the services of TD-PIC is both necessary and reasonable. Further, the fact that Canada Trust was able to previously manage the Estate’s investments through the Common Funds for five years without charging investment management fees, should not deprive it of its right to obtain, and be reimbursed for, necessary investment counsel now that the Common Funds have been discontinued.

CONCLUSION

[31] The Trustees’ application to pass accounts is approved and there will be an order passing the accounts as filed and allowing the costs of the Trustees, including the investment management fees paid to TD-PIC, to be paid out of the Estate on a full indemnity basis.

COSTS

[32] If the parties cannot agree on costs, which I urge them to attempt to do, I will receive written submissions from the Trustees within 30 days of the date of this Endorsement, of not more than 3 pages, double-spaced and written submissions from The Children’s Lawyer in response, of the same length, within 30 days of the receipt of the Trustee’s costs submissions.

[33] I want to thank counsel for their thorough and helpful submissions.

HAINEY, J.

DATE: January 19, 2011