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.

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

Vote for Canadian Lawyer's Top Regional Ontario firms

Privacy and access authorities gather in Toronto to address emerging issues

Federal Court limits trademark to dining services, excludes sit-down and take-out offerings

Ontario Court of Appeal denies mother's bid to prevent child's return to Bangladesh

PEI Court of Appeal affirms property transfer to heir did not require subdivision approval

NS Court of Appeal affirms doctors' right to judicial review in dispute with health authority

Most Read Articles

Federal Court overturns study permit denial, citing unreasonable focus on applicant’s career plans

Ontario court rejects child protection agency’s ‘speculation and gossip’, orders child’s return

Pre-hearing request to review law firm's fees in personal injury case is premature: BC Supreme Court

SK Court of King’s Bench dismisses personal injury claim due to inordinate delay