INVESTMENT POWERS OF TRUSTEES IN ONTARIO

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One of the primary duties of trustees, executors, and other persons having custody and control of assets belonging to other people, is to invest those assets for the benefit of the true owners. However, the investment powers of a trustee dealing with trust assets, who has a fiduciary duty to act in the best interests of the trust’s beneficiaries, are not as broad as those of an individual investor dealing with his or her own assets, who has no-one to answer to but him or herself.

History

In the past, Ontario legislation set out a list of “authorized” investments for trustees, which consisted primarily of government bonds, deposit instruments with banks and loan and trust companies, first mortgages, and “blue-chip” shares with a 5-7 year history of paying dividends. Although it was common for wills and trust instruments specifically to allow trustees to make investments which were not on the “authorized list”, the many trustees acting under more restrictive trust agreements, or no trust agreements at all, often found themselves unable to take full advantage of the higher rates of return historically associated with equity investments, or even to maintain the real value of a capital beneficiary's interest in the face of inflation. A trustee who invested trust assets in investments authorized neither by the will or trust document, nor by the legislation, would be liable for any loss on the unauthorized investment, even if the other investments in the portfolio had performed well, unless a court found that the trustee had acted “honestly and reasonably and ought fairly be excused for the breach of trust.”

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