Appointments Of Estate Trustees During Litigation

In instances where a Will is being formally challenged or an estate is in litigation, an Estate Trustee during Litigation (ETDL) may be appointed by the court to administer the estate in a transparent and orderly manner. An ETDL is an independent trustee that acts as a neutral and impartial third party aiming to facilitate discussion amongst opposing parties in a proceeding, in efforts to reach an agreement. An ETDL possesses a fiduciary relationship with the parties involved and must adhere to the direction of the court appointing him/her.

The major responsibilities of an ETDL include (but are not limited to):

• Administering the estate's assets in a fair and timely manner
• Protecting and safeguarding the estate's assets
• Determining the value of the estate's assets and liabilities
• Settling and paying debts or liabilities
• Filing taxes and tax planning for the estate
• Tracing assets represented in the will and allocating them accordingly

When is an ETDL beneficial?

There are various situations when the appointment of an ETDL may be beneficial in resolving estate proceedings, some of which include:

• When recent changes to an estate were not accounted for in a will
  • If changes were made to an estate between the time of writing a will and present-day litigation, an ETDL may be helpful in addressing any discrepancies
• In the event of delayed or stalled proceedings
  • In order to reduce the amount of time spent in litigation, an ETDL can contribute new ideas or perspectives to move the proceeding forward

• When an opposing party files a Notice of Objection challenging the validity of a will
  • Since the authority of the executor to act will be in question, a ETDL can administer the estate until the will is validated
• When hostility exists amongst trustees and/or beneficiaries
  • A lack of communication or potential for conflict of interest between parties can be good reason to appoint a neutral ETDL to ensure a fair distribution of assets

Appointment of an ETDL

The person seeking appointment of an ETDL is often one of the parties involved in the underlying litigation. Courts in Ontario have the authority to appoint an ETDL under s.28 of the Estates Act or rule 75.06(3) of the Rules of Civil Procedure.

According to s.28 of the Estates Act, courts can appoint an ETDL “pending an action touching the validity of the will of a deceased person, or for obtaining, recalling or revoking any probate or grant of administration [……] the administrator so appointed has all the rights and powers of a general administrator, other than the right of distributing the residue of the property, and every such administrator is subject to the immediate control and direction of the court.”

Therefore, although an ETDL has broad discretion to act, an ETDL's authority is limited as it is subject to immediate direction of the court.

In determining who to appoint as an ETDL, courts will generally choose a party that is unconnected with the underlying litigation or unrelated to the parties involved in the proceeding. In a recent Ontario case in 2022,  Denny v. Denny 2022 ONSC 3267, the court appointed a retired lawyer as the ETDL as opposed to an ex-wife of one of the parties involved in the proceeding, who suggested her because of her experience in accounting. Since it was not clear that the ex-wife was a neutral party, the retired lawyer suggested by the other party was appointed as the ETDL on the basis that the lawyer did not have any connection with the litigation unlike the ex-wife.

In another case,  Mayer v. Rubin 2017 ONSC 3498, the court decided that the appointment of an ETDL was required when the parties' duties as fiduciaries were inconsistent with ongoing litigation interests. According to Justice Myers, “It is a simple inference that a trustee who is in an adversarial position towards a co-trustee or a beneficiary should not normally be left in charge of trust property.” Therefore, the court appointed a trust company as the ETDL to ensure that assets would be administered in a manner that benefited the interests of all beneficiaries and for the estate to be neutral between participants.

Procedure to Appoint an ETDL

The appointment of an ETDL typically takes the form of an application or motion under rule 75.06(3)(f) of the Rules of Civil Procedure: “On an application or motion for directions, the court may direct, that an estate trustee be appointed during litigation, and file such security as the court directs.”

As part of the application or motion, an affidavit must be included which sets out the following information:

1. The relationship among the parties involved in the proceeding;
2. The need for appointment of an ETDL;
3. The potential conflict of appointing a party as the ETDL;
4. The anticipated duties of the ETDL;
5. Any issues surrounding the de facto  administration of the estate prior to the appointment of an ETDL;
6. The compensation agreement for the ETDL; and
7. The proposed security (bond) required to be posted by the ETDL.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.