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Once again, costs are hard to order where a winner isn’t clear.

Posted in Uncategorized

There’s a new costs endorsement that features another common situation in relation to trustee accounts – what proportion (if any) should be paid out of the trust and how should costs be assessed between the trustee and the beneficiary who seeks information or makes an objection to accounts? In Klatt v Klatt, 2015 ONSC 3110 (Ont. S.C.J.), Justice Martin James held that a motion to compel production of accounting records was partially successful. Evidently other orders were sought and not obtained. The Moving Party sought its costs from the Trustee personally and out of the trust. The Trustee sought his costs from the beneficiary and out of the trust. Justice James gave each a bit of what they wanted ($5000 out of the trust) and none of what they really wanted (costs from each other).

Two areas of estate litigation are especially unpredictable, costs and dependants’ support. The latter is not jut hard to predict but is an exercise in Solomonic reasoning. The former is where lawyers can have some influence.

I should say from this point forward I don’t mean to comment on the issues in Klatt litigation (of which I know nothing) and can only assume that Mr. Joseph P. Hamon and Mr. M. Peter Sammon acted with the vigilance, prudence and sagacity that comes almost naturally to estates and trusts litigation counsel (not to mention grace, industry and other assorted virtues). Their work only allows me to comment on the larger issue, and for that I thank them.

We are taught to “plead widely” in creating a statement of claim. Don’t miss naming a potential defendant, a form of relief, or a cause of action! Happily, in trust litigation we often have a much better idea of what we’re after and why. Litigation being what it is, however, we tend to revert to the default of “plead widely”. May I suggest that we contain ourselves a little bit? Recently I blogged about  Brown, Dale and Shackleton v Rigsby and Shackleton, 2015 ONSC 1777 (Ont. S.C.J.), which involved a passing of attorney accounts. Again, a winner wasn’t clear and the costs rules could not be applied as nature intended. If we can cut down the issues when we make our motions or applications and winnow our arguments again before a contested hearing, our clients will stand a better chance of recouping costs if successful. Easy to say and hard to do I know, but still worth thinking about.

Have a very nice weekend!

David Freedman

Hull on Estates #419 – Communication with experts and disclosure of drafts

Posted in Hull on Estates, Hull on Estates, PODCASTS / AUDIO, PODCASTS / TRANSCRIBED, Show Notes

This week on Hull on Estates, Jonathon Kappy and Andrea Buncic discuss the recent decision of Moore v. Gatahun, 2015 ONCA 55, and counsels’ permissible communications with expert witnesses and disclosure obligations of prior draft expert reports.

Should you have any questions, please email us at webmaster@hullandhull.com or leave a comment on our blog, below.

Click here for more information on Jonathon Kappy.

Click here for more information on Andrea Buncic.

When Trustees Need a Divorce

Posted in Executors and Trustees, Litigation, Trustees

The use of multiple trustees has advantages and disadvantages. Trustees can supervise each other and prevent mistakes and fraud depriving those interested in the Estate of their due. On the other hand, and particularly poignant in estates matters, these same trustees may find that their relationship is marred by conflict. When that happens, it may be that the Court must intervene.

In the recent British Columbia case of Re Estate of Forbes McTavish Campbell, 2015 BCSC 774 (B.C.S.C.) the three children of the deceased were appointed administrators of their father’s estate. The value of the estate was modest. After some investigation into the deceased’s assets it became clear that his caregiver had defrauded him of a substantial amount through a fraudulent mortgage being taken out against the deceased’s home and theft of vehicles. An insurer paid out in respect of the car theft and the proceeds were part of the Estate assets.

The administration of the Estate was frozen three years after the deceased’s death. One of the three administrators said that he had foregone employment to work on the administration and demanded payment of $40,000 from each of his siblings. If not, he would not deal with them in respect of the administration of the Estate. They refused and there was a stand-off. The siblings successfully sought their brother’s removal. Justice Thompson wrote:

[16]        James’ stance that he is only willing to discuss the further administration of the estate if he is paid by his co-administrators amounts in my view to being “not responsive” and “unwilling,” and he “unreasonably refuses to carry out the duties of a personal representative.” There is no question that this conduct has been to an extent that the efficient administration of the estate has been hampered.

[17]        In Levi-Bandel v. McKeen2011 BCSC 247 (CanLII), Mr. Justice Butler removed a co-executrix. At paras. 15-16, he referred to the authorities supporting the inherent power of the court to remove a trustee. The test for removal of a trustee is the welfare of the beneficiaries of the trust estate:Letterstedt v. Broers (1884), 9 App. Cas. 371 (P.C.); Conroy v. Stokes, [1952] B.C.J. No. 111 (C.A.). Not every act of misconduct should result in removal. The question is whether the acts or omissions endanger the trust property or show a want of honesty or proper capacity to execute the duties or reasonable fidelity: Letterstedt, at 386.

[18]        By insisting on compensation from his co-administrators as a prerequisite to communication, James has put his own interests ahead of the interests of the beneficiaries, and in my opinion this displays a want of reasonable fidelity. This behaviour constitutes a serious breach of his duties as a trustee: Scott v. Scott1991 CanLII 7907 (SK QB), [1991] 5 W.W.R. 185 (Sask. Q.B.). By his flagrantly provocative style of communicating with his co-administrators, James has demonstrated a want of proper capacity to execute the duties of administrator.

[19]        As was the situation in Levi-Bandel, the essence of the difficulty in this case is the paralysis caused by the tension between co-trustees and the only practical way to deal with the deadlock is removal of one of them. While I appreciate that some dissension is not sufficient to ground an order for removal, I cannot imagine that the co-administrators will be able to cooperate in the administration of this estate if the status quo prevails. A change in the administrative structure is necessary.

[Emphasis added.]

Obviously this is a case where a majority-rules clause would have helped. The judgment is useful, however, in clarifying that communication between trustees is an aspect of his or her fiduciary duties to those interested in an estate – a matter that could still feature where a majority-rules clause would be available. I wrote an article that dealt with this a few years ago – ‘Disputes Amongst Multiple Trustees: What Rights Does A Minority Estate Trustee Have Against An Oppressive Majority?’ (2012), 32 Estates, Trusts & Pensions Journal 41 – if you want a copy, please send me an email and I would be happy to send it along.

David Freedman

 

 

Withdrawal of Funds From Trust To Estate Trustee’s Legal Fees

Posted in Ethical Issues, Executors and Trustees, TOPICS, Uncategorized

Lawyers are often asked to hold estate assets in trust for a client who is an Estate Trustee. This makes perfect sense. Where the lawyer is advising the Estate Trustee on administration, it may be that an “estate account” at a bank is not required but that the trust account of the lawyer can be utilized to the same effect. Does this change the way that lawyers can pay their accounts out of trust?

It’s important to understand the Law Society’s rules on the use of trust accounts. There are two sources of law that are important. The first is By-law 9 (Financial Transactions and Records) under the Law Society Act, R.S.O. 1990, c.L.8 deals with the use of trust accounts by lawyers generally – reporting requirements, what gets paid in, and how money can be withdrawn. Rule 3.6-10 of the Rules of Professional Conduct creates an obligation to abide by By-law 9. There’s a useful explanation that is available on the Law Society’s web-site as well.

What is important to understand is that where a client provides a lawyer with a cash retainer against future billings, the lawyer can access those funds upon the presentation of proper accounts to the client as contemplated by By-law 9. Where the funds in the trust account are Estate funds (that is, held by the lawyer as agent for the Estate Trustee), care should be taken to obtain client authorization to pay the lawyer’s account from trust funds. By-law 9 doesn’t provide specific guidance on this point so lawyers should be guided by “counsel of perfection” and obtain an express and written authorization to pay the account of trust. In this way, later problems respecting whether the account was properly calculated and the like will not give rise to objections that the lawyer has acted improperly in some way.

The take-way from this is a simple one: a lawyer should have systems in place to ensure that withdrawals from funds placed by a client in trust properly comply with professional regulations. Sometimes those regulations are complicated so having a system in place is preferable to delegating the decision to a staff member or making ad hoc decisions.

David Freedman

Kidnapped for Ransom

Posted in Estate & Trust, General Interest, Trustees

I recently came across an interesting article published by STEP titled “Held to Ransom” written by Robert Mack.  The article outlines several considerations for those setting up trusts in circumstances where it is conceivably possible that the beneficiary (or beneficiaries) of the trust could be kidnapped for ransom.

While the prospect is not pleasant, in some circumstances and for some individuals it may not be entirely far fetched. Our world is becoming increasingly globalized. We are travelling to and residing in countries, which historically, most of us would never have had the opportunity to venture to. Unfortunately, some of the countries we now have the opportunity to visit have an increased prevalence of kidnapping.  This includes kidnapping for political and ideological reasons as well as kidnapping for the sole purpose of obtaining a hefty ransom.

In fact, Mack describes kidnapping as a “booming” industry, with worldwide numbers increasing annually.  As such, it is possible that the inclusion of a kidnap provision in trust deeds, and even the creation of ransom trusts, could become increasingly common in the years to come.

Mack describes how a ransom demand does not necessarily fall neatly into a power to appoint, pay, apply or advance. As such, where there is any possibility that the settlor, beneficiary or a family member might be kidnapped it might be prudent to include a specific power in the trust deed to allow the trustee or some other person to pay the ransom out of the trust fund.

He goes on to state that although many trust deeds have the power to make payments on behalf of a beneficiary ‘to or for his or her benefit’, an interesting question arises as to whether such payment could be construed to be for the ‘benefit’ of such a beneficiary. Accordingly, if there is even a remote possibility of a kidnapping, it is important to ensure that clear provisions are included in the trust deed to empower the trustee or other power holder to pay the ransom demand.

There are, however, several different ways of incorporating a ransom provision into a trust deed and several important considerations for trustees who find themselves required to act in accordance with such a provision.  Mack’s article specifically outlines some of the different ways the inclusion can be structured as well as some of these key considerations for trustees in such circumstances.

Which countries have the highest incidence of kidnapping for ransom? An article published on Thrillist.com outlines the top 7 countries where you are most likely to get snatched.

Thank you for reading,

Ian Hull

Trusts – Keeping matters private

Posted in Estate Planning, Trustees

The administration of estates can be an inherently public affair. Those individuals who may have gone to great lengths to keep their affairs private during their lifetime can suddenly find their intimate personal details published for all to see, with a copy of their Will becoming public record in an open court file if probate is required, as well as an estimate of the total value of their estate for the purposes of calculating any estate administration tax which may be owed. If an Application to pass accounts is eventually required, not only will further details of the Deceased’s assets become public record in the accounts, but specific details of the transactions which the Estate Trustee undertook will be open for all to see.

To many individuals who went to great lengths during their lifetimes to keep such matters private, such a prospect may seem terrifying. As a possible solution to such concerns, a recent article in the Wall Street Journal proposed the use of trusts as a possible way for high net-worth individuals to keep secret just how rich they are.

While trusts created within a Will may be open to the same privacy concerns which are outlined above, inter vivos trusts by their very nature can be kept much more secretive. Such documents need not be disclosed for the purpose of applying for probate, and the value of any assets which are contained in such trusts need not be disclosed to the public for the purpose of calculating estate administration tax, as they by their very nature pass outside of the estate. In the event that the beneficiaries of such trusts remain content, and periodical releases are sought by the Trustees rather than formal Applications to pass accounts, the ongoing administration of such a trust can also be shielded from public view.

While the article acknowledges that in the event that the administration of a trust should become litigious that the privacy advantages may be undone, it suggests as a possible way to safeguard against such matters becoming public is to create a separate trust for each child in the event that there are multiple children who will be beneficiaries, thereby ensuring that in the event that one beneficiary should become litigious that only their portion would become open to the public. It also recommended encouraging mediation and arbitration to disappointed beneficiaries as a way to further safeguard the administration of the trust from public view.

Thank you for reading.

Stuart Clark

Dependant’s Support Application – Who do you serve?

Posted in Litigation, Support After Death

You are in the process of drafting an Application for an Order for dependant’s support under Part V of the Succession Law Reform Act, when you turn your mind to who should be named as Respondents to the Application. Aware that an Estate Trustee has the authority to enter into and settle disputes on behalf of the estate, you consider only naming them as responding parties, believing that it will be easier to settle the dispute with only the one party rather than the numerous beneficiaries personally. Before coming to such a decision however, attention needs to be paid to the service requirements contemplated by the Succession Law Reform Act as it relates to Applications for dependant’s support.

Section 63(5) of the Succession Law Reform Act provides:

“The court shall not make any order under this section until it is satisfied upon oath that all persons who are or may be interested in or affected by the order have been served with notice of the application as provided by the rules of court, and every person is entitled to be present and heart in person or by counsel at the hearing.”

Simply put, any person who may be impacted by an Order providing for the support of a dependant must be personally served with, and given the opportunity to respond to, the Application before any Order for dependant’s support can be made. While this does not necessarily mean that all beneficiaries need to be personally served with the Application (but rather only those whose interest would be impacted by the Order), from a practical standpoint you should see to serving all beneficiaries at the outset of the Application to ensure that any and all service requirements under section 63(5) of the Succession Law Reform Act are met as it relates to the beneficiaries of the estate.

Attention should also be paid to those individuals who may be entitled to receive assets contemplated by section 72 of the Succession Law Reform Act (i.e. life insurance policies). In the event that any assets listed under section 72 are sought to satisfy an Order for dependant’s support, those beneficially entitled to receive such assets must be served with the Application before any such Order can be made. If such individuals are known at the outset of the Application they should be named and served as Respondents. If they are not known when the Application is commenced, they should be served with the Application as soon as their identity is ascertained.

Thank you for reading.

Stuart Clark

The Rising Age of Debt

Posted in Elder Law, Estate Planning

In recent years, Canadians seem more content with accumulating debt in their working years. While debt can be necessary to gain education or accumulate assets, it can cause issues into the future with regard to retirement planning.

According to a report by Hoyes, Michalos & Associates Inc., thirty per cent of personal insolvencies filed in 2013 and 2014 were by debtors 50 years of age or older. Further, the most heavily indebted group was over age 60 and reported an increasing amount of credit card debt.

Another report, published last year by the Vanier Institute of the Family, found that older Canadians are carrying more debt into retirement. The statistics are unappealing to those looking forward to retirement with the hope that a pot of money awaits them on the other side. A drop in income, income tax bills due to pension withdrawals, and expectations to assist both parents and children can create the perfect storm. A secondary factor is that payday loan companies will facilitate loans to seniors by lending against pension income. This likely explains why a growing number of seniors owed payday loans.

The Hoyes, Michalos & Associates Inc. report further found that unexpected life events are generally the trigger for filing for bankruptcy. Such an event could be a loss in employment, an illness or a relationship breakdown. These events often bring with them a shift in one’s lifestyle as well as financial situation.

Financial literacy and discussing finances with family is also helpful. Openness between family members when it comes to income and expenses may help seniors make more responsible financial decisions.

Bankruptcy triggering events should also encourage people to consider or re-consider their estate plans. Mechanisms to ensure the plan is executed and runs smoothly mirror mechanisms dealing with the prevention of individual bankruptcy. Knowledge, education, communication and professional advice are also recommended in dealing with these situations.

Thank you for reading.

Suzana Popovic-Montag

Hull on Estates #418 – Equalization of net family property under the Family Law Act

Posted in Hull on Estates, Hull on Estates, PODCASTS / AUDIO, PODCASTS / TRANSCRIBED, Show Notes, Uncategorized

This week on Hull on Estates, Paul Trudelle and Josh Eisen discuss some issues that can arise in equalization of net family property under the Family Law Act and why it might not be appropriate to elect in favour of equalization even when the spouse receives nothing under the will.

Should you have any questions, please email us at webmaster@hullandhull.com or leave a comment on our blog.

Click here for more information on Paul Trudelle.

Click here for more information on Josh Eisen.

Equalization – When there is something worse than getting nothing under a Will

Posted in Support After Death, Wills

A surviving married spouse receives nothing in their late spouse’s Will. They come into your office one week prior to the six month anniversary of their spouses death, and you begin the process of putting together an Application for dependant’s support under Part V of the Succession Law Reform Act. As part of the strategy of how best to proceed, you consider whether the surviving spouse should file an election under section 6(1) of the Family Law Act (the “FLA“) for equalization of net family property. Aware that section 6(10) of the FLA provides that any such election must be filed within 6 months of the date of death, failing which as a result of section 6(11) the surviving spouse will be deemed to have taken under the Will (which is nothing in this instance), you rush to file the election before the six month anniversary of death expires. Surely anything is better than the nothing you think, and your client will be better served by any equalization payment rather than receiving nothing under the Will.

Before you file any election for equalization under the FLA however, careful attention must be paid to the provisions of the FLA, and what impact they may play upon any equalization payment which may be owed. Just because a surviving spouse receives nothing under the Will does not necessarily mean that it will be in their best interest to file an election for equalization under the FLA, as there is a scenario in which they could actually be worse off for having done so.

Section 6(7)(1) of the FLA provides that certain specifically delineated assets listed under section 6(6) of the FLA which may have passed to the surviving spouse upon death (including life insurance policies, pension payments, and jointly held property that passes by right of survivorship) are to be credited against any equalization payment being made to the surviving spouse. Section 6(7)(2) of the FLA then further provides:

“If the total amount of credit under paragraph 1 [i.e. the assets which passed upon death] exceeds the entitlement under section 5 [i.e. the equalization payment], the deceased’s personal representative may recover the excess amount from the surviving spouse.”

Simply put, as a result of section 6(7)(2) of the FLA, in the event the assets listed under section 6(6) of the FLA which passed to the surviving spouse upon death are valued greater than the equalization payment which may be owed to the surviving spouse, the Estate Trustee is entitled to recover any excess amount from the surviving spouse (something which is not available to them had the election not been filed). Hypothetically speaking, if the surviving spouse would have been entitled to a $500,000.00 equalization payment upon death, but also received a $1 million life insurance policy upon the death of their spouse, in the event that the surviving spouse files an election for equalization under the FLA, the Estate Trustee would be entitled to recover $500,000.00 from the surviving spouse, such that the surviving spouse would be $500,000.00 worse off than if no election had been filed at all.

As a result of section 6(7)(2) of the FLA, there is something worse than getting nothing under a Will. Before any election is filed for equalization under the FLA, you must be sure that it is in the best interest for the surviving spouse to do so. In the event that such a determination cannot be reached before the six month anniversary of the spouse’s death, an extension from the court to file the election should be sought.

Thank you for reading.

Stuart Clark

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