Ontario Trust Law Guide 2024

The Structure of Ontario Trust Law

Trust law in Ontario is a blend of common law equity and statute. The primary statutes are the Trustee Act (which governs trustee powers and duties), the Variation of Trusts Act, and the relevant provisions of the Succession Law Reform Act for testamentary trusts. The foundational equitable principles derive from English equity — Ontario courts regularly apply and adapt English trust law authorities.

A trust is a relationship in which one person (the trustee) holds property for the benefit of another (the beneficiary). The person who creates the trust (the settlor) transfers property to the trustee with the intention that the trustee manage it for the beneficiaries. The legal title to trust property vests in the trustee; the beneficial interest is the beneficiary's.

Creating an Express Trust: The Three Certainties

An express trust is deliberately created by the settlor. The classic formulation from Knight v Knight (1840) requires three certainties:

1. Certainty of Intention

The settlor must manifest a clear intention to create a trust — to impose an obligation on the trustee to deal with property for the benefit of another. Precatory language — "I wish," "I hope," "I request," or "I desire" — is generally insufficient to create a trust. Courts look at the substance of the arrangement, not merely the words used.

The distinction between a trust and an outright gift with accompanying wishes is fact-specific. Where a transferee is subject to a binding legal obligation to deal with property for another's benefit, a trust is created. Where the transferee is merely subject to a moral expectation, no trust arises.

2. Certainty of Subject Matter

The trust property must be identified with sufficient certainty. A trust of "some of my shares" or "the bulk of my residuary estate" may fail for uncertainty of subject matter if the specific property cannot be identified. Where fungible property (money, shares in the same company) is held in a mixed pool, questions of certainty of subject matter arise — courts in Ontario have followed the English approach that homogeneous fungibles can form the subject matter of a trust if the proportion is identified.

3. Certainty of Objects (Beneficiaries)

The beneficiaries must be identifiable. The test differs for fixed and discretionary trusts:

• Fixed trusts: Every beneficiary must be ascertainable — the complete list test
• Discretionary trusts: The "is or is not" test from McPhail v Doulton [1971] AC 424 (adopted in Canada) — the trustee must be able to determine whether any given person is or is not within the class of potential beneficiaries. A class description that creates conceptual uncertainty ("my friends," "my employees" in a context where "employee" is unclear) may fail

Resulting Trusts in Ontario

A resulting trust arises by operation of law, not by express declaration. Ontario recognizes two main categories:

Automatic Resulting Trusts

An automatic resulting trust arises when an express trust fails — either for uncertainty, illegality, or incompleteness. The property returns ("results") to the settlor. If a testamentary trust fails, the property results back to the residuary estate or, failing that, passes on intestacy.

Presumed Resulting Trusts: The Pecore Principle

In Pecore v Pecore [2007] 1 SCR 795, the Supreme Court of Canada confirmed the presumption of resulting trust for gratuitous transfers between adults: when property is transferred to another adult for no consideration, equity presumes the transferee holds on resulting trust for the transferor, absent evidence of a gift intention.

This presumption applies to joint bank accounts and investments — a common source of Ontario estate litigation. When a parent gratuitously adds an adult child to a bank account, the default presumption under Pecore is that the child holds the account on resulting trust for the parent's estate, not as a gift to survive jointly. The child can rebut the presumption by evidence that the parent intended to make a gift of the survivorship right.

Practical implication: Adult children added to a parent's accounts for "convenience" purposes may not receive those assets beneficially on the parent's death — the resulting trust presumption applies unless the parent's gift intention is clearly established by evidence (account documentation, solicitor notes, communications). This is one of the most litigated areas in Ontario estate law.

For transfers from a parent to a minor child, the opposite presumption — presumption of advancement (a gift) — applies. The parent is presumed to have intended the gift. This presumption is rebuttable by evidence of the parent's contrary intention.

Constructive Trusts and Unjust Enrichment

A constructive trust is a remedial device imposed by courts to prevent unjust enrichment — it arises by operation of law regardless of the parties' intention. The unjust enrichment framework from Pettkus v Becker [1980] 2 SCR 834 and refined in Kerr v Baranow [2011] 2 SCR 379 requires three elements:

1. Enrichment of the defendant
2. Corresponding deprivation of the plaintiff
3. No juristic reason for the enrichment — the enrichment has no legal basis (not a gift, contract, or legal obligation)

Juristic Reason Analysis

The Garland v Consumers' Gas [2004] 1 SCR 629 framework for juristic reason analysis involves a two-step process:

1. The plaintiff establishes that the enrichment does not fall within established categories of juristic reason (contract, disposition of law, donative intent, other valid common law or equitable defences)
2. The burden shifts to the defendant to demonstrate a residual juristic reason based on the parties' reasonable expectations and public policy

Constructive Trust as Remedy

Once unjust enrichment is established, the court must determine the appropriate remedy. A monetary award is the default; a constructive trust over specific property is available where:

• There is a link between the plaintiff's contribution and the specific property claimed
• A monetary award would be insufficient — for example, if the defendant is insolvent or the property has special value

In Ontario common-law partner separations, constructive trust claims over the family home are frequently advanced where one partner contributed to the property's acquisition, improvement, or mortgage reduction but is not on title. Unlike married spouses under the Family Law Act, common-law partners have no equalization entitlement — unjust enrichment and constructive trust are the primary equitable remedies available to unmarried partners with property contributions.

Trustee Duties Under the Ontario Trustee Act

The Trustee Act of Ontario governs trustee powers and duties. Key provisions:

Investment Duty: Prudent Investor Standard (s.27)

Under Trustee Act s.27, a trustee must exercise the care, skill, diligence, and judgment that a prudent investor would exercise in making investments. The prudent investor standard replaced the former legal list approach — trustees can invest in a diversified portfolio including equities, not just government bonds and mortgages. Trustees must consider:

• General economic conditions
• The possible effect of inflation
• The expected tax consequences
• The role each investment plays within the overall trust portfolio
• The expected total return from income and appreciation
• Needs for liquidity, regularity of income, and preservation and appreciation of capital
• An asset's special relationship or special value, if any, to the purposes of the trust or beneficiaries

Duty of Loyalty and No-Conflict Rule

A trustee must act in the beneficiaries' interests, not their own. The no-profit rule prohibits trustees from making personal profits from the trust. The no-conflict rule prohibits trustees from placing themselves in a position where personal interests conflict with their duty to beneficiaries. These duties may be relaxed by express provisions in the trust instrument or by unanimous beneficiary consent.

Duty to Act Personally and Delegation

At common law, trustees could not delegate their duties — the delegatus non potest delegare principle. Ontario's Trustee Act now permits broader delegation of investment management functions to investment advisers, subject to the trustee maintaining oversight and review obligations. Trustees cannot delegate their core decision-making discretion.

Duty of Impartiality

Where a trust has income beneficiaries (entitled to income during the trust's term) and capital beneficiaries (entitled to the corpus on termination), the trustee must act impartially between them. An investment approach that maximizes income at the expense of capital appreciation (or vice versa) may constitute a breach of this duty.

Breach of Trust: Remedies in Ontario

When a trustee commits a breach of trust — by investing inappropriately, misappropriating assets, self-dealing, or failing to account — several remedies are available:

Equitable Compensation

The primary remedy is equitable compensation — restoring the trust estate to the position it would have been in but for the breach. Unlike contract damages, equitable compensation is not subject to remoteness limitations — the trustee is liable for all losses flowing from the breach, even if not reasonably foreseeable. The Supreme Court of Canada addressed equitable compensation principles in Canson Enterprises v Boughton [1991] 3 SCR 534.

Account of Profits

Where a trustee profits from a breach of fiduciary duty (self-dealing, appropriating business opportunities), the beneficiaries may elect an account of profits — stripping the trustee of all profits made through the breach, regardless of whether the trust suffered equivalent loss.

Tracing

Trust beneficiaries may trace trust property into the hands of the trustee or third parties who received it. Tracing at common law is limited to following identifiable property through unmixed funds. Equitable tracing permits following funds through mixed accounts using the rules in Re Hallett and Re Oatway. Third-party recipients are subject to the constructive trust remedy unless they are bona fide purchasers for value without notice of the trust.

Limitation Periods for Breach of Trust

Section 16 of the Limitations Act 2002 provides that there is no limitation period for a claim by a beneficiary to recover trust property from a trustee who holds it. For other breach of trust claims (equitable compensation, account of profits), the basic 2-year limitation period from discovery applies, subject to the ultimate 15-year period under s.15. Fraudulent breach of trust may attract the discovery-based limitation without an ultimate cap.

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Frequently Asked Questions

What are the three certainties required to create an express trust in Ontario?

An express trust requires certainty of intention (clear intent to impose a trust obligation, not mere precatory language), certainty of subject matter (identified trust property), and certainty of objects (identifiable beneficiaries — complete list for fixed trusts, "is or is not" test from McPhail v Doulton for discretionary trusts).

What is the Pecore presumption of resulting trust in Ontario?

From Pecore v Pecore [2007], when an adult gratuitously transfers property to another adult, equity presumes a resulting trust — the transferee holds for the transferor. This is rebuttable by gift intention evidence. The opposite presumption of advancement (gift) applies for parent-to-minor-child transfers.

What is a constructive trust in Ontario law?

A constructive trust is a remedial trust imposed to prevent unjust enrichment. Under Kerr v Baranow [2011], unjust enrichment requires: enrichment of the defendant, corresponding deprivation of the plaintiff, and no juristic reason. A constructive trust (rather than a monetary award) requires a link between the plaintiff's contribution and the specific property.

What are a trustee's core duties in Ontario?

Core trustee duties include the prudent investor standard (Trustee Act s.27), duty of loyalty (no self-dealing, no conflicts), duty to act personally (limited delegation), duty of impartiality between income and capital beneficiaries, and duty to account. Breach makes the trustee personally liable to the trust estate.

What remedies are available for breach of trust in Ontario?

Remedies include equitable compensation (restoring the trust estate), account of profits (stripping the trustee's gains), constructive trust over specific property, and tracing (following trust assets). Under Limitations Act 2002 s.16, there is no limitation period for a beneficiary's claim to recover trust property from a trustee.