When someone names you as their estate trustee — the person previously known as the executor — they're expressing trust in your judgment and integrity. What most people don't fully appreciate until they're in the role is that the position carries real personal financial risk. An estate trustee who makes mistakes — even honest ones — can be held personally liable to beneficiaries, creditors, or the Canada Revenue Agency.
This article focuses on the liability side of estate administration. For a general overview of the probate process and what a Certificate of Appointment of Estate Trustee involves, see our briefing here. For the executor's duties and step-by-step responsibilities, see this checklist.
Estate trustees owe a fiduciary duty to the beneficiaries of the estate — one of the highest duties recognized in law. This means the trustee must act with undivided loyalty, avoid conflicts of interest, exercise reasonable care and skill, act impartially among beneficiaries, and preserve estate assets. The standard isn't perfection, but it is considerably higher than ordinary negligence. And when a trustee falls short, the personal consequences can be serious.
One of the most common and serious mistakes estate trustees make is distributing estate assets to beneficiaries before confirming that all debts, taxes, and liabilities have been paid. Once assets are in beneficiaries' hands, recovering them — especially if the beneficiaries have spent the money — can be extremely difficult or impossible. The result is that the trustee may become personally liable to creditors for amounts that should have been paid from the estate.
Creditors have a right to be paid before beneficiaries receive anything. This includes debts the trustee may not know about at the time of distribution — utility arrears, credit card balances, personal loans, outstanding tax liabilities. The CRA in particular deserves careful attention: the CRA can assess tax obligations for years after death, and a trustee who distributes the estate without obtaining a clearance certificate can be held personally liable for amounts the CRA later determines were owing.
The protection against this risk is patience: advertise for creditors, wait out the limitation period for claims, and obtain a CRA clearance certificate before making final distributions. Rushing to close the estate is the single most dangerous thing a trustee can do.
Section 159 of the Income Tax Act specifically provides that a representative of a deceased person — which includes an estate trustee — is personally liable for tax amounts owing by the deceased if they distribute estate assets without obtaining a clearance certificate from the CRA. This liability is personal, not limited to the estate. It can exceed the value of any compensation the trustee received for serving.
Obtaining a clearance certificate requires filing the deceased's final income tax return, any returns for prior years that weren't filed, and a T3 trust return for the estate itself for each year it remains open. The CRA then reviews and issues the certificate — a process that typically takes six months to a year. Only after the certificate is issued is it safe to make final distributions.
Family members frequently serve as estate trustees, which creates a particular risk: the trustee is often also a beneficiary, or is related to beneficiaries. The duty to avoid self-dealing prohibits trustees from using their position to benefit themselves at the expense of other beneficiaries. This can arise in ways that aren't immediately obvious.
Purchasing estate assets yourself — even at fair market value — is generally problematic without court approval or explicit beneficiary consent. Preferring one beneficiary's interests over another's can be a breach of the duty of impartiality. Paying yourself an executor's fee without proper authorization, or using estate funds for personal expenses, can constitute a breach of fiduciary duty. Even legitimate decisions can attract scrutiny if the trustee has a personal financial interest in the outcome.
The answer is transparency and documentation. Get beneficiary consent in writing for any unusual decisions. Keep meticulous records of every transaction. When in doubt, seek legal advice before acting.
While the estate is being administered, the trustee is responsible for managing estate assets appropriately. Ontario's Trustee Act imposes a prudent investor standard: the trustee must invest estate funds with the care, skill, diligence, and judgment that a prudent investor would exercise. Leaving large sums in a non-interest-bearing account for an extended period can itself be a breach of this duty. So can making speculative investments with estate funds.
Most estates are not open long enough for investment decisions to become a major issue, but when administration is delayed by litigation, complex assets, or tax complications, investment management becomes a real concern.
Estate trustees are required to keep detailed accounts of all estate transactions — every asset collected, every expense paid, every debt settled, every distribution made. Beneficiaries have the right to review these accounts and to challenge them before the court in a process called "passing accounts."
If a beneficiary disagrees with how the estate was administered, they can require the trustee to formally pass accounts in court. The court then reviews the accounts and may surcharge the trustee — order them to personally repay amounts they improperly paid or failed to collect. Surcharged amounts come out of the trustee's own pocket, not the estate.
Good record-keeping from day one is the best defence against a passing accounts challenge. Save every invoice, every bank statement, every piece of correspondence. Document the reasoning behind significant decisions.
Estate trustees are entitled to reasonable compensation for their work, but the rules around it are frequently misunderstood. The general guideline in Ontario is 2.5% of receipts and 2.5% of disbursements, plus a care and management fee of 2/5 of 1% per year of the average value of assets under management. However, this is a guideline, not an entitlement. The court ultimately determines what is reasonable based on the complexity of the estate, the time spent, and the skill required.
Where trustees go wrong: taking compensation without the explicit consent of all beneficiaries or without a court order. Even if the amount is perfectly reasonable, unilateral payment of compensation without authorization is a self-dealing breach. Get written consent from adult beneficiaries or obtain court approval before taking any compensation.
Many estate trustees try to handle administration themselves to save costs for the estate. In simple, uncontested estates with cooperative beneficiaries and no unusual assets, this can work. But the following circumstances warrant legal assistance, and attempting to proceed without it significantly increases personal liability risk:
Legal fees for estate administration come from the estate, not from the trustee personally. The cost of getting it right is almost always less than the cost of getting it wrong.
If an estate trustee is not performing their duties, is in a conflict of interest, is unable to act, or has committed a breach of fiduciary duty, beneficiaries can apply to court to have them removed and replaced. The court takes these applications seriously when the evidence supports them. An estate trustee who is removed for cause may also face an order to compensate the estate for losses caused by their conduct.
At Sheard Law, John Sheard regularly advises estate trustees on their obligations and liability exposure, and assists beneficiaries who have concerns about how an estate is being administered. Understanding the risks before they materialize is far preferable to dealing with them after the fact.
At Sheard Law, we help estate trustees navigate their responsibilities and protect themselves from personal liability, and we help beneficiaries hold trustees accountable when things go wrong.
Contact Sheard Law today to schedule a consultation. Call 416-860-9990 or use our online intake form.
This article provides general information about estate trustee liability in Ontario. It is not legal advice. For advice about your specific situation, consult with a qualified lawyer.
