Innovation in Alberta

Alberta’s new Trustee Act (the Act)[1] entered into force on 1 February 2023. It is modelled on the Uniform Trustee Act, adopted by the Uniform Law Conference of Canada in 2008,[2] and makes significant changes to trust law in the province of Alberta, including abolishing the common-law anti-netting and apportionment rules, permitting the appointment of an attorney by a trustee or of a ‘temporary trustee’, imposing onerous reporting obligations, simplifying administration and variation of charitable trusts, and facilitating recognition of non-charitable trusts.

Abolition of common-law rules

The Act institutionalises some fundamental changes to the common law applicable to trusts by abolishing:

• Anti-netting: The rule requiring assessment of trustee decisions on an investment-by-investment basis.[3] The Act incorporates modern portfolio theory and evaluates the prudence of the overall investment strategy instead.
• Rules of apportionment:
  • The rules in Howe v Lord Dartmouth[4] and Re Earl of Chesterfield’s Trusts,[5] which mandate conversion of personal property into authorised trust investments and apportionment of income or sale proceeds among income and capital beneficiaries in a particular way; and
  • The rule in Allhusen v Whittell,[6] which requires income expenses to be borne by income beneficiaries and capital expenses to be borne by capital beneficiaries.[7]

These rules of apportionment have often been intentionally overridden as part of modern trust drafting (as they can unduly complicate the administration of a trust) and so their abolition is a desirable reform. The Act still requires trustees to act impartially between classes of beneficiaries in the administration of a trust and permits trustees to charge outgoings to income or capital of a trust (other than an alter-ego trust, a joint spousal trust or a spousal trust) in a manner that the trustees consider is just and equitable in the circumstances, in accordance with ordinary business practice, and in the best interests of the objects of the trust.

Appointment of an attorney by a trustee

Section 14 of the Act permits a trustee to appoint ‘an attorney for a specified period to exercise any powers and perform any duties of the trustee’. A trustee who makes such an appointment remains liable for the acts or omissions of the attorney. Alberta’s power of attorney legislation does not apply to an attorney appointed by a trustee. It is not clear what an attorney’s powers and duties would be if the authorising document lacks detail or clarity on point.

Temporary trustees

In case of absence or incapacity (not amounting to mental incompetency), s.11 of the Act authorises a trustee (or alternatively a ‘designated person’)[8] to appoint another person as a temporary trustee for a specified period to exercise any or all powers, including distributive powers, and to perform any or all duties of a trustee if the trust instrument does not name an alternate trustee. Temporary trustees are liable for any loss to trust property arising from their acts or omissions, under s.13 of the Act, and the original trustee is unable to act while a temporary trustee’s appointment is in effect; however, such an appointment can be prematurely revoked. The provision may be helpful if, for example, a trustee anticipates being in a foreign jurisdiction for an extended period (for work, health or other reasons) but intends to resume trusteeship upon their return.

Reporting obligations

The Act imposes significant reporting obligations on trustees to qualified beneficiaries of the trust. A ‘qualified beneficiary’ is defined as a beneficiary with a vested interest in the trust or any other beneficiary who has notified the trustees that they wish to be a ‘qualified beneficiary’. Within two months after the end of the trust’s fiscal period, trustees must deliver a report to the qualified beneficiaries including:

• a statement of the assets and liabilities of the trust, and their value when the trust was created;
• a statement of the assets and liabilities of the trust, and their value at the beginning and end of the fiscal period;
• the basis for the valuations of the assets of the trust, if the trustee considers it practical;
• a statement of receipts and their sources for the fiscal period; and
• a statement of disbursements and their recipients for the fiscal period.[9]

On written request of a qualified beneficiary, a trustee is also obliged to allow the beneficiary to inspect any source documentation pertaining to the report. A trustee must still comply with any duty under general trust law to provide to a beneficiary, upon request, accounts or trust information within a reasonable period of time.

These reporting obligations are extensive and will likely increase compliance costs for trusts subject to Alberta law. Beneficiaries, armed with an explicit statutory right to receive trustee reports and to inspect source documentation, may adopt a more belligerent attitude towards trustees.

However, the reporting obligations can be varied by the trust instrument. The legislation appears to permit trustees to adopt a ‘fiscal year’ longer than a calendar year for accounting purposes, and trustees may limit disclosure to protect the interests of a beneficiary, prevent prejudice to trust property, avoid unreasonable administrative burdens or maintain obligations of confidentiality.

Charitable purpose trusts

Absent a prohibition in the trust instrument, the Act permits the trustee of a charitable trust to adopt a total return investment policy whereby a ‘specified percentage’ of the net value of the trust assets at the beginning of a valuation period would be applied to the objects of the trust.[10] This may assist charitable trusts to provide more consistent cash flow on a periodic basis to their intended objects.

Section 74 of the Act also provides a broad power to the court to vary a charitable trust in a manner that would ‘facilitate the carrying out of the charitable intent, whether general or specific, of the settlor’ subject to any gift-over or reversion expressly provided for in the trust instrument. The legislation also permits an application (notwithstanding any provision to the contrary in the trust instrument) for the sale of any property held in trust for a charitable purpose, if it can no longer be used advantageously for the charitable purpose or should otherwise be sold. These provisions expand on the cy-près jurisdiction of the court and may result in more efficient use of trust property held for charitable purposes.

Non-charitable purpose trusts

At common law, trusts for non-charitable purposes generally failed because there was no one to enforce them.[11] Exceptions arose for ‘anomalous purpose trusts’, e.g., those for maintenance of a tomb or monument. More recently, perpetuity legislation in a number of provinces and territories in Canada also converted trusts for non-charitable purposes into powers of appointment valid for 21 years.[12]^,[13]

In addition to any non-charitable purpose trusts that may already be recognised at law, the Act permits a trust for a non-charitable purpose to exist indefinitely if the purpose is sufficiently certain for the trust to be carried out, is not contrary to public policy and is for the performance of a function of government in Canada or a matter specified by regulation. Although the applicable regulations remain to be enacted, these provisions may help direct allocation of funds to a wider range of public purposes. The Act also grants the court broad discretion to vary non-charitable purpose trusts and to separate a trust (with both charitable and non-charitable purposes) into a charitable purpose trust and a non-charitable purpose trust.

Conclusion

The Act applies to trusts governed by Alberta law, although it does not apply to statutory trusts (unless the statute provides otherwise), personal representatives (in their capacity as such), or implied, resulting, constructive or other trusts arising by operation of the law. It introduces a number of innovations into trust law in Alberta that one anticipates will be refined through judicial consideration or by practitioners in due course. In the meantime, trustees would need to be educated on their expanded powers and duties and trust instruments may require amendments for more efficient administration.