Enactment of new Trustee Act
By Zach Geldert, TEP and Charlotte Jenkins
Overview of New Act
The new Trustee Act came into force on August 2nd, 2025 (“New Act”).[1]
The New Act introduces significant changes to the law of trusts in Prince Edward Island (“PEI”). The New Act also repeals the Perpetuities Act[2] the previous Trustee Act, and the Variation of Trusts Act[3] (“VTA”). The New Act addresses issues previously dealt with in the Perpetuities Act and the VTA.
The New Act will apply retroactively “to the extent necessary to give full force and effect to its provisions and shall not be construed as lacking retroactive effect in relation to any matter because it makes no specific reference to that matter”. Nonetheless, there are a number of specific provisions, highlighted in the chart below, that are inapplicable to trusts which existed on or before August 2, 2025.
Trustees and their professional advisors should be prepared for the implementation and practical implications of the New Act.
Highlights of legislative changes
The New Act makes several changes to the law in PEI. The below highlights are expected to be the most referred to additions to the law in PEI. Future client updates will expand on more detailed implications of the New Act.
Designating new trustees and the powers of court
The previous Trustee Act did not address the appointment of new trustees without court approval. If a trust did not contemplate replacement trustees, judicial intervention was required for the appointment of a replacement trustee. Under the New Act, new trustees may be appointed without court approval, provided appointments are made by a “designated person”, as defined by the New Act.
Designated persons include those specifically designated in trust documents to appoint new trustees, the continuing trustees, a personal representative of the last remaining trustee, and the beneficiary, where the trust arises by enactment. The designated person may appoint a new trustee:
- where the trustee is deceased,
- where the trustee is a dissolved corporation,
- or a trustee disclaims or ceases, in a number of circumstances, to be a trustee.[4]
Duties of trustees
Trustees have a general duty to exercise the care, diligence, and skill of a prudent person, as well as explicit duties in relation to investing trust property. Importantly, the New Act specifies that there is a greater duty of care imposed on those whose profession, occupation, or business might lead them to have a greater knowledge of the duties they are performing.[5]
Notably, the New Act does not distinguish between a professional acting in their professional capacity for remuneration, and the same professional acting in their personal capacity. Alberta[6] and New Brunswick[7] are the only other common law jurisdictions in Canada to impose this more onerous obligation on professionals acting as trustees regardless of remuneration. However, Saskatchewan only imposes this increased obligation on those who receive remuneration and possess, or hold out that they possess, special skills or knowledge.[8] Prior to the New Act, the common law standard of care set out by the Supreme Court of Canada in Fales v. Canada Permanent Trust Co.[9]of a person “of ordinary prudence in managing [their] own affairs” did not distinguish between remunerated professionals and lay trustees.[10]
Professionals should exercise caution and diligence in performing their obligations as trustees, regardless of the capacity they may be acting in.
Common law rules abolished
The rules set out in Howe v. Lord Dartmouth and Re Earl of Chesterfield’s Trust have been abolished by the New Act.[11] These rules imposed an obligation of “even-handedness” in the distribution of funds and contribution to expenses as between income and capital beneficiaries. Practically, current professionally drafted trusts have usually excluded the application of the common law rules in Howe v. Lord Dartmouth and Re Earl of Chesterfield’s Trust in favour of broader allocation powers.
Under the New Act, trustees will be guided by the exercise of their discretion to allocate distributions and costs as between income and capital beneficiaries in accordance with the considerations set out in subsection 38(2) and, more broadly, sections 35 through 46.
The New Act also abolishes the common law rules which assess trustees’ decisions on an “investment-by-investment basis”. Similarly, the common law rule prohibiting the “offset” of losses by gains where there is a breach of trust by a trustee is abolished, except where the breach of trust is associated with “dishonesty or impropriety” of the trustee.[12]
Perpetuities
The modern rule against perpetuities, as modified in the Perpetuities Act, has been repealed. The rule against perpetuities required that an interest in a trust vest in a beneficiary within a specified period of time. If the vesting did not occur, the trust was void because it offended the rule against perpetuities.
The rule in Whitby v. Mitchell has also been abolished. This rule prevented the creation of successive interests in lands for unborn generations.
However, the modern rule against perpetuities is still applicable where the rule has been relied upon when creating or modifying a trust or where a court has held that the interest violated the rule against perpetuities.[13] The rule against perpetuities is not abolished for trusts that existed prior to the enactment of the New Act.[14]
It is our view that the New Act has abolished these rules, which are notoriously fragmented and convoluted, in favour of simpler rules which address the same issues. Historically, the rule against perpetuities sought to prevent the creation of successive interests in property that would continue indefinitely. Practically, the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) imposes a deemed disposition rule, which results in taxation of trust assets every 21 years.[15] This rule often causes trustees and their advisors to take additional planning steps to address the deemed disposition. As such, the rule against perpetuities has become largely unnecessary. It has already been repealed in other Canadian jurisdictions, such as Nova Scotia.[16]
Conclusion
The changes discussed in this Client Update are non-exhaustive. Other changes include a statutory right to information on demand by a beneficiary. Some of these changes may be abrogated in a trust deed. Others are mandatory.[17] Trustees and their professional advisors should review the New Act for a comprehensive update.
| Inapplicable Provisions for Trusts created prior to August 2nd, 2025 | |
| Subsection 38(1) | The New Act’s provisions on charging outgoing to income or capital, allocating the charged outgoing between income or capital, and deducting income earned from depreciating trust property are not applicable to alter ego trusts, joint spousal/common-law partner, post-1971 spousal or common-law partner, and pre-1972 spousal trusts, unless the trust instrument specifies that these provisions apply. |
| Section 40 | All trusts created prior to the New Act are not subject to the provisions on adopting total return investment policies. |
| Subsection 42(2) | Payment provisions outlined in section 43 through 46 of the New Act are not applicable to alter ego, joint spousal/common-law partner, post-1971 spousal or common-law partner, and pre-1972 spousal trusts. This is impermissible, regardless, under the Income Tax Act. |
| Subsection 53(1) | The New Act’s provisions permitting trustees to act by majority and allowing those who disagree to limit their liability, if providing a written statement, do not apply to all trusts created prior to the New Act. |
| Section 54 | The New Act’s provisions deeming a trustee who abstains from taking part in a decision or action as a result of a conflict and to the extent thereof, to be deemed not to be holding office in relation to such decision, does not apply to trusts in existence prior to the New Act. |
| Section 63 | Trusts created prior to the New Act are not subject to provisions on compensation for trustees, such as entitlement to fair and reasonable compensation. |
| Subsection 70(1) | Charitable trusts created prior to the New Act are not subject to provisions allowing for application to the Court to vary the terms of the trust to the extent set out in section 70. |
| Section 75 | Trusts created prior to the New Act are not subject to the provision which deems that trustees of non-charitable purpose trusts have the power of appointment for a period of 21 years. |
| Section 86 | The modern rule against perpetuities is applicable to trusts which existed prior to the New Act. |
| Section 87 | Trusts created prior to the New Act are not subject to the provisions which allow for the power to accumulate income where the disposition of accumulated income is valid. |
This update is provided for general information only and does not constitute legal advice. For specific guidance on The New Act, please contact the authors, or a member of our Estates & Trusts Group.
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[1] Bill 5, Trustee Act, 2nd Sess, 67th Leg, cl 2(3) (Royal Assent on 16 May, 2025).
[2] Perpetuities Act, R.S.P.E.I. 1988, c. P-3
[3] Variation of Trusts Act, R.S.P.E.I. 1988, c. V-1
[4] Trustee Act, ss. 5, 6, 9.
[5] Ibid, s. 26.
[6] Trustee Act, S.A. 2022, c. T-8.1, ss. 27(3), 35(2).
[7] Trustees Act, S.N.B. 2015, c. 21, s. 30(2).
[8] Trustee Act, S.S. 2009, c. T-23.01, s. 8.
[9] [1977] 2 S.C.R. 302, 70 D.L.R. (3d) 257.
[10] Sullivan Estate v. Prince Edward Island (Public Trustee), 2003 PESCTD 65 at para. 48.
[11] Ibid, s. 37.
[12] Ibid, s. 33.
[13] Ibid, s. 86.
[14] Ibid, s. 2(2)(j).
[15] Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 104(4).
[16] Perpetuities Act, S.N.S. 2011, c. 42, s. 3.
[17] Ibid, s. 2(5).