Executors and Trustees : Toronto Estate Law Blog

Care, Pains and Trouble: Compensation of Estate Trustees

Posted on April 1, 2013 by Hull and Hull LLP

A recent article on Legal Feeds, a blog supported by Canadian Lawyer and Law Times, highlighted some recent developments in the case law regarding the compensation of estate trustees and legal fees. In particular, it focused on an endorsement in Hooke Estate, in which strict adherence the “percentages” approach was criticized by the Court.

The limited statutory guidance on compensation of estate trustees in Ontario stems from section 61(1) of the Trustee Act which specifies that a “personal representative is entitled to 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”. In Ontario, the standard practice has become to award compensation of 2.5% of each of the capital reciepts, income receipts, capital disbursements and income disbursements, plus a small care and management fee.

However, the percentages approach may sometimes yield results that are higher or lower than what is “fair and reasonable”. The appropriateness of compensation may be measured with regard to five factors:

the size of the trust;
the care and responsibility involved;
the time occupied in performing the duties;
the skill and ability shown; and
the success resulting from the administration.

A quick summary of some occasions where increases or decreases from the standard percentages may be appropriate has been discussed by Natalia Angelini in an earlier blog post.

In Hooke Estate, a lawyer acted as both solicitor and as estate trustee for the estate. Due to the relatively simple nature of the estate, the “percentages” approach was found to yield more compensation than was fair and reasonable. The lawyer had charged the estate with legal fees as well. The amount of his compensation was modestly reduced. As he was found to have pre-taken his compensation, he was ordered to return money to the estate.

Hooke Estate is a simple illustration of the principles involved in measuring fair and reasonable compensation for an estate trustee. It shows that while the percentages approach may serve as a guideline, the result must be carefully checked against the five factors to ensure that it is a justifiable number for the care, pains and trouble, and the time expended in and about the estate.

Thanks for reading!

Don't Discard Dusty Documents - Donate!

Posted on March 14, 2013 by Hull and Hull LLP

I recently heard a story about the widow and sole beneficiary of a man who had been a newspaper editor who had passed away. Being an avid reader and writer, the husband had amassed a considerable library of books, as well as a large collection of files including articles, notes and letters he had written and received over the course of his career. The widow held on to these files for years, not knowing what to do with them, and always intending to find some productive use for the information.

Most of these items had little monetary worth. Some of the material had sentimental value to her. But some of the files contained correspondence between the newsman and prominent figures in Canadian politics, culture and history. These may someday be of interest to researchers chronicling the history of Canada, journalism, media and law.

The files took up a lot of room, occupying cabinet upon cabinet and further storage space beyond that. They seemed doomed to fade into obscurity, likely to be thrown out eventually. This would be a tragedy – a wealth of knowledge lost to Canadian history.

Are these files simply clutter, or are they an unrealized estate asset?

This predicament is not unique. Many estate trustees are faced with the challenge of cleaning out the deceased's papers and personal effects. Often, there are old family photographs, heirlooms, military medals and uniforms, letters, documents and other items that take up space and appear to be of little cash value and that no beneficiary wants. Occasionally, some of these items have historical or academic significance.

The beneficiary in our story found a creative and innovative solution to this dilemma. She donated her late husband's files to the archives of a Canadian university. The university was proud to take possession of the records because of their academic value in understanding the history of the news media in that province. In return, she received a tax receipt for the estate for the donation. An appraisal of the documents had been conducted by the university and a significant value was assigned to them.

While not all estates will include items of historical significance, many, in fact, do. Further, many items that may appear to be inconsequential and would otherwise be discarded by unsuspecting estate trustees may be important to someone else.

The University of Toronto's archives accept gifts of private records and issue tax receipts. Their website has information on how to make a donation and who to contact. Information on York University's archives is available online as well. Many other Canadian universities accept gifts of private records too.

This should give estate trustees pause before throwing out cabinets full of paper belonging to the deceased. They may be discarding valuable estate assets. Furthermore, they may be destroying a piece of history.

Thank you for reading!

Personal Property, Personal Risk

Posted on February 15, 2013 by Hull and Hull LLP

A story out of Shreveport, La., should serve as a lesson to Estate Trustees dealing with the administration of personal property. In 2009, Trisha McNeal bought a painting for $2.00 at a garage sale which appeared to the seller to be worthless, but had the word "Picasso" written on the back. The seller was a friend of the deceased art collector and not his Estate Trustee. Ms. McNeal contacted the FBI and they proceeded to investigate whether it was an original. There has been no update on the results of their investigation.

Often when it comes to dealing with the personal property of the deceased, the Will contains very broad language that provides that the Estate Trustee can sell the property, distribute it to the beneficiaries named in the Will, or can otherwise deal with it as they see fit.

This may lead the Estate Trustee to believe that they are free to do whatever they want with the personal property, for example by selling items off at a garage sale, or even throwing it away. However, Estate Trustees should be aware of the personal risks that they face when dealing with personal property in a haphazard manner. It will be very difficult to defend a claim of negligence where the Estate Trustee failed to have certain types of property appraised and instead threw it away or sold it for far less than it’s worth. In addition, some of the biggest battles in estate litigation are over items with no real market value, but ones to which family members attach significant emotional or sentimental value.

Appraisals

To start, an inventory of all of the personal property should be created. Anything that is potentially of value should be appraised by an independent and qualified appraiser – such as original pieces of artwork, antique furniture, coins, collections and jewelry. The inventory, along with the appraisals, should be provided to the beneficiaries so that they are aware of the items and their valuations.

Memorandum

Sometimes the Will refers to a memorandum which will deal with the distribution of personal property. See Paul Trudelle’s recent blog "Didn't Get the Memo?" on the topic of the enforceability of these memos. Basically, if the memo is created after the Will or the latest codicil was made, it will not be legally effective. If the Deceased does leave a legally ineffective memo, should it be followed nonetheless? The Estate Trustee in these circumstances would be wise to seek the consent of all interested parties before making any decisions in these circumstances.

Distribution Amongst the Beneficiaries

Distribution of the personal property should be done carefully to ensure that selection process is fair and the Estate Trustees do not appear to be giving more to one beneficiary over another. There should be some thought given to creating a mechanism for balancing amongst the beneficiaries, for example, if some beneficiaries would rather not receive any personal property and some choose to receive $10,000 worth of personal property, there may be some cash payments made to those who chose nothing. When items are selected and received, Estate Trustees should ask beneficiaries to sign a document acknowledging that they have received the items they selected.

Items of Sentimental Value

Sometimes there is only one of mom’s engagement ring and it is priceless to all of her children. How are the Estate Trustee’s supposed to deal with that situation? When an Estate Trustee is aware that there is going to be a fight over a particular item, it is worth trying to address that dispute in advance. Creative solutions could be explored, such as dividing the object into multiple pieces and turning them into other pieces of jewelry or art.

As estate litigators, we find that fights over these items are often the most difficult to resolve. Hopefully each of the beneficiaries can come away with an item that will be a cherished reminder to them of their loved one without a drawn out family battle.

Thanks for reading!

Moira Visoiu

Costs Against co-Estate Trustee

Posted on February 12, 2013 by Hull and Hull LLP

In 2012, the Court of the Queen’s Bench of Alberta released a costs decision in which a co-Estate Trustee was ordered to personally pay a substantial indemnity costs award for bringing a series of unsuccessful applications and motions primarily aimed at removing his sister as co-Estate Trustee.

In Bizon v. Bizon, a brother and sister were named co-Estate Trustees of their sibling’s estate. The brother did not get along with his sister and their relationship affected his actions with respect to the administration of his estate. He would take actions without consulting his sister, he refused to provide information to her, when she asked, and bought repeated motions including a motion to remove her as co-executor, alleging bad faith and lying, which he failed to prove.

The sister had incurred $23,514.93 in legal fees in responding to these proceedings. The Court reviewed the rules with respect to costs awards and found that there was no reason for departing from the general rule that the loser should pay the winner’s costs. The Court pointed out that it could not be said in this case that the testator done something that had caused the litigation. While one of the applications was ostensibly an application for advice and directions, which Estate Trustees are permitted to bring where reasonably required, the Court concluded that it was in substance a further attempt to have the sister removed as executor. In ordering the brother to pay substantial indemnity costs personally in connection with these motions, the Court noted that the sister had no choice but to retain counsel and to respond to her brother’s allegations. The Court noted that the obligation of a co-Estate Trustee is to try and resolve disputes with the other Estate Trustee directly, not through the Courts, even where the other is being unreasonable. However the Court described the brother’s actions as attempts to “denigrate and try to bully his sister.” Finally, the Court held that since the estate did not benefit from these proceedings in any way, the beneficiaries should not have to pay for these costs.

The decision should be a warning to all co-Estate Trustees. If you have been named co-Estate Trustee, and you do not get along with your fellow appointee, think carefully before you accept, and if you do, make sure that you do not let personal grudges affect your decision making. Everything that you do as co-Estate Trustee should be in the best interests of the beneficiaries of the estate, otherwise you could be held personally liable.

Thanks for reading!

Moira Visoiu

Death and Taxes

Posted on February 11, 2013 by Hull and Hull LLP

While everyone has heard the refrain that the only two guarantees in life are death and taxes, how these two things interrelate is often a source of stress and confusion. I am often asked about the timing for filing of a deceased’s taxes and therefore thought it might be useful to provide a brief overview.

Section 150(1) of the Income Tax Act (“ITA”), outlines the timing required for the filing of terminal returns as follows:

Death prior to November: terminal return due by next following April 30 (or June 15, if the deceased had business income). These are the same deadlines that exist for individuals alive throughout the taxation year.
Death in November or December: terminal return due six months from death.

Section 150(1)(b),(d) of the ITA also provides a rule for the year preceding the year of death. It is often the case that a deceased’s representative will have to file for this year when the deceased was ill for an extended period before death or if death has occurred early in the calendar year. For the year preceding the year of death, the rule is as follows:

Death prior to May: prior year’s return due six months after death.
Death in May or after: prior year’s return was due on April 30 in year of death and no extension was given.

Section 70 of the ITA provides an extended deadline for the filing of a terminal return and a special deadline for one of the elective T1 returns, as follows:

Terminal return where qualifying spousal trust created: no late filing penalty until 18 months after death, with interest running from the normal deadlines.
Rights and things return: due by later of one year from death and 90 days after assessment of terminal return.

The extended filing deadline for rights and things allows the deceased’s personal representative to determine whether, based on the notice of assessment, any additional tax savings may be gained by identifying rights and things and declaring them as part of a separate return.

Section 150(1)(c) of the ITA provides that the T3 return is due within 90 days after the expiry of the trust’s year-end. The trust can choose its own first fiscal period, but in the absence of a choice, the period will end on the one-year anniversary of the taxpayer’s death.

Thanks for reading.

Going Out With a Bang

Posted on January 30, 2013 by Hull and Hull LLP

The movies are filled with gun-wielding maniacs. If they are in Schwarzenegger's way, more often than not, the maniacs don't make it to the end of the film. This led me to ask myself an interesting legal question of the sort that only an estates lawyer could be inspired to ask from watching spies, bank robbers and cowboys shoot at one another. What happens to the guns when their owners are taken down by James Bond or Jason Bourne? More generally, and much more in the realm of my reality, what happens when an individual dies and leaves behind a firearm?

The answer is actually somewhat complicated. Firearms in Ontario are regulated at multiple levels of government. The Federal Firearms Act and the regulations to it set out the general framework for gun ownership and transfer in Canada, while provincial law deals more with transportation of firearms. Fortunately, the RCMP has some very useful information on inherited firearms and how to deal with them.

There is a distinction between non-restricted and restricted firearms. While the definitions of restricted and non-restricted firearms is beyond the scope of this blog (and generally well outside the scope of our practice), they are defined by section 84(1) of the Criminal Code, and theRCMP has some information on their website.

An estate trustee, in most circumstances, has the same authority as the testator to take possession of a non-restricted firearm for the purposes of administering the estate. The estate trustee must complete a Declaration of Authority to Act on Behalf of an Estate form (available here) and provide a copy of the death certificate. Where a firm is acting as trustee, a single individual must be named who will have carriage of the firearms.

At all times, the firearms must be properly stored and secured as provided for under the Firearms Act.

Another problem presents itself with respect to the transfer of the firearm to a beneficiary. The estate trustee must take steps to ensure that the new owner is eligible. The owner must have a Possession and Acquisition Licence. The application form is available on the RCMP's website. As well, the Firearms Act sets out that the estate trustee cannot transfer a firearm to someone if there is reason to believe that the individual may have "a mental illness that makes it desirable, in the interests of the safety of that individual or any other person, that the individual not possess a firearm", or if there is reason to believe that the recipient may be impaired by drugs or alcohol.

The situation becomes more complicated if the testator was not properly licensed, if the gun is a restricted firearm, or if the testator's possession of the weapon was otherwise illegal. In such cases, the advice of a criminal lawyer or other expert should be sought.

If there is no eligible heir, or if nobody wants the firearm, the estate trustee can sell it to a licensed individual through an official transfer process, contact the police to arrange for the safe surrender of the weapon, or have a gunsmith permanently deactivate the weapon.

Great care should be taken whenever dealing with firearms for both legal reasons and public safety. If you have any questions, please contact the Canadian Firearms Program for detailed information.

A Cautionary Tale for Estate Trustees

Posted on January 17, 2013 by Hull and Hull LLP

While estate trustees can be criticized by courts for their conduct, and in some instances, made to compensate the estate for their inappropriate behaviour, sometimes, that just isn’t enough. On December 13, 2012, Saman Jaffery blogged about the Alberta Court of Queen’s Bench decision in Bizon Estate, 2012 ABQB 605, wherein the court ordered one executor to pay the costs, personally, of another executor.

However, cost consequences were not enough in a recent decision of the Ontario Superior Court of Justice. In this case, a father died leaving the entirety of his modest estate to his two sons, to be paid out upon the youngest son reaching the age of 21. In the interim, the deceased’s brother (and uncle to the beneficiaries) was named the sole estate trustee. Eight years into the administration of the estate (and shortly before the youngest son reached the age of 21), the two boys began requesting an accounting from the uncle. They were provided a cursory accounting and were advised of the modest value of the estate. The uncle refused to give a better accounting and no distribution was ever made from the estate.

The court noted that the uncle refused to give the sons many of their father’s personal items. The only mementos which the sons received were a watch and a camping lantern. To make matters worse, the uncle did not invite the sons to the spreading of their father’s ashes ceremony. This upset the sons to such a degree, that one of them suffered depression, requiring psychiatric care and medication for more than a year. From a financial perspective, the court held that, had the uncle properly administered the estate, the sons would have been able to plan and pay for an education of their choice. Instead, their options were limited to programs they could afford, becoming encumbered by debt in the process.

The uncle disregarded earlier court orders to provide an accounting, pass his accounts and pay costs. He was found in contempt twice, and eventually imprisoned for seven days.

The court held that instead of protecting the interests of the children, the uncle exploited them by treating their father’s estate as his own cash box. In addition to damages, interest and costs, the sons sought punitive and exemplary damages in the amount of $50,000 (on an estate that the court estimated to be worth approximately $40,000). The court considered the factors set out by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., 2002 SCC 18. The court considered the vulnerability of the young beneficiaries, and their uncle’s outrageous conduct. The court considered the impact of excluding the sons from the funeral ceremony and the uncle’s systematic failure to comply with court orders. Finally, the court considered whether an award of punitive damages in the amount of $50,000 was appropriate to reflect the court’s abhorrence and the need to deter the uncle and others from similar conduct in the future. In this regard, the court disagreed with the sons…and awarded punitive damages in the amount of $100,000.

Jonathon Kappy

Determining Estate Trustee Compensation

Posted on October 3, 2012 by Hull and Hull LLP

According to section 61(1) of the Trustee Act, “A trustee, guardian or personal representative is entitled to 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”. Historically, there have been two methods used to determine what amounts to “fair and reasonable”: the five factors approach, and the percentage approach.

The five factors approach was espoused by Teetzel J. in the decision of Re Toronto General Trusts Corporation and Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.). These factors include: (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 displayed; and (5) the success which has attended its administration.

On the other hand, in order to bring predictability and consistency to compensation, the practice of determining compensation as a percentage value of the estate developed. The current guidelines include:

a) 2.5% charged on capital receipts;

b) 2.5% charged on capital disbursements;

c) 2.5% charged on revenue receipts;

d) 2.5% charged on revenue disbursements; and

e) If the estate is not immediately distributable, an annual care and management fee of 2/5 of 1% on the gross value of the estate.

In the case of Re Jeffrey Estate, (1990), 39 E.T.R. 173, the two methods were combined. At page 179, Killeen J. stated:

“To me, the caselaw and common sense dictate that the audit judge should first test the compensation claims using the "percentages" approach and then, as it were, cross-check or confirm the mathematical result against the "five-factors" approach”.

The approach of combining the two methods was upheld in the decision of Laing Estate v. Hines. At paragraph 9, the Court of Appeal stated:

“We agree with and adopt the approach taken in Re Jeffery Estate. In our view, it best achieves the appropriate balance between the need to provide predictability while, at the same time, tailoring compensation to the circumstances of each case”.

Thank you for reading … Have a great day!

"You Decide How to Divide My Estate"

Posted on September 20, 2012 by Hull and Hull LLP

Normally, the Will Maker specifies exactly who gets their assets. In some circumstances, the Will Maker can give someone else the right to choose the beneficiary. This is called a power of appointment. Black’s Law Dictionary defines a general power of appointment as a “power of appointment by which the donee can appoint – that is, dispose of the donor’s property – in favour of anyone the donee chooses.”

Against this, the general rule is that you cannot delegate your Will Making authority (the anti-delegation rule). A recent decision in British Columbia dealt with these conflicting rules. The Court found that a general power of appointment is valid in Tassone v. Pearson 2012 BCSC 1262. The Court found that a general power of appointment in a Will stating “I devise all the residue of my estate to be distributed as seen appropriate by my executor” gave the Executor full discretion over what to do with the residue of the Estate – including the discretion to distribute the entire Estate to herself.

The Defendants argued that a general power of appointment is not valid as it violated the anti-delegation rule. The Court disagreed, finding that a general power of appointment is an exception to this rule. Madame Justice Fitzpatrick stated that “general powers of appointment have been a fixture in the drafting of wills in Canada, and specifically, British Columbia for centuries. It would be a dramatic reversal of this practice to now hold that general powers of appointment in a will are invalid or void.”

Holly LeValliant

Taking Estate Trustee Duties to the Grave

Posted on September 12, 2012 by Hull and Hull LLP

As technology becomes easier to use and information becomes easier to obtain, it is no surprise that lawyers are adapting their practices to meet these changes. A great example of this can be found on my twitter account, where I posted an article, found here, pertaining to the introduction of QR codes on gravestones. After reading this article, I began thinking about the role gravestones play in an estate administration.

On the death of a loved one, those who wish to erect a monument for the deceased have certain opinions as to how the gravestone can look, and what content can be included. A topic often overlooked though, is the estate trustee’s duty in fulfilling such a request. As there is no statute governing how estate trustees are to handle such requests, we often turn to the common law for guidance.

The historic case of Menzies v. Ridley,[1851] O.J. No. 28, dealt with the cost incurred for the purchase of a marble slab for the memory of the testator. At paragraph 5, Spragge V.C., sitting for the Upper Canada Court of Chancery, stated:

“Upon the general question whether an executor procuring a gravestone or slab to the memory of his testator, suitable to his degree, and estate, can charge the same against the estate, I do not think there can be much doubt. The charges attending a funeral are allowed to an executor, (except as against creditors), even where the expenses are considerable, provided they are suitable to the degree and estate of the deceased, and they are allowed, not as being necessary, but because they are so suitable…Not only is it usual and considered a proper mark of respect, and its omission in some degree a reproach to survivors, but it is useful as marking the place of burial and as furnishing evidence of pedigree”.

This decision is authority for the proposition that the cost of a gravestone can be paid out of the estate. However, a question that is worth considering is whether such an expense should always be considered an estate expense. In the case of Samchuk (Estate of), 2007 ABQB 268 (CanLII), the beneficiaries complained about the cost associated with erecting the tombstone and marker for the grave. The Honourable Mr. Justice William E. Wilson was of the opinion that:

“[t]he choosing of a proper marker for the deceased and its installation is within the powers of the Executors, who should proceed with that work without interference as long as they are not profligate in the expense incurred, having regard to the dignity of the deceased and the size of the estate”.

As a result, it appears that there must be proportionality between the value of the estate and the cost of the gravestone.

Thank you for reading.

Release for Passing Accounts

Posted on September 4, 2012 by Hull and Hull LLP

As was mentioned in my blog last week on Renunciation, fulfilling the duties as estate trustee may be a time consuming task, and that as a result a certain few may not be up for the endeavour. However, for those who are appointed as estate trustee, one on-going duty that arises is that of passing ones accounts. The common law imposes a duty upon estate trustees to maintain proper books of account and to be ready at any time to account for the property for which they are bound to administer. Nonetheless, in Ontario, there is no requirement for estate trustees to pass their accounts, unless they are obligated to do so.

Despite the lack of such an obligation, it is prudent behaviour for an estate trustee to protect themselves by obtaining approval of their accounting from the beneficiaries. One way of achieving this is to request that all those with a financial interest sign a release, acknowledging and approving of the estate accounts. In a sense, this type of document acts similar to a waiver.

In order to rely on a release, there are two factors which the estate trustee must keep in mind. The first relating to the circumstances under which a beneficiary signs the release, and second relating to the time at which a beneficiary signs a release.

Before a beneficiary signs a release, the estate trustee must ensure that they receive independent legal advice. In the case of Rooney Estate v. Stewart Estate [2007] O.J. No. 3944, 161 A.C.W.S. (3d) 177 at 36, H.M. Pierce J. 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 [beneficiaries] to obtain independent legal advice when reviewing the trustee's accounts which he had prepared”.

Less straightforward is the timing of when the release must be executed. In the case of Brighter v. Brighter Estate [1998] O.J. No. 3144, 74 O.T.C. 329, Sheard J., stated:

“The executor has no right to hold any portion of the distributable assets hostage in order to extort from a beneficiary an approval or release of the executor's performance of duties as trustee, or the executor's compensation or fee. It is quite proper for an executor (or trustee, to use the current expression) to accompany payment with a release which the beneficiary is requested to execute. But it is quite another matter for the trustee to require execution of the release before making payment; that is manifestly improper”.

However, in the case of Bedont Estate (Re) [2004] O.J. No. 4267, 9 E.T.R. (3d) 59, D.J. Gordon J. stated:

“A release is standard and accepted practice on an interim or final distribution, in lieu of a passing of accounts, and failure to provide such is a valid reason to withhold payment”

Thus, although an estate trustee may be permitted to withhold funds in order to ensure that reasonable estate expenses are paid for, an estate trustee is not entitled to withhold funds for the sole purpose of forcing beneficiaries to sign releases.

Renunciation

Posted on August 27, 2012 by Hull and Hull LLP

Last week I was interviewed in an article by the Globe & Mail, found here, pertaining to the responsibilities that executors are faced with, upon administering an estate. Although there can be great honour and satisfaction in fulfilling the wishes of the testator, depending on the estate, it may have the consequence of requiring lots of hours and hard work. As a result, not every individual is up for the job, and due to this, the courts offer a way for an executor who has the right to a grant of probate, to relinquish such a right.

If a certificate of appointment of estate trustee with a will has not been granted, the process of renouncing is quite simple. According to Rule 74.04(1)(f) of the Rules of Civil Procedure, a renunciation form, (Form 74.11) must be completed and filed with the court.

However, if a certificate of appointment of estate trustee with a will has been granted by the court, and the executor has commenced administering the estate, an application to the court must be made as per section 37(1) of the Trustee Act, which states:

“The Superior Court of Justice may remove a personal representative upon any ground upon which the court may remove any other trustee, and may appoint some other proper person or persons to act in the place of the executor or administrator so removed”.

Therefore, discretion is left to the courts. In Ontario, the primary consideration as to whether an executor should be removed, falls to the welfare of the beneficiaries. The Ontario courts have followed the UK decision of Letterstedt v. Broers (1884), 9 App. Cas. 371, where Lord Blackburn stated:

“…if it appears clear that the continuance of the trustee would be detrimental to the execution of trusts, even if for no other reason than that the human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee, and if there is no reason to the contrary from the intentions of the framer of the trust to give this trustee a benefit or otherwise, the trustee is always advised by his own counsel to resign, and does so…In exercising so delicate a jurisdiction as that of removing a trustee, their Lordships do not venture to lay down any general rule beyond the very broad principle…that their main guide must be the welfare of the beneficiaries”.

Further to this, the courts note that misbehaviour is not a prerequisite. In the case of Anderson (Re), [1928] O.J. No. 168, McEvoy J., stated:

“When charges of misconduct are not made out, or are greatly exaggerated, the Court may, nevertheless, if satisfied that the continuance of the trustee would prevent the trust being properly executed, remove the trustee, as the trustee exists for the benefit of those to whom the creator of the trust has given the estate”.

Estate Trustee Indemnification

Posted on August 20, 2012 by Hull and Hull LLP

As part of the estate trustee’s duty in administering an estate, it is almost always necessary that costs are incurred in fulfilling their work. The case of Kerry (Canada) Inc. v. DCA Employees Pension Committee states succinctly how such costs are to be paid. Referencing section 23.1(1) of the Trustee Act, the Court of Appeal states that an estate trustee is permitted to pay expenses properly incurred in carrying out the trust from the trust property or to seek indemnification from the trust for any such expenses.

Although the source of the money used by the estate trustee is not controversial, what amounts to ‘expenses properly incurred’ requires closer inspection. In the case of Fenwick v. Zimmerman, a distinction was drawn between legal costs incurred as a result of the trust being a party to a proceeding as opposed to a proceeding brought against an estate trustee pertaining to how they discharged their duties. There is no automatic right of indemnification for legal costs when there is litigation between the estate trustee and the beneficiaries related to the question of whether or not the trustee has properly discharged his duties, including timely steps to pass his accounts. Whether the trustee is entitled to charge the estate with his legal fees seems to depend on the facts of the case.

In the case of Vano (Re), the Courts faced an Objector who, according to Low J., was complicating and prolonging the passing of accounts by the Estate Trustee During Litigation (“ETDL”). Upon the ETDL’s costs submission, although a reduction was made by the ETDL, and although there was an acceptance to the offer by the Objector, the following comment was provided by Low J.:

“…I am nevertheless of the view that the amount claimed for costs is excessive. The allegations and arguments advanced by the objector were…patently unsupported by evidence and the issues raised were ill defined but not complex either factually or legally. The principle of indemnity is not a carte blanche for costs to be drawn from the estate corpus on a passing of accounts…Delegation can…result in duplication, inefficiencies, and time spent communicating that would be unnecessary in the absence of delegation. I am not satisfied that it was efficient or economical in this case to have had two different clerks and three solicitors working this file. The fee items detailed in the costs outline do not suggest that such division was reasonably necessary or cost efficient”.

Costs were reduced from $332,609.00 to $220,000.00.

Law students have always been taught never to steal from the trust account. Less clear though, is when estate trustees are to be indemnified for their duties.

On a side note, Suzana Popovic-Montag, of Hull & Hull LLP, will be chairing the upcoming LSUC ‘Practice Gems – Probate Essentials 2012’. More information can be found here. It will be an event, I am sure, you will not want to miss.

Vesting of Real Property

Posted on July 30, 2012 by Hull and Hull LLP

Section 9(1) of the Estates Administration Act, RSO 1990, c E. 22 (“ESA”) states:

“Real property not disposed of, conveyed to, divided or distributed among the persons beneficially entitled thereto under section 17 by the personal representative within three years after the death of the deceased is, subject to the Land Titles Act in the case of land registered under that Act and subject to subsections 53 (3) and (5) of the Registry Act, and subject as hereinafter provided, at the expiration of that period, whether probate or letters of administration have or have not been taken, thenceforth vested in the persons beneficially entitled thereto under the will or upon the intestacy or their assigns without any conveyance by the personal representative, unless such personal representative, if any, has signed and registered, in the proper land registry office, a caution in Form 1, and, if a caution is so registered, the real property mentioned therein does not so vest for three years from the time of the registration of the caution or of the last caution if more than one was registered.”

Therefore, according to the ESA, if property remains in the name of the estate trustee or deceased for a period of more than 3 years, granted there is no registered caution, the beneficiaries acquire the right to deal with the property as their own, “whether probate or letters of administration have or have not been taken”.

However, the ability of beneficiaries to rely on this three year provision is limited by s 10, which essentially requires an examination of the will to determine whether any rights are provided to the trustee. Section 10 reads as follows:

“Nothing in section 9 derogates from any right possessed by an executor or administrator with the will annexed under a will or under the Trustee Act or from any right possessed by a trustee under a will.”

In the case of Caldwell v. LaMothe, [1996] O.J. No. 1179, it was held that where a will contains an express power of sale with no conditions attached, s 9 does not apply. In Caldwell, Kurisko J. was satisfied that the property in question did not vest in the beneficiaries because the will provided the trustee with “…full power to sell, mortgage or otherwise dispose of the same or any part thereof”.

However, in determining the powers granted to trustees pursuant to a will, consideration must be given to the intention of the testator. In Proudfoot Estate (Re), [1994] O.J. No. 704, 3 E.T.R. (2d) 283, at issue was whether a Burlington farm vested in the beneficiary after 3 years or whether a power to sell prevented the vesting. At paragraph 10, the Court, “…reject[ed] the proposition that, wherever there is an express or implied power to sell in a will, lands cannot vest in the beneficiaries pursuant to the [ETA]…one must have regard to the intention of the testator as expressed in the will”. Carnwath J. went on to hold at paragraph 10, “…nothing could be clearer than the testator's intention to separate the Burlington farm from the express power to sell and the implied power which can be derived from a direction to pay debts”. Therefore, although there was a power of sale, it seemed to have not included the Burlington farm. As a result, the Burlington farm vested in the named devisees.

Administration Bonds

Posted on June 1, 2012 by Hull and Hull LLP

Applying for an administration bond can be a trying experience. Guarantee or bonding companies require detailed information to process the application, and delays may result from follow-up inquiries. Below is some information that may assist.

Amount - double the amount of the assets as attested to in the application for probate. Various circumstances have been considered sufficient to justify a reduction in the amount of the bond. However, where infant beneficiaries are involved the usual bond is normally required.

When Needed - where an application for a certificate of appointment without a will is made; where the deceased died with a will, but did not name an executor; where the named executor does not reside in Ontario; where the applicant is a succeeding estate trustee without a will.

When Not Needed - when, on an intestacy, the surviving spouse applies for a certificate of appointment, the value of the estate does not exceed the preferential share and an affidavit is filed setting out the debts of the estate;when a trust corporation is appointed as estate trustee; when you get a court order dispensing with the bond requirement.

Who Can be a Surety -specifically prohibited are registrars and solicitors, as well as minors. If the surety is an individual he or she must be resident in Ontario.

Requirements –there are no specific legal requirements. Full disclosure of estate assets and liabilities, as well as personal liabilities, are generally considered to be a minimum requirement.

Lifespan - the bond generally remains in the custody of the Court until cancelled (e.g. upon the passing of their final accounts or where an executor produces evidence to the satisfaction of the judge that the debts of the deceased have been paid and the residue distributed.

Thanks for reading and have a great weekend!

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

p.s. for a more fulsome discussion on this topic, I refer you to my paper The Tricky Business of Administration Bonds

Tags: Blog, Executors and Trustees, estate, law

Executor's Right to Deal with the Deceased's Digital Legacy

Posted on March 27, 2012 by Hull and Hull LLP

What rights does an executor have to access, control, or terminate a deceased person’s Facebook account? Twitter account? Blog? Personal email accounts? Photo sharing accounts? There is currently no legislation in Canada expressly dealing with an executor’s rights with respect to a deceased person’s digital legacy. However, in certain U.S. states, legislators are addressing this issue.

Nebraska is the latest U.S. state to introduce legislation to grant an executor the power to deal with the deceased person’s online social networking accounts.

Legislative Bill 783, recently introduced in the Nebraska Legislature by Senator John Wightman on behalf of the Nebraska Bar Association, aims to clarify the rights of executors with respect to a person’s digital legacy after death.

In its current form, the bill proposes to enact the following into Nebraska’s state law as of January 1, 2013: “The executor or administrator of an estate shall have the power, where otherwise authorized, to take control of, conduct, continue, or terminate any accounts of a deceased person on any social networking website, any microblogging or short message service website or any e-mail service websites.”

The bill was heard by Nebraska’s Judiciary Committee on January 18, 2012. According to the transcript of the committee hearing, the bill has attracted the attention of “national companies that create digital assets and accounts,” and clarifying amendments to the bill are in the works that will correlate the proposed law with their user agreements.

Oklahoma and Idaho have already enacted similar laws granting executors the right to control digital assets and social media accounts after a person’s death. Connecticut, Rhode Island, and Indiana have older legislation dealing with email and digital files, which may need to be updated in view of the proliferation of social networking accounts.

In the absence of legislation expressly providing executors with the right to access digital assets or Court orders granting such access, information held by internet service providers may be protected by privacy laws or restrictive user agreements preventing the publication or transfer of material to executors. As U.S. legislators have correctly identified, clarification of the rights of executors in this area is welcome assistance for executors dealing with the unique challenges presented by the deceased’s digital legacy.

Until tomorrow,
Saman M. Jaffery – Click here for more information about Saman M. Jaffery

Tags: Digital Legacy, Executors and Trustees, digital assets

Enforcing the Estate Administration Tax Act

Posted on March 21, 2012 by Hull and Hull LLP

In 2011, the Ontario Government took steps to increase revenue from probate fees, and to prevent estate trustees from making inaccurate, false or misleading statements about the value of an estate.

Amendments to the Estate Administration Tax Act, 1998 empower the Minister of Revenue to conduct audits in respect of an estate and its estate administration tax (EAT) liability.

The new rules will take effect on January 1, 2013 and will require an applicant for a certificate of appointment to “give the Minister of Revenue such information about the deceased person as may be prescribed by the Minister of Finance…within the time and in the manner as may be prescribed by the Minister of Finance”.

This will likely require an applicant to provide an inventory of estate assets and a declaration as to the value of each of them. In addition, the Minister of Revenue will have the right to asses an estate up to four years from the date of the initial application. In cases where the estate trustee has not filed the information required, or has made a misrepresentation that is attributable to neglect, carelessness, wilful default or fraud, the assessment or reassessment can be made at any time.

The Minister will have the power to require the estate trustee to provide all reasonable assistance with, and answer all questions pertaining to the audit, as well as the power to require third parties to give the Minister access to their premises, permit examination of assets and records, and respond to the Minister’s demands for information.

Once these new rules take effect, it will be an offence for an estate trustee to fail to make the required filing and it will be an offence for any person who makes, or assists in making, a false or misleading statement. The person will have a defence if he or she “did not know that the statement or omission was false or misleading and in the exercise of reasonable diligence could not have know that the statement or omission was false or misleading.” Offences are punishable by fine, imprisonment or both. The minimum fine will be $1,000.00 and the maximum fine will be twice the EAT payable.

Lawyers advising estate trustees should be careful to explain to the client the importance of declaring values that can be fully supported if it an assessment is done, and to warn the client of the risks of an adverse assessment, and of making false or misleading statements.