Estate Trustees took wrong turns with family farm after mother's passing

In a recent application to pass accounts in an farm estate matter, the Court heard about how one of five children was able to purchase the family farm at a reduced rate.  Children H and J had been named estate trustees in their mother's will.  Child F farmed the mother's 98-acre farm.  The mother's will provided that the residue of the estate (comprising mainly the farm or the proceeds from the sale of the farm) would be divided into five equal shares for the five surviving children: H, J, F, N and K.  H and J obtained a valuation of the farm at $450,000 and then sold the farm to F for only $300,000.  K and N were not notified in advance about the sale of the farm.

Needless to say, K and N had concerns about the sale and retained legal counsel to pursue those concerns.  Child F and the estate trustees, H and J, resolved to implement remedial measures to address the concerns of K and N.  They did not reverse the sale, but agreed that F and his family would list the farm for sale through a professional real estate broker and transfer the proceeds of the sale into the estate.

The farm was then sold for $450,000 and the purchase funds were directed to the estate.  The estate then reimbursed F for the $300,000 he had paid earlier for the farm. 

H and J then applied to "pass their accounts" as estate trustees.  K and N objected to the accounts provided by H and J on a number of levels: they objected to the executor compensation to be paid to H and J; they objected to a proposed further payment to F for additional out-of-pocket expenses he incurred as a result of his original purchase of the farm; they submitted that H and J should be personally responsible (i.e. not the estate) for a number of expenses, including those resulting from the original sale of the farm to Child F; and they submitted that H and J should be personally responsible for all legal costs incurred.

Justice Leach found that H and J had clearly breached their fiduciary obligations as estate trustees.  These obligations include an obligation to obtain "fair market value" for assets that are being liquidated.  Justice Leach found that H and J "initially acted in complete disregard of their obligation to act for the benefit of the estate, and all of its beneficiaries, by not making efforts to liquidate its primary asset for fair market value" and, "no person of ordinary prudence, in managing his or her own affairs, would readily part wiht such a significant asset for such an inappropriately depressed price."

And the breach of fiduciary duty was compounded by also conferring "an effective gain on one estate beneficiary to the significant detriment of all other estate beneficiaries."

Justice Leach accepted a number of the objections of K and N.  He suggested that if H and J wished to compensate F for his out-of-pocket expenses, they could do so from their own shares of the estate.  Costs incurred that were not for the benefit of the estate were treated as damages and Justice Leach ordered those repaid to the estate by H and J.  H and J's executor compensation was also reduced from the $36,000 claimed to $15,000. 

Read the decision at: In the Estate of NB.