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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When administering an estate, the estate trustee should make sure that any securities that form part of the estate are under his or her care and control. For example, if the securities are held in the deceased’s safety deposit box, it may be a good idea to move them to another location or to make sure with the depository that the safety deposit box is transferred into the estate trustee’s name alone so that only he or she may have access to it.

It is also a good idea to recommend to the estate trustee that they have the deceased’s securities certificates transferred from investment firms and other locations into the estate trustee’s own safekeeping facility. If the securities are to form part if the estate assets, the securities will need to be transferred into the estate trustee’s name via a transmission. If the securities are to be sold, a transfer is also needed requiring a transmission. If foreign assets are held, the lawyer must be aware of the requirements of the foreign jurisdiction and prepare all necessary documentation to complete transfers and dispositions.

In situations where there are marketable bonds or debentures (distinguished from Canada Savings Bonds, GICs, and term deposits) or marketable stock, it is necessary to have a power of attorney executed in favour of the transfer agent or have the certificate endorsed. The endorsement is often made on the reverse of the security certificate itself. Another alternative is to complete a separate power of attorney, since it is necessary for the estate trustee to attend at an institution to verify the signatures to the satisfaction of the stock exchange. Having a separate power of attorney also affords the estate trustee the power to amend any mistakes there might be on the endorsement made on the security certificate itself. This also enhances the safekeeping of the security as well.

Financial institutions often state the need for a certificate of appointment of estate trustee (formerly known as “probate”) in order to effect a transfer. As this is not required by law, we often advise our clients to push back and at least ask the institution to sell the securities and hold the assets pending receipt of the certificate so as not to become a victim of a volatile market.

Lawyers should also be aware of additional requirements relating to foreign jurisdictions, including the United States, shares registered in the name of a limited company, and shares registered in the name of a minor.

Thanks for reading!

Ian M. Hull

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Becoming a trustee or an estate trustee can be like an epic adventure.  I recently came across an article on wealthmanagement.com that eloquently made this comparison in the context of trustees facing strange requests from beneficiaries and deciding to act boldly.  Becoming a trustee can be a long road, full of peril and fraught with hazards.  But if a trustee stays true to his or her fiduciary obligations and overcomes all obstacles in the way, there may even be a reward at the end.

There are many dangers out there for the unwary estate trustee.  These take the form of liabilities and fiduciary obligations.  A trustee can be liable if he or she breaches the duty of care owed to the beneficiaries.  If estate assets are distributed before taxes are paid, the estate trustee may be personally liable for the tax obligations of the estate, which can sometimes be quite staggering.   If a surviving spouse makes an election for equalization of net family property, he or she can be liable under the Family Law Act for a shortfall if estate assets are distributed without the consent of the spouse or court approval.  Inadequacies in accounting can cause problems for our adventurer as well.  With all of these risks, why would anyone embark on this journey? 

There is some reward at the end of the road for those that successfully navigate their way through their duties.  Estate trustees are generally entitled to compensation.  If the will does not provide otherwise, there are court-recognized tariffs that may guide an estate trustee in deciding on the appropriate amount of compensation.  Generally, a figure equalling the sum of 2.5% of each of the capital receipts and revenue receipts, and 2.5% of each of the capital disbursements and revenue disbursements is used as a yardstick against which to measure compensation.  The compensation must nonetheless be fair and reasonable.  

In some cases, this trove of treasure at the end of the quest may be worth the efforts.  In many cases, some further, more heroic reason must exist to drive an estate trustee to assume the many problems that come with the job.

When compensation seems an inadequate incentive for so much risk, a potential estate trustee must look deeper for a reason to undertake this adventure.  There are, of course, non-monetary reasons to take on this responsibility.  Some estate trustees take on the role in order to help the beneficiaries.  They may be able to assist their beloved nieces, nephews, or grandchildren through the loss of a loved one.  Some do it to help the testator, a friend or relative who will never be able to repay the debt.  

For those heroes brave enough to take on the role of estate trustee, I wish you luck.  May your adventure not be very adventurous at all.

Thanks for reading!

Suzana Popovic-Montag

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A house can be a lot more than bricks and mortar. A Bowmanville couple recently came to this realization after they learned that the house they recently purchased had been the site of a gruesome double murder. An article from yesterday’s Toronto Star details the mental anguish caused to the homeowners and how it has led them to commence a lawsuit.

Upon discovering the tragic history of their new home, the purchasers immediately tried to cancel the $253,000 sale only to learn that it was too late. Unable to recoup their money, and allegedly suffering from panic attacks and overwhelming stress, the couple decided to commence a lawsuit against the real estate agency, the real estate agent and the previous homeowners for failing to disclose the house’s history.

Section 39 of the Real Estate and Business Brokers Act Code of Ethics (the “Code of Ethics”) provides that licensed real estate agents “shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming…” If the agent or agency knew of the house’s sordid history and failed to disclose it to the purchasers, they are potentially in contravention of the Code of Ethics and could face sanction(s) by a discipline committee.

According to the article, the couple’s statement of claim describes the murder information as a “material defect … which stigmatized, psychologically impacted and tainted the property.” Does the withholding of this information lead to recoupable damages? Will the case add nuance to the doctrine of caveat emptor or “buyer beware”? We will have to see what the court decides.

Inherited real property is often sold following a testator's death. For Estate Trustees who are charged with executing real estate transactions, this story serves as a warning to be careful to disclose all pertinent information regarding that property.

Thanks for reading!

Suzana Popovic-Montag

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Hockey and trust law, two concepts that are not usually mentioned together. With the NHL lockout now stretching into the weeks (if not months), there is no shortage of articles detailing the arguments back and forth in the lockout. In the onslaught of articles, one article in particular caught my attention after the author mentioned something I had not known before. The Stanley Cup, it seems, is not owned by the NHL, but is rather held on a charitable trust.

A quick look at the Wikipedia page for the Stanley Cup reveals that when donating the Stanley Cup, Lord Stanley of Preston provided the trustees of the cup with five instructions. They were:

1.    The winners shall return the Cup in good order when required by the trustees so that it may be hand over to any other team which may win it;

2.    Each winning team, at its own expense, may have the club name and year engraved on a silver ring fitted on the Cup;

3.    The Cup shall remain a challenge cup, and should not become the property of one team, even if won more than once;

4.    The trustees shall maintain absolute authority in all situations or disputes over the winner of the Cup; and

5.    If one of the existing trustees resigns or drops out, the remaining trustee shall nominate a substitute.

Charitable trusts are a well-defined area of the law. Unlike a trust in most circumstances, a charitable trust does not require you to be able to ascertain the beneficiaries of the trust (so long as the court is satisfied that the settlor intended to benefit “charity”), and are also not subject to the rules against alienability or indefinite duration. As phrased in The Law of Trusts: A Contextual Approach, property subject to a charitable trust can be expressed as the “exclusive dedication of property to a charitable purpose in a way that provides a public benefit.” In the case of the Stanley Cup, it seems, the public benefit is the promotion of hockey.

All of which brings us back to an interesting question. Who should be awarded the Stanley Cup if the lockout should cancel the entire season. If the Stanley Cup is truly held on a charitable trust, which by definition requires there to be a public benefit, why do NHL teams have exclusive jurisdiction over the ability to be awarded the Cup? If the NHL is not going to hold a competition this year, why can’t the trustees award the cup to another team in their place? Would that not be for the “public benefit”?

Thank you for reading.

Stuart Clark 

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In the recent case of Figley v. Figley (77 E.T.R. 3rd 1), the Saskatchewan Court of Appeal considered the removal of an executor in circumstances where he failed to comply with Orders to provide an accounting in respect of his actions under his Father’s power of attorney from the date of his appointment until the Father’s death. As the Court noted: "This is a troubling failure on [the Executor's] part because the accounting concerns the very assets which comprise the estate he is charged with administering."

While the Court considered various authorities that spoke to the principle that a Court should "not act too readily to remove an executor", evidence was also tendered that demonstrated what the Court found to be "an active intention on [the Executor's] part to “punish” his siblings.  The Court observed: "It is difficult to understand how he will be able to fairly and even-handedly administer the estate when he starts from this highly partisan point of approach."

The Court concluded that the appellants demonstrated, “a want of proper capacity to execute the duties, or a want of reasonable fidelity” on the part of the Executor and he was accordingly removed and replaced by the Public Trustee. 

While removal cases are always dependent on the facts, the overriding objective of the Court remains to see that the trust property is not endangered and the beneficiaries are protected.

David Morgan Smith - Click here for more information on David Smith. 

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In certain instances, the Ontario Rules of Civil Procedure (the “Rules”) require that individuals involved in a proceeding be represented by a lawyer.  In order to determine when this obligation arises, reference must be made to section 15.01 of the Rules, which states:

(1) A party to a proceeding who is under disability or acts in a representative capacity shall be represented by a lawyer.

(2) A party to a proceeding that is a corporation shall be represented by a lawyer, except with leave of the court.

(3) Any other party to a proceeding may act in person or be represented by a lawyer.

Although a relatively simple section, there are two interpretation issues worth addressing.

Firstly, as the subsection contains the word “shall”, instead of the word, “may”, it follows that the subsection is to be applied in all instances, negating any discretion awarded to the Courts.  This is further enforced by the addition of the words, “except with leave of the court” found in 15.01(2).  Clearly, by omitting this in section (1), suggests that it is only (2) which allows for Court discretion.

Secondly, due to the wording of “in a representative capacity”, it is worth considering whether an estate trustee would be required to have representation in a proceeding by a lawyer.  The Ontario Court of Appeal case of Herberman Estate (Re) dealt with a situation in which a litigation administrator of an estate sought leave to represent the estate in a proceeding. The Court of Appeal denied the litigation administrator the ability to represent the estate, stating that rule 15.01(1) requires that the estate be represented by a solicitor.  Reflecting the lack of discretion provided, the Court of Appeal went on to say that a failure to appoint a solicitor within a specified time would entitle the opposing party to bring a motion dismissing the appeal. 

Whether an estate trustee requires legal representation is a question the Rules fail to answer.  The argument could be made that an estate trustee is acting in a representative capacity, and thus be required to be represented in a proceeding by a lawyer.  Indeed, the term “estate representative” is often used interchangeably with estate trustee, and to say that an estate trustee is a “representative” of an estate is by no means a stretch of the imagination.

Ian M. Hull

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In the August 2011 edition of the STEP Journal, Natasha Kapp writes on the duties owed by a departing trustee to his or her successor.  Kapp makes the following observations:

• The "fundamental duty of a trustee upon resignation or removal is to surrender the trust property under their control;"
• This duty encompasses a further duty to "cooperate fully and actively with the new trustee by making all relevant documents and correspondence available and to answer all reasonable questions";
• This duty is not satisfied by prior performance of such disclosure to the beneficiaries of the trust; the new trustee is entitled to "establish for themselves" what assets compose the trust;
• Failure to cooperate with the new trustee giving rise to the assistance of the Court could well attract full indemnity costs against the departing trustees; the beneficiaries ought not to be in any way penalized by the shortcomings of the departing trustees

In Ontario, removal of trustees is governed by s. 37 of the Trustee Act.

David M. Smith - Click here for more information on David Smith. 

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Further to yesterday’s blog, in the case of McDougall Estate, the beneficiary complained about the trustee’s compensation on the passing of her accounts. In issue was whether the trustee’s compensation should be reduced because she:

1. Made an improper distribution to a charity that was not authorized by the Will.
2. Failed to make an inventory of the contents of the deceased’s house and failed to offer the beneficiary any of the deceased’s personal effects.
3. Pre-took compensation.
4. Paid too much in legal fees out of the estate.

The court found that even though the charitable gift failed because it was not a specified amount or share, the trustee’s interpretation of the Will was not unreasonable and the trustee was not liable for an innocent mistake, made in good faith. She was therefore not required to reimburse the estate and should not have her compensation reduced.

The contents of the house were of little value and had to be cleaned out for sale. The trustee never received any indication from the beneficiary that there was anything of sentimental value that she wished to receive. In the circumstances, the Court found that the compensation should not be reduced for the manner in which the trustee dealt with the personal effects.

The trustee pre-took compensation of 5% of the value of the estate as originally calculated but, after adjustments, she admittedly overpaid herself by $1,163.24. Estate trustees ought not to pre-take compensation unless authorized in the trust document or by approval of the executor’s accounts by the beneficiaries. The proper remedy was payment of interest on the amount pre-taken. Accordingly, the trustee was ordered to repay $1,163.24 plus interest of $360 to the estate.

It was not unreasonable for the trustee to seek legal advice to respond to the inquiries from the beneficiary’s lawyer. While amounts paid to respond to questions about the administration of the estate were not at first instance a proper charge to the estate, such costs were allowed because they were properly incurred by her to respond to the beneficiary’s challenges to her administration of the estate.

The payment of legal fees from the estate that ought to have been paid by the estate trustee is a form of pre-taking of compensation and so the estate trustee was liable for interest on that amount, which was fixed at $70.00.

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

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Lawyers frequently take funds into their trust accounts on behalf of clients and others. Usually, it is not difficult to determine to whom those funds belong. However, what happens when the beneficial owner of funds held in trust cannot be identified or located?  

In Ontario, section 59.6 of the Law Society Act permits a lawyer (or licensed paralegal) who has held money in trust for or on account of a person for at least two years to apply for permission to transfer the money to the Law Society of Upper Canada (“LSUC”) if,

1. The lawyer has been unable to locate the person entitled to the money despite having made reasonable efforts throughout a period of at least two years; or
2. The lawyer is unable to determine who is entitled to the money.

The application procedure for transferring the money to LSUC is set out in By-Law 10.

You must complete and file the licensee application form, which will be reviewed by LSUC. Upon completion of the review, LSUC will notify you whether permission to transfer the money to it has or has not been granted.

If permission is granted, you must,

1. Send a trust cheque, made payable to "The Law Society of Upper Canada, in Trust", in an amount equal to the amount of money for which you have received permission to transfer; and
2. Send copies of your financial records relating to the money which you have been permitted to transfer.

Permission to transfer money will typically be subject to the condition that you inform LSUC immediately if you obtain any new information relating to any person entitled to the money that was transferred.

Once the money has been transferred, your liability as trustee or fiduciary with respect to the amount transferred is extinguished.

See the LSUC website for more information.

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

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We sometimes hear reports in the news of people going missing. In such circumstances, what happens to their property? One option is for someone to apply to be a committee so that they may have the authority manage the missing person’s property in their absence. 

Pursuant to section 1 of the Absentees Act, R.S.O. 1990, c. A.3, an absentee is a person who, having had his or her usual place of residence or domicile in Ontario, has disappeared, whose whereabouts are unknown and as to whom there is no knowledge as to whether he or she is alive or dead. 

An application may be made by pretty much anyone pursuant to section 2(2):

a)      the Attorney General;

b)      any one or more of the next of kin of the alleged absentee;

c)      the person to whom the alleged absentee is married;

d)      the person with whom the alleged absentee was living in a conjugal relationship outside marriage immediately before the absentee’s disappearance;

e)      a creditor; or

f)        any other person.

Pursuant to section 2(1), the Ontario Superior Court of Justice may declare a person to be an absentee if it is shown that “due and satisfactory inquiry” has been made into their disappearance.

In the case of Kamboj v. Kamboj, 207 CanLII 14932 (ON S.C.) Justice Quinn provides an informative and instructive discussion of what is required to find a person an absentee under the Act. Here are some of the factors to be considered with respect to whether satisfactory inquiry has been made:

a)      Are the applicants the only close relatives of the alleged absentee?

b)      Does the alleged absentee have other relatives or friends in Ontario or elsewhere and, if so, do they have relevant information?

c)      Have inquiries been made at establishments that the alleged absentee frequented?

d)      Have inquiries been made at any clubs, religious, community or social organizations to which the alleged absentee belonged?

e)      Have inquiries been made with the alleged absentee’s family doctor?

f)        Has a notice been published in a local newspaper, containing the alleged absentee’s picture and soliciting information in respect of their whereabouts? Did the disappearance attract media attention?

g)      Did the alleged absentee have a will?

h)      Did the alleged absentee have any creditors? If so, do they have relevant information?

If satisfactory inquiry has been made and the missing person is declared to be an absentee, a committee will be appointed. The committee will have to submit a management plan setting out how they propose to manage the absentee’s property.

If the Court is later satisfied that the person has ceased to be an absentee, it may make a declaration to that effect and set aside the order declaring the person an absentee for all purposes, except for things done in respect of the absentee’s estate while such order was in force.

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

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I don’t know about you, but I love it when the courts consider novel ideas as a practical solution to a legal problem. That is why the decision of Re D’Angelo Estate, 2010 ONSC 7244 (CanLII) caught my attention.

In D’Angelo Estate, Faust D’Angelo, deceased, resided in St. Catharines, Ontario. In his Last Will, he appointed his son, Emidio, and Emidio’s daughter, Denise as co-executors. His estate was divided equally amongst Emidio and his three surviving siblings. The estate, situate in Ontario, was worth approximately $1.5 Million.

Emidio and Denise, because they both lived in the United States, were obliged to obtain a Foreign Executors’ Bond. The insurer would only issue a bond if a lawyer in counsel’s firm was appointed by the Court as a monitor to supervise the administration of the estate.

The Court allowed the co-executors’ motion and appointed the monitor. Here are a few of the interesting findings leading up to its decision:

·        The co-executors both had standing under Rule 74.15(1)(i) as persons who appeared to have a financial interest in the estate. Emidio had a financial interest because he was a beneficiary. The Court found that the financial interest contemplated by the rule may be direct, indirect or contingent and although Denise was not a beneficiary, she had standing due to her entitlement to claim executor’s compensation, which was a contingent financial interest in the estate.

·        The Court noted that monitors had been appointed by courts in other situations to monitor the business and financial affairs of a charity and under the oppression remedies in the Ontario Business Corporation Act, which makes no provision for a monitor. 

·        The monitor would be an officer of the court and the responsibilities of an officer of the Court are: 1) to act fairly, honestly and impartially as a fiduciary on behalf of all persons having a financial interest; 2) to comply with the powers granted in the order of appointment; and 3) to be accountable to the Court and to the persons in 1).

·        The appointment of a monitor did not require approval or input from the beneficiaries (the motion was made without notice).

·        Pursuant to Rule 1.01(6), it was okay to modify the prescribed forms as circumstances required and so the form of Certificate could be varied to a “Certificate of Appointment of Estate Trustees with a Will and Court-Appointed Monitor”.

I certainly think this case is novel and provides an alternative that could be quite a useful solution in some situations.

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

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We have blogged previously on section 35 of Ontario's Trustee Act, which relieves a trustee who has committed a technical breach of trust but has otherwise acted honestly and reasonably.  This provision may not be available to a trustee who, confronted with an ambiguous situation, fails to seek the advice and direction of the court, as is the trustee's right under section 60(1) of the Trustee Act.  Section 60(1) states:

60. (1) A trustee, guardian or personal representative may, without the institution of an action, apply to the Superior Court of Justice for the opinion, advice or direction of the court on any question respecting the management or administration of the trust property or the assets of a ward or a testator or intestate.

Justice Cullity describes the applicable principles in Merry Estate v. Plaxton, 2002 CanLII 32496 (ON S.C.) at paragraph 35:

"[35]  On the question of costs, I am satisfied that no criticism can properly be directed at Mr. Meredith for bringing this application. Section 60 of the Act entitles trustees to seek the opinion, advice and direction of the court with respect to the administration of a trust and, in cases where significant doubt exists as to the scope of their powers and responsibilities, they may not be protected under section 35 if they fail to do this. Although such applications must not be made frivolously – and not merely to relieve applicants from making decisions that are part of their responsibilities under the terms of the trust - they are entitled to have their costs paid out of the trust property if, in the opinion of the court, the application was properly brought. I believe this is such a case."

Merry Estate v. Plaxton also contains a discussion of a trustee's right of indemnity with respect to costs properly incurred, and the relationship between this right of indemnity and litigation cost awards for trustees from trusts.  In that application for the court's advice, the trustee Mr. Meredith was awarded full indemnity for his legal expenses in bringing the application.  

Have a great day,

Chris M. Graham - Click here for more information on Chris Graham.
 

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In Nolan v. Kerry (Canada) Inc., 2009 SCC 39 the Supreme Court of Canada considered, inter alia, when costs can be awarded out of a trust fund in the context of a pension plan dispute regarding the employer’s obligations. The pension plan contained defined benefit (“DB”) and defined contribution (“DC”) components.   The CA Employees Pension Committee (the “Committee”) sought to have funds paid into the pension fund to the benefit of the DB members only.

In considering when costs are payable out of a trust, the Court noted that there were three categories of cases in the wills and estate context: 1) Where trustees apply to a court to construe the terms of the trust deed so that they may determine the proper administration of the trust; 2) similar cases where beneficiaries of the trust apply rather than the trustees; and 3) where a beneficiary makes a claim which is adverse to other beneficiaries of the trust. In the first two cases costs may rightfully be paid from the trust fund. However, costs will not be paid from the fund in cases that fall under the third category.

The key question was whether the litigation was adversarial or whether it was aimed at the due administration of the trust. Adversarial claims did not qualify for a costs award from the trust fund. In Nolan v. Kerry the litigation was adversarial in nature because it was ultimately about the propriety of the employer’s actions and because the Committee sought to have funds paid into the pension fund to the benefit of the DB members only. The employer was successful and there was no reason to penalize it by diminishing the pension fund surplus, thereby reducing its opportunity for contribution holidays.

The Supreme Court of Canada affirmed the decision of the Ontario Court of Appeal in favour of the employer. The Committee was not entitled to its costs out of the pension fund and costs were ordered against it as the unsuccessful party.

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

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The past two years saw Wall Street virtually melt down.  The global economy coughed and sputtered, trade was disrupted, general panic ensued.  Now it appears that a group of significant countries may default on their respective debts, starting with Greece, then Spain, Italy, Ireland, Portugal.  The risk appears to be that the financial structures of these countries will collapse like dominos: first their creditworthiness ratings get downgraded, one country after the other, raising the cost of borrowing to finance debt payments to the point where they default, and one country's collapse will trigger a similar process in the next. 

This could be spreading though the global financial system like "ebola", causing a deeper crisis.  Britain may be hit.  Asia is already seeing market fluctuations.  Not to be overly dramatic, but the National Post headline "Greek debt crisis sweeps all before it" pretty much describes the news chatter.  Canada has already been affected. 

This may have professional relevance for the estates and trusts bar.  Events like this often seem to involve rapid exchange rate fluctuations.  It may be a good time to ensure that trustee clients, particularly those holding assets denominated in foreign currency, have been advised or reminded of their obligations to invest trust property in accordance with section 27 of the Trustee Act (the Prudent Investor Rule), and that exchange rate fluctuations could be seen by a court as being relevant to their management decisions.  A court might require a trustee to indemnify the beneficiaries to the extent of a loss due to exchange rate fluctuations, if the court finds the standard of care defined in section 27 has not been met.

Of course, mere lawyers can neither advise (or even calculate) the prudent level of exposure, nor can we predict fluctuations.  Anyone who can predict the exchange rate fluctuations would not need to practice law.   But we can point out the Prudent Investor Rule and draw attention to the potential risks that exchange rate fluctuations pose, so clients can decide for themselves.

Regards,

Christopher  M.B Graham - Click here to learn more about Chris Graham.

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In today’s blog I will touch upon the rule in Re Hallet’s Estate*.  Tomorrow’s blog will touch upon the rule in Clayton’s Case. The rules stem from situations where a trustee mixes trust funds with their own funds or with a different trust’s funds. The rule in Re Hallett's Estate applies where trustees mix trust funds with their own funds.

The principle was enunciated by the court in the case of Re Hallett's Estate (1879), 13 Ch. D. 696 (CA) and is known as the rule in Re Hallett's Estate. The rule states that where a trustee mixes trust money with his or her own money in a bank account and then withdraws money from that account, it is assumed that the trustee first took out his or her own money rather than money belonging to a trust beneficiary. It may be seen that the rule in Re Hallett's Estate is based on the assumption that trustees are honest and act accordingly. Even if they do mix trust funds with their own money, it is not to be presumed that this mixture was intended to defraud the trusts of those funds.

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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 Leona Hemsley's estate saga continues.

Last month, three animal protection groups filed a petition requesting that the court appeal a previous decision that allowed the trustees of Helmsley’s estate sole discretion to determine how charitable trust funds would be distributed. Rick Bickhram’s previous blog provides a background to this decision.

The animal rights groups allege that Helmsley’s money is not being spent the way she intended and contrary to her expressed intentions to care for the welfare of dogs. The groups object that only $1 million of the $136 million paid out to charitable organizations this year went to organizations that assist with animal welfare. A New York Times article outlines some of the hurdles the animal rights groups face. We will see how this new development plays out.

Of course, Helmsley’s Will caught the media’s attention because she left $12 million to her Maltese, Trouble. Yet, Trouble’s fortune seems small compared to Gunter III, a German Shepherd who was left $80 million by Karlotta Liebenstein, an Austrian countess. If you think that’s unusual, this blog post outlines these two dogs’ fortunes and some additional “interesting” Will bequests. Estate law is almost never boring.

Thanks for reading,

Diane Vieira 

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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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In Maryland, legislation was recently enacted that allows pet owners to establish trusts for their pets, making it the 40^th state to allow pet trusts.  Previously, people could not leave gifts to pets because, at law, pets were chattels and could not inherit property. 

There are some limitations to the law.  To begin with, people can only leave funds for pets living at death – they are not allowed to provide for “future generations” of animals.

In addition, while the pet owner must name a trustee for a trust, it must also name a caregiver for the pet (the caregiver and trustee can be one and the same).  If, after the pet owner’s death, the pet is not properly cared for or the trust funds are not being administered appropriately, the law will provide that an outside party can apply to the court to get the trustee or the caregiver replaced. 

The pet owner should also specify to whom the remainder of the trust should go when the pet dies (the article suggests that the caregiver or trustee should not be left the remainder, in case it becomes a disincentive to keep the pet alive). 

The law is set up so as to avoid the type of litigation that ensued after Leona Helmlsey’s death (Helmsley, as you might remember, left $12 million in trust to her dog Trouble, while leaving nothing to two of her grandchildren).  While it does not specify a maximum that a pet owner can leave in trust, it does provide the funds should be sufficient to care for the pet.  It also gives the court the discretion to vary the trust if a beneficiary challenges it as being excessive. 

I can’t say the trend towards providing for pets in an estate plan is all that surprising, given how attached people can be to their pets.   

Have a great day!

Megan F. Connolly  

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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