CAUTION – NEW LAWS PERMIT RISKIER TRUST INVESTMENTS

An amendment to the British Columbia Trustee Act has changed the rules about investments made by trustees. Trustees include people or trust companies appointed to administer certain assets for the benefit of other individuals. The most common example of a trustee is the executor of your will, who is legally appointed to collect in and administer your assets for the benefit of your beneficiaries.

The legal rights and responsibilities of trustees are governed partly by the Trustee Act and partly by Canadian and English court decisions. Traditionally, the Trustee Act restricted a trustee’s ability to invest trust funds. Only low-risk investments (such as Canadian government securities or bonds, bank or trust company guaranteed investment certificates, and Canadian first mortgages for less than 75% of the value of the property) were permitted. The conservative, government-prescribed list of authorized investments was intended to prevent the mismanagement of trust funds by trustees, and minimize potential losses of trust moneys. But over time, the decline of sound returns on these prescribed investments resulted in pressure to relax the rules.

The amendment to the Trustee Act, which came into force on February 28, provides that:

  • there is no longer a list of authorized investments;
  • a trustee can now invest trust funds at will. For example, investments in mutual funds are permitted; and
  • a trustee’s legal responsibility is to act as a ‘reasonable and prudent person’ in considering what investments are appropriate in the specific circumstances.

While many members of the legal and financial communities have welcomed these changes, we caution our readers that there is an increased potential for trust funds to be lost, or significantly reduced, where a trustee lacks the commitment or sophistication to invest prudently. More than ever, careful consideration must be given to the choice of trustees in wills and other legal documents creating trusts. While a trustee can be sued for acting imprudently, and may be liable to the trust beneficiaries for a breach of trust duties, trust funds may be lost and never recovered in the process.

On the positive side, investment powers included in trusts and wills drafted prior to the new laws are likely still effective. If you have questions or concerns, please do not hesitate to contact us.