Trustee’s Duties and Responsibilities
“Prudent Investor” Rule
It has been established through common law that the basic duties and responsibilities of a trustee when administering the assets of a trust are subject to various fiduciary obligations:
1. The duty of care. Trustees owe a duty to the beneficiaries to act in the same manner a reasonable and prudent businessperson would in conducting the
It has been established through common law that the basic duties and responsibilities of a trustee when administering the assets of a trust are subject to various fiduciary obligations:
1. The duty of care. Trustees owe a duty to the beneficiaries to act in the same manner a reasonable and prudent businessperson would in conducting their own affairs.
2. The duty to act personally. This duty means that a trustee cannot delegate decision-making power. While they may seek advice from other individuals and professionals, the ultimate decision-making responsibility rests with the trustee.
3. The duty to avoid conflicts of interest and act solely for the benefit of the beneficiaries. This duty outlines that a trustee must act only in the best interests of the beneficiaries of the trust and must act in a way that creates no conflict between the trustee’s own interests and those of the beneficiaries. This duty can often present challenges as the trustee is sometimes a close family member to a beneficiary of the trust. In that case, the trustee should always consider how an independent trustee with no personal connection to any of the beneficiaries would act in their role, and then be guided by that. One way to avoid this issue is by including terms in the trust document that expressly state that the trustee is not required to treat the beneficiaries equally.
4. A trustee may not personally profit from the administration of the trust. This duty means that a trustee cannot receive any personal financial gain, directly or indirectly, as a result of the decisions they make in exercising their role in administering the trust.
In some cases, legislation imposes higher standards and obligations on trustees than those outlined above. One example of this is the Trustee Act, which contains a “prudent investor” rule to govern the manner in which a trustee can invest property when administering a trust. Additionally, the trust agreement in question may also impose higher standards and obligations on the chosen trustee.
Conversely, while the standards and obligations of a trustee can be diminished by specific provisions in the trust agreement, they cannot be removed entirely because the fact that the trustee is a fiduciary is a paramount duty.
Source: Hull and Hull LLP - a leading trust and estate law firm based in Toronto.
A Refresher on a Trustee’s Duties and Responsibilities
Evaluation an Investor or an Insured's Decision Making Capacity
Even though they are not doctors, financial advisors sometimes need to figure out how well their clients' brains are working. This is especially true when they're trying to see if a client can make good decisions about their money. This is important for determining a client's investment knowledge. It is also important in determining if
Even though they are not doctors, financial advisors sometimes need to figure out how well their clients' brains are working. This is especially true when they're trying to see if a client can make good decisions about their money. This is important for determining a client's investment knowledge. It is also important in determining if a client can make an informed decision - known as "informed consent.":
Sometimes, a financial advisor might need to get help from a doctor, especially if they're not sure if a client can make these decisions or if they think there might be an argument about it later. In these situations, it's best to do a test right then and there to see how well the client's brain is working. We're going to suggest three medical tests that can help with this. If nonwe was done, and the client was vulnerable when they got advice and made decisions, then the advisor may have breached rules and standards of care.
Mini-Mental Status Examinations (MMSE)
A first level filter is the MMSE. MMSE is a simple test to see how well someone's brain is working. The client answers a list of questions and gets a score out of 30. If they score 26 or lower, it means they might have some trouble with their thinking skills.
The MMSE isn't perfect. It doesn't test everything about how the brain works. Some experts say it's like a "dull tool" because it can't always catch problems with certain parts of the brain. The score can also be misleading. Someone with thinking problems can still get a perfect score, and someone without problems can score low. Things like how the test is given, distractions, if the client is getting help, language problems, and even the client's medicine can affect the score.
If an advisor is worried that a client can't think well enough to make decisions, they should get more tests done, not just the MMSE. But in some cases, the MMSE can help show the client can make decisions, especially if the advisor also has good notes about their talks with the client.
Cognitive Testing
Another way to check if a client can make decisions is to do tests that look at their language skills, memory, and how well they can plan and understand things. These are all important for understanding what it means to make a decision and what could happen because of it.
These kinds of tests have been used in court cases to help show if a client can make decisions. But they're more useful when they're part of a doctor's opinion or put into context.
Contemporaneous Assessment Instruments (CAI)
A CAI is a special kind of test that can be changed to fit the person being tested. It's done like an interview that checks how well a client can plan and remember things. The questions can be changed to look at different things based on what the person needs. To do a CAI, the doctor needs to know about the client before the interview, like their medical history and past legal documents. The doctor then uses all this information to see if the client can make decisions.
Conclusion
Tests like the MMSE, cognitive tests, and CAIs can give lots of information about how well a client's brain is working. It's important to remember that they're not perfect and they can't replace a detailed legal check of if someone can make decisions. For clients who want to make a decision about their money, the final say on if they can do it is still up to the advisor. The advisor is the gatekeeper - an important role for which few are trained and fewer are alert to the risks if they take instructions from a client with questionable decision-making capacity.
Useful Checklist from Whaley Estate Litigation at:
1. Summary of Capacity Criteria: https://welpartners.com/resources/WEL_SummaryofCapacityCriteria.pdf
2. Capacity Checklist: https://welpartners.com/resources/WEL_CapacityChecklist_EstatePlanningContext.pdfhttps://welpartners.com/resources/WEL_CapacityChecklist_EstatePlanningContext.pdf