On February 1, 2023, Alberta’s Trustee Act, SA 2022, c T-8.1 (the “Act”) came into force. Its purpose? To clarify and streamline existing trust laws and reduce the need for the court’s involvement.
The Act shifts from a predominately testamentary focus to a broader focus, that encompasses the management of trusts in our modern business world. It is intended to reduce the administrative burdens placed on beneficiaries and trustees, resulting in lower administration costs and less need for litigation.
The Act applies to trusts arising from a legal document or an oral declaration allowing a person [the trustee] to hold onto another person’s [the settlors] property, but not trusts resulting from a judgment or court order. The new provisions in the Act impose broader transparency and reporting requirements on trustees, while also granting trustees wide power and discretion to manage trust property. We briefly touch on some of these new provisions below.
The New Reporting Duties
New provisions in the Act seek to reduce the need for court intervention in trustee disputes by preventing disputes before they happen. For example, the Act now requires a trustee to provide financial reporting to qualified beneficiaries each fiscal year, and in an effort for more transparency, a trustee must also respond to beneficiary requests to inspect documents.
Under s. 29(1) of the Act, a report to qualified beneficiaries must include a year-over-year statement of assets and liabilities, a statement of assets and liabilities for the fiscal year a trust is created, a statement of transactions for the fiscal period (including payees and payors), and a basis for the fiscal year’s asset valuation. The report must be delivered to qualified beneficiaries within two (2) months of the fiscal year-end.
Expansion of Administrative Powers
In cases with multiple trustees, the Act permits an exercise of power by the majority in an effort to prevent a single trustee from acting unilaterally to prevent the management of a trust. The Act also increases trustees’ buying and selling power with respect to trust property, and allows trustees to delegate certain functions. Each of these changes are intended to lead to increased efficiency of trust management.
The Act also includes provisions intended to provide a less onerous process for changing or replacing trustees. For example, provisions allow a trustee to resign, to be replaced if unfit, and to allow for the temporary appointment of a new trustee, while the original trustee is absent or incapacitated.
The Act’s shift away from a testamentary focus also provides some positive implications for commercial operations, and the changes noted above are intended to result in the more efficient management of business trusts, while also keeping the interests of beneficiaries at the forefront.
For example, for reasons of efficiency, s. 37(1) of the Act replaces the common law rule that a trustee’s decision must be monitored on an investment-by-investment basis. In addition, s. 37(2) abolishes the anti-netting rules and allows losses to trust property to be offset by gains. Each provision aims to reduce litigation and enable trustees to act with less restriction.
In many ways, the Act has a similar effect on the trustee-beneficiary relationship as business corporations legislation has on the relationship between corporate directors, the corporation, and stakeholders. For example, like a director to a company, the trustee has the discretion to manage trust property, but maintains a duty to act in the beneficiary’s best interests when doing so. When a trustee fails to meet these duties, the beneficiary now has specific legislated rights and remedies, such as seeking damages against the trustee, court appointment or replacement of a trustee, in addition to various common law remedies.
The Act’s disclosure and reporting requirements are important for trustees to act efficiently. To protect beneficiaries, the Act sets out a trustee’s duty of care under s. 27(1), and the rights of interested parties where a conflict of interest is alleged under s. 28(1). While the revisions to the Act seek a more efficient process for the management of trusts, it also details the powers available to the court to uphold the interests of beneficiaries in these circumstances. These powers include replacing a trustee for non-performance, removal for breach of trust, and holding a trustee liable for contribution and indemnity for a breach of trust during the course of a legal proceeding.
Formerly, trusts were primarily varied by consent. Under s. 67, any beneficiary or trustee may apply to vary a trust, and the court will take into account several factors, including the intentions of the settlor. S. 89 of the Act now allows a court to permit evidence of the meaning of the words or phrases in a trust, the meaning of the provisions in the context of the settlor’s circumstances when making the trust, and of the settlor’s intention regarding matters referred to in the trust. Among other things, these provisions aim to protect the interests of beneficiaries.
These are only a few examples of the impacts of the Act, and while the changes are intended to promote efficiency, it is important that trustees, settlors, and beneficiaries are familiar with them in order to avoid inadvertent breaches and otherwise carry out their duties in compliance with the Act.
For more information please see the legislation here.
Please contact John Fiddick or Joseph Romanoski of our commercial litigation team for any questions related to the Act, your obligations as a trustee, your rights as a beneficiary, or in relation to any of your trust or commercial needs.