There are many reasons why an estate may be involved in litigation. The dispute may involve a Will challenge, in which the beneficiaries litigate the validity of a testator’s last Will. The testator’s Will may contain ambiguities and the beneficiaries disagree as to its proper interpretation. The deceased may have left a handwritten note containing estate plans, and a dispute arises among potential beneficiaries as to whether the handwritten note is a valid Will or not.
Whatever the nature of the dispute, the administration of an estate should not grind to a halt while the litigation plays out in the courts. Liabilities must be paid, tax returns filed, real estate sold, investments liquidated or prudently managed, all for the benefit of the beneficiaries, whoever they may ultimately be.
Enter the estate trustee during litigation (“ETDL”), a trustee appointed by the court to administer an estate while litigation is ongoing. In the recent case of Zarrin-Merh v. Shokrai, 2024 ONSC 6319, the court discussed the principles and legal test governing the appointment of an ETDL.
The power to appoint an ETDL is not automatic, but is an exercise of the court’s broad and inherent jurisdiction to supervise the manage of estates and its own process. The court’s power to appoint an ETDL is authorized under Section 28 of the Estates Act as well as Rule 75.06(3)(f) of the Rules of the Civil Procedure.
The ETDL’s job to maintain a level playing field while the parties contest the administration and management of the estate. The ETDL ensures fairness to the parties, and preserves the assets of the estate to the maximum benefit of the beneficiaries. The appointment of an ETDL is not extraordinary, and the court will favour the appointment of an ETDL unless the administration of the estate is straightforward or simple. However, the court may decline to appoint as ETDL where the value of the estate would be detrimentally impacted by the cost of a professional ETDL and the estate dispute can be promptly adjudicated.
When considering whether to appoint an ETDL, the court will take the following factors into account: (i) whether a trustee may be a witness in the litigation; (ii) potential for conflict of interest; (iii) conflict between the interest of the trustee and/or beneficiaries; (iv) hostility between the trustee and/or beneficiaries; (v) lack of communication between the parties; and (vi) evidence of settlement discussions that exclude some of the parties.
An ETDL is not required to have any particular professional qualifications but such experience is preferable, particularly where the estate assets are complex. An ETDL may be an estates professional, such as a trust company, a lawyer, or an accountant, but may also be a neutral third party who is familiar with the deceased’s assets. An ETDL is entitled to claim compensation for administering an estate, subject to review by the court, and is required to account to the beneficiaries and the court as would any estate trustee. An ETDL may also retain their own lawyer to advise them in connection with their ETDL duties. Notably, ETDL is empowered to handle all aspects of the estate’s administration, but cannot make any distributions of estate assets without a court order.
ETDLs play are important role in estate litigation and the appointment of an ETDL should be considered by the parties to any estate dispute. Their inheritance may depend upon it.
