New Reporting Requirements for Trustees

• Shelly
  Chamaschuk

  Shelly
  Chamaschuk

  view bio

Family trusts are commonly used in business succession planning, estate freezes, and tax planning. If you have established one or more family trusts or are thinking of doing so, you should be aware that a new Trustee Act (the “Act”) came into force on February 1, 2023 and contains some new reporting requirements for Trustees.

Application

The Act applies to all trusts created before or after Feb 1, 2023, such as testamentary trusts, inter vivos trusts (trusts created while you are alive; a family trust falls into this category), alter ego trusts, joint partner trusts, real estate investment trusts, and royalty trusts. The Act does not apply to an estate or a personal representative of an estate, but it does apply to a testamentary trust established under a Will once the assets are moved from the estate to that testamentary trust.

Trust Transparency

The Alberta government’s stated goal of the Act is to “make it more efficient to create and manage trusts while reducing the need to go to court” and to uphold the overall policy trend towards greater transparency, empowering beneficiaries to ask for information, and greater reporting requirements for trusts.

Can A Trustee Avoid the New Reporting Requirements

It may be possible for a trustee to opt out of certain provisions of the Act, including the reporting requirements. Some have suggested that in certain circumstances a trustee may want to pass trustee resolutions to reduce (or even eliminate) reporting duties. However, the trustee should be mindful that the benefit to the trustee of regular reporting is that it starts the limitation period for any claims by a qualified beneficiary against the trustee and so may provide a level of certainty and protection to the trustee.

New Reporting Requirements

Many trusts will have a December 31 year end or fiscal period, and the trustee will be required to report to Qualified Beneficiaries within 2 months of the end of the fiscal period, that is by February 28, 2024. Here is a brief summary of the provisions of the Act that apply to the trustee’s duty to report.

1. Qualified Beneficiaries  

A trustee is now required to report to beneficiaries who are “Qualified Beneficiaries”. A Qualified Beneficiary is defined as any beneficiary of the trust who either has a vested beneficial interest in the trust property or who delivers a written notice to the trustee that they want to be a Qualified Beneficiary. 

Determining whether a beneficiary has a vested beneficial interest in the trust property can be a complex matter and there is plenty of room to disagree. Further, there may be good reasons why a trustee does not want to share financial information about the trust with a beneficiary. In this case, the trustee may want to consider passing a resolution to define what creates a “vested beneficial interest in property” (for example, this may be once a beneficiary receives notice in writing of an entitlement to property), or otherwise define or limit who is a Qualified Beneficiary. Some have suggested that trustees could pass a trustee resolution stating that while dad or mom are alive (and presumably the trustee) none of the beneficiaries of the trust are Qualified Beneficiaries and therefore the trustee is not required to report to anyone.

2. Reporting to Qualified Beneficiaries

The following information must be provided to Qualified Beneficiaries within 2 months of the end of each “Fiscal Period”:

• A statement of assets and liabilities, and the value at the time of creation
• A statement of assets and liabilities, and the value at the beginning and end of the fiscal period
• The basis for the valuation of the assets
• A statement of receipts and their sources for the fiscal period
• A statement of disbursements and their recipient for the fiscal period

a. Fiscal Period

The term “Fiscal Period” pertains to accounting purposes and, if not defined, defaults to a calendar year.  A trustee may want to pass a resolution defining the Fiscal Period so that it allows for a longer reporting interval, such as 2, 5 or 10 years. It is difficult to predict what longer reporting interval may be acceptable, but it is worth noting that under the Surrogate Rules, a personal representative is required to report to the beneficiaries of an estate every 2 years. This may provide some guidance on what may be a longer but acceptable reporting period.

b. Valuation of Trust Assets

Depending on the type of assets held in a trust, there may be concern about the time required and the costs incurred by the trust simply to value the assets each Fiscal Period. A trustee may want to pass a resolution setting out the acceptable means by which certain assets may be valued in order to minimize the costs to the trust of obtaining valuations and appraisals. Some examples might be:

1. If the trust holds real estate, the municipal property tax assessment value may be used as the value for reporting purposes.
2. If the trust holds shares of a private corporation, the cost base or book value may be used as the share value for reporting purposes.
3. If the trust holds a stock portfolio, the fair market value at the close of trading on the last day of the Fiscal Period may be used as the portfolio value for reporting purposes.

Before passing any resolutions dealing with the new reporting requirements, the trustee needs to review the trust deed to determine whether such a resolution is permissible. Trustee resolutions are unlikely to be upheld by the court if they are inconsistent with the trust deed and/or the Act’s stated goals so that they unduly restrict the transparency and information that beneficiaries are now entitled to receive under the Act.

If you have or are considering a family trust and have questions about how this Act might apply, reach out to the Wills and Estates Team Leader Shelly Chamaschuk.

_{This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.}