Cahill v. Cahill et al.

[Indexed as: Cahill v. Cahill]

Ontario Reports

Ontario Superior Court of Justice,

Corthorn J.

February 25, 2016

129 O.R. (3d) 401 | 2016 ONSC 1385

Case Summary

Wills and estates — Personal representatives — Breach of duty — Will appointing K and S as executors and trustees and directing them to set aside $100,000 in trust fund for benefit of P with K as trustee — Will directing that P was to receive $500 per month out of trust fund — K depositing $100,000 in investment account with himself as annuitant and no named beneficiary — K appropriating funds in account for his own use — No trust fund ever set up — Both S and K in breach of their fiduciary duties to estate beneficiaries — S not discharging her obligations as executor and estate trustee in that she failed to ensure that proper steps were taken to set up trust fund — S's passive reliance on K falling short of what is required of executor and trustee — S and K jointly and severally liable for dissipation of funds from account.

In his will, the testator appointed his daughter S and his son K as the executors and trustees of his estate. The will instructed S and K to set aside $100,000 in a trust fund for the benefit of their brother P. P was to be paid $500 per month out of the fund until his death or until the principal was reduced to nil, whereupon the balance remaining in the fund was to be divided equally between the testator's grandchildren then alive. S and K signed a direction by which funds were to be paid from the estate bank account to London Life. The direction did not inform the bank or London Life of the terms of the trust. K opened a non-registered investment plan in the amount of $100,000 with London Life. He was the annuitant, and there was no named beneficiary. Payments out of the account were made either to K or to another brother, and P was given a cheque each month. K ultimately appropriated the balance in the account, $92,642.99, for his own purchase of a commercial property. His business failed, his bank realized on the property and there were no funds remaining in the account. P brought an application for payment of his entitlement under the will and for other relief.

Held, the application should be allowed in part.

No trust fund for P's benefit was ever established. S and K were in breach of their fiduciary obligations to the beneficiaries of the estate. K had no authority to apply the funds for his personal benefit. S did not discharge her obligations as an executor and trustee of the estate. She failed to ensure that all proper steps were taken to set up the trust fund. It was not enough for S to sign the direction. Until the trust required by the will was set up, there was never a point at which S was relieved of her obligations as an executor and trustee of the estate and K was permitted to wear the "hat" of sole trustee of the fund. While S submitted that she relied on K because of her stated belief in his qualifications in the field of financial management, the evidence did not establish that she actively applied her mind to that decision. If she did, her decision to rely on K fell short of what is required of an executor and trustee of an estate. S's negligence and breach of fiduciary duty caused or contributed to the dissipation of the funds intended for the trust fund. She was not entitled to relief under s. 35(1) of the Trustee Act, R.S.O. 1990, c. T.23 as she did not act reasonably. S and K were jointly and severally liable for the dissipation of the funds. [page402]

The issue of whether S and K should be removed as executors and trustees of the estate was adjourned, to be brought back following their provision of an accounting for the estate.

Cases referred to

Chapman (Re), [1896] 2 Ch. 763, [1895-1899] All E.R. Rep. 1104 (C.A.); Fales v. Canada Permanent Trust Co., 1976 14 (SCC), [1976] 2 S.C.R. 302, [1976] S.C.J. No. 72, 70 D.L.R. (3d) 257, 11 N.R. 487, [1976] 6 W.W.R. 10; The Children's Lawyer v. Penman (sub nom Penman v. Penman) (2014), 119 O.R. (3d) 128, [2014] O.J. No. 455, 2014 ONCA 83, affg 2013 ONSC 1471 (S.C.J.)

Statutes referred to

Courts of Justice Act, R.S.O 1990, c. C.43 [as am.]

Estates Act, R.S.O. 1990, c. E.21, s. 50(1)

Trustee Act, R.S.O. 1990, c. T.23, ss. 5 [as am.], 35(1), 37 [as am.], (2)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 4, 9.01(2)(c)-(d)

Authorities referred to

Hogg, Peter W., Joanne E. Magee and Jinyan Li, Principles of Canadian Income Tax Law, 8th ed. (Toronto: Carswell, 2013)

Waters, Donovan W.M., Mark Gillen and Lionel Smith, Waters' Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012)

APPLICATION for payment of an entitlement under a will and for other relief.

Miriam Vale Peters, for applicant.

William R. Hunter, for respondents Sheila Kehoe, Jessica Kehoe and Craig Kehoe.

CORTHORN J.: —

Introduction

[1] The standard of care to be exercised by an executor and trustee of an estate was delineated in the late 1800s and to this day remains that, "the trustee must be more than honest in the discharge of his duties, he must give his mind to his various tasks and show a degree of care". (See Donovan W.M. Waters, Mark Gillen and Lionel Smith, Waters' Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012), at p. 975 ("Waters").)

[2] Sadly, this case is an example of the losses -- financial and otherwise -- that may be suffered when one executor and trustee of an estate is less than honest and another does not give her mind to her tasks or show the requisite degree of care. [page403]

Background

[3] Thomas Cahill (the "deceased") died in March 2010. In his will dated January 22, 2010 (the "will"), he appoints his daughter Sheila Kehoe ("Sheila") and his son Kevin Cahill ("Kevin") as the executors and trustees of his estate (the "estate"). In the will, Sheila and Kevin are instructed to set aside $100,000 in a trust fund for the benefit of their brother Patrick Cahill ("Patrick"). Patrick survived the deceased.

[4] The will directs that (a) Kevin is to have "sole discretion as to the investment of the moneys" in the trust fund to be set up for Patrick's benefit (the "fund"); and (b) Patrick is to receive $500 per month until his death or until the principal is reduced to nil. The will directs Sheila and Kevin that upon the death of Patrick, the balance remaining in the fund is to be divided equally between the deceased's grandchildren then alive.

[5] The money for the fund came from the sale of the home owned by the deceased. Sheila and Kevin signed a direction (the "direction") by which funds were to be paid from the estate account at Scotiabank to London Life. The direction did not inform Scotiabank or London Life as to the terms of the trust. Kevin opened a non-registered investment plan (the "plan") in the amount of $100,000 with London Life.

[6] Patrick was to receive payments of $500 per month from the plan. The payments were never made directly from London Life to Patrick. The payments were either made to Michael Cahill (another brother; "Michael") or to Kevin. They each in turn would pay the $500 per month to Patrick.

[7] Patrick continued to receive the $500 on a monthly basis until the summer of 2014. The cheques for June, July and August, drawn on Kevin's personal bank account, and each in the amount of $500, were returned for insufficient funds. Patrick ultimately retained counsel to assist him in pursuing the reinstatement of the monthly payments. Through this proceeding, Patrick learned that in 2012 Kevin borrowed the principal remaining in the plan as a "mortgage" with respect to commercial premises purchased by Kevin for his business. The business failed, the bank realized on the property and there are no funds remaining in the plan.

[8] Patrick brings this application for payment of his entitlement under the will, the removal of Sheila and Kevin as executors and trustees of the estate, the removal of Kevin as the trustee of the fund, the passing of accounts for the estate and the appointment of a neighbour of the deceased as both the trustee of the fund and the executor and trustee of the estate. [page404]

The Positions of the Parties

(a) Patrick Cahill

[9] Patrick seeks redress against Sheila and Kevin, on the basis that they failed to fulfill their respective obligations as executors and trustees of the estate in accordance with the instructions in the will -- in particular as relates to setting aside the $100,000 for the fund.

[10] It is Patrick's position that Sheila's signature on the direction is not sufficient to satisfy the requirement, pursuant to para. 3(g) of the will, to "set aside the sum of [$100,000] in a trust fund for the benefit of [Patrick]". As such, she is liable, as an executor and trustee of the estate, to Patrick for the moneys owed to him from the fund. Patrick points to Kevin's unauthorized, personal use of the balance remaining in the fund as of May 2012 (approximately $92,000) and says that Sheila is jointly and severally liable, with Kevin, for that amount.

(b) Sheila Kehoe

[11] Sheila's position is very simple. She relied on Kevin's assurance that the probate of the will was handled properly. The payment of $100,000 to London Life, by way of the direction in favour of Scotiabank, is evidence that she complied with the instructions set out in the will.

[12] It is Sheila's position that once the money was placed with London Life, she had discharged her duties as one of two executors and trustees of the estate, including the specific duties with respect to the fund. At that point, it was Kevin, as the sole trustee of the fund, who was responsible for the management of the fund. Kevin was named as the annuitant of the plan because he was the trustee of the fund.

[13] Sheila says that she is not to be held responsible for Kevin's actions in the management of the fund, once the money was placed with London Life.

(c) The other respondents

[14] The only respondents who delivered materials on the application are Sheila and her two children, Jessica Kehoe and Craig Kehoe. The applicant is not, however, seeking relief against Sheila's children. The children and the other respondents who are beneficiaries of the estate were served pursuant to rule 9.01(2)(c)-(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. It is therein required that beneficiaries of an estate be joined as parties if the proceeding includes a request for the [page405] removal or replacement of an executor or trustee or there is a claim against an executor or a trustee on the basis of fraud or misconduct.

Issues

[15] The issues to be determined on this application are as follows:

(1) Are Sheila and Kevin liable to Patrick and to the grandchildren of the deceased with respect to the trust fund to be established pursuant to para. 3(g) of the will?

(2) Are Sheila and Kevin to

(a) pass their accounts as the executors and trustees of the estate; and/or

(b) be removed as the executors and trustees of the estate?

(3) Is Kevin to be removed as the sole trustee of the fund?

Decision

[16] For the reasons set out below, I find that Sheila and Kevin are jointly and severally liable to Patrick and to the grandchildren of the deceased with respect to the trust fund to be established pursuant to para. 3(g) of the will.

[17] Given what appears to be the modest value of the estate, Sheila and Kevin are not required at present to pass their accounts. They are instead to provide an accounting for the estate to the court. Once the accounting has been provided, determinations will be made as to whether they are to (a) pass their accounts; and/or (b) be removed as executors and trustees of the estate.

[18] In the reasons set out below, I find that a trust fund was never established -- in accordance with para. 3(g) of the will or at all. As a result, there is no fund of which Kevin is presently the sole trustee. When the trust fund is established in accordance with the will, Kevin will not be the sole trustee.

The Evidence

[19] The terms of the will are the starting point for consideration of Patrick's claim -- in particular the terms pursuant to which (a) Sheila and Kevin are appointed as executors and trustees of the estate; and (b) the fund is to be set up. Paragraphs 2 and 3(g) of the will provide as follows: [page406]

2. I HEREBY NOMINATE, CONSTITUTE AND APPOINT my daughter, SHEILA M.L. KEHOE and my son, KEVIN T. CAHILL, to be the Estate Trustees, Executors of and Trustees under this my last Will and Testament and I shall hereinafter refer to them as my Trustees.

3. I GIVE, DEVISE AND BEQUEATH all my real and personal estate of any kind whatsoever and wheresoever situate of which I may die possessed, including any property over which I may have a general power of appointment, unto my Trustees upon the following trusts, namely:

(g) To set aside the sum of ONE HUNDRED ($100,000) in a trust fund for the benefit of my son, PATRICK E. CAHILL, during his lifetime (hereinafter referred to as "Patrick's Trust Fund"). I DIRECT that my son, KEVIN T. CAHILL, shall be the Trustee of Patrick's Trust Fund, and shall have sole discretion as to the investment of moneys thereunder. I FURTHER DIRECT that my son, Patrick E. Cahill, shall receive the sum of FIVE HUNDRED ($500.00) DOLLARS per month out of Patrick's Trust Fund during his lifetime, or until such fund is exhausted, whichever shall occur first.

UPON the death of my son, Patrick E. Cahill, or in the event that he shall have predeceased me, then I DIRECT that Patrick's Trust Fund, or any amount remaining therein, shall be divided equally amongst those of my blood grandchildren who are living at the date of Patrick E. Cahill's death, or at the date of my death if Patrick has predeceased me, as the case may be, share and share alike.

[20] Although para. 3(g) makes reference to "ONE HUNDRED" and to "$100,000", the executors and trustees of the estate interpret the intentions of the deceased to be that the amount to be "set aside" is $100,000. There is no dispute as to the amount to be placed in the fund.

[21] The evidence before the court consists of two affidavits from Patrick, an affidavit from Sheila, the transcript of the examination under oath of Kevin, including the exhibits entered on that examination, and the affidavit of Brenda Desjardins (an assistant in the office of counsel for Patrick). The examination under oath was conducted pursuant to an order I made because Kevin did not deliver any responding materials, although properly served with the application record. The Desjardins affidavit references documents produced by Kevin, following his examination under oath, to counsel for Sheila who in turn produced the documents to counsel for Patrick.

[22] Kevin lives in the Guelph area, Sheila lives in Kemptville and Patrick lives in the Ottawa area.

[23] The majority of the evidence is uncontroverted. Unless otherwise noted, the following facts are not in dispute. All exhibit numbers referred to in para. 24 below are with respect to the examination under oath of Kevin. [page407]

[24] Based on the documentary record before the court, the evidence with respect to the $100,000 to be "set aside" pursuant to para. 3(g) of the will is as follows:

May 3, 2010 A certificate of appointment was issued by this court pursuant to which Sheila and Kevin were appointed as the estate trustees for the deceased. Exhibit 1 is a copy of the certificate of appointment.

Jun. 2010 The home in which the deceased lived was sold and the proceeds from the sale, in the amount of $223,013.75, were paid to the estate. Exhibits to the examination under oath include copies of the "Funds Summary" for the sale, signed by each of Sheila and Kevin (exhibit 2); a computer-generated printout from Bell Baker, the law firm which handled the sale, showing the receipt and disbursement of funds from the sale (exhibit 3); and a Bell Baker cheque in the amount of $223,013.75 payable to the estate (exhibit 4).

Jul. 6, 2010 Sheila and Kevin both signed the direction to Scotiabank, "to issue the following drafts to satisfy the requirements of the estate" (exhibit 5). The list of drafts to be issued was as follows:

1. $60,000 to be paid to the Strategic Charitable Giving Foundation -- Tom Cahill Memorial Fund.

2. $3,000 to be paid to Alcoholics Anonymous in Ottawa.

3. $100,000 to be paid to London Life.

4. $10,000 to be paid to Sheila Kehoe in trust for Jessica Kehoe.

5. $10,000 to be paid to Sheila Kehoe in trust for Craig Kehoe.

6. $10,000 to be paid to Kevin Cahill in trust for Calvin Cahill.

7. $2,000 to be paid to Kevin Olsen [sic].

8. $2,000 to be paid to Cory Olsen [sic].

Jul. 8, 2010 Kevin Cahill completed an "Application for Guaranteed Interest / Marketwatch / Freedom Fund" [page408] in the amount of $100,000 and to pay $500 per month to Michael by way of a pre-authorized deposit to Michael's "RBC" current account in Ottawa (exhibit 6). A Scotiabank bank draft was drawn in the amount of $100,000 and payable to "London Life". The draft is identified as "Re: Est. of Thomas Cahill" (exhibit 7).

Jan. 1, 2011 The value of the plan with London Life and intended for the fund was $102,135.42 (exhibit 8).

Jun. 30, 2011 The value of the plan was $99,883.28. The investment vehicle was comprised of cash, cash equivalents, fixed income and Canadian equity (exhibit 8).

Dec. 31, 2011 The value of the plan was $95,778.08. It continued to have the same mix of investment categories as in June 2011 (Desjardins affidavit, exhibit "A").

May 29, 2012 The balance remaining in the plan ($92,642.99) was withdrawn. No funds remained in the plan after this date (Desjardins affidavit, exhibit "A").

Jun. 1, 2012 Kevin facilitated a "personal loan" to himself from the plan in the amount of $92,642.99 for the purchase of commercial property in Guelph, Ontario. The loan document refers to an interest rate of 3.1 per cent, repayment at the rate of $500 per month and an amortization period of 21 years (Desjardins affidavit, exhibit "A").

Jun. 2014 At Money Mart, Patrick cashed a $500 cheque from Kevin. The cheque was dishonoured for insufficient funds. Money Mart informed Patrick that he owes them $540, with the additional $40 representing the "return cheque charge" (exhibit "C" to the April 1, 2015 affidavit of Patrick).

Jul. 2014 At Cash Money, Patrick cashed a $500 cheque from Kevin. The cheque was dishonoured for insufficient funds. Cash Money informed Patrick that he owes them $540, which amount includes a "returned item fee" (exhibit "D" to the April 1, 2015 affidavit of Patrick). [page409]

Aug. 2014 At Scotiabank, Patrick cashed a $500 cheque from Kevin. The cheque was returned and Patrick was charged $40 for the returned cheque (exhibit "E" to the April 1, 2015 affidavit of Patrick).

[25] After the three successive cheques were returned for insufficient funds, Patrick stopped attempting to cash any of the cheques remaining in the series of post-dated cheques he had received from Kevin for the calendar year 2014. He retained counsel to investigate the matter on his behalf and ultimately commenced this application. Patrick has not received a monthly payment of $500 since May 2014.

[26] At his examination under oath, Kevin explained how money was paid to Patrick from the plan. When the investment was first made, Patrick did not have a bank account. As a result, it was not possible for Kevin to arrange for the $500 per month to be deposited electronically by London Life into a bank account in Patrick's name. Kevin arranged for the monthly payment to be deposited into a bank account in their brother Michael's name. Michael lived in the Ottawa area and would see Patrick. Michael gave Patrick cash in the amount of $500 each month.

[27] The payment arrangement was later changed, with the $500 deposited into Kevin's account each month. Kevin would then make the monthly payment of $500 to Patrick. Kevin provided Patrick with a series of post-dated cheques on a calendar-year basis.

[28] The statements from London Life as to the value of the plan show that the amount withdrawn on a monthly basis in 2011 was $501.50. Kevin's evidence is that the additional $1.50 withdrawn per month represents the annual cost of $18 to send payments to Ottawa by courier. Kevin chose to amortize that expense over a 12-month period.

[29] It is Kevin's evidence that he used the money remaining in the plan as of May 29, 2012 to fund a "mortgage" on commercial property which he purchased for his business. The mortgage was not registered on title. Kevin's business paid Kevin "rent money" in the amount of $500 per month, which amount was in turn paid by Kevin to Patrick.

[30] Between June 2012, when the money from the plan was used to fund the mortgage for the purchase of commercial premises, and June 2014, when the first monthly cheque was returned for insufficient funds, Kevin "lost everything". For part of that period, Kevin paid Patrick from personal funds. Kevin [page410] admits that Patrick has not received a monthly payment of $500 since the May 2014 payment.

[31] The only evidence from Sheila is her 12-paragraph affidavit sworn in July 2015. The affidavit is barely more than two pages in length. The affidavit includes a typical introductory paragraph and a concluding paragraph in which Sheila states that the affidavit is filed in support of a request for the dismissal of the application as against her and her two children. Sheila was not cross-examined on her affidavit.

[32] In four of the ten substantive paragraphs in her affidavit, Sheila describes Kevin's qualifications in the field of financial planning, including his designations as a certified financial planner and a chartered life underwriter. Attached as an exhibit to her affidavit are pages from the website for the Financial Planning Standards Council. Also attached as an exhibit is what Sheila describes as pages from the website for "Eastern Ontario Designations for Financial Security Advisors". This second document provides general information as to the meaning of particular designations for financial professionals. At the end of the text is provided the address and contact information for a business in Kingston. The name of the business is not identified in the document or by Sheila in her affidavit.

[33] Sheila relies on these exhibits as evidence of Kevin's expertise and as an explanation as to why Kevin "took the lead in carrying out the executors' functions". She cites, by way of example, that it was Kevin who retained Bell Baker to do the legal work to probate the will and for the sale of the deceased's home.

[34] Sheila's evidence, with respect her role as an executor and trustee of the estate, is that "Kevin assured me that everything was being properly handled". With respect to the fund, Sheila's evidence is that the deceased's instructions in that regard (i.e., para. 3(g) of the will) were fulfilled, "by placing the funds with London Life via a Direction to Scotiabank dated July 6, 2010, which Kevin and [she] signed".

[35] Sheila admits that she does not have any knowledge of the administration of the fund other than her signature on the direction. In her affidavit, Sheila says, "My late father appointed Kevin Cahill as the sole trustee of that trust with the sole discretion as to the investment of the monies thereunder. I am not a trustee of that trust and have no further knowledge of the administration of the trust." She goes on to say that "as of May 1, 2014, for some reason unknown to me, Kevin, as trustee for the applicant, did not arrange to have the post-dated cheque payable to the applicant honoured". [page411]

[36] Kevin's evidence as to how the $100,000 for the fund was handled is that he provided Scotiabank (where the bank account for the estate was located) with a certified copy of the will. He was told by Scotiabank "what to write in the letter" (i.e., the direction). Kevin typed up the direction, had Sheila sign it, signed it himself, and delivered it to the Scotiabank branch in Guelph at which the estate account was located.

[37] At his examination under oath, Kevin testified that he was the person who picked up the money orders and mailed them to the beneficiaries in accordance with items 1, 2 and 4 through 8 in para. 24, above. In her affidavit, Sheila says that her two children, Jessica Kehoe and Craig Kehoe, each received their respective $10,000 bequest. There is no documentary evidence that any of the beneficiaries to whom specific bequests were made received the funds as per the will.

[38] With respect to the $100,000 for the fund, Kevin's evidence is that Sheila

(a) knew the fund would be set up with London Life;

(b) knew Kevin was going to "make it happen";

(c) was "on side" with Kevin with respect to the $100,000 being placed with London Life;

(d) was not involved in any of the decisions as to how the $100,000 would be invested; and

(e) had no involvement with the $100,000 thereafter.

[39] In addition to the will, the two documents that are most important in the determination of this application are the direction signed by Sheila and Kevin on July 6, 2010 and the application for Guaranteed Interest/Marketwatch/Freedom Fund, signed by Kevin on July 8, 2010 (the "application"). The direction (exhibit "C" to Sheila's July 2015 affidavit and exhibit 5 to Kevin's examination under oath) makes no mention whatsoever of the fund or of Patrick. In the direction, the only information as to what is to happen with the $100,000 is that the money is to be paid to London Life.

[40] Similarly, the application makes no mention whatsoever of the fund. Nor does the application make any mention of Patrick. The application as completed by Kevin identifies the following:

-- The annuitant is Kevin.

-- The applicant is the same as the annuitant. [page412]

-- The investment options selected are 20 per cent Canadian Equity, 50 per cent Income, and 30 per cent Money Market.

-- The contingent policyholder is Sheila.

-- The pre-authorized direct deposit of the monthly payment of $500 is to "Mike Cahill".

-- There is no beneficiary of the plan.

Analysis

Issue no. 1 -- Liability of executors and trustees

[41] The executors and trustees of an estate, not the beneficiary, have the onus of establishing that the management and disbursement of the funds is consistent with the terms of the will or the trust document. For the reasons set out below, I find that both Sheila and Kevin have not met that onus. They have each failed to demonstrate that they have managed and disbursed the funds in the estate in a manner that is consistent with the terms of the will.

(a) Instructions in the will

[42] The introductory portion of para. 3 of the will says, "I give, devise and bequeath all my real and personal estate of any kind whatsoever and wheresoever situate of which I may die possessed, including any property over which I may have a general power of appointment, unto my Trustees upon the following trusts . . .". The fund which Sheila and Kevin are instructed, in para. 3(g), to establish is but one aspect of the overall "trust" upon which they are given, devised, and bequeathed the deceased's real and personal property. For example, in para. 3(j) of the will, Sheila and Kevin are instructed to "transfer and divide all the rest and residue of my estate in such a manner and to such beneficiaries as my Trustees may in their sole discretion and judgement see fit".

[43] Sheila and Kevin are in breach of their fiduciary obligations to the beneficiaries of the estate, including Patrick and the deceased's grandchildren. They have each failed to carry out the instructions, in their entirety, of para. 3(g) of the will:

First, Sheila and Kevin are instructed to "set aside" the $100,000 for the fund. Sheila and Kevin failed to take the steps necessary to establish the trust fund as instructed. I find that a trust fund for Patrick's benefit was never established. [page413]

Second, although it was Kevin who was to be the sole trustee of the fund, he was only in a position to carry out that role if the fund was established. Having found that the fund was never established, I also find that Kevin had no authority to apply funds as he did in 2012 for his personal benefit. Kevin's "self-dealing" with the funds was a wrongful and deliberate misappropriation of the funds. By his conduct, Kevin breached his fiduciary obligations, as an executor and trustee of the estate, to Patrick and to the grandchildren of the deceased.

If I am incorrect, and the fund was established, then I find that Kevin, in his role as sole trustee breached his obligations to Patrick and the grandchildren of the deceased, as the beneficiaries of the trust. He did so when in 2012, he withdrew for his own use the balance remaining in the plan. Even if it could be argued that the will gave Kevin the authority to invest the fund in his own business, which I do not find, he further breached his fiduciary obligations to the beneficiaries of the trust by failing to obtain security for the "loan" made to his business.

Third, upon Patrick's death, the amount remaining from the $100,000 is to be divided equally between the grandchildren of the deceased then alive. Assuming that Patrick is survived by at least one niece or nephew, then one or more of the deceased's grandchildren shall be entitled to the balance remaining in the fund as of the date of Patrick's death. I find that both Sheila and Kevin have failed to fulfill their obligations, as executors and trustees, to the grandchildren who shall ultimately be entitled to their equal shares of the balance remaining in the fund as of the date of Patrick's death.

(b) Conduct of the executors and trustees

(i) The fund was never established

[44] Sheila portrays herself as a "passive" executor. By her own admission, she was content to rely on Kevin to do the vast majority, if not all, of the work required to administer the estate. That reliance includes steps to be taken to establish the fund pursuant to the instructions in para. 3(g) of the will.

[45] In argument, counsel for Sheila referred extensively to the two "hats" which Kevin wears; first as an executor of the estate and second as sole trustee of the fund. Counsel for Sheila emphasized that Sheila wore only a single "hat" -- that of an [page414] executor of the estate. As such, once the $100,000 was directed to be paid to London Life, Sheila could take off her executor's "hat". Her obligations as an executor were fulfilled and it was Kevin, alone and wearing his sole trustee "hat", who had any and all further responsibility with respect to the fund.

[46] That argument, however, fails to recognize that

(a) Sheila did not discharge her obligations as an executor and trustee of the estate. She failed to ensure that all proper steps were taken to set up the fund. It was not enough for Sheila to sign the direction. She had an obligation to ensure that the fund was properly set up; and

(b) until the trusts required by the will were set up, which did not occur, there was never a point at which Sheila was relieved of her obligations as an executor and trustee of the estate and Kevin was permitted to wear the "hat" of sole trustee of the fund.

[47] The following passage from Peter W. Hogg, Joanne E. Magee and Jinyan Li, Principles of Canadian Income Tax Law, 8th ed. (Toronto: Carswell, 2013), at p. 530, explains the requirements for a trust to exist:

A trust exists when the management and control of property is vested in one person or persons (the "trustee") while enjoyment of the property is vested in another person or persons (the "beneficiary"). Normally, the legal forms by which this division between management and enjoyment of property is accomplished are that legal title to the trust property is in the trustee, while equitable (or beneficial) title to the trust property is in the beneficiary. Normally, so long as there is a separation of legal and beneficial ownership, there is a trust.

[48] The documentary evidence in this matter demonstrates the shortcomings of Sheila and Kevin, as they purported to carry out the instructions in para. 3(g) of the will. As noted above, neither the direction nor the application makes any mention of a trust or its beneficiaries or sets out the terms of the trust. The application which Kevin filled out for London Life is clear. Based on that document, I find that

(a) Kevin was shown to have legal title to the plan;

(b) Patrick was not disclosed as a beneficiary of and did not have equitable (or beneficial) title to the plan; and

(c) as a result, the fund which Sheila and Kevin are instructed in para. 3(g) of the will to set up was never established. What in fact occurred was the creation of an investment in Kevin's name and over which he appeared to have ownership. [page415]

[49] Had the executors and trustees established the fund, only then would Kevin alone be liable for the management of the fund. It was incumbent upon both Sheila and Kevin to set up the fund as directed by the will. Neither of them did so.

(ii) Reliance on Kevin

[50] Sheila's position is that she relied on Kevin because of her stated belief in his qualifications in the field of financial management. The evidence upon which Sheila relies in support of her decision to rely entirely on Kevin does not convince me that she actively applied her mind to that decision. If am wrong in that regard. Sheila's decision to rely on Kevin, because of her stated belief in his qualifications in the field of financial management, in any event falls short of what is required of an executor and trustee of an estate.

[51] The case law is clear that there is no distinction to be made between sophisticated and unsophisticated individuals in the fulfillment of their obligations as executors and trustees: Fales v. Canada Permanent Trust Co., 1976 14 (SCC), [1977] 2 S.C.R. 302, [1976] S.C.J. No. 72, at p. 316 S.C.R. ("Fales"); The Children's Lawyer v. Penman, 2013 ONSC 1471 (S.C.J.), at para. 78, affd (sub nom Penman v. Penman) (2014), 119 O.R. (3d) 128, [2014] O.J. No. 455, 2014 ONCA 83 ("Penman").

[52] If, upon being appointed as an executor and trustee of the estate, Sheila was not confident in her knowledge and understanding of that role, it was incumbent upon her to make the necessary inquiries and obtain the guidance she required to permit her to fulfill her obligations. In the alternative, she could have chosen at the outset to renounce her appointment as an executor and trustee. Not having renounced, Sheila had a duty to actively fulfill the obligations of an executor and trustee of the estate.

[53] An executor and trustee of an estate "must act prudently [with regard to their trust estate], as a prudent man acting prudently would do with regard to his own affairs". (See Chapman (Re), [1896] 2 Ch. 763, [1895-1899] All E.R. Rep. 1104 (C.A.), at p. 783 Ch.) Had the $100,000 been Sheila's personally to invest, she would have been free to risk it blindly by entrusting it to Kevin. She need never have made any inquiries of Kevin over the next three or four years. She was not free to do so with the estate money. As noted in Waters, at p. 975:

A person may speculate with his own funds, and be negligent in the administration of his own affairs, but as a trustee he is exercising the powers and discretion of an owner in favour of another or others. It follows that the beneficiary should be able to expect an objective test of what is careful, skilful, and prudent. [page416]

[54] The decision of the Supreme Court of Canada in Fales provides a clear and comprehensive description of the obligations of an executor of an estate. The co-executors were the deceased's widow and the defendant trust company. Dickson J. (as he then was) spoke of the ordinary skill and prudence and the common sense which an executor and trustee is to apply to that role (at p. 316 S.C.R.) and of "[t]he vigilance, prudence and sagacity" which the law expects from an executor and trustee (at p. 318 S.C.R.).

[55] That each executor and trustee appointed is to fulfill their responsibilities is also addressed in Fales. At pp. 323 and 324 S.C.R. of the decision, Dickson J. said:

The policy of the law has been to afford a maximum degree of security and protection to the interests of beneficiaries of a trust estate. Each trustee normally is responsible to the beneficiaries for what occurs in the course of administration, subject to such exoneration as may be afforded by the terms of the will, or by statute . . . The law does not distinguish between active and passive trustees save when the terms of the trust so provide, Mickleburgh v. Parker. In accepting the trusteeship, [the testator's widow] became obligated to exercise an independent judgment and she assumed a duty to the beneficiaries of the residuary estate . . . With certain exceptions, where two trustees owe a duty to the beneficiaries of an estate and that duty is breached, resulting in loss, the trustee called upon to make good the loss can look to the co-trustee for contribution, subject to [statutory relief].

(Footnote omitted)

[56] By her own admission, Sheila had virtually no involvement in the administration of the estate. Kevin's evidence confirms Sheila's lack of involvement, in particular with respect to the trust fund to be established pursuant to para. 3(g) of the will.

[57] Whenever a trustee fails to carry out her obligations under the trust instrument, at common law, or statute, that failure amounts to a breach of trust. In this matter, Sheila's failure takes the form of abdication of her duties as an executor and trustee of the estate -- essentially delegating her powers, authorities and duties to Kevin: see Penman, both at first instance and on appeal.

[58] Sheila was required to take real, active steps to ensure that the trust fund was set up in accordance with the will. If the deceased had merely wished Kevin alone to have absolute authority and to make all decisions with respect to the estate, he would not have appointed Sheila as an executor and trustee. Sheila's appointment in that role must be seen as reflective of the deceased's wish that she not simply acquiesce to or rubber-stamp anything suggested or done by Kevin. Sheila was [page417] obligated to exercise her own judgment. She completely failed in that duty: see Penman, at first instance, at para. 93.

[59] Sheila had limited information at best and no documentation upon which to consider whether the transfer of $100,000 from Scotiabank to London Life was sufficient to satisfy the instructions in para. 3(g) of the will. Sheila signed a single document, the direction, which was completely uninformative with respect to the terms of the trust.

[60] Sheila made insufficient, if any inquiries of Kevin or, in the alternative, London Life as to the details of the investment of the $100,000. She could have made those inquiries before and even after the $100,000 was transferred to London Life. Sheila assumed solely on the basis of assurances from Kevin that the trust fund was set up in accordance with the will. As an executor and trustee of the estate, Sheila had a duty to the beneficiaries of the estate to do more. She had a duty to make inquiries to satisfy herself that the terms of the trust fund were in accordance with the will.

[61] I find that Sheila was negligent in carrying out her duties as an executor and trustee of the estate and that she breached her fiduciary obligations to the beneficiaries of the estate. I also find that her negligence and breach of fiduciary obligations caused or contributed to the dissipation of the funds intended for the trust fund pursuant to para. 3(g) of the will.

(c) More than a "technical breach"

[62] Relief potentially available to Sheila pursuant to s. 35(1) of the Trustee Act, R.S.O. 1990, c. T.23 was not raised in argument. It was on the basis of the equivalent section in the relevant legislation in British Columbia that the widow in Fales was given relief from her negligence, although found.

[63] Section 35(1) of the Trustee Act provides as follows:

35(1) If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same.

[64] There is no evidence to support a finding that Sheila failed to act honestly. However, as noted above, I find that Sheila breached her fiduciary obligations to the beneficiaries of the [page418] estate. She did not act reasonably. As a result, she is not entitled to relief pursuant to s. 35(1) of the Trustee Act.

(d) Damages suffered

[65] The measure of damages is the actual loss which the acts and omissions of one or both of Sheila and Kevin have caused to the beneficiaries of the estate. With respect to the loss, I find as follows:

(a) the balance remaining in the fund as of May 29, 2012 -- before Kevin "self-dealt" the funds -- was $92,642.99;

(b) Patrick received $500 per month from June 2012 through May 2014 (23 months), for a total of $11,500;

(c) Patrick incurred bank charges totalling $120 (3 x $40) because the cheques from Kevin were dishonoured in June, July and August 2014;

(d) the last monthly payment of $500 received by Patrick was in May 2014;

(e) the monthly payments owing to Patrick for the period from June 2014 to February 2016, both inclusive, total $10,500 (21 mos. x $500); and

(f) Patrick continues to be entitled to monthly payments of $500 from March 2016 in accordance with the will.

[66] Sheila and Kevin are liable, jointly and severally, for the dissipation of the funds from the plan. A judgment is to go against them, jointly and severally, requiring them to fund the trust fund in accordance with para. 3(g) of the will. The amount they are required to pay is to be calculated as follows:

-- The principal amount owing as of May 29, 2012 is $92,642.99.

Sheila and Kevin shall be given credit for the $500 monthly payments made from June 2012 to and including May 2014 (23 payments).

Prejudgment interest on the principal of $92,642.99 shall be calculated in accordance with the provisions of the Courts of Justice Act, R.S.O 1990, c. C.43.

When calculating prejudgment interest, the $500 payments made monthly from June 2012 to May 2014 shall be taken into account. [page419]

[67] Patrick's entitlement as of this date and on an ongoing basis must also be considered. From the principal amount owing as set out above, Patrick is entitled to an immediate payment of $10,500, for the monthly payments owing from June 2014 through February 2016, and prejudgment interest calculated in accordance with the Courts of Justice Act. He is also entitled to $120 (the bank charges) and prejudgment interest calculated in accordance with the Courts of Justice Act.

[68] Unless and until such time as Sheila and Kevin, jointly and severally, have satisfied para. 66, above, Patrick is entitled to enforce the order as it relates to the

(a) $10,500 and prejudgment interest thereon;

(b) $120 and prejudgment interest thereon; and

(c) monthly payments of $500 from March 2016 forward.

[69] As will be seen from the discussion below with respect to issue no. 2, it remains to be determined whether it is reasonable and necessary to remove Sheila and Kevin as executors and trustees of the estate. As the fund is not yet established, Kevin is not yet sole trustee of anything. However, once the fund is established Kevin will not be the sole trustee.

[70] In all of the circumstances, the moneys to fund the trust fund are to be paid to a financial institution, to be agreed upon by the parties, with the trust fund to be established in accordance with para. 3(g) the will. In the event the parties are unable to agree upon a financial institution, they may return before me for directions in that regard.

Issue no. 2 -- Passing of accounts by and removal of executors and trustees

(a) Passing of accounts

[71] Section 50(1) of the Estates Act, R.S.O. 1990, c. E.21 provides as follows:

50(1) An executor or an administrator shall not be required by any court to render an account of the property of the deceased, otherwise than by an inventory thereof, unless at the instance or on behalf of some person interested in such property or of a creditor of the deceased, nor is an executor or administrator otherwise compellable to account before any judge.

[72] Patrick is a "person interested" in the property of the deceased within the meaning of the above-quoted statutory provision. His interest is with respect to the $100,000 to be set aside [page420] in the fund and as a potential residuary beneficiary pursuant to para. 3(j) of the will.

[73] It is a certainty that the money to be set aside for the fund is gone. It remains to be determined how the residue, if any, of the estate was distributed by Sheila and Kevin.

[74] The documents produced by Kevin at his examination under oath provide some evidence as to the moneys received and distributed by the estate. Based on those documents, the contents of which are not disputed, I find as follows:

On June 21, 2010, Bell Baker received $225,988.75 in trust from the sale of the deceased's home.

On June 22, 2010, and from the proceeds of that sale, Bell Baker paid to the estate the sum of $223,013.75.

On July 12, 2010, Bell Baker paid from the proceeds of that sale its account in the amount of $2,975.

The funds to be distributed by the estate pursuant to the direction total $197,000 (as per items 1 to 8 in para. 24, above).

[75] The difference between the funds paid to the estate from the proceeds of sale and the funds to be distributed in accordance with the direction is $26,013.75 ($223,013.75 - $197,000). There is no evidence as to how the $26,013.75 was distributed by Sheila and Kevin.

[76] The estate does not appear to involve a large sum of money. In the circumstances, a cost-effective and expeditious process is to require Sheila and Kevin to provide an accounting for the estate to the court and to do so within a specified time frame. Once that step has been taken, a decision can be made as to whether it is reasonable and necessary to require Sheila and Kevin to pass their accounts.

(b) Removal of Sheila and Kevin as executors and trustees

[77] Patrick relies on s. 37 of the Trustee Act in support of his request for an order removing Sheila and Kevin as executors and trustees of the estate. That section addresses the removal of personal representatives, the requirement for security to be posted by a person appointed following removal and who may apply for the removal of a personal representative:

37(1) The Superior Court of Justice may remove a personal representative upon any ground upon which the court may remove any other trustee, and may appoint some other proper person or persons to act in the place of the executor or administrator so removed. [page421]

(2) Every person so appointed shall, unless the court otherwise orders, give such security as would be required to be given if letters of administration were granted to the person under the Estates Act.

(3) The order may be made upon the application of any executor or administrator desiring to be relieved from the duties of the office, or of any executor or administrator complaining of the conduct of a co-executor or co-administrator, or of any person interested in the estate of the deceased.

[78] I find that the request for the removal of Sheila and Kevin as executors and trustees of the estate is reasonable. However, there is no evidence as to what, if any, real or personal property remains in the estate. The primary concern is the oversight and management of the fund. It appears that the other assets of the estate, if any, are of a modest value.

[79] The successor executor, when appointed, may be required to post security in accordance with s. 37(2) of the Trustee Act. As a result, before an order is made removing each of Sheila and Kevin as executors and trustees of the estate, it would be of assistance to the court and to anyone proposed as the successor executor and trustee to know the value of the estate.

[80] Based on the record before me, I have no information about the individual proposed by Patrick other than that he is a former neighbor of the deceased. Given what has transpired to date, with respect to the fund in particular, it would be of assistance to have an affidavit from the individual proposed by Patrick as the successor executor (and as the sole trustee of the fund, once established). Evidence from that individual as to his age, his ability to post security, if required to do so, his experience in terms of financial management, and his ability to fulfil the role of executor and trustee of the estate would be of assistance.

[81] The determination of the request for the removal of Sheila and Kevin as executors and trustees of the estate is therefore adjourned and to be brought back before me following the provision by Sheila and Kevin of the accounting for the estate.

Issue no. 3 -- Removal of Kevin as sole trustee of the fund

[82] Patrick relies on s. 5 of the Trustee Act in support of his request for the removal of Kevin as the sole trustee of the fund. Given Kevin's breach of his fiduciary obligations in the administration of the estate, he is to be removed as the sole trustee of the fund when it is established.

[83] Patrick is not the only party to this application who has an interest in the appointment of the sole trustee of the fund. The grandchildren of the deceased also have an interest in that [page422] regard. It is therefore reasonable to require that the grandchildren be given an opportunity to address the appointment of a trustee of the fund. Once again, it would be of assistance to have an affidavit from the individual proposed by Patrick to be appointed as the sole trustee of the fund.

[84] The determination of the request for the removal of Kevin as the trustee of the fund is therefore adjourned and to be brought back before me, following the provision by Sheila and Kevin of the accounting for the estate. The grandchildren are to be given notice when this issue is brought back before me.

Summary

[85] For the reasons set out herein, I order as follows:

(1) Sheila Kehoe and Kevin Cahill, jointly and severally, shall fund the trust fund pursuant to para. 3(g) of the will, with the amount to be funded, including prejudgment interest, determined in accordance with para. 66, above.

(2) Until such time as Sheila Kehoe and Kevin Cahill have satisfied the paragraph immediately above, Patrick Cahill shall be entitled to enforce this order as it relates to

(a) $10,500 and prejudgment interest thereon (owing for the period June 2014 to February 2016);

(b) $120 and prejudgment interest thereon (owing with respect to the dishonoured cheques); and

(c) monthly payments of $500 from March 2016 forward.

(3) This order bears post-judgment interest, from the date of the order, in accordance with the provisions of the Courts of Justice Act.

(4) Sheila Kehoe and Kevin Cahill shall, no later than March 31, 2016, serve on Patrick Cahill and deliver to the court an accounting for the estate (the "accounting"). In the event the parties are unable to agree upon the form of the accounting, they may return before me for directions in that regard.

(5) The portion of the application with respect to the removal of Sheila Kehoe and Kevin Cahill as executors and trustees of the estate is adjourned to be brought back before me following the delivery of the accounting and with at least ten days' notice. [page423]

(6) The portion of the application with respect to the removal of Kevin Cahill as sole trustee of the fund is adjourned to be brought back before me following the delivery of the accounting, with at least ten days' notice, and on notice to the grandchildren of the deceased.

Costs

[86] In the event the parties are unable to agree upon costs of the matter to date, they may make written submissions as follows:

(a) the submissions shall be limited to a maximum of three pages, exclusive of a bill of costs;

(b) written submissions shall comply with Rule 4 of the Rules of Civil Procedure;

(c) hard copies of any case law or other authorities relied on shall be provided with the submissions;

(d) the written submissions and authorities shall be single-sided pages; and

(e) written submissions shall be delivered by 5:00 p.m. on the tenth business day following the date on which this decision is released.

Application allowed in part.

End of Document