An estate trustee has discretion over whether to use core or headline inflation metrics to index an annuity, an Ontario court has ruled.
According to a decision by the Ontario Superior Court of Justice last week, a dispute arose over the calculation of an annuity that was provided for in the will of a woman, Jennie Szewczyk, who died in 2018.
In a previous decision, the court ruled that the will allowed for a one-time indexing of an annuity to be paid to one of her sons from a trust established under the will. However, a subsequent dispute emerged about how to calculate that annuity — including whether the calculation should use the headline or core Consumer Price Index (CPI).
The trustee, CIBC Trust Corp., used the core CPI to make its calculation, and argued that the decision on how to calculate the indexing factor was up to its discretion — whereas lawyers for the beneficiary of the trust argued that it should have used the headline CPI.
Ultimately, the court sided with the trustee, ruling that the decision on how to calculate the CPI should be left up to the trustee, provided the discretion is exercised in good faith.
“In the absence of a claim of bad faith, the trustee had the discretion to calculate this amount and exercised that discretion,” the court said.
Given the decision that the trustee has discretion in calculating the annuity, the court said that it doesn’t need to address the issue of whether it was wrong to use core CPI. However, it decided to weigh in, “given the contentiousness of this matter…” it said.
On that count, the court found that, “It is difficult to determine which version of the CPI more accurately reflects inflation … However, I would note that the trustee’s rationale that the version that removes the eight most volatile items, as defined by the Bank of Canada, for the calculation seems to be a reasonable approach and I would not disturb it.”
As a result it concluded that, even if the trustees did not have discretion to calculate the annuity, they calculated it correctly using core CPI.