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.

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C.V.

This is just a quick note to let you know how much we appreciated your personal service in preparing a power of attorney for my mother last month. As you know, Mom is quite challenged with the English language and she needs a lot of clarifications. Your draft given to her ahead of time, your use of regular language rather than legalese and your patience with her in your office meant so much to her. She was just as much at ease as when she conducts business in her native French language. So, once again, many thanks for the human touch.

G.D.

I can’t say enough about our satisfaction with Lianne Macdonald. She was extremely patient and understanding and helped us attain our wishes with our will. She gave legal advice but helped us to fulfill our wishes in a way that worked for us.

B.L.

Del was patient, considerate, listened to my issues and treated me with professionalism and respect. Del put in extra thought in drawing up my will by thinking through the legal consequences of different options.

D.M.