Court Finds County's Property Purchase to be a Breach of Trust

  • April 04, 2022
  • Jacqueline M. Demczur

A decision from the Ontario Superior Court of Justice emphasized that a tax-exempt organization that receives a gift from an individual’s estate cannot spend the funds as it wishes. Rather, funds must be used according to the terms of use set out in the will. The court, in its January 31, 2022 unreported decision of County of Bruce v Office of the Public Guardian and Trustee, ultimately concluded that the funds from the estate were misused and that there had been a breach of trust.

Bruce Krug was an expert in local and natural history, well known for his financial support of Bruce and Grey County museums and historical societies. In his will, he gave $500,000 to the County of Bruce “for the archives building for the storage and display of the archives of the county,” thus creating a restricted charitable purpose trust. The will also set out that if any beneficiaries named in the will declined or refused to comply with the conditions attached to the legacy bequeathed to them, then that amount would lapse and fall into the residue of his estate.

In March 2014, about a year after Mr. Krug passed, the County of Bruce (the “County”) passed a by-law to establish the Bruce County Archives Krug Reserve Fund (the “Fund”). The County spent about $30,000 of the Fund commissioning plans regarding the development of its museum, but the majority of the Fund was spent in March 2018 when the County purchased the property adjacent to its museum (the “property”) for $550,000.

The Southampton Cultural Heritage Conservancy (“Southampton”) brought an application before the court seeking, among other things, an order that the County breached the restricted purpose charitable trust when it purchased the property using money from the Fund. The County also brought an application requesting an order dismissing Southampton’s application and confirming that the language of Mr. Krug’s will was broad enough to encompass the County’s plans.