Toronto Estate Law Blog : Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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As I was recently researching the duty of trustees, I stumbled upon a term that I might fully have expected to have found in a Dr. Seuss book rather than a legal text. I shall use it in the context in which it appears, as a subject title, although I doubt this will help you figure out what it means:

Dishonourable duty to “gazump” 

I found the whole passage so fascinating that I shall reproduce it for your enjoyment and potential enlightenment:

“Where trustees who have entered into negotiations for the sale of trust property receive a subsequent higher offer from another party they should at least probe the subsequent offer irrespective of questions of commercial morality which might have led a vendor who was not a trustee to close the deal with the original purchaser. Nevertheless, the trustees retain such a discretion as will allow them to act with proper prudence, and may pray in aid the commonsense rule underlying the old proverb “A bird in the hand is worth two in the bush”; so that there may be cases in which they could properly refuse a higher offer and proceed with a lower one.”

Underhill & Hayton, “The Law of Trusts and Trustees” (London: LexisNexis Butterworths, 2007) at page 716

Click here for the Wikipedia definition of gazumping and its opposite, gazundering (just for fun). Here is a link to a gazumping reference in a 2006 judgment, just in case you don’t believe me  - see paragraph 45. 

There are a couple of lessons to be learned here. The first is that not all legal terms need be Latin or pretentious-sounding. The second is that while the law may apparently foist a dishonourable duty upon (poor unsuspecting) trustees, if they happen to be holding a bird in one hand they will probably be okay. 

I’ll bet every Who in Whoville already knew that.

 Sharon Davis

Sharon Davis - Click here for more information on Sharon Davis.

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The Rules of Civil Procedure are a wonderful resource, and provide guidance as to, among other things, the types of applications that can be brought when someone wants to have an estate trustee appointed in Ontario in unusual circumstances. For instance:

(a)               where there is an estate trustee appointed with or without a Will in the United Kingdom or in a province in Canada (outside of Ontario), an application is to be made for Confirmation by Resealing of Appointment of Estate Trustee;

(b)               where there is a foreign estate trustee and no Will, an application is to be made for a Certificate of Appointment of Foreign Estate Trustee’s Nominee as Estate Trustee Without a Will; and

(c)               where there is a foreign estate trustee with a Will, and the applicant was appointed by a court having jurisdiction outside Ontario, other than a jurisdiction referred to in (a) above, an application is to be made for a Certificate of Ancillary Appointment of Estate Trustee.

What the Rules don’t speak to, however, is when you have a Will and a foreign grant of probate with a Will, but no estate trustee is named in the Will or appointed in the foreign grant.   I would imagine this is a rare occurrence, yet I am currently facing that very situation.  

I have chosen to address this situation by applying for an ancillary grant, as that seems to be the closest applicable Rule to this fact scenario. However, the application is being accompanied by a motion record wherein we explain the circumstances of our case and seek a court order that a person in Ontario (an individual or trust company, as the case may be) be granted a Certificate of Ancillary Appointment of Estate Trustee. 

I hope this will satisfy the court, and will let you know the results!

Have a great day,

Natalia Angelini

Natalia R. Angelini - Click here for more information on Natalia Angelini.

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In the recent decision in Re Andrews Estate, the Superior Court of Justice at Toronto, provided further clarification regarding dispensing with an administration bond. 

A prospective executor is generally required to post a bond before probate is granted if (1) the executor resides out of the province; (2) a person has died with a will, but fails to name an executor; and (3) a person has died without a will. 

The earlier decision out Re Henderson Estate set out what an executor applying for probate should file in support of a request that the court dispense with the requirement of a bond and, in particular, what evidence should be contained in an affidavit (commonly called, an “affidavit of debts”).    

Re Andrews elaborated on the requirements found in Re Henderson and, in particular, the number of affidavits of debts that must be filed and the form they are required to take. 

There were two executors applying to dispense with a bond. In support of the application, one of the two filed an affidavit containing the information required by Re Henderson. The court office rejected it on the basis that each executor had to swear an affidavit. The Court found that this was not the case saying that to do so was redundant and did little than create unnecessary paper work.  Instead, the affidavit of one of the two was sufficient. 

In this case, the applicants had re-filed the materials, with the other executor swearing an affidavit. This second attempt was rejected by the court office on the basis that the affidavit did not specify that it was made in support of a motion to dispense with a bond. The court found that there was nothing in the Estates Act or Rules of Civil Procedure that required this type of language to be included.  

In the end concluded that, on the basis of the materials filed, it was an appropriate situation to dispense with a bond – and also apologized to the applicants for the delay.

Have a great day,

Megan F. Connolly

Megan F. Connolly - Click here for more information on Megan Connolly.

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In October 2008, I spoke at the Hull and Hull Breakfast Seminar on the topic of obligations with respect to disposing of the deceased’s remains, as well as other issues that arise immediately upon death. (See my paper, here.)

In Lajhner v. Banoub, [2009] O.J. No. 1327, this issue was addressed once again. There, the deceased died on March 18, 2009 at the age of 24. He died without a Will. His parents on the one part, and his alleged spouse, on the other, sought to be appointed as Estate Trustees, primarily for the purpose of assuming the obligation of determining the disposition of the deceased’s remains.

Both sets of parties, the court found, were motivated by a desire to do what they believe the deceased would want.

The parents wanted to cremate the deceased’s remains. The alleged spouse opposed this, stating that the deceased was Muslim, and that the Muslim faith did not accept cremation.

The issue became who was most likely to be appointed as estate trustee under s. 29 of the Estates Act.

The court went on to find that the alleged spouse was not in a conjugal relationship with the deceased immediately before his death. The evidence was that they were not residing together, and that there was no intention of reconciliation. Thus, the court concluded that the parents would most likely be appointed as Estate Trustees, as the spouse did not qualify under s. 29 of the Estates Act. They were therefore entrusted with the obligation to dispose of the deceased’s remains.

The court once again confirmed prior case law to the effect that religious laws or beliefs are not a factor that the court may take into consideration. What the court must do is determine who is most properly appointed as Estate Trustee. As the alleged spouse did not qualify under s. 29 of the Estates Act, she could not be appointed as Estate Trustee.

Thanks for reading.

Paul Trudelle

Paul Trudelle - Click here for more information on Paul Trudelle.

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In a novel decision of the Ontario Superior Court of Justice, the court removed Estate Trustees who no longer wished to act in that role. No one else consented to act. What is novel is that no replacement Estate Trustee was appointed.

In the 2009 case of Evans v. Gonder, (incorrectly cited as 2000 CanLII 27170), the deceased named her sister and brother in law as Estate Trustees. A Certificate of Appointment was obtained by them. However, the Estate Trustees were elderly, and in poor health. They lived far away from the estate, and said that they could not afford to continue to defend litigation that was brought against the estate by one of the heirs. They had already spent $40,000 of their own money in defending the litigation.

The estate was said to be small, consisting of a modest house in Hamilton. By her Will, the deceased left a life interest in the house to her mother. The mother was still alive, but not able to live in the house: the house was vacant. 1/3 of the residue was left to a brother (who brought an action against the Estate, claiming that the house was held by the deceased for his benefit). It is not clear who the other beneficiaries were.

The brother opposed the motion for an Order removing the Estate Trustees. He argued that the legislation did not allow the court to remove Estate Trustees unless another person has consented to replace them. He made no suggestion as to how the Estate Trustees could be relieved of their duty, and submitted that “they are stuck with it”.

The court disagreed. It cited 1867 case law which found that “if there was no means by which a trustee could denude himself of that character, it would operate as a great discouragement to mankind to undertake so arduous a task”.   It also held that a trustee is not bound to show that someone else is ready to act. The court may, however, in an appropriate case, keep the Estate Trustee on, “taking care that the trustee shall not suffer thereby”.

In the present case, the court discharged the Estate Trustees. In the circumstances, it did not feel obliged to keep them before the court. The court ruled that the trustees were not in a position to do anything meaningful. They could not sell the house, due to the litigation, and could not settle the litigation, due to a tax lien that was registered against the property. The brother’s litigation was not prejudiced, as he could move to appoint a litigation administrator.

Thanks for reading.

Paul Trudelle

Paul Trudelle - Click here for more information about Paul Trudelle.

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As previously blogged on by Paul Trudelle, the evidence required for the court to properly consider whether an administration bond should be dispensed with was clearly set out by Brown J. in the Re Henderson case 2008 CanLII 69136. But what if the answer is no and you must post a bond?    

One option is to go to the Ontario Lawyers Probate Bond Service. It was designed by Gamble & Associates Insurance Ltd. with their over 50 years experience in providing Probate Bonds. There is a simple 7-step process that walks you through the Fiduciary Bond Application and asks questions that you can fill in quickly and easily. There is 24-hour turnaround in most cases. The system was made possible through close association with The Guarantee Company of North America, a well-respected licensed surety company.

Click here for a list of the Gamble & Associates offices. If there is a bond coming soon to an Estate Trustee near you, you can give them a call to set up an account and access the service online.

For more information on administration bonds see Natalia Angelini’s paper, The Tricky Business of Administration Bonds, presented at Hull & Hull LLP’s Estate Trust and Capacity Law Breakfast Series. 

Thanks for reading!

Sharon Davis

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Decore Estate, a recent decision from the Court of Queen’s Bench of Alberta, explored the issue of the admissibility of extrinsic evidence in a proceeding to determine the appropriate interpretation of a testator’s will.  

The application involved a dispute over the proper construction of the deceased’s last will and testament and codicil. In particular, there was an issue of the value of an asset that the testator had bequeathed to two beneficiaries and the appropriate timing of the bequest. In advance of this application the court was asked to determine what types of evidence would be admissible. The proposed categories were armchair evidence (which establishes a context for the terms of the testator’s will) and intention evidence (which included “hearsay” reports of the testator’s words). 

The court found that the law as it related to extrinsic and arm chair evidence was relatively clear and could be summarized by the following principles:

a)      When the terms of a testamentary document are clear and unambiguous, no further evidence beyond the document is admissible;

b)      Where there appears a legitimate issue of the proper interpretation of a testamentary document, armchair and intention evidence is admissible. However, the court found it was not sufficient for there to simply be competing interpretations – the interpretations must all be plausible;

c)      Where it appears the testator made a mistake of fact (but not law), both armchair evidence and intention evidence can be adduced. 

The court further held that once it had been established that the two categories of evidence were admissible, the issue of whether individual pieces of evidence were admissible was one to be determined at trial. At that time, the relevant inquiry would be whether the evidence is probative, necessary, and reliable. 

In this case, the court determined that armchair evidence and intention evidence could be adduced because there was a reasonable dispute about the proper construction of the deceased’s testamentary documents, the interpretations being advanced were all plausible, and the proposed evidence, if accepted, would advance the enquiry the court was required to undertake. 

Have a great weekend!

Megan F. Connolly 

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A recent decision of C.L.B. v. J.B.addressed when it is appropriate for a court file to be sealed. The case involved two minors who had lost a parent in the 9/11 terrorist attacks and had received victims’ compensation. The court ordered that the funds be held in trust and set out a timeline for when the trustees would be required to pass accounts. 

When the trustees later applied to pass accounts, they also brought a motion that the court file be sealed so as to protect the minors’ privacy. 

In considering the motion, Brown J. pointed to the importance of an open and transparent court system. This is not just because public policy favours openness as a way of encouraging the public’s faith in the court system but in addition the public’s right to obtain information about the court system is protected by s. 2(b) of the Charter of Rights and Freedoms. 

Brown J. found that a sealing order should only be granted in the following circumstances:

1.      When there is a serious risk  to an important interest and there is are no reasonable alternatives to preventing the risk; and

2.      When the benefits to granting the order outweigh the negative effects, having regard not just to the interests of the litigants but also the rights of the public. 

Ultimately, Brown J. found that in the circumstances a sealing order was unwarranted. Although the matter involved minors, he pointed out that legal proceedings frequently do and it is far from the norm for the court to order a file sealed. Moreover, he found that there was insufficient evidence before the court that there was a risk of serious harm if the order was not granted. 

He also expressed concern about the possible “deleterious effects” that shielding settlements involving minors or matters involving a fiduciary’s management of a minor’s assets would have on the necessary transparency of a court’s review.   

Finally, he found that a “reasonable alternative” existed – rather than sealing the file, he ordered that the title of proceeding be amended and that any materials filed with the court list the trustees, the names of the trusts, and the minors using only initials rather than full names.  

Have a great day!

Megan F. Connolly 

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The recent decision of Pachaluck Estate v. DiFebo provides a useful example of the costs exposure that parties can face on an application to pass accounts.  

In this case, a beneficiary had objected to the compensation the estate trustee had taken.  The court agreed to an extent – it ordered compensation be reduced (by about $9,700), but not by as much as requested by the beneficiary.    

The court then had to decide the issue of costs.  The executor argued that he had been prudent in his administration of the estate and while the beneficiary was successful in a partial reduction in compensation, she was unsuccessful with regard to most of the objections she had raised. The executor sought fully indemnification for his costs from the estate and argued that the beneficiary should receive partial indemnity costs. 

The beneficiary argued that because she was successful in obtaining a reduction in compensation and because she was unable to get a full accounting until the court had ordered one be produced, her costs should be fully paid by the executor.

The court found that there was a mixed result in its determination of the application to pass accounts.  While the court  agreed the executor had acted in good faith, a reduction in compensation was nevertheless ordered and the court was satisfied that a full accounting would not have been provided absent a court order.

The court was critical of the fact that neither party had served an offer to settle and found that to the extent the estate trustee and beneficiary were entitled to receive costs from the estate it should be on a reduced basis.  Ultimately, the court awarded each less than half the costs that were sought.  

This case is a reminder of some of the perils involved in pursuing a contested passing of accounts.  To begin with, both parties were stuck paying more than half the costs each had incurred personally and, as such, were "out of pocket" in the litigation.  Second, the compensation that was repaid to the estate as a result of the litigation was less than the legal fees that ended up coming out of the estate to reimburse the parties, which begs the question of whether the beneficiary was worse off for pursuing the litigation in the first place.  

Have a great day!

Megan F. Connolly

  

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Many people, including myself, paused on learning of Michael Jackson’s death.   While I have not searched out his music for several years, his death marks the end of an era. 

Michael Jackson’s music is part of my memory of growing up. I attended his concert in October 1984 at the Canadian National Exhibition in Toronto.

Of course, in my role as an estate litigator, other thoughts also come to mind. Namely, what issues will arise in untangling Michael Jackson’s estate?

Some of these issues are addressed in a New York Times article. One executive describes the singer's estate as a "mess".  There are clearly valuable assets, including a 50 percent share of Sony/ATV Music Publishing which owns the rights to more than 200 Beatles songs; this asset alone may be worth more than $500 million.  Apparently these shares were not owned directly by the pop star, but rather by a trust controlled by his mother.  The shares therefore may not fall to Michael Jackson's  estate but they would be part of his legacy.

The estate has debts too: Neverland cost many millions of dollars to operate annually and in recent years there was a $24.5 million debt against the property. Some commentators estimate Michael Jackson’s overall debt to be $400 million. 

All of these issues – from copyright and real estate assets to Michael Jackson's personal and business loans – will take many months, if not years, to sort out.   

There were recent plans for a 50-concert comeback in London, England. Apparently fans had paid $90 million which will have to reimbursed and the concert preparations included payments for renovations to the venue as well as advance payments to Michael Jackson. 

As the administration of Michael Jackson’s estate unfolds, I suspect there may be more related topics to be covered in our blog.

Of course, for us regular folks, estate issues that we encounter in our own lives will be simple in comparison to the challenges faced by the Jackson family.  But there are some lessons: careful management of one’s affairs and good planning will lessen the load on named executors and estate trustees. 

Enjoy your Monday. 

Jonathan

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My blogs over the next three days will relate to certain aspects of preparation for the hearing of a contested passing of accounts. Today’s blog will touch upon the parties, the scheduling of the hearing, and the preparation of documents/productions for trial. 

The issue of whether all of the parties who ought to be involved in the passing are involved, and, if so, whether any of the parties who do not have representation need representation, must be considered. In considering who the appropriate parties are, or should be, the following questions might be asked: Are there self-represented parties? Have they been notified of all matters related to the proceeding? Has any party filed a Notice of No Objection to the accounts? Has anyone filed a Statement of Submission of Rights (if so, have they been served by the applicant/plaintff with written notice of the time and place of the hearing)? Is a minor involved (Rule 7.03(2), The Office of the Children’s Lawyer)? Is there an adult party who is disabled (Rule 7, The Office of the Public Guardian and Trustee)? Is a representation Order necessary (Rule 10)?

Regarding the scheduling of the hearing, an order of the Court for directions, or otherwise, at any pre-trial stage, or at the pre-trial conference might address same. It may be that the date of the trial, fixed in its length, is to be fixed by the Registrar on a date mutually convenient to the parties. If, on the other hand, the proceeding is to be set down for trial, Rule 48.01 of the Rules of Civil Procedure allows for the proceeding to be set down for trial after the close of pleadings and when a party is ready for trial. In any case, inquiries should be made with the Court office about where the trial is to take place to determine what, if any, forms need to be filed with the Court to confirm that the trial is to proceed.

Regarding the preparation of documents/productions for trial, it is critical that the documents in respect of the proceeding be organized prior to trial. If the documents necessary for the trial are not in counsel’s possession when preparing for trial, for whatever reason, they should be obtained prior to trial. Such documents include, but are not limited to, all pleadings, the estate accounts, certificate of appointment, prior Judgments for passing of accounts, all Orders regarding the passing of accounts, all Notices of Objections (and withdrawals), Statements of Submission of Rights, Consents/Releases of any party, Affidavits of Service, and the documents exchanged between the parties as a result of the Rules of Civil Procedure, any agreement of the parties, and/or Court Order. 

Issues of privilege regarding the documents should also be dealt with prior to trial.

Thanks for reading.

Craig 

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Compensation is a factor in every estates file.  The Divisional Court recently confirmed in Church v. Gerlach (2009) Court File No.: DC-07-0038-00 (Div.Ct.) that compensation for an estate trustee during litigation ("ETDL") is determined by the same principles as compensation for executors generally.   Compensation for an ETDL is not determined by applying a solicitor's hourly rate to the time spent.  

In Church v. Gerlach, the ETDL was appealing the trial judge's fixing of compensation at $13,000 inclusive of GST.  The ETDL asked for $23,203,54 plus costs.  The ETDL had originally claimed $35,805.30 plus $2,973.30 for the costs of the application. 

The general provision authorizing compensation to ETDLs is s. 28 of the Estates Act: the ETDL "shall receive out of the property of the deceased such reasonable compensation as the court considers proper".  Section 61 of the Trustees Act authorizes "such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice." 

According to Ontario's Court of Appeal in Liang Estate v. Hines (1998) CanLII 6867 (ON C.A.), 41 O.R. (3d) 571, the proper approach is to start by applying percentages to the estate (customarily 2.5% of capital receipts and disbursements, 2.5% of income receipts and disbursements, and an annual care and management fee of 0.4% of gross value of the estate).  Then, each percentage is considered against five factors enumerated in Re Toronto General Trusts Corporation and Central Ontario Railway (1905), 6 O.W.N. 350 (H.C.):   

1.  the magnitude of the trust;

2.  the care and responsibility springing therefrom;

3.  the time occupied in performing its duties;

4.  the skill and ability diplayed; and

5.  the success which has attended its administration.

Applying this approach, the ETDL was awarded half of the usual percentages: he ought not to be fully compensated as if he was required to perform all of the functions of an Estate Trustee, and the reduction also took into account the complexity of the estate. 

As a general practice note on costs of appeals, while the ETDL had paid his lawyer more than $15,000 to prepare the appeal, given the amount in dispute, the relatively simple issues on appeal and the reasonable expectation of the appellant ETDL, costs were fixed at $5,000 all-inclusive.  

The Divisional Court also noted that the standard of review for appeals under s. 10 of the Estates Act on a question of law is correctness.

Have a great day,

Chris Graham

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Ker Estate v. Stevenson, a recent decision from the Ontario Court of Appeal, considered whether an annuity left to a beneficiary under a will could be encroached upon by a judgment creditor. 

In this case, the deceased directed that half the residue of her estate be used to purchase a non-commutable life annuity for her daughter.  On the daughter’s death, what remained in the annuity was to be used to purchase a non-commutable annuity for the deceased’s grandson. 

After the deceased’s death, the daughter had been involved in litigation which resulted in a judgment against her.  Prior to the annuity being purchased, the judgment creditor sent a notice of garnishment to the executors requiring them to satisfy the judgment.

The executors sought the court’s direction as to, in part, whether the share of the deceased’s daughter could be encroached upon to satisfy the judgment. 

The motions judge found that the funds available for the daughter’s benefit vested in her on the deceased’s death and were available to satisfy the judgment. 

The grandson (who had an interest in the remainder of the annuity) appealed the decision on a number of grounds, a major one of which was that the court erred in finding that the annuity vested in the daughter on the deceased’s death. 

The Court of Appeal examined the nature of an annuity and, in its review of the jurisprudence, found that it could best be characterized as a legacy.  The fact that it was “non commutable” was not sufficient to persuade the court it should be characterized otherwise.  Moreover, the Court pointed to case law which suggested that the beneficiary of an annuity under a will had the right to call on the payment of the cash value of the annuity prior to its purchase. 

As a result, it affirmed the motions’ judge’s finding that the right to the annuity vested in the daughter at the deceased’s death and could be encroached upon by the judgment creditor. 

Have a great day!

Megan F. Connolly 

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The recent decision of Pachaluck Estate v. DiFebo is a useful illustration of when the court is willing to reduce compensation awarded to the trustee for the administration of a simple estate. 

The main assets of the estate were the deceased’s condominium and several bank accounts.  Her will provided that the condo would be sold and its proceeds would be divided amongst several grandchildren; cash bequests would be made to several individuals; and the residue of the estate would be divided amongst the deceased’s two daughters. 

When the administration of the estate was near completion, the estate trustee brought an application to pass accounts.  One of the residual beneficiaries objected to the accounts in part on the basis that the compensation claimed was over and above that what was warranted in the circumstances. 

In determining what compensation should be allowable, the court considered the five factors articulated in Re Toronto General Trusts and Central Ontario Railway:

(a)   magnitude of the trust;

(b)  care, responsibility, and risks assumed by the fiduciary;

(c)   time spent by the fiduciary carrying out obligations;

(d)  skill and ability required and displayed by the fiduciary; and

(e)   results obtained and degree of success associated with the efforts. 

The court found that while the five factor were useful guidelines, the analysis should be fact specific and sensitive to the specifics of the estate administration in question.  The court also found that the application of a percentage in determining compensation should not be set in stone but should be fact specific. 

In the end, the court decided to reduce compensation.  In considering the sale of the condo, the court found that the administration of the estate with respect to this asset was uncomplicated and straightforward.  With respect to the cash bequests, the court also found that distributing them was simple.  As a result, it ordered the compensation associated with the sale of the condo and the distribution of the proceeds to be reduced to 1.5% while it ordered compensation related to the balance of the estate reduced to 2.0%. 

Have a great day!   

Megan F. Connolly 

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Today’s blog is part II in my series this week regarding the protection that may be available to a trustee against potential liability.

Apart from the provisions of the trust document itself, a trustee’s potential liability may be protected, limited or exonerated in a number of ways by statute.   Some examples are sections 18(1), 20(3), 28 and 29 of the Trustee Act (“Act”). 

 

Section 28 of the Act provides that a trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor could adopt under comparable circumstances. Section 29 of the Act provides that if a trustee is liable for a loss to the trust arising from the investment of trust property, a court assessing the damages payable by the trustee may take into account the overall performance of the investments.

 

The application of the Limitations Act should also be considered.

 

Also, in considering a trustee’s potential liability in respect of his or her administration of the trust, a trustee ought to consider his or her conduct and whether that conduct may be exonerated, if necessary, by the Court under section 35 of the Act. As a way of balancing the rights of beneficiaries with the interest to not overburden trustees, s.35 of the Act holds that when a breach occurs, the Court has the discretion to relieve the trustee of liability in cases where it believes that the trustee acted honestly and reasonably and ought fairly to be excused.

With some exception, the Court therefore has a statutory discretion to grant trustees relief from liability if they have acted honestly and reasonably, and ought fairly to be excused.  

 

Thanks for reading,

 

Craig

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The 2009 federal Budget contains a few items relevant to Estates, particularly with respect to Registered Retirement Savings Plans (“RRSPs”). 

For a thorough review please see the 343-page document.  A Bloc Quebecois amendment to the Budget yesterday evening was defeated; Opposition Party amendments have yet to occur.  Budget speech to approval of the Budget motion could take up to four days.

While there are benefits for first-time home buyers in the Budget, and a host of infrastructure investments, not everyone is happy. Other media view the bad-time Budget as possibly providing the boost we need.

Regarding Estates, the Budget proposes that certain losses now be applied against terminal income – see page 318 of the Budget. The fair market value of investments held in an RRSP at the time of an RRSP annuitant’s death is generally included in the deceased’s income for the year of death. A subsequent increase in the value of the RRSP investments is generally included in the income of the RRSP beneficiaries upon distribution.

Similar rules apply in the case of Registered Retirement Income Funds (RRIFs). 

There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.

Budget 2009 proposes to allow, upon the final distribution of property from a deceased annuitant’s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of his or her death and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant.

Assuming the Budget motion passes, this measure will apply in respect of deceased annuitants’ RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.

This change, especially in this uncertain economy, might help to make a weak financial situation a bit more palatable.

Thank you for reading our blogs this week.  Enjoy your weekend. 

Jonathan

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What does an executor do?

The first responsibility is to tend to funeral arrangements and then to gather up all the information relevant to the Estate. This information includes the ownership and value of assets, as well as the nature of all Estate liabilities. These responsibilities need to be taken seriously. 

Some other duties include: make provisions for dependants; notify various government agencies of the deceased's death; collect income from assets; decide about investments; seek advice as required.  The executor’s role is similar to that of a trustee: both owe a duty to the beneficiaries. 

When one plans his or her Estate and prepares a Will, it is useful to consider the attributes of a successful executor.  Some questions might be:

• Is the person organized?
• Does the person have financial skills? 
• What is the demeanour of the person who is being considered as an executor?

A recent British article asks more questions. One point, among many, is that “Honesty and conscientiousness are important, but if you are appointing more than one executor - and often that's a good idea - they also need to be team players.” 

Each situation is different but the hard and soft skills of a potential executor are likely useful considerations.

Examples abound to illustrate what might go awry. Take the Estate of the renowned violinist, Isaac Stern. In 2004, the beneficiaries of the Estate were disappointed when the executor failed to include the value of the deceased's  New York apartment in the calculation of the Estate's value. This decision resulted in a shortfall of funds to meet the Estate’s liabilities. Legacy items, including musical instruments, were apparently sold at auction to the beneficiaries' collective dismay.

Choose your executor(s) wisely.

Enjoy your Thursday.

Jonathan Morse

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My mother used to volunteer with Goodwill, where one of the projects was a contents sale. A team from Goodwill would organize a home’s contents for sale – I have a frying pan purchased from one of those sales.

Several organizations exist to assist with different aspects of the moving process. One such example is Marsha’s Helping Hand, which helps when clients, particularly elderly people, want to downsize.   

There are a lot of memories to manage and items to be packed up, distributed or possibly sold. Often the house itself must be sold. Many scenarios are possible – elderly people are downsizing or a home is being sold as part of an estate. 

Estate sales can be slow however.  Recently, the New York Times focused on this issue: delays can occur in transactions because of the dynamics between distant beneficiaries and the estate trustee, or even because of the emotional energy required by heirs who are assisting with the removal of the Deceased’s belongings. 

There are understandable reasons for the delays in the estate sale process. Not least of which is that often the people who want to do the job are themselves busy with multiple responsibilities, be it child care or parent care or the demands of a paying job. Help is available though.  Organizations, which cater to these increasing needs can assist, according to a recent Globe and Mail article.

These practical issues often dovetail with legal duties of the Estate Trustee, a role that may be more manageable when a plan is in place. Costs should always be considered though because ultimately, the Trustee has a duty to account to beneficiaries.

Enjoy your day.

Jonathan

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In many estates, the estate trustee seeks to dispense with the normal requirement of posting an administration bond, if one is in fact necessary. (A bond is usually required where a person dies intestate, where the will does not name an estate trustee, where the will names a foreign estate trustee, or where the application is by a succeeding estate trustee where the will does not name a successor.)

The primary purpose of the bond is to ensure that the estate trustee pays the debts of the estate, and distributes the estate to those who are entitled to it. An applicant that wants to dispense with the bond must satisfy the court that the protection afforded by the bond is not required or will be met in some other way.

Brown J. in the recent decision of Re Henderson, 2008 CanLII 69136 addresses the issue, and highlights the evidence required by the court when determining whether a bond is to be dispensed with. He states that in order to allow the court to properly consider the matter, the applicant should file affidavit evidence setting out:

(a)               The identity of all beneficiaries of the estate;

(b)               The identity of any beneficiary who is a minor or incapable person;

(c)               The value of the interest of any minor or incapable person;

(d)               Executed consents from all sui juris beneficiaries to the appointment and to the dispensation of the bond. If consents cannot be obtained, the applicant must explain how the interests of those beneficiaries will be protected;

(e)               The last occupation of the deceased;

(f)                 Evidence as to whether all debts of the deceased have been paid, including any obligations under support agreements or orders;

(g)               Evidence as to whether the deceased operated a business at the time of death, and if so, whether any debts of that business have been or may be claimed against the estate, and a description of each debt and its amount;

(h)               If all debts of the estate have not been paid, evidence as to the value of the assets of the estate, particulars of each debt (amount and creditor), and an explanation of what arrangements have been made with those creditors to pay their debts and what security the applicant proposes to put in place to protect those creditors.

Thank you for reading.

Paul Trudelle

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The Trustee Act can be a responding solicitor's best friend.  Consider section 35, which excuses trustees for technical breaches of trust where the elements are met:

"35. (1)  If in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable for any breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, the court may relieve the trustee either wholly or partly from personal liability for the same."

This helpful section can eliminate Gotcha! claims and provides a ready response to frivolous accusations that often arise in the course of litigation.  By eliminating nuisance claims for minor breaches, section 35 gives solicitors acting for trustees a very quick answer to the minor types of claims that add little substance to already complex litigation.   

However, this provision does not apply to liability for a loss to the trust arising from the investment of trust property (Trustee Act, s.35(2)).

Have a great week, and remember, it's really Wednesday.

Chris Graham

 

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Listen to Direct and Indirect Approaches to Estate Planning - Part 1

This week on Hull on Estate and Succession Planning, Ian and Suzana start a discussion on their global philosophy toward the estate planning process. There are direct and indirect approaches to capacity and estate planning and in this episode, Ian and Suzana explore these approaches as they pertain to the choice of attorney.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

Continue Reading...

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Listen to  Dealing with Estate Issues That Arise Immediately Upon Death

This week on Hull on Estates, David Smith and Natalia Angelini talk about the duties an estate trustee he or she is charged with from the moment of a testator's passing. Duties include locating the will, making funeral arrangements and being responsible to see the intentions of the testator preserved.

Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.

Continue Reading...

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As a WWII pay officer in the Canadian military, my paternal grandfather met a British woman on the beach when he was stationed in the south of England. They married soon after the War and retired in England in the mid-1960s.  My grandfather died in the early 1990s; when my step-grandmother, Tessa, died in 2008, in her Will she left her house to my father and aunt.

If there were no Will, Tessa's estate could have contributed to the British government's coffers.  In that circumstance, a probate research firm could have played a role. 

Title Research is one of the firms highlighted in yesterdays blog about "heir hunters".  Its services include: searches for missing beneficiaries, heirs, and legal documents (such as marriage, birth and death certificates back to the 1800s); asset research to value, verify and find missing or unknown assets; missing beneficiary indemnity insurance; probate valuations; and will searches to determine that the Will is the deceased's last will. 

If Tessa had died intestate, Title Research, and other firms, could have located her heirs around the world.  Alternatively, if the estate trustee had questions about the value of the estate assets, or had the trustee not known the whereabouts of the beneficiaries, it could have enlisted a search firm's services as some anecdotes suggest.

Potentially trustees can protect their personal liability by engaging a firm that has a best practices endorsement of Britain's Law Society.  It seems that an estate need not just have ties to the UK, but the extent of a firm's expertise in a specific jurisdiction would have to be assessed.

Interestingly, some of the detective work can be done by amateur sleuths: www.findmypast.com and www.ancestry.co.uk allow access to census data from the 1800s and a host of other historical information.  If genealogy is in your blood, it's a place to start.  And, as one UK law firm suggests, it might be advisable to do some of your own investigating.

Jonathan Morse

 

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In Scotland for my honeymoon, I encountered a few different “estates”. Hiking the West Highland Way – averaging about 12 miles a day – we passed Blackmount Lodge, in the Bridge of Orchy. The lodge, owned by the Fleming family (of James Bond fame) sits on the edge of an idyllic loch. It took a day to walk across the estate.

Fellow walkers from Britain were interested to learn that I work in estate litigation. After sorting out differences in our terminology, they asked if “heir hunters” exist in Canada. I was intrigued.

While I still do not know the extent of “heir hunting” here, I learned that Heir Hunters is a BBC series that follows probate detectives who look for distant relatives of people who have died without making a will. I have not heard of a similar program in North America.

Several UK firms track down missing relatives: Fraser and Fraser  and Title Research are two examples. About 545,000 people die in Britain every year and half of them do not have a will. As in Ontario, there are rules in Britain which dictate that when people die intestate, their estate passes to the deceased’s legal next of kin. In Britain, if there is no family, the estate falls to the Crown.  The Guardian claims that £10 million to £20 million falls to the government every year because there is no one to claim the estate. Heir hunters locate the next of kin and alert them to their inheritance; there is a finder’s fee of up to 25% of the amount.

Many people in Canada can trace their roots to the United Kingdom. Estate practitioners, if advising estate trustees, would be well served to keep “heir hunting” firms in mind. 

Thank you for reading.  Enjoy your day.

Jonathan Morse

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A recent Toronto Life magazine article, “The New Death Etiquette” examines mourning in the 21^st century. The new death etiquette includes multicultural hybrid funerals and intricate grieving rituals. Many funerals now are elaborate functions designed to reflect the individual personality of the deceased person. As stated in the article, there is no such thing as a standard burial these days. 

Most of us probably do not like to think about our funeral and final resting place. However, when it comes time to preparing a Will, many individuals will ask their lawyer to include burial instructions, such as a wish for cremation or to be buried in a particular cemetery. It may come as a surprise to learn that in Ontario, such instructions are not binding on the estate trustee. It is the estate trustee who has the right and obligation to bury a deceased person, even in the face of objections from family members. The authority for this comes from an English case decided over 100 years ago, Williams v. Williams (1882), 20 Ch. D. 659, where it was held that there is no property in a dead body, and so a person cannot by will dispose of their own dead body. An estate trustee, however, has the right to custody and possession of a deceased’s body until it is properly buried. 

Have a great day!

Bianca La Neve

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Wrongful death does not give rise to a claim under Ontario law. Section 38(1) of Ontario’s Trustee Act states in part that “if death results from such injuries no damages shall be allowed for the death or for the loss of the expectation of life”.

Contrast this with the US, where wrongful death is very much a cause of action (perhaps depending on the state). In fact, in many prominent criminal cases, the end of the first trial is often just a pause in litigation, after which the civil wrongful death proceedings begin: some recent examples include the Natalee Holloway case, the O.J. Simpson case and the Scott Peterson case. Given the “balance of probabilities” civil standard of proof that a litigant must surpass versus the “beyond a reasonable doubt” standard that the government must satisfy in a criminal trial, it is not unheard of for the defendant to avoid conviction and jail time but not a financially crippling loss in civil Court.

If an institution with deep pockets or wealthy individual defendant can be successfully linked to an alleged wrongful death, then the chances of securing a large award increase, particularly if an award for the payment of punitive damages award can be obtained.  Cases brought against jails after inmates’ deaths offer numerous examples: see here, here and here.

While the deceased’s estate cannot sue in Ontario, family members do have limited rights to redress. Under Ontario’s Family Law Act defined family members can still sue for their “pecuniary loss resulting from the injury or death”. It is noteworthy that even here damages appear to be limited to pecuniary losses, and do not allow for claims regarding punitive or aggravated damages.

Thanks for reading.

Sean Graham

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A person with more than one set of distinct interests or roles in the same estate may have a conflict of interest.  This can create all sorts of problems and issues in an estate administration and is a driving concept in much estate litigation.

Say Joe Smith is the executor of an estate but also received gifts from his mother the testator during her lifetime.  One of these gifts, say, came in the form of a transfer of a bank account into joint ownership between the two of them. 

Wearing his executor's hat (to use some traditional vernacular), Joe may have a duty to determine whether the bank account transfer was not a gift at all and actually subject to a resulting trust in which case the estate might have a claim to the asset.  Joe may need to do so because, as executor, his duty is to identify estate assets and bring them into the estate. 

However, wearing his hat as a recipient of the bank account, Joe is unlikely to want to give the bank account back to the estate. 

In short, Joe may have a conflict of interest.

In such circumstances, Joe may need two lawyers, one to advise him as estate trustee, the other to protect him personally.  Sometimes an executor’s conflict is such that he cannot continue to act as estate trustee. 

While this example may be simple enough, there is a tremendous range of conflicts that can creep into estate matters.

Thanks for reading.

Sean Graham

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It’s just about tax time, so I thought I would briefly discuss the taxation of executor compensation.

The basic premise is that executor compensation is taxable in the hands of the recipient. It is either income from an office or employment (if the executor is not in the business of being an executor) or income from a business (if the executor is in the business of being an executor, or if such a function is in the executor’s usual course of business). Various consequences flow from the distinction, such as allowable deductions, and withholding requirements for EI and CPP.

CRA takes this obligation to report executor compensation quite seriously. An example of the lengths to which CRA will go is found in the decision of Oolup v. The Queen. There, Ms. Oolup, the executor held a joint account with her grandmother, the deceased. She was advised by her lawyer that upon the death of the deceased, the joint account became hers, by right of survivorship. However, for “reasons of family harmony”, she decided to keep only $10,000 from the joint account, and divided the rest with the deceased’s next of kin.

CRA took the position that the $10,000 was executor compensation, and was therefore taxable, and they assessed Ms. Oolup accordingly. To get to this point, they argued that the joint account was held on a resulting trust for the estate. The CRA argued that the presumption of resulting trust applied, and was not rebutted. Accordingly, they asserted that Ms. Oolup received the $10,000 from the estate, as executor compensation.

Luckily for Ms. Oolup, she was able to rebut the presumption, and the court found that the joint account funds became her property upon the death of the deceased. She received the money by right of survivorship. Therefore, her keeping $10,000 was not receipt of compensation by her, and was not to be included in her income.

Thank you for reading,

Paul Trudelle

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An interesting excerpt from Diane Francis’s new book Who Owns Canada Now? was published in Saturday’s National Post and touches in some detail on offshore trusts as a mechanism to avoid Canadian taxes.

Aside from briefly lamenting my non-mention in a book chronicling Canada’s wealthiest, I was struck by the contradiction in the apparent approaches of different wealthy Canadians to the opportunity to avoid taxes. According to Ms. Francis, one common tax avoidance mechanism involves settling assets in an offshore trust, apparently becoming a fairly common option for the wealthy. It seems to require spending six months of the year out of the country, something I doubt many Canadians would baulk at after the dreadful winter we’ve just suffered through.

What really struck me about the article were the quotes from wealthy Canadians who refuse to avail themselves of this option on the basis that as Canadian citizens who became wealthy in Canada, they should pay Canadian taxes and not shelter assets.

Here’s hoping I face this touchy dilemma myself – the sooner the better!

At any rate, an interesting article offering a good précis of both sides of the issue and much food for thought.

It will be even more interesting if these trusts begin to be litigated. Certainly English jurisprudence seems to deal with them often, if only because the Judicial Committee of the Privy Council continues to take appeal cases from the Courts of former British colonies.

Thanks for reading.

Sean Graham

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On December 20, 2006, the Ministry of Government Services Consumer Protection and Service Modernization Act, 2006 (Bill 152) received Royal Assent. The Act contained amendments to a number of statutes, including the Land Registration Reform Act, Land Titles Act and Registry Act, to address issues related to real estate fraud.

The Ministry recently released a Land Registration Bulletin (No. 2008-02, dated March 7, 2008), which provides information related to, among other things, new registration requirements for powers of attorney and any documents registered under the authority of a power of attorney.  These include the following:

·           A law statement will be necessary when an individual registers any document under the authority of a Power of Attorney. In these cases, a lawyer will be required to discuss the Power of Attorney with their clients and provide the requisite law statement.

·           A law statement will not be required in documents signed under the authority of a Power of Attorney given by a corporation or a bank. In those cases, the attorney will be required to make a statement that they are acting within the scope of the Power of Attorney.

·           The original signed and witnessed Power of Attorney must be scanned into the electronic registration of a Power of Attorney.

·           Most of the existing statements in an electronic Power of Attorney and Revocation of Power of Attorney document are being retired and replaced with new statements, which are particularized in the Bulletin.

Keep in mind that these changes take effect on April 7, 2008.

Have a good day,

Natalia

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"It's unacceptable to the average person that you can just turn up with a bunch of heavies and steal the coffin."

Coen brothers?  Nope.  No, not Tim Burton either.  In fact, this is a statement put forth by an MP in New Zealand after the third case of body snatching in less than a year. 

As reported in the BBC news yesterday, the body of a 76-yr old woman was hijacked right out of the back of the hearse by four carloads of people including her estranged daughter.  The bizarre, but not unprecedented, scene sparked a bitter family row over the deceased's last wishes with respect to her funeral arrangements.  The deceased had been married to a Maori man but separated from him in the 1970s.  Clashes over where people are buried are apparently not uncommon in Maori society, particularly in marriages of mixed descent (e.g. Maori and European).

Incredibly, a spokesman for police national headquarters said they had limited power to intervene: "Body snatching is not against the law" since, in contrast to Ontario, a body cannot be legally owned in New Zealand.  The recent cluster of body snatching cases may lead to an overhaul of New Zealand law regarding who owns a body.

David M. Smith

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Yesterday, we read about Franz Kafka's unfulfilled wishes with respect to his manuscripts, both published and unpublished, at the time of his death in 1924.  Flash forward eight decades or so.  Dmitri Nabokov, the 73 yr old sole surviving heir of Vladimir Nabokov, continues his 30-yr struggle with his father's deathbed request that his last unpublished work, The Original of Laura, be destroyed.  The stakes are high for Laura; at one point, Dmitri referred to it as "the most concentrated distillation of [my father's] creativity."  The task of burning the manuscript was originally entrusted to Vladimir's wife Vera, but when she died in 1991 she had not yet carried out her husband's last wish.

As discussed in the Business Standard, those in favour of heeding Nabokov's wishes are not willfully destructive.  It is understood that great writers might work through countless drafts before arriving at a final product that meets their approval.  On the other hand, there's the argument that writers (including Kafka) seldom can judge their own work.

The long twisted saga may find its fate as a cliffhanger of sorts.  In a dramatic verdict, Dmitri indicated late last month that he had indeed "decided to make a decision" about what to do, but that he would "neither disclose publicly either the decision or the deed."  Apparently (or should I say apparition-ly?), Dmitri reached his decision after an imagined ghostly conversation with his dead father.  Stay tuned for the future unveiling of either a box of Laura's ashes or what might be Nabokov's greatest literary work.

David M. Smith

 

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The meaning of life is that it stops.  --- Franz Kafka

If you are familiar with Kafka and his short literary works, you will know that he was a tortured literary genius who was unsure of his own talent to the point of torment.  In 1924, dying of tuberculosis, Kafka wrote to his friend of 20 years and fellow novelist, Max Brod.  Kafka had made a list of his three novels and a number of stories and gave strict instructions to Brod to destroy all his manuscripts 'unread and in their entirety' and to ensure that already published works would never be re-printed.  These instructions were not contained with a formal last will and testament, rather they were a penciled note found in a drawer after his death.

Kafka's lover, Dora Diamont, partially executed his wishes by stashing away letters and notebooks until they were seized by the Gestapo in 1933. Sidebar: These papers are the subject of an ongoing international search.  Brod, however, ignored his friend's wishes and instead oversaw the publication of the works in his possession.  Brod's defence was that if Kafka had really wanted the works destroyed, he would have appointed another, more ruthless executor. Kafka, had, according to Brod, trusted Brod to not burn his writings.

Interesting question, perhaps not in the legal sense, but in a moral and ethical sense: Is it possible that Kafka undermined his own intentions by the very nature of the relationship he had with his executor?

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The orderly administration of a parent's estate will often revolve around the family home.  All too often, the children of the deceased  parent will not see eye to eye on the best way to liquidate the home or whether the home should be liquidated at all.  The situation is often compounded when one of the children resided with the parent and may have developed an enhanced emotional attachment to the home. If the home is sold, it may become a challenge to empty out the contents in a timely fashion.

Such difficulties have led some commentators to espouse the viewpoint that a family member ought not to be an executor of an estate in which the family home is the most significant estate asset.  To my mind, such recommendation is a bit extreme:  each family is different and while there is no certainty as to how the children will interact with one another on the death of the surviving parent, it is worth noting that the vast majority of estate administrations are not referred to litigation counsel.

As noted in a recent article in the New York Times, the difficulties that may arise in the sale of the family home are often best resolved through the advice of a good listing agent and effective communication between the executor and his or her siblings. Such issues that may arise include: the appropriate list price, how to show the home to attract the most optimum sale price, and what upgrades (if any) to engage in and whether to use estate assets for this purpose.

David M. Smith

 

 

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I came across a really interesting blog (find it here)  the other day that considered an article published recently by Kristine S. Knaplund  (Professor of Law, Pepperdine School of Law), entitled The Evolution of Women’s Rights in Inheritance, 19 Hastings Women’s Law Journal 3 (2008).

The article describes how archived probate files in Los Angeles are a valuable source of information on the history of women’s inheritance rights. Issues such as whether women were routinely appointed as the executrix of their husband’s estate, and whether they were left the residue of an estate outright or with a life interest or by way of a trust, are considered.   The following is an excerpt from article:

“The probate files are a rich source of information about the lives of women and men in Los Angeles as it transitioned and grew into a major city. The availability of land and the use of promissory notes allowed the industrious the opportunity to save money and leave an estate to their families and friends. Ten women left estates over $10,000 in 1893 dollars, compared with twenty-two men. Of these, one woman began as a maid from Ireland who ended up being the richest woman dying in Los Angeles in 1893, with an estate of over $285,000.”

The article summarizes that Los Angeles in the 1890s was ahead of other parts of the country in women's rights. For example, men in Los Angeles routinely named their wives as executrix of the estate. Relatively few men tied up legacies to a wife or daughter in a trust or a life estate, choosing instead to give the beneficiary an outright interest in the property.  I would be interested to see how the history compared to women living at the same time in Ontario and the rest of Canada.

Sarah Hyndman Fitzpatrick

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Listen to Determining Value

This week on Hull and Estate and Succession Planning, Ian and Suzana talk about values and appraisals. They specifically look at some of the issues related to assigning value to assets such as jewellery, automobiles, antiques and artwork.

Comments? Send us an email at hullandhull@gmail.com, leave us a message on our blog or give us a call at 206-457-1985. Continue Reading...

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One final note of caution arises from the Rooney (2007), CarswellOnt 6560 decision – a decision of the Ontario Superior Court of Justice that I have referred to in my blogs earlier this week. This caution refers to the release that the Estate Trustee seeks from the beneficiaries.

In Rooney, the beneficiary was provided with a form of accounts, and was told that if she signed a release, she could receive a distribution from the estate. (The court was critical of this practice.) The beneficiary did so.

Later, the beneficiary sought to compel a passing of accounts. The court allowed the Application.

The trustee had asserted that because of the release, the beneficiary could not compel a passing. The court stated “It is not an answer to say that the beneficiary approved of the accounts and gave a release. One of the obligations of the solicitor acting for the trustee is to ensure that all beneficiaries have competent, independent advice in reviewing the accounts. There is no suggestion by the solicitor that he advised the [beneficiary] to obtain independent legal advice when reviewing the trustee's accounts which he had prepared.”

Additionally, the court noted that the account rendered by the solicitor to the estate was a blended account, and included both solicitor’s work and trustee work. “The solicitor was in the best position to know what charges related to which services. He was also in the best position to know what portions of his fee account should be paid by the trustee out of her compensation or by the estate. There is no evidence that he gave any advice about these distinctions to the beneficiary so that she could consider them.”

The court concluded by stating that “There is no evidence that the beneficiary executed the release knowing that double charges for the trustee's work had been made against the estate. There is no evidence that the beneficiary knew the solicitor charged the estate more for legal and trustee's services than would arguably be allowed on quantum meruit basis. In these circumstances, the release was not a fully informed one; it cannot be enforced against the beneficiary.”

What is an Estate Trustee to do to protect himself or herself? The Estate Trustee might send out accounts that are as complete and informative as possible, so that the release can truly said to be an informed one.   Solicitor’s accounts might be included, and these accounts could specify the nature of the services provided. Beneficiaries should be advised to obtain independent legal advice. 

In many cases, an Estate Trustee may wish to obtain a court passing in any event.

Thanks for reading.

Paul Trudelle

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 Yesterday, I referred to the Ontario Superior Court decision of Rooney Estate v. Stewart Estate (2007), CarswellOnt 6560, which addressed the distinction between the role of the Estate Trustee and the role of the estate solicitor.

One of the responsibilities of the Estate Trustee is to prepare a set of accounts for the approval of the beneficiaries or the court, as may be required.

The decision expands on this requirement. Citing an article prepared by Rodney Hull, Q.C. (“Fundamental Principles and Concepts Relating to Executors and Trustees’ Accounts” (1983), Estates and Trusts Quarterly 146), the duty of an Estate Trustee in keeping accounts is said to include the duty:

1.                  To keep clear and accurate accounts of the estate, rendered at appropriate intervals to the beneficiaries;

2.                  To keep the accounts distinct from other accounts;

3.                  To retain supporting documents for all accounts;

4.                  To produce to any beneficiary the accounts when requested. Income or revenue beneficiaries are entitled to have accounts at reasonable intervals; accounts must be presented to residuary beneficiaries when entitled to possession;

5.                  To make all beneficiaries fully aware of their rights;

6.                  To disclose any and all breaches of trust;

7.                  To allow all beneficiaries adequate time to investigate the accounts;

8.                  To ensure that all beneficiaries have competent, independent advice in reviewing the accounts; and

9.                  To notify all interested beneficiaries of any court audit.

In Rooney, the court held that a release signed by a beneficiary was not a bar to compelling a passing of accounts. The beneficiary was not advised to obtain independent legal advice when reviewing the trustee’s accounts, and the accounts did not disclose that there were double charges for the trustee’s work made against the estate, or that the solicitor charged more for legal and trustee’s services than would arguably be allowed on a quantum meruit basis. As such, there was a breach of one of the obligations associated with keeping accounts. Furthermore, the release was not a fully informed one. Accordingly, it was not enforceable as against the beneficiary.

Thank you for reading.

Paul Trudelle

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Not all Wills provide for an outright distribution to the beneficiaries. In some cases, the assets of an estate are held in trust over a period of time for the benefit of one or more beneficiaries, sometimes in succession.  When a trustee administers a trust, he or she is entrusted to act for the benefit of others. As such, our common law and statutes impose standards that trustees must comply with when dealing with trust property.

With the recent plummet in the stock market, I believe many trustees are considering how the stock market losses have affected the trust investments and what action they should take in the circumstances. 

Section 27 of the Trustee Act addresses the standard of care for trustees when investing assets held in a trust. Section 27(1) states, “in investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments”. Section 27(2) states that “a trustee may invest trust property in any form of property in which a prudent investor might invest”.

Section 27(1) and (2) outlines the prudent investor rule. When investing trust assets, a trustee must comply with the prudent investor rule to protect himself or herself from liability.   Section 28 of the Trustee Act, emphasizes this point as it states that a Trustee will not be liable for losses arising from investments if the standard of the prudent investor is met. Nevertheless, the issue remains how does a trustee meet the “prudent investor” standard? In keeping with this theme, tomorrow I will address how a trustee’s investment performance may be assessed.

Thanks for reading, and have a great day!

Rick

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Listen to Initial Estate Meetings

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss how important it is to be prepared for an initial meeting with an estate lawyer.

They have also been listening to and reading David Maister's new (audio)book Strategy and the Fat Smoker and continue their conversation on The Tipping Point by Malcolm Gladwell.

Comments? Send us an email at hullandhull@gmail.com, call us on the comment line at 206-457-1985, or leave us a comment on the Hull on Estate and Succession Planning blog.

 

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Listen to Funeral Considerations

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the considerations and responsibilities of estate trustees at the time of a funeral.

They also introduce Malcolm Gladwell's book 'The Tipping Point' as a different way of understanding family behaviour at the time of death.

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Listen to The Process of Administering an Estate

This week on Hull on Estate and Succession Planning, Ian and Suzana  talk about the first, pre-probate stages of administering an estate.

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Listen to Executor Obligations

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss what to anticipate as an executor and how to ensure that you are well prepared for your duties.

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At Wednesday’s year end dinner for the Ontario Bar Association Trusts and Estates section, we saw the presentation of the Hoffstein Book Prize.

This annual prize was established by Elena Hoffstein upon her receipt of the 2006 Award of Excellence in Trusts and Estates Law. The intention of the prize is to recognize outstanding contributions to the trusts and estates bar by a younger practitioner.

(Contrary to popular belief, the Hoffstein Book Prize is not a prize for writing a book: the prize IS a book.)

This year’s recipient of the Hoffstein book prize in was Jordan Atin, who in fact DID write a book. He is a co-author of The Family War. He is also a frequent speaker at CLE programs, writes extensively, is a contributor to the text Estate Litigation, and is involved in the OBA. Next year, Jordan is the Chair of the Trusts and Estates Section.

Jordan is Senior Associate Counsel at Hull and Hull. It is a privilege to work with him. He is a remarkable resource, and a wonderful person.

Congratulations Jordan.


Paul Trudelle

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In McMullen v. McMullen [2006] B.C.J. No 2900, an 86 year old widower commenced an application against two of his three daughters, who held his power of attorney. The application was to set aside the transfer of a 99% interest in the father’s condominium property to the husbands of his two daughters. The daughters, in turn, brought an application for an order requiring their father to submit to a psychiatric assessment.

According to the medical evidence before the court, the father had some medical problems, but no documented cognitive problems. At worst, he suffered from depression. However, the two daughters alleged that their father’s spending habits had changed and his investments had been depleted. The daughters claimed that their father was sending money to a new female acquaintance in the United States. The family contacted medical professionals and legal authorities with concerns that their father was being financially abused, but to no avail.

When the daughters confronted their father with respect to his worsening financial situation, he became angry and denied he was being financially exploited. He asked his one daughter to stop monitoring his bank account though she did not accede to his request, as she considered it her duty under the power of attorney. The two daughters then transferred the father’s condominium property to preserve his only remaining asset and provide for his future care.

However, the daughters did not immediately register the transfer of the condominium property, as they thought it would cause emotional distress. It was not until a year later that the daughters finally registered the transfer of the condominium without telling their father or providing consideration. The father commenced the application when he ultimately discovered the transfer.

The court allowed the application by the father and the condominium transfer was declared null and void. While the daughters acted in what they considered to be in their father’s best interests, there was nevertheless no evidence to show that the father was incapable of managing his financial affairs. The daughters had therefore breached their duties as attorneys by acting contrary to their father’s intentions. The court dismissed the daughters’ application, as the father was not required to submit to a psychiatric assessment where his mental capacity was not an issue.

The case holds that even when a family fears that an elderly parent is being financially exploited, but mental incompetency is not an issue, a power of attorney does not give the family carte blanche to do what they think is in the best interests of that parent. A power of attorney for property has its limits even in the most egregious situations.

Enjoy!

Justin de Vries

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Anyone can discount a commercial interest they own, trading money for convenience. There is always someone looking for a bargain.

In the United States, dozens of companies are offering to buy structured settlements and trusts. In fact, it is a huge business. Most U.S. states have passed laws requiring court approval of the sale of a structured settlement. However, in many instances, courts will approve sales of structured settlements and trusts for anyone claiming financial hardship.

I am not aware of any prohibition in Canadian law stopping such a discount trade in Canada. The owner of a trust can sell it, unless the trust contains a prohibition against its sale. As another example, one can sell his/her remainder interest in a trust, at a huge discount. It will be interesting to see if this type of discount trade catches on in Canada. If it does, regulation may become necessary to protect vulnerable beneficiaries of structured settlements or trusts. For example, court approval and/or full disclosure of potential consequences may be required. However, it seems unlikely that the government will seek to stop beneficiaries who are sui juris from selling their interest in structured settlements or trusts.

Have a great day!

Bianca

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Yesterday, we set out the first of a series of interpretation problems identified by Rodney Hull, Q.C. that often arise in Wills. Today, we set out another common provision that tends to cause difficulty …

(1) THE RULE IN SAUNDERS v. VAUTIER (1841), Cr. & Ph. 240.

(2) THE CLAUSE - “The residue of my estate to A upon attaining age twenty-five years”.

(3) THE FACTS - A is nineteen years of age on testator’s death. There is no gift over in the event that A dies before attaining the age of twenty-five years.

(4) THE QUESTION -

(a) Is the gift:

(i) vested in possession?

(ii) vested in interest?

(iii) vested subject to being divested? or

(iv) contingent?

(b) When can A call for the gift?

(5) WHERE TO START RESEARCH -

(i) Theobald on Wills - page 603 - paragraphs 43 - 29.

(ii) Feeney’s Canadian Law of Wills, paragraphs 17.54 - 17.55.

(iii) Sheard, Hull and Fitzpatrick, Canadian Forms of Wills, page 214.

Interpretation Applications can be quite expensive and time consuming. To the extent that they can be avoided, with diligent research and the ultimate consent of the beneficiaries, together with the consent of the Public Guardian and Trustee and the Children’s Lawyer, if necessary, this may not be a bad thing!

All the best – Suzana.

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Sometimes an estate trustee may get more than she bargained for.

A case in point may arise when an estate has entitlement to various pieces of artwork in an assortment of jurisdictions. How does the estate trustee locate the artwork? What constitute sufficient efforts to locate such assets? How is it valued?

All of these questions raise significant issues for the estate trustee. The advent of the internet has provided new tools to anyone making a global search for artwork. The Lost Art Internet Database is such an example. This website is a project of the German government’s central office for the recovery of lost art. Not surprisingly, a large share of such art was seized from Jewish owners by the Nazis.

In all likelihood, the estate trustee of the estate of the late Max Stern has had recourse to this website in an effort to locate lost assets to which the estate is entitled. As recently reported in the Toronto Star, the late Max Stern was the owner of an art gallery in Germany from 1913 until 1934 when he was forced to sell his holdings by the Third Reich. He escaped to Montreal in 1937 where he set up an art gallery. Upon his death in 1987, Stern named Concordia University, McGill University, and the Hebrew University of Jerusalem as the beneficiaries of his estate. The estate trustee, operating as the Max Stern Art Restitution Project, has since located many pieces originally stolen from Stern’s German gallery.

Until tomorrow,

David

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Listen to "The Estate Trustee During Litigation"

Read the transcribed version of "The Estate Trustee During Litigation"

During Hull on Estates episode #49, David and Jason discuss issues concerning the estate trustee during litigation (ETDL). They consider the circumstances that call for an ETDL, the technical procedure for appointing the ETDL and the powers and duties of the ETDL.

For more information on this topic, see:

• Salisbury v. Dell (1993 Ont. Gen Div);
• Jordan Atin's artice, The Estate Trustee During Litigation, in Estate Litigation, volume 2. 2nd ed. (Toronto: Thomson Carswell, 2000) at p.24-1; and
• Estates Act, R.S.O., c. E.21, as amended (s.28) 
  
   
  

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It is trite law that an executor’s duty is to bring in the assets of the estate and distribute to the beneficiaries. But what if the beneficiary of an estate cannot be found or has no interest in his inheritance? Reasonable steps must be taken to locate the beneficiary of an estate. But, in rare instances, a beneficiary may not be eager to be located or may disclaim his inheritance outright.

A case in point was recently reported by the BBC. A 1,000 acre estate in Cornwall, England (worth some five million pounds) is being administered by the Official Solicitor of the High Court, generating rental income of eighty-eight thousand pounds per year. John Paget Figg-Hoblyn inherited his father’s estate on his death in 1965 but, according to the BBC, has “not agreed to take up his inheritance.”

Apparently, he was finally located in 1994, living in a trailer park in California, but has once again since gone out of contact. The estate is apparently falling into disrepair.

As is often the case with estate issues reported in the mainstream media, key details are left unanswered. It appears that Mr. Figg-Hoblyn has not disclaimed his inheritance; rather, he just doesn’t want to be found!

However, we are reminded that the whole estate law regime is predicated on beneficiaries actually wanting to receive that to which they are entitled. I don’t know why Mr. Figg-Hoblyn does not want his inheritance but certainly no one can make him accept it. If his objective is to frustrate his father’s estate plan he appears to be succeeding….

Until tomorrow,

David

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A rather unique estate battle is unfolding in Maine and Connecticut as reported on February 26, 2007 by the Associated Press.

Olive Watson took the unusual step of legally adopting her same sex partner, Patricia Spado, some fifteen years ago as a means of ensuring for Spado’s financial security and presumably to guarantee the provisions of Watson’s last will (which entirely benefited Spado) against any challenge by her siblings.

Remarkably, the adoption was apparently legal in Maine notwithstanding that Spado was a year older than Watson and the two shared a conjugal relationship. Watson and Spado subsequently amicably ended their relationship in 1992 after fourteen years.

It gets even more interesting: Watson’s father was none other than the founder of the predecessor of IBM who, on his death in 1993, left a multimillion dollar trust fund for the benefit of his eighteen “grandchildren” unaware that his daughter had legally adopted Spado. A Judge in Connecticut has found that Spado cannot share in the trust (Grandfather Watson not having been aware of the adoption when he settled the trust) and Spado has appealed. The Trustees of the trust fund have apparently also commenced proceedings in Maine to seek to annul the adoption although that prospect appears unlikely as it requires proof of deception or fraud.

To my mind, the surprising element of this story is that Spado would even assert an entitlement as a “grandchild” when the purpose of the adoption was clearly to provide certainty of her entitlement to Olive Watson’s estate. It would be interesting to examine the legal requirements of adoption in Maine in more detail. Presumably the state legislature will pause to consider amendments in the glare of the spotlight of the American media….

Have a great weekend,

David

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As with any other type of litigation, documents obviously play a pivotal role in estate disputes. A claimant against an estate will often be reliant upon documents last seen in the possession of the deceased. But what if the documents so critical to the claimant’s case cannot be located in the estate residence?

Estate litigation is somewhat unique in that the custodian of the key documents in the case may be the party who has a great deal to gain from their loss or destruction. The ethical issues are front and centre and surely the advise of the estate solicitor to the estate trustee must be that he or she preserve all documents in the estate residence that could in any way have an impact upon a claimant’s case.

Sometimes, whether inadvertently or not, documents inexplicably go missing. The disappointed or suspicious claimant may avail himself of the legal doctrine or spoliation* which posits that an adverse inference will be drawn against a party who loses documents that were conclusively shown to have been in his custody.

Until tomorrow,

David M. Smith

*For a more detailed discussion on spoliation, see the article "Spoliation and Other Evidentiary Issues" on the Cassels Brock Blackwell LLP website.

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Listen to "Protecting Your Children's Inheritance"

Read the transcribed version of "Protecting Your Children's Inheritance"

During Hull on Estate and Succession Planning Podcast #49, Suzana Popovic-Montag and Jordan Atin discuss considerations and techniques to ensure the proper use of inheritances. Some of these techniques include staggered inheritances, incentive trusts and charitable foundations.

 

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Last week the Globe and Mail reported on a $1.5 billion lawsuit launched against Barry Sherman, the founder of Apotex, and a trust company. The case offers an opportunity to question the duties of disclosure to beneficiaries.

The claimants are the beneficiaries of their deceased father’s estate. Their father died in 1965 and his estate was administered by the trust company. In 1999, the claimants learned that the trust company had sold one of their father’s corporations to Mr. Sherman in the late 1960s. The claimants later learned that the sale included terms that they were to be given an opportunity to work at the company upon turning 21 and the option of purchasing 5% of the company after 2 years of employment. These terms were subject to some important conditions, including that the company remain under control by Mr. Sherman.

However, Mr. Sherman sold the company in 1972 for a sizable profit.

The claimants now allege that Mr. Sherman and the trust company are liable for not advising them of the terms of the agreement, among other things.

An interesting catch is that the trust company passed its accounts in 1993 and no objections were raised at that time.

At issue in this case will be the trust company’s obligations to disclose all details about its dealings with estate assets, even when the information has not been requested, either at the time or when the accounts are passed.

Thanks for reading.

Jason Allan

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Listen to "The Use of Contempt Procedures in Estate Matters"

Read the transcribed version of "The Use of Contempt Procedures in Estate Matters"

During Hull on Estates Episode #45, Sean Graham and Paul Trudelle discuss the use of contempt procedures in estate matters. They reviewed Rule 60.11 of the Rules of Civil Procedure and focused on the failure of Estate Trustees to produce accounts and the resort to the contempt mechanisms in order to compel their production.

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During Hull on Estates Episode #44, Jason Allan and David Smith discuss the duties and obligations of trustees with specific consideration to trustees of discretionary trusts. They discuss various claims available to beneficiaries against a trustee who is alleged to have acted improperly and the defences available to the trustee.

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Rose v. Rose is a recent Ontario case that deals with marriage breakdown, disillusioned children, and the finality of an irrevocable trust.

Brian and Janice were married and had two daughters. In 1992, Brian and Janice transferred a ski chalet and cottage into trust for the benefit of their daughters. Brian was the trustee for the trust. The trust was irrevocable. The family enjoyed the use of the chalet and cottage before and after the establishment of the trust.

Brian and Janice separated after the trust was established. Brian’s relationship with his daughters also deteriorated. The daughters ultimately became frustrated with their father as trustee and commenced an application to have him removed. They also sought an order winding up the trust and distributing the capital income to them.

For his part, Brian wanted to continue to use and enjoy the chalet and cottage despite the separation from his wife. However, the court held that the trust deed, the foundation document for the trust, could not be interpreted as authorizing Brian (or Janice for that matter) to use and enjoy the two properties without the consent of his two daughters. Furthermore, the court was not prepared rectify the trust deed to provide Brian with the use and enjoyment of the properties.

Brian also hoped to transfer the two properties back to him and his former wife. The court held that once the trust had been created, no such transfer could take place as Brian had failed to retain the power to revoke the trust.

However, the court did remove Brian as trustee. The court noted there was a great deal of hostility between Brian and his daughters. According to the court, it did not matter where the fault lay. The question to be asked when removing a trustee is whether it would be difficult for the trustee to act with impartiality, not whether in fact he would or would not do so. The court held that it would be impossible for Brian to act impartially in this situation.

Finally, the court held there was no basis for the claim by the daughters that they were entitled to call for the winding-up of the trust and for the distribution to them of the property of the trust.

Justin de Vries

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Today, I want to consider limitation periods in the context of a passing of accounts.

For lawyers, limitation periods are more of a curse than a blessing. While it provides a client with certainty, the conscientious lawyer is always nervous that a limitation period is approaching or has already passed. The first question a lawyer should ask a prospective client is when a claim or cause of action first arose.

Currently, I am embroiled in a complex estate passing of accounts. The issue of whether the beneficiaries of an estate are out of time in which to claim damages pursuant to section 49 of the Estates Act is very much in play.

A passing of accounts is essentially an estate audit. The executor is required to account for his/her actions to the beneficiaries. An executor will often be required to bring a court application to have the accounts approved. Beneficiaries can object to specific transactions and/or the compensation claimed by the executor. The beneficiaries can also seek damages against the executor on a passing of accounts as a result of misconduct, neglect or default. The issue is whether the two year limitation period set in the new Ontario Limitation Act, which came into force January 1, 2004, applies to a passing of accounts and a claim for damages.

 

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If a testator does not adequately shelter the bequests or insurance policy beneficiary designations to a disabled beneficiary, the disabled beneficiary may still have a way of sheltering the gift to him or her by taking advantage of what is known as a “disability expense trust”.

A disabled beneficiary, or member of a benefit unit, is entitled to put monies derived from an inheritance or the proceeds of a life insurance policy into a trust. These funds, up to a maximum value of $100,000, will not be considered assets for ODSP purposes.

This trust is distinct from a Henson Trust in that the funds may be received directly by the recipient and subsequently placed into the trust. Such a vehicle is available to shelter the funds were the testator failed to do so.

Any income earned on the funds and accrued will not be considered income to the disabled beneficiary if it the fund does not exceed $100,000.

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The Ontario Disability Support Program specifically provides that an absolute discretionary trust, also known as a “Henson Trust”, is not considered to be an asset of the disabled beneficiary. Thus, this gives a testator a significant planning vehicle to provide for a disabled beneficiary.

The discretionary trust must be truly discretionary, and the disabled beneficiary must have no vested right in the trust. Otherwise, the ODSP will consider the trust to be an asset of the disabled beneficiary.

To be a true discretionary trust, the trust must provide that any distributions to the disabled beneficiary are in the absolute discretion of the trustee. There must also be a gift over to a third party, so that the disabled beneficiary is not able to call for the collapse of the trust. Thirdly, the testator should provide for the distribution of any accrued income during the 21 year period, so that there is not a forced distribution of these funds.

Typically, the trustee will use the fund to purchase exempted assets for the disabled beneficiary, or to make distributions of income to the disabled beneficiary up to the $5,000 threshold, or to provide for the disabled individual once they turn 65 and are no longer entitled to benefits.

As the discretionary trust is not an asset of the disabled beneficiary, there is no limit to the amount that can be placed in the trust.

As the discretion given to the trustee is absolute, the choice of a trustee is of particular importance.

Have a great day.
Paul Trudelle

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During Hull on Estates Episode #40, Sean and Paul discussed the importance of wills, naming a Power of Attorney and other elements of succession planning that should be considered in the New Year.

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During Hull on Estates Episode #39, Jason and David discuss considerations that apply when beneficiaries seek to remove the trustee(s) of an estate. They discuss a factual situation involving a trustee who engages in questionable conduct and the various recourses available in an application for the trustee's removal.

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The provisions of the legislation implementing electronic registration of real estate documentation in Ontario have given rise to some interesting issues relating to the exercise of a Power of Attorney.

An attorney acting under a Power of Attorney may sign documents which are to be registered electronically as part of a real estate transaction.

Where an individual is involved, the Power of Attorney in question is registered in the Land Registry Office where the document is being registered. The document must contain: (i) the registration number of the Power of Attorney, (ii) the date of registration of the power of attorney, and (iii) a statement that the power of attorney is in full force and effect.

Under the Land Registration Reform Act – Electronic Registration Regulation a power of attorney must contain: (i) name of the grantee, (ii) a statement that the attorney is entitled to make statements of spousal status under the Family Law Act on behalf of the Grantor, and (iii) a statement that the granting of the Power of Attorney has been witnessed in accordance with the provisions of the Substitute Decisions Act, if applicable.

The Land Registration Reform Act – Electronic Registration Regulation appears, then, to create a Power of Attorney for the purposes of a real estate transaction by electronic registration. The intention behind the legislation is, clearly, to facilitate a completely paper-free regime.

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Hello, my name is Bianca La Neve and I am an associate at Hull & Hull LLP. This week, I will be blogging on trustee discretion and capital encroachments. An important part of advising clients with respect to the administration of an estate is providing them with advice as to their duties and responsibilities in ongoing trust administration matters.

In this week's blogs, I want to tackle the issue of capital encroachments in the context of trust arrangements established in Wills. Specifically, I will address whether or not a trustee has the power to encroach on capital and if so, what considerations need to be taken into account by the trustee in determining the amount of the encroachment.

Does the Will Allow the Trustee to Encroach upon Capital?

In determining whether a trustee has the power to encroach upon capital and the scope of such power, one must first look to the specific wording of the Will.  Typically, a testator's Will establishes a trust that provides for income to be paid to a life tenant over their lifetime and capital to be distributed on the death of the life tenant to capital beneficiaries. It is also typical in such a trust arrangement to grant the trustee the discretion to encroach upon capital for the benefit of the life tenant. The following provision is what I consider a typical example of a wide power to encroach upon capital:

    ...to my said trustees to pay to my wife for the benefit of my said wife, such part or parts or the whole of the capital of the residue of my estate as, in their uncontrolled discretion, my said trustees consider advisable.

In interpreting the relevant provisions in a Will, one must endeavor to give effect to the testator's intentions as ascertained from the express language of the Will and the surrounding circumstances. If the language of the Will and/or the specific capital encroachment provision is unclear, then an Application for the advice and direction of the Court should be brought to determine the extent of the power to encroach. Tomorrow, I will begin to tackle the scope and extent of a trustee's power to encroach on the capital of a trust.

Have a wonderful day!

--Bianca

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During Hull on Estates Episode #27, we continued our discussion on the compensation of an estate trustee, including the pre-taking of compensation and the exclusion in Section 61 of the Trustee Act regarding fixing compensation in the instrument creating the trust.

 

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There are some solutions for resolving the problems of conflict of interest between directors in the director/trustee role which I've been discussing in the last three blogs. Some of the potential solutions are as follows:

1. Muliple executors - where there is at least one trustee who has an inherent conflict of interest, that conflict can be balanced out by having one or more co-trustees who can generally put the interest of the trust first without valid conflict of interest problems. That way, the beneficiaries who complain about the conflict of one trustee can be answered by the fact that that trustee was outvoted by the other two in any event. The trustee with a conflict might even decide not to vote on decisions that invoke the conflict of interest.

2. Disclosure of information to beneficiaries on an early and comprehensive basis - is another way to avoid allegations of conflict of interest. At the very least, beneficiaries can be canvassed to see whether there is going to be a problem with a particular decision. If they fail to object, it is somewhat less likely that they will do so later on and the Court may have sympathy for an executive that gave them the chance before making the decision.

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During Hull on Estates Podcast #26, we discussed compensation of an estate trustee.

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Conflicts of interest are a commonly encountered problem in the administration of estates. Often, one of the executors of an estate will be a beneficiary as well. That leads to the scope for other beneficiaries to complain that the executor/beneficiary is preferring his or her interests to the interests of the other beneficiaries. If not properly dealt with, these situations can inflame tempers and lead to distrust and, in the most extreme cases, litigation.

That litigation can take the form of specific claims against the executor on the basis of a particular conflict, or a more general passing of accounts, which is essentially a court audit of the entire administration. During the audit, the beneficiaries have the chance to criticize any decisions of the executor, including conflict of interest. Some examples of conflict of interest that might be alleged are:

1. that the executor used estate assets to his or her own benefit, and to the detriment of the beneficiaries;

2. that the executor, without good reason, administered the estate with a view to maximizing executor's compensation at the expense of the beneficiaries of the estate;

3. that, where the executor is a part owner in estate assets, he or she managed them in such a way so as to increase the executor's interest at the expense of the estate; and

4. that the executor owes the deceased money, and has failed to collect on that estate asset.

The range of situations of potential conflicts is a very broad category. It will be important for the executor to seek legal advice with respect to any specific interest that causes difficulties. For the remainder of the week, I will be discussing conflicts arising when the executor/trustee is also a director of a company of which the estate holds substantial shares.

Thanks for reading. Sean. --------

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Much like with the form of accounts, the Ontario Rules of Civil Procedure set out a comprehensive listing of what is required to proceed with complaints against an executor or trustee. In Ontario, Rules 74.18(7) and (12) provide as follows:

Notice of Objection to Accounts - 74.18(7)

Subject to subrule (8), which applies only to The Children's Lawyer and The Public Guardian and Trustee, a person who is served with the documents under subrule (4) or (5) and who wishes to object to the accounts shall do so by serving on the estate trustee and filing with proof of service a Notice of Objection to Accounts (Form 74.45), at least 20 days before the hearing date of the application.

Hearing - 74.18(12)

No objection shall be raised at the hearing that was not raised in a Notice of Objection to Accounts, unless the court orders otherwise.

Most claims or objections will arise out of a claim by a beneficiary of alleged negligence by the executor or trustee, by reason of the executor or trustee not exercising the proper standard of care pertinent to his or her office.

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A common area of complaint stems from an allegation that the executor or trustee was negligent in his or her efforts to administer the assets of an estate or trust. For a comprehensive discussion of the personal liability of trustees, see Maurice C. Cullity, Q.C., "Personal Liability of Trustees and Rights of Indemnification", (1996) 16 E.T.J. 115.

Generally speaking, most claims or objections to accounts arise out of what is perceived by beneficiaries to be negligence or failure on the part of the executor or trustee to maintain a proper standard of care and skill in his or her office. The most common complaints arise out of the following situations:

• investments by the executor or trustee which are not authorized by the will or by the law;
• the failure to provide a proper mix of investments so as to balance competing interests, such as life interests as opposed to remainder interests;
• the negligent or improper investment by the executor or trustee in investments of a speculative nature;
• an executor or trustee can be held liable for not maintaining the value of assets, such as a residence, by effecting proper repairs and would be liable for such neglect;
• executors or trustees must be extremely careful to make sure that all proper considerations are taken into account in making elections under the Income Tax Act, so as to avoid any criticism by the beneficiaries;
• care must be taken by an executor or trustee to ensure that prompt filings of returns are made and that penalties and interest payable on late filings are not incurred; and
• while trustees are seldom culpable for what are perceived by beneficiaries to be unnecessary delays, care must be taken to ensure that damages are not in fact incurred by the beneficiaries by reason of delays caused by inattention.
  

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In a recent series of blogs (see our June 14, 15 and 16, 2006 posts), we discussed the form of an executor's or trustee's accounts. In our experience, as complaints against a trustee and/or an executor often stem from this issue, we felt it would be worthwhile to continue to explore this topic.

As we've mentioned in the past, in Ontario, Rule 74.17 of the Rules of Civil Procedure sets out an exact summary of what is expected in regard to the form of the accounts. In particular, it provides as follows:

(1) Estate trustees shall keep accurate records of the assets and transactions in the estate and accounts filed with the Court shall include,

(a) on a first passing of accounts, a statement of the assets at the date of death, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets;

(b) on any subsequent passing of accounts, a statement of the assets on the date the accounts for the period were opened, cross-referenced to entries in the accounts that show the disposition or partial disposition of the assets, and a statement of the investments, if any, on the date the accounts for the period were opened;

(c) an account of all money received, but excluding investment transactions recorded under clause;

(d) an account of all money disbursed, including payments for trustee's compensation and payments made under a Court order, but excluding investment transactions recorded under clause;

(e) where the estate trustee has made investments, an account setting out,

(i) all money paid out to purchase investments,

(ii) all money received by way of repayments or realization on the investments in whole or in part, and

(iii) the balance of all the investments in the estate at the closing date of the accounts;

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In general terms, the form of the accounts should provide all essential information to all persons interested or entitled to an accounting in the Estate or Trust. Generally speaking, the accounts should be prepared in a manner that is capable of being understood by a person of average intelligence, literate in English, and familiar with basic financial terms, who has read it with care and attention. Accordingly, Executors and Trustees preparing their accounts should be careful to avoid technical terms such as "debit" and "credit", which are generally not known to persons who are not familiar with bookkeeping and accounting practices.

One of the main problems encountered by Executors and Trustees in answering requests for information or providing explanations to beneficiaries is that the beneficiaries frequently do not read the accounts with the required care and attention which is essential if the accounts are to be understood.

On the cover of the accounts, a short statement of the purpose of the accounting, such as "The Trustees present these accounts for the approval of the Judge and to acquaint interested parties with the administration of the Estate and its proposed distribution", might well be added.

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In Ontario, Rule 74.17 of the Rules of Civil Procedure sets out the specific expectations of this relatively precise art of accounting. It can be seen, therefore, that any accounting by Executors and Trustees has both a broad and a narrow aspect to it.

In the broad sense, it is an obligation whereby the Executor or the Trustee furnishes information to interested parties on an ongoing basis concerning the administration of the Estate or Trust.

In the narrow sense, the Trustee's accounting relates to the accounts prepared by him or her at the close of his or her administration (or some appropriate intermediate stage) so as to reflect the transactions that have occurred, with a view to discharging the trustee from liability for his or her stewardship.

Usually, a Trustee informs the beneficiaries of the results of his or her administration on an interim basis. This statement usually sets out the income or revenue received, the expenses incurred and the net result of investments, together with a list of assets.

Interim reporting statements vary widely in the manner of their presentation and the detail of the information they contain. To a greater or lesser degree they are designed to demonstrate the performance of the trust and frequently resemble the form of corporate financial statements.

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Ultimately, where a trustee administers the assets of a trust, the two most effective and important releases that are available to be obtained are (1) a Clearance Certificate from Revenue Canada; and (2) an Order of the Court in a Passing of Accounts.

Having said that, while a Clearance Certificate is of course sought in most circumstances, a formal Passing of Accounts is not always obtained by a trustee.

From a practical standpoint, where all of the beneficiaries of a trust are sui juris, the trustee has the opportunity to obtain a Clearance Certificate and then merely circulate a release to all persons with an interest in the trust. In so doing, some consideration must be given to the question of independent legal advice and whether or not it is necessary to insist that a beneficiary obtain such prior to signing the release.  Without the benefit of independent legal advice, there is the question as to the strength and enforceability of any release.

None the less, in practical terms, many estates and many trusts are wound up on the basis of an execution of the appropriate release by the beneficiaries.

From a practical standpoint, when seeking a final release from a beneficiary, a copy of the accounts should be provided, and these accounts may be in an informal format or in Court format, depending on the circumstances.

A condition contained in a will to execute a release is enforceable and, upon refusal to do so, the legatee may forfeit the gift: see Williams on Wills (7th Ed.) Butterworths 1995 at p. 374. Furthermore, it has been held that, where there is a requirement in a release that it be executed within a stated time, this must be complied with: see Simpson v. Vickers (1807) 14 Ves. 341.

The form of a release or receipt depends on the nature of the gift itself. For example, when a beneficiary receives a specific bequest, he or she should only need to provide the person who presented the gift with an acknowledgement of receipt of the particular bequest received.

On the other hand, a residuary beneficiary has a right to consider pursuing a formal Court audit or should be expected to sign an acknowledgement, release and indemnity.

In conclusion, the substantive issues relating to the whole question of release, indemnity and receipt are important to keep in mind when you are dealing with the form of a receipt, acknowledgement or indemnity.

Best wishes, Suzana and Ian. --------

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A comprehensive review of the principles in respect of determining when trustees have personal rights of indemnity against beneficiaries is set out in the Australian decision of J.W. Broomhead (Vic.) Pty. Ltd. (in liquidation) v. J.W. Broomhead Pty. Ltd. [1985] V.R. 891 (S.C. Vic.); see also Cullity, M.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. In the Broomhead decision, McGarvie J. set out the following propositions:

·the general principle is that a trustee is entitled to an indemnity for liabilities properly incurred in carrying out the trust, and that right extends beyond the trust property and is enforceable in equity against a beneficiary who is sui juris; ·the basis of the principle is that the beneficiary who gets the benefit of the trust should bear its burdens, unless he can show some good reason why the trustee should bear the burdens alone; ·the right of indemnification is not confined to the case where there is only one beneficiary.

It applies to cases of multiple beneficiaries as long as they are all sui juris and entitled to the same interest as absolute owners of the trust property between them; ·the liability to indemnify could apply to trustees of subtrusts that were beneficiaries of the principle trust; and ·prima facie, the beneficiaries share the liability in proportion to the extent of their respective beneficial interests in the trust.

With the incidence of personal liability for trustees, it is nice to see that the caselaw strongly supports, in the right circumstances, the ability of the trustee to come back against and collect, if necessary, from the beneficiary.

All the best, Suzana and Ian. --------

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In an effort to carry on with our theme of trying to protect trustees, we wanted to consider the liability of trustees as against third parties. In this context, there is really no limit to the extent of liability that a trustee can incur.

A trustee can, of course, incur liabilities to persons other than beneficiaries. For example, the trustee may contract an environmental clean up company to remove contaminated soil from land that is owned by the estate before it is put on the open market. The trustee will therefore be liable for those costs, payable out of the assets of the estate. As trustees are principals and not agents of the beneficiaries, they will, prima facie, be personally liable on obligations owed to third parties and trustees may incur personal liability as a result.

The trustee may limit the extent of the personal liability to the value of the trust assets or limit it to the extent that the right of indemnity exists only against such assets. Furthermore, where the trustee has the right of indemnity out of the trust assets, creditors will, as a general rule, be entitled to be subrogated to it. See Cullity, M.C.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115 at pp. 127-128. As to the question of limiting the liability of a trustee, Falconbridge on Mortgages (4th Ed.), p. 428-429 states:

If the trustee or personal representative covenants to pay, he will be personally liable on his covenant, even thought he covenants as trustee or as personal representative, even though he adds a proviso that he shall not be personally liable, such proviso being repugnant to the covenant to pay and therefore void. He may, however, validly limit his liability without destroying it, as, for example, if the covenant is to pay out of a certain fund, with a proviso that the covenantor shall not be liable after he ceases to be entitled to administer the fund. So, if a trustee covenants "as trustee and not otherwise", or "qua trustee only", or if an executor covenants "as executor, and as executor only", the covenantor is personally liable to pay, but only to pay out of the assets of the estate or to the extent that he has assets.

This strict rule attempting to limit a trustee's personal liability has been weakened and modified by the courts. For a review of the impact of the ability of a trustee to limit his or her liability, see Cullity, M.C.C. "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115 at pp. 129-133 and see Gordon v. Roebuck (1992), 92 D.L.R. (4th) 670, 9 O.R. (3d) 1 at p. 7-10 (C.A.).

It seems that the bottom line is that a trustee must watch out for the personal risk that may be attached to him or her, merely as a result of his or her dealings with third parties.

On our next Blog, there'll be more to come on this "protection of trustees" theme...

All the best, Suzana and Ian.

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Perhaps one of the more frightening aspects of being a trustee is the fact that the risk of personal liability is "an incident of the office of trustee". His Honour Justice Cullity wrote a leading article on this topic, entitled "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. Given the personal consequences attached to the position of trustee, some consideration must be given to the nature and extent of the releases and rights of indemnification that may be available to a trustee.

Usually these issues are considered at the final stage of an estate administration, when the trustee is dealing with the distribution and winding up of the assets of the estate or trust. In this Blog series on this topic, we will attempt to briefly review some of the substantive and practical issues relating to the whole question of rights of indemnity and releases for trustees.

In order to properly determine just what a trustee should receive in the form of a release, acknowledgement or indemnity, some consideration must be given to specifically the nature and extent of the obligations and liabilities that are expected of the trustee when he or she takes on the role. In short, a trustee is a fiduciary and, as such, his or her fiduciary obligations are owed to beneficiaries, and in some circumstances, to third parties as well.

Given this, the whole question of what a trustee can expect in the form of an acknowledgement, release or indemnity, is a difficult one. Presumably, the trustee's rights of indemnification out of the trust property arise as a result of the fact that the trustee merely holds the legal title to the property and does not hold the beneficial interest in the property.

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LISTEN HERE

READ THE TRANSCRIBED PODCAST HERE

During this podcast, we discussed the following:

(i) the accounting obligations of an Executor;

(ii) the concepts of informal and formal accounts;

(iii) investment of Estate assets;

(iv) the recreational property "conundrum"; and

(v) planning for capital gains taxes. --------

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LISTEN HERE

READ THE TRANSCRIBED PODCAST HERE

During our podcast, we discussed the following legal issues:

(i) role of an Executor;

(ii) children and the Corvette effect;

(iii) guardianship (iv)what happens when you die without a will;

(v)the difference between a holograph and typewritten will; and

(vi)considerations when amending a will. --------