Refusal to exercise discretion in discretionary trust due to extraneous matters actionable: court

Courts can intervene even if trustee was granted absolute discretion

Refusal to exercise discretion in discretionary trust due to extraneous matters actionable: court
A will may grant absolute discretion to a trustee to encroach on capital

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.

Most Read

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.

Recent articles & video

Jo-Anne Demers, chair of the Canadian board of Clyde & Co, on leading at a global insurance firm

Trudeau names new board members for next Supreme Court of Canada justice selection

NB advocate agency calls for adoption of new measures to protect rights of children in care

Permission to appeal, merits of appeal from arbitration heard separately: Alberta Court of Appeal

Liquidator can't assess claims against directors of corporation: Saskatchewan Court of Appeal

McCarthy Tetrault LLP representing Royal Bank of Canada in $8.5 million case

Most Read Articles

Revealed: Canadian Law Awards winners 2022

Latham & Watkins expands investment funds practice in New York

Essential questions to ask a divorce lawyer

Ontario Court of Appeal dismisses $350,000 claim for failed cannabis company acquisition