Last spring, the Alberta government announced that it would be updating the province’s main trust law, the Trustee Act (the “Act”). At the time, trust experts welcomed the news, noting that modernizing Alberta’s trust laws was long overdue. The revised Act came into force on February 1, 2023. We’ll look at the key provisions and explain how the law has changed and who will be impacted.
What is trust?
A trust is a legal arrangement where a person (the “settlor”) transfers assets to another person (the “trustee”) to hold for the benefit of a third person (the “beneficiary). Trusts are dynamic legal tools that can be used for estate planning, tax planning, commercial transactions, and privacy protection.
Historically, trusts have been viewed as a notoriously complex area of law. Alberta’s revised Trustee Act aims to clarify its trust laws, make trust management more efficient, and limit the need for court involvement in trust disputes.
An overview of the changes to Alberta’s trust laws
Prior to the recent revisions, Alberta’s Trustee Act focused mainly on trusts created under wills (“testamentary trusts”). The new Act applies beyond testamentary situations and has been modernized to respond to the needs of other entities that use trusts, like businesses and charities.
Three key aims of the new legislation are:
- streamlining trust administration by reducing administrative burdens;
- greater transparency through expanded accountability and duties for trustees; and
- more discretion for courts to vary or terminate a trust.
Fewer administrative hurdles and improved trust efficiency
One of the main purposes of the new Act was to address some of the issues that were contributing to court backlogs and getting in the way of more efficient trust administration. Under the new provisions, the following actions are permitted without the need for a court application:
- the appointment of a temporary trustee if the current trustee is unable to act or continue to act by reason of an absence or incapacity;
- the appointment of a replacement trustee;
- the removal of an unfit trustee by a majority of the other trustees through a written resolution;
- the resignation of a trustee; and
- the delegation of trustee powers through a power of attorney, for a specified period of time.
There is also a broad entitlement for trustees to perform their duties and exercise their powers by majority.
Greater transparency and more responsibilities for trustees
Several of the new provisions in the Act deal with the powers and duties of trustees. These provisions are intended to make trustees more accountable to beneficiaries and responsive to their requests.
In particular, the new Act introduces expanded reporting duties. Under the new provisions, trustees are required to report to certain qualified beneficiaries, for each fiscal period, on their management of the trust and details of its financial performance. This is on top of the trustee’s general duty to provide information to beneficiaries.
A new duty of care for trustees
The new Act also imposes an enhanced duty of care on trustees. Under section 27, a trustee must act in good faith and in accordance with:
- the terms of the trust;
- the best interests of the objects of the trust; and
- the Trustee Act.
Further, the trustee must exercise the care, diligence and skill that a person of ordinary prudence would exercise in dealing with the property of another person. The trustee may be expected to exercise a greater degree of skill if they work in a profession relevant to trust administration.
New powers for a court to vary or terminate a trust
If the trust, or the instrument creating the trust, explicitly allows the trustee to vary or terminate the trust, they can do so in accordance with the instruction provided. However, where the trustee isn’t granted this power in the trust document, the new Act says that a court order is required to vary or terminate the trust. Under the old legislation, only the consent of all adult beneficiaries was required.
In addition, the new Act allows the court to vary or terminate a trust without the consent of all the beneficiaries if it considers the variation or termination to be in the best interests of the trust.
New trust reporting rules are on the way
Alberta trustees should familiarize themselves with the enhanced duties and responsibilities imposed by the new Trustee Act. Further, trustees should be aware that the federal government is introducing new trust reporting rules that will apply to taxation years after December 31, 2023.
T3 filing requirement
Under Canada’s current tax law, a trust resident in Canada generally isn’t required to file a T3 income tax return unless the trust owes tax for the year, or it disposes of capital property. Under the proposed legislation, most trusts will now be required to file a T3 income tax return. In addition, they’ll need to report all the settlors, trustees and beneficiaries of the trust and identify anyone who exerts control over the trustee’s decisions around the income and capital of the trust.
Some types of trusts are exempt from filing this additional information. This includes mutual fund trusts, trusts that qualify as registered charities, and trusts governed by registered plans.
If a person fails to file a T3 or doesn’t provide the required information about the beneficial ownership of the trust, they may face penalties. The new rules impose a penalty of $25 per day for each day of delinquency, with a minimum penalty of $100 and a maximum of $2,500.
If the failure to file a return was done knowingly or was due to gross negligence, further penalties could apply. In this case, the further penalty would be equal to 5% of the maximum value of the trust assets held during the year, to a maximum of $2,500. All existing penalties in respect of filing a T3 return will continue to apply.
Contact the experienced trusts lawyers at DBH Law in Calgary for comprehensive estate planning solutions
The skilled estate and corporate lawyers at DBH Law are highly experienced in all aspects of trust administration and estate planning. Our team can help you set up a trust to effectively and efficiently meet your or your business’s unique needs. We can be reached online or by phone at 403-252-9937.