Does a trustee have to disclose the existence of a trust to a beneficiary?By Doug Carroll | May 07 2018 07:00AM
A trust is an arrangement where someone holds property for another who is entitled to the income and/or eventual receipt of that property. Though things can get quite complex, for present purposes this simple definition suffices to distinguish the two key parties: the former being trustee and the latter being beneficiary.
A trustee is a fiduciary, which at its core imposes an obligation to hold the property solely for the beneficiary’s benefit. If and when called upon, the trustee must account to the beneficiary who is entitled to know that the trustee is fulfilling that obligation. But what if a beneficiary is unaware that there is even a trust in place?
A recent decision of the Supreme Court of Canada (SCC) sheds light on a trustee’s obligations in such a circumstance. While the case deals with a large scale commercial dispute, the principles laid down should be carefully considered by all trustees, including those involved in personal and family trusts.
Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8
This is a commercial construction case where there was a series of subcontracting relationships. Shortforming the names, BCC subcontracted work to LEL, which in turn subcontracted to VCL, and the events unfolded as follows:
- BCC obtained a surety bond allowing a “beneficiary” who is unpaid for labour or materials to claim from the bonding company, as long as a claim is lodged within a defined 120 day period.
- LEL became insolvent, leaving VCL with unpaid invoices. VCL was initially unaware of the bond (which was uncommon in projects of this nature), only becoming aware after the claim period.
- VCL sued BCC for failing to inform of the bond and its requirements.
Good recordkeeping is a must, in large part to distinguish business from The Court accepted that BCC was in the position of trustee, then quoting from Waters’ Law of Trusts it held that wherever “it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence, the trustee was obliged to disclose.
The Court ordered that BCC was liable to pay to VCL the amount that it could have obtained from the bonding company, had VCL been sufficiently informed to make a timely claim.
Application to personal trusts?
It is important to note that a beneficiary’s right to be informed of a trust is not absolute. Before reaching its conclusion in Valard, the SCC points out that where the interest of a beneficiary is remote, “it would be rare to find that the beneficiary could be said to suffer unreasonable disadvantage if uninformed of the trust’s existence.”
An example of when this remoteness might be considered would be where someone only becomes entitled if trust property remains after the death of a current beneficiary. Or perhaps a trust requires someone to reach a certain age before becoming entitled. Even more remotely, suppose a trustee has discretion whether or how much of the trust property to distribute to beneficiaries, or even to add or remove beneficiaries.
Trustees would be advised to check with their legal counsel where beneficiaries may be in the dark as to their status, particularly in light of the Supreme Court’s ruling in the Valard case.
- A trust is a separation of legal title to property from beneficial entitlement.
- As the legal title holder, a trustee has an obligation to manage the trust property in the best interests of the beneficiary and to account for actions taken.
- Where a beneficiary is unaware of the trust, the trustee may be obliged to inform the beneficiary of its existence. Whether and when the trustee must do so is a matter best discussed with a legal advisor.