Improper Conduct: Must a Trustee Personally Bear Costs Incurred in the Administration of an Estate or Trust?
Applications to pass accounts assist in the administration of estates and trusts. The application process is an opportunity for the court to issue a decision on any issues beneficiaries may have, and address any of the Trustee’s requests.
One such request is Trustee compensation and reimbursement. Trustee’s may incur costs while administering an estate or trust, which may include monthly accounting, and legal fees. A Trustee may have to pay lawyer’s bills if an issue in the administration of the estate or Trust requires the involvement of the Courts. The question then becomes, who pays fees the Trustee incurred in administering the Trust? The Trustee, the estate or trust, or some other person?
A Trustee’s request for fees was at issue in the case Eng Family Trust v Eng, 2020 ABQB 382 [Eng Family]. In Eng Family, the Trustee had made an application to pass accounts and requested fees for monthly management of the Trust, administration of the trust, fees unrelated to monthly accounting, and legal fees incurred by the Trustee for the application to pass accounts as well as a previous application for advice and direction from the Court. The Honourable Justice R.E. Nation commented:
“…The Conduct of the Trustee in the fall of 2018 was not proper or prudent action by a Trustee. This does, then, raise the issue of whether the Trustee is entitled to the fees it incurred during that period.” (Eng Family, at 16)
In addition, a party to the litigation, Lita Eng, requested costs for the reimbursement of legal fees, which included fees spent on counsel to respond to the Trustee’s commencement of litigation asking for advice and direction.
Court Finds Trustee’s Conduct Disentitles Him to the Full Amount of Fees Requested
The Trustee was allowed to receive reimbursement for monthly fees related to accounting, as this was not opposed by any party.
However, the Trustee was not entitled to fees for matters unrelated to monthly accounting for the period of January 1, 2018, to the commencement of the application for advice and direction, due to the Trustee’s conduct during this period.
The Honourable Justice R.E. Nation then commented that the Trustee was only entitled to half of the fees requested:
“In the circumstances, I will allow the Trustee one half of the requested administration fees and one half of the requested legal fees from the commencement of the application for advice and direction, to the conclusion of this application. Those costs are to be split equally between the income and the capital beneficiaries, as both contributed to the need for a court application. The beneficiaries do not get along, and each took positions that made it unlikely any consensus could be reached, without Court action.” (Eng Family, at 25)
Although the Trustee may have had to resort to litigation because the beneficiaries could not agree on the issue in dispute, Justice Nation only allowed half of the fees requested because much of the litigation was due to noncommunication of the Trustee.
Court Does Not Assess Costs Against the Trustee
Pursuant to the Court’s wide discretion, Justice Nation awarded a party to the litigation solicitor-client costs for the period of November or December of 2018, until when the Trustee indicated it would be asking for advice and direction from the court.
Justice Nation did not assess costs against the Trustee because costs should only be assessed where the Trustee has engaged in egregious conduct. In this case, the Trustee had not engaged in egregious conduct. Instead, the Trustee had not acted reasonably, and disallowing the fees the Trustee has incurred was the appropriate remedy.
The Court did assess costs against the corpus, being the principle of the trust. Litigation had arisen from tax issues with the Trust, and difficulties with managing the Trust.
A Trustee’s Conduct is an Important Consideration in the Determination of Fees and Costs
This case demonstrates the importance of a Trustee acting prudently in the administration of an estate or trust. Trustees often incur expenses in relation to the estate or trust, and their conduct may disentitle them from receiving the full amount of fees they request. Further, if a Trustee has engaged in egregious conduct, then costs may be assessed against them.