The Life Of A Trust Part Two : Trustees’ Duties

Article by Donna Matthews

Once appointed, a Trustee is subject to a number of duties. A Trustee’s overriding duty is to act in the best interests of the beneficiaries of the Trust. This article considers and gives an overview of the most important trustee duties.

Comply with the terms of the trust deed

An obvious and fundamental requirement of a Trustee’s role is to read and understand the terms of the trust document.  It is essential that a Trustee complies with the terms of the trust deed when exercising its powers.

Duty to exercise reasonable care and skill

The statutory duty of care is set out in section 1 Trustee Act 2001 (the “Act“):-

“Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular-

(a) to any special knowledge or experience that he has or holds himself out as having, and

(b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.”

Schedule 1 of the Act states that the duty of care applies to Trustees when:-

(a) investing the trust fund;
(b) appointing agents & nominees;
(c) acquiring land and dealing with insurance.

This statutory duty can be excluded from applying within the trust deed.

There is also a common law fiduciary duty.  This has not been “laid down with precision”. It is an evolving duty.  A Trustee must exercise the care that an ordinary prudent business person would in managing his own affairs.

The standard of care expected is judged by way of an objective test.  The conduct of Trustees will be judged with reference to the facts and circumstances existing at the time when they had to act and which were known or ought to been known to them at the time.  Decisions of Trustees are not judged in hindsight.

Professional Trustees are expected to exercise a higher standard of knowledge than that of a lay person acting as Trustee.

Duties in relation to the investment of trust funds

Generally, subject to the terms of the trust deed, a Trustee will be given power to make any kind of investment that it could make if it were absolutely entitled to the assets of the Trust.

The Trustee, in making the investment, must exercise such care and skill as is reasonable in the circumstances, having regard in particular-

  1. to any special knowledge or experience that he has or holds himself out as having; and
  2. if he acts as Trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.

In exercising any power of investment, the Trustee must have regard to the standard investment criteria and must from time to time review the investments of the trust and consider whether they should be varied.

The standard investment criteria are:

  1. the suitability to the trust of investments; and
  2. the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.

The general power of investment is subject to any restriction or exclusion imposed by the trust deed or by any statutory provision.

Trustees have a duty not to delegate their duties or powers unless authorised to do so.

In selecting investments, a Trustee is under a duty to consider that the Trustee is making an investment for the benefit of other people (for whom he is morally obliged to provide).

The Trustee must carefully balance the risk of investments against not using their powers to invest fully.

It is important, especially when a Trustee does not have the relevant experience or qualifications that they take appropriate legal, tax, investment, etc. advice before exercising their powers.  Please see our note on the recent Isle of Man case AB and CD (CHP 2016/7).

The Trustee must ensure fairness between the beneficiaries and act impartially in the sense of fairly and disinterestedly, between the beneficiaries

A trustee must consider the needs of all of the beneficiaries of the trust, and consider from time to time making distributions to the beneficiaries.

There is no strict duty for a Trustee to consult with the beneficiaries of a trust.  However, as the beneficiaries are the people who may sue a Trustee, it is important to maintain a good working relationship and manage expectations.

Duty of Trustee to act gratuitously unless otherwise authorised (as is usual now)

Unless there is a specific clause within the trust deed, a Trustee must act without reward and not make profit from the Trust.  Most modern trust deeds include provisions allowing Professional Trustees to charge in accordance with their usual terms of business.

Duty of Trustee to be ready with his accounts

The beneficiaries must be able to hold a Trustee to account for their actions.  Accordingly, a beneficiary has a right to a copy of the accounts of a Trust. See part five of this series for further information regarding a beneficiary’s right to documentation from the Trustee.


A Trustee must not put themselves in a position where either their personal interest or fiduciary duties as a director or trustee of a company or another trust conflict with their role as a Trustee of the Trust.

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.

MANAGE YOUR MONEY-Last minute RRSP tips – save on taxes, save more for retirement

The deadline looms for making your 2014 contribution to investments held in your Registered Retirement Savings Program (RRSP). But you’ve still got a few days and a few choices to make that will save on taxes and save more for your retirement. Here are your last-minute RRSP tips.

RRSP deadline details

• March 2, 2015 at 11:59 PM is the deadline for contributing to investments in your RRSP for the 2014 tax year.
• You may make a maximum contribution of up to $24,270, depending on your earned income in 2014 (and minus your pension adjustment if applicable).
• You’ll find your personal maximum allowable contribution on your most recent notice of assessment from the Canada Revenue Agency (on line (A) of the  RRSP Deduction Limit Statement).
• You can carry forward unused contribution room from prior years.
• You can fill your unused contribution room in a single year or over a number of years until the end of the year in which you reach age 71(or the end of the  year your spouse/common-law partner turns 71).

RRSP tax-saving, tax-deferring, income-building tips

• Maximize this year’s RRSP contribution. This is the best strategy for tax savings and maximizing potential long-term growth.
• Maximize last year’s RRSP contribution. For additional tax savings and enhanced long term growth, catch up on your unused contribution room as quickly as possible.
• Borrow to gain. You could maximize this year’s contribution or catch up on past contribution room with an RRSP loan. The money you borrow will generate a tax break and add to your tax-deferred RRSP growth potential. The key is to get a loan at a low interest rate and pay it back quickly. Use your extra tax savings to help pay off the loan.
• Split to gain. If your spouse’s income will be lower than yours over the next few years or in retirement, a spousal RRSP can generate retirement income that is subject to less tax. The plan is in your spouse’s name but you contribute to it. Your total can’t exceed your personal yearly contribution room but your spouse’s limit is unaffected by your contribution.

Nine reasons why entrepreneurs should hire an accountant


Contributed to The Globe and Mail


Last updated 

When it comes to asking for help, a recent survey showed that startups are more likely than owners of established businesses to enlist mentors or coaches. Long-time business owners, on the other hand, were more likely to rely on the services of accountants, lawyers and bankers than their younger counterparts.

Considering the number of startups that fail in the first year of business, and the challenges entrepreneurs face on a daily basis, it’s apparent that we must help startups understand the importance of working with dedicated professionals. Does an accountant cost money? Of course, and it’s one of the biggest reasons preventing entrepreneurs from seeking the services of a professional accountant. But startups should consider their services investment, not an expense.

An accountant’s scope of work does not end with tax preparation; they can and should be a year-round business partner that can lend expertise and perspective in your industry to help your business grow and navigate through an uncertain economy.

Here are nine reasons why all entrepreneurs should work with an accountant.

1. Focus on why you started your business. Entrepreneurs are passionate, and the more than half of small Canadian business owners surveyed went from business idea to opening in less than six months. With such rapid growth, business owners can’t afford to get bogged down with tasks that don’t help you continue to grow. Accountants can take on the heavy lifting of many different aspects of your business.

2. Find work-life balance. Regardless of how new or established a business is, owners across the board struggle with finding the right balance between work and having a life. In fact, maintaining a balance was the top challenge for startups. Accountants can take on the tasks you are less than thrilled about handling, and free you up to sell, market and grow during the day, and maybe even take your son to soccer practice at night.

3. A professional reputation. A good accountant will represent you and your company in the best possible way. This is particularly important as new businesses strive to build strong relationships with key players in their success, such as the bank.

4. It’s vital to a company’s success. As reported by the Sage survey, more established business owners report working with an accountant, agreeing that working with an accountant is a critical element in success.

5. A new perspective. Oftentimes entrepreneurs are so involved running the day-to-day operations of their business that they may not be able to see the whole picture. Someone who is removed from the business can provide a different perspective that may otherwise be missed. Meeting with an accountant can be like taking a step back, looking at the bigger picture and gaining a fresh, new perspective. Sometimes that’s all it takes to come up with the next big idea.

6. They have reach. Don’t underestimate how valuable it is to receive guidance from someone who has insight and knowledge across hundreds of businesses and industries. Accountants not only get to see the financial information of many businesses across a variety of industries, but they also have visibility into best practices that are working for other businesses as well as the mistakes others have made that have led to failure. Being able to have this insight and share information on what has or hasn’t worked for others is invaluable – why reinvent the wheel if you don’t have to?

7. Businesses need a plan. One reason thousands of businesses fail every year is because they didn’t have a plan. When asked why, they said, “I just didn’t know where to start.” This is where an accountant comes in. A good accountant will partner with a business to look at all the data and help build a road map to success. Poor planning isn’t necessary, and bringing a professional on board can help small businesses plan for success.

8. They understand tax. This may seem obvious, but keep in mind that rules and regulations change frequently, and it’s tough if not impossible for any business owner to keep up with it all. Twenty-nine per cent of Canadian small business owners admitted that accounting and bookkeeping is one of their biggest challenges. An accounting professional can take away your uncertainty and ensure your business stays compliant.

9. Analyze data for growth and profitability opportunities. If all of your data is just sitting in a database and you’re not interpreting, analyzing or using it to help drive your business direction and decisions, you’re missing out on a great opportunity. Have an accountant help you dive into the numbers and use them to propel greater business growth and profitability in the future. A great way to do this is through online collaboration in a small business accounting solution where accountants have visibility into clients’ financial data in real time.

Can your startup survive without the assistance of an outside accountant? Possibly, but the extra insight, guidance, and expertise an accountant offers can be the catalyst that makes your business thrive.

As vice-president and general manager of Sage Accountant Solutions atSage North America, Jennifer Warawa is helping entrepreneurs work with accountants by introducing Sage One Accountant Edition, an online accounting solution. Prior to working with Sage, Ms. Warawa was a small business owner for 12 years.

Accountant’s Role

Many new small business owners take on the role of accountant during their start up efforts. As there are already numerous demands on the owner’s time, this may or may not be a smart move.

An accountant can be an important member of your business team. Not all accountants are created equally, however.

A capable accountant focuses on the relationship. Find an accountant who is interested in your success and in building long-term clients, and he or she will be even more advantageous to your team. Your accountant should be interested in both your personal and professional financial success. Unfortunately, some accountants aren’t interested in this kind of relationship, and their clients are simply numbers in their practice.

Moreover, some accountants have little or no hands-on business experience and, therefore, lack a broad knowledge base. They may be excellent at crunching numbers but very weak in practical application. Even high-priced firms can make the mistake of choosing an accountant with little input toward the success of the business. For example, they may take profit and loss numbers and produce tax returns with no questions asked. There could be glaring mistakes, but someone who doesn’t care about the well-being of your company may plug them in without any thought.

What role do you need your accountant to play in determining the success of your business? Ask yourself the following questions:

  • Do you need assistance determining your business structure – sole proprietorship, partnership, or corporation?
  • Do you need guidance in establishing your accounting systems for quarterly and year-end reports?
  • Would you like to use a software program for accounting and year-end reports?
  • Are you clear about which taxes you need to pay and when you need to pay them?
  • Do you need assistance with payroll?
  • Will your business require year-end paperwork completed, such as W-2 and 1099 forms?
  • Do you understand tax laws well enough to represent yourself if you are audited?
  • Do you know how to depreciate your startup costs?
  • Do you know how to roll personal property into business property for taxation purposes?
  • Will you use your personal home or automobile for business purposes?
  • Do you know what expenses are tax deductible?
  • Do you know how to keep personal and business expenses separate for tax purposes?
  • Will you require assistance in determining how best to equip your new business, whether it be purchasing or leasing?
  • Do you truly understand financial statements?
  • How will you handle retirement for both you and your employees?
  • What health insurance is best for you and your employees?

It’s vital to have not only an accountant on your team but the right accountant. If you are a small business owner who wants to do it on his own, without the involvement of a tax or financial specialist, you may wonder how difficult it is to stay abreast of tax law changes. Moreover, what’s the real cost to the small business owner to do this work on his own?

The longer you’re in business, the easier this gets. However, when a business owner is just beginning, many of the accounting details seem like a foreign language. If you would eventually like to perform accounting functions on your own, find an accountant who’ll teach as he or she smoothes out the financial details.

Is Your Corporation a Personal Service Business?


One of the first blogs I wrote was “I am a Contractor Unless CRA Says Otherwise” (Note: the link is being temperamental, so if you want to read that blog, either google it or it is listed as a favourite post on the right hand side-bar). In that blog I discussed the various criteria the CRA and the courts use to determine whether a person is an employee or a contractor. I then further discussed the income tax withholding issues that arise when the CRA attempts to re-characterize a contractor as an employee. Finally, I touched upon the concept of a personal service business (“PSB”) and the risk of incorporating if you are a contractor. In today’s post, I will expand on the PSB discussion.

For CFL fans of my vintage, the PSB rules came about because of the despised Ralph Sazio (despised if you were a Toronto Argonaut fan). Mr. Sazio, a member of the CFL Hall of Fame who led the Hamilton Tiger-Cats to three Grey Cup championships, decided he would incorporate a company to provide his services to the Tiger Cats to benefit from the low corporate tax rate. The CRA took Sazio to court, but Mr. Sazio won his case prompting the CRA to implement the PSB rules.

The PSB rules have reared their ugly head recently because of a CRA crackdown on IT consultants as discussed in this Ottawa Business Journal article by Peter Kovessy titled Taxman cracks down on IT consultants.

In addition, on October 31, 2011 the CRA released draft legislation that imposes further punitive rules on PSB’s by removing the general rate deduction previously allowed. These new rules will become effective for taxation years beginning after October 31, 2011 and are discussed below.

The PSB rules deal with incorporated employees. Essentially, when a corporation has been interposed between what one would normally consider an employee-employer relationship, the employee becomes an “incorporated employee”. As I have discussed in many prior blogs, incorporation is advantageous because it provides the following: access to the small business deduction and the related low income tax rate, a possible deferral of income tax, limited liability, and potential access to the $750,000 capital gains exemption on qualifying small business corporation shares.

In reviewing the PSB rules, you essentially need to ask yourself if you would reasonably be regarded as an employee or officer of the person or partnership to whom you are providing the services, but for the existence of your corporation . If you only have one or two clients and your corporation does not employ more than 5 full-time employees, and you do not meet the criteria I discuss in my contractor blog, you risk being characterized as a PSB.

So what are the income tax consequences of being considered a PSB once the new legislation is passed?

The corporation will be prevented from claiming the small business deduction, both federally and provincially, and as noted above, you will no longer even get the general rate reduction. In Ontario that means the corporation will be subject to income tax at a rate of 39.25% (in 2012). For comparative purposes, the current small business income tax rate is 15.5%. As a consequence, when taking money out of a PSB by way of dividends, the ultimate combined personal and corporate tax rate will approach 58% in Ontario, a very punitive amount which is 12% greater than a high-rate employed taxpayer would pay.

When determining the taxable income from a PSB, the only eligible deduction for the corporation will be any salary and benefits paid to the incorporated employee (yes, that means no other expenses such as travel, office supplies and auto are allowed). If the incorporated employee is a salesperson receiving commissions, expenses paid by the corporation that would have been allowed as a deduction to the individual personally as a commissioned salesperson will be allowed.

If you are concerned that your corporation may be a PSB, a conservative approach would be to pay yourself salary rather than using a dividend remuneration strategy. You may also want to avoid income splitting with family members who are not shareholders; however, your other business deductions are still at risk of being disallowed.

The proposed PSB rules are very punitive. If you may be an incorporated employee you should review your situation in detail with your accountant.