Trustees are Subject to Enhanced Duty to Report to Beneficiaries under Alberta's New Trustee Act

PRACTICAL WISDOM from Phronesis Law LLP

Alberta’s new Trustee Act came into force on February 1, 2023, with the goal of making it more efficient to create and manage trusts while reducing the need to go to court.  The revised Trustee Act is based on the Uniform Law Conference of Canada’s Uniform Trustee Act and the changes are not unique to Alberta.   Trustees, potential settlors (person who establishes a trust), and their advisors are all encouraged to consider the impact of these changes. 

This article discusses the statutory Duty to Report contained in section 29 of the Trustee Act.

The Duty to Report applies to many trusts, including discretionary family trusts and trusts created in Wills, but does not apply to trusts that arise by operation of law (such as implied, constructive, or resulting trusts) or estates (covered under other legislation). 

Statutory Duty to Report 

Trustees already have a common law duty to provide a beneficiary with accounts and certain trust information, upon request. However, the Duty to Report requires trustees to provide written reports to the qualified beneficiaries[1] within 2 months after the end of the fiscal period of the trust[2]. Such reports must include detailed information about the trust including a statement of the trust’s assets and liabilities at the beginning and end of the fiscal period and the value of those assets and liabilities, the basis for the asset valuations, a statement of receipts and their sources, and a statement of disbursements and their receipts. The trustees must allow the beneficiary to inspect the source documents on written request.  

The Duty to Report aims to increase transparency and accountability in the administration of trusts and is a welcome addition to the Trustee Act, as it provides greater protection to beneficiaries vulnerable to abuse or mismanagement of trust property. 

The Trustee Act recognizes that the trustees should not be required to provide this level of disclosure in all situations. As such, a trustee is not required to disclose the information if to do so, in the trustee's opinion, would be unreasonable or would conflict with other legal duties the trustee may have. In making such determinations, trustees should carefully examine any other legal obligations they may have, including as the legal owners of shares that may be subject to a Unanimous Shareholders Agreement and confidentiality/non-disclosure agreements. Further, trustees should ensure their decisions are adequately reasoned and documented.

Waiver of Duty to Report 

The Trustee Act also permits beneficiaries to relieve a trustee of the Duty to Report. While this may seem counterintuitive, there are situations where it may be appropriate for beneficiaries to waive the Duty to Report.  

For example, if beneficiaries are sophisticated investors or have a close relationship with the trustees, they may feel that regular reports are unnecessary or may wish to limit the type of disclosure or the frequency of reporting. In these situations, beneficiaries may agree to waive the Duty to Report to reduce the administrative burden on the trustees and the financial burden of obtaining annual valuations of the trust property.

However, it is important to note that the waiver must be voluntary and informed, meaning that the beneficiaries must understand the implications of waiving the Duty to Report and agree to it freely. Further, the waiver is revocable with written notice to the trustees.  

Exclusion of Duty to Report 

In addition to waiving or limiting the Duty to Report with the agreement of the beneficiaries, it is also possible for the trust deed itself to waive or modify the Duty to Report. With certain exceptions, the trust deed will prevail over contrary provisions in the Trustee Act.

To waive the Duty to Report for a newly created trust, the settlor should expressly state that the statutory Duty to Report does not apply to the trustees. This can be done in the trust deed itself or a separate document, such as a letter of wishes. Depending on the terms of the trust deed, it may also be possible to amend an existing trust deed to waive the Duty to Report.

While the Duty to Report can be waived or modified in the trust deed, the settlor should consider this carefully and with the advice of a legal professional. Excluding the Duty to Report may not be in the best interests of the beneficiaries and may even expose the trustees to potential liability if they are later found to have acted improperly.

If the Duty to Report is waived or modified in the trust deed, the beneficiaries should be provided with other mechanisms to ensure they receive sufficient information about the trust.

Concluding Thoughts 

 The Duty to Report is part of the movement towards greater transparency and accountability in the administration of trusts. By requiring trustees to provide regular reports to beneficiaries, the new Trustee Acthelps ensure that trustees act in the best interests of the beneficiaries.

Please reach out to us if you have any questions about the Duty to Report, or the new income tax reporting and disclosure rules for trusts that we have discussed in prior articles. 

[1] Qualified beneficiaries include beneficiaries with a vested interest as well as any beneficiary who has delivered written notice to the trustees that they want to be a qualified beneficiary. 

[2] We note that this reporting deadline will generally fall before the trust returns have been completed.