Walters v. Walters: Absolute discretion is not absolute.
Absolute discretion is not absolute.
“I DIRECT my Trustees to hold the residue of my estate in trust for my husband…to keep such residue invested and to pay to or for the benefit of my husband…to pay such part or parts of the capital of the residue of my estate as my Trustees in their absolute discretion consider necessary or advisable to or for the benefit of my said husband…I wish to advise my Trustees that my husband’s comfort and welfare are my first consideration…it is my desire that my Trustees exercise their powers to encroach on the capital in a manner which will ensure his comfort and well being.
Is absolute discretion absolute? The Ontario Court of Appeal would suggest, no. In its recent decision, Walters v Walters, 2022 ONCA 38 (“Walters”), it was made clear that although a testator may provide for their trustees to have absolute discretion regarding specific decisions, this discretion has its limits, and the court may intervene in some situations. In Walters, the Respondent’s wife passed away leaving their three adult children, the Appellants, as trustees and as residual beneficiaries. Despite providing her children with absolute discretion to encroach on estate assets to prioritize their father’s (Respondent’s) comfort and well-being, the Ontario Court of Appeal made it clear that discretion cannot be absolute and is subject to certain limits and sometimes court intervention.
In short, the children disliked their father, had distrust for him, and refused to provide a sum he requested to cover living expenses. When the father filed an application for financial assistance, the application judge granted the request on the basis that the children relied on extraneous evidence (that they disliked him and distrusted him) irrelevant to the decision to be made.
On appeal, although the Ontario Court of Appeal upheld the decision to grant the Respondent’s request for financial assistance, they did so for different reasons.
As with most estate matters, Walters was concerned with the interpretation of a will; specifically, the interpretation of a provision giving the testator’s surviving children, as trustees and residual beneficiaries, discretion in encroaching on the estate’s assets for the benefit of the Respondent (the father of the three children). In question, at the appeal court, was threefold: whether the application judge erred in substituting her own discretion for that of the trustee’s discretion, whether the children improperly relied on extraneous factors in consideration of their decision to deny their father’s request to encroach on the estate’s assets, and whether the application judge erred in ordering arrear payments. Through its answer, the Ontario Court of Appeal succinctly summarized the law on estate trustee discretion and why it can not be absolute.
The adjudication of estate matters must revolve around giving effect to the testator’s intentions by examining the language of the will as well as its surrounding circumstances. The testator provided her primary consideration to be the assurance of comfort and well-being of the Respondent when providing discretion to the trustees to encroach on the estate’s capital. Naturally, the financial position of the party applying for financial assistance may be examined; however, this does not explicitly demand the trustee to do so absent language in the will requiring them to do so. The court may intervene when the trustee improperly exercises their discretion using extraneous information to influence their decision, for example their dislike of the person.
Further, it is inappropriate for a court to characterize distrust as a factor that is extraneous to the exercise of discretion in granting said person’s request for financial assistance. As trustees need to be convinced that the funds are going where they say they will be, evidence of deception is appropriate to consider. However, as mentioned earlier, the dislike of an individual is an inappropriate factor to consider through the exercise of discretion. This is not a substantive reason to deny financial assistance and the Court of Appeal found that the judge correctly intervened. The application judge determined that the amount being requested was consistent with the cost of the living arrangements the Respondent was contracting for and justified the granting of the request.
In summary, although a testator may indicate that a trustee’s discretion is absolute, the ultimate driving factor in the appropriateness of a trustee’s exercise of discretion is the testator’s true intentions. If the testator provides discretion for a trustee to encroach on the estate for the benefit of another, this exercise must be exercised appropriately without the presence of extraneous factors influencing the decision.
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