Your role as a trustee

Being a trustee is a lot of responsibility – someone is relying on you to manage their money and maybe even their property.

But that responsibility doesn’t start with the day-to-day management of the trust. It begins with learning the sometimes complicated unique rules at play that determine both your role and responsibilities.

The Trust Deed

Today, most trust deeds grant several trustee powers, including powers in respect of the investment of the trust assets. Your settlor or testator (i.e. the person who established the trust) can limit you to certain types of investments. A common restriction is a direction to invest only in bonds. Some testators go further and specify only “bonds issued or guaranteed by the Government of Canada.”

Typically, however, trustees are given broad discretionary investment powers. If the trust holds an interest in unique assets, such as a private company or commercial property, even more investment powers could be included.

The Trustee Act

In addition to the deed itself, you should familiarize yourself with the relevant provisions of the applicable provincial trustee legislation. If your trust deed doesn’t detail your investment powers, as is sometimes the case, the legislation alone will determine them.

The legislative provisions governing trustee investments provide you with the power to invest, while also defining your expected duty of care.

The legislated standard of care applies whether the trust deed isn’t specific about investments, or sets out broad or narrow investment powers. In all cases, reference the terms of the legislation, which will further define what’s expected of you as a “prudent” investor.

For example, Ontario law requires you to consider the general state of the economy, possible inflationary or deflationary effects, as well as any assets’ special value to the trust or beneficiaries, among other considerations.

Other Relevant Criteria

You also must understand the terms of the trust and the beneficiaries on whose behalf you’re acting. The following questions can help you:

• Are the income and capital beneficiaries the same or different people? If different, to what extent does the even-hand rule (which means you can’t favour one beneficiary over another) apply?
• Is the main concern income production or capital preservation?
• What is the investment time horizon?
• Is this a fixed date or an actuarial estimate?
• Are income payments fixed, discretionary or a combination?
• What are the beneficiary’s income requirements?
• What, if any, other income sources are available to the beneficiary?
• Are you mandated to consider other income sources?
• Can you encroach on the trusts capital?
• Are any charities named as beneficiaries?
• Are all beneficiaries sui juris (competent enough to manage their own affairs), or are there minor beneficiaries or beneficiaries with disabilities?
• How big is the trust and are the beneficiaries sensitive to volatility?

Once you’ve clearly established both your general responsibilities as a trustee and your specific role in regards to the trust’s rules, you will be in a much better position to properly oversee the trust.

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