How trustee rules have changed

When you invest for yourself, the objectives are generally clear and you know you’ll benefit directly.

But what exactly is the role of a trustee?

Historically, common law said trustees weren’t allowed to delegate any of their responsibilities to another person. If you’re a trustee, that meant you couldn’t invest any trust assets. And not so long ago, this restriction was stringently applied.

Fortunately, legislation has since loosened that restriction. The Trustee Act now authorizes trustees to invest in mutual funds and pooled funds and authorizes co-trustees to invest in a trust company’s common trust funds.

The more general prohibition against delegation has also been relaxed. The Act now provides explicit direction, with rules around retaining an investment advisor to act as agent. According to subsection 27.1 (1), a trustee can delegate “to the same extent that a prudent investor, acting in accordance with ordinary investment practice, would authorize an agent to exercise any investment function.”

Essentially, this means that if you’re a trustee, you can delegate investment decisions, just as you do with your own money.

When you choose to delegate, it’s in your best interests to understand what’s involved, and thankfully that’s also clearer now. The Act sets out a trustee’s duty in terms of selecting an agent and monitoring the agent’s performance, and helps define what prudence in selecting an agent looks like.

It requires a written plan or strategy that “is intended to ensure all functions will be exercised in the best interests of the beneficiaries.” This plan should take into account both the legislated criteria and all other considerations.

And you must act in accordance with the agreement you’ve made, including a written plan or strategy. The potential consequences of a breach that results in a loss are also explained in the Act.

Either way, when it comes to investing other people’s money, to ensure all parties are protected, and the best interests of the beneficiaries realized, it’s crucial for a trustee to appreciate the unique responsibilities involved.

Elaine Blades is director, fiduciary services at Scotia Private Client Group.