Courts can intervene even if trustee was granted absolute discretion
The Court of Appeal for Ontario has ruled that despite being granted absolute discretion in a discretionary trust, the refusal to exercise such discretion due to extraneous matters warrants judicial intervention.
In Walters v. Walters, 2022 ONCA 38, Ollie Walters’ will contained a provision that provided trustees absolute discretion to encroach on capital that would “ensure the comfort and well-being” of her husband, Gerald Walters. Gerald asked his children, Stephen and Janice Walters — who were the estate trustees — to encroach on capital to pay his living expenses, but due to the mistrust of their father, the trustees refused. Gerald applied for an order to compel the trustees to encroach on capital, arguing that they were required to do so. The trustees argued that they had absolute discretion and their mother’s will set out a wish, not a direction.
The application judge ruled in favour of Gerald and granted the order as well as arrears. She found that the trustees were being influenced by extraneous matters such as their dislike and distrust of their father.
The trustees appealed, claiming that the application judge substituted her discretion for that of the trustees and erred in concluding that they relied on extraneous factors in their decision making.
The appellate court disagreed.
In a discretionary trust, while the court cannot “simply substitute its discretion for that of a trustee clothed with a discretionary power … courts may interfere with an executor’s discretion where there is a breach of its fiduciary duty,” said the court.
In this case, the application judge ruled that the trustees were influenced by extraneous matters such as their distrust and dislike of their father. The appellate court ruled that on the issue of distrust, the factors presented by the trustees legitimately raised an issue of distrust and it was error to characterize them as extraneous.
However, the application judge was correct in identifying dislike as an extraneous matter. “Their dislike of Gerald had nothing to do with his comfort and well-being ... It was irrelevant to the purpose for which their discretion had been granted and ought not to have influenced their exercise of discretion,” said the court.
As to arrears, the appellate court found that the application judge erred in determining the reasonable date from which to calculate arrears. The case records showed that while Gerald moved into his new residence on Aug. 1, 2018, evidence on his banking activity was provided on Oct. 1, 2019. Since it was legitimate for the trustees to conduct investigations on Gerald’s circumstances, it was on this date that Gerald provided such evidence — evidence that the trustees opted not to cross-examine, said the court.
Thus, the appeal was partially granted, and total arrears was reduced accordingly.
