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 is a gift not a gift? When it is not accepted.

The issue of gifting and acceptance was considered recently in Leclair v. Canada, 2011 TCC 323.

There, a father gifted real property to his daughter. He did so, however, at a time when he was indebted to CRA. CRA assessed the daughter as being liable for the father’s unpaid taxes pursuant to s. 160 of the Income Tax Act. S. 160 renders a recipient of a transfer of property liable for the donor’s unpaid taxes if the recipient was a spouse, under 18 or a person with whom the donor was not dealing at arm’s length.

The court found that the daughter did not have knowledge of the transfer. Upon learning of it, and the father’s liability, she retransferred the property back to her father. 

The court considered a number of cases dealing with acceptance of or disclaimer of a gift, and case law to the effect that a failed testamentary gift is not caught by s. 160. It went on to hold that the same rules applied to inter-vivos transfers. A transfer of an inter-vivos gift must be a completed transfer, and not a failed or void transfer, and further, that intent and delivery by one party alone is insufficient to complete a gift. The gift in question was not accepted, and once the daughter had knowledge of it, it was repudiated within an acceptable time. The transfer back by the daughter amounted to a valid disclaimer of the gift, and she was found to not be jointly liable for her father’s tax debt.

Until tomorrow,

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

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Attorneys for property who receive gifts from grantors tomorrow will have to give them back, unless they have good evidence supporting the fact of the gift.  The rule that fiduciaries (including attorneys for property) must prove purported gifts is stated in Cooke v. Lamotte(1851), 15 Beav. 234 at page 239.

Justice Sheard applied this rule in Kee v. Yip [1995] O.J. No. 2879, disallowing a series of transfers by an attorney to himself, stating with respect to one such transfer, “The burden on Tom Kee to show that his mother gave him the $20,000 is a heavy one. His evidence, simply the assertion that this transaction, one of many that he did under power of attorney, was intended by her as a gift to him falls well short of discharging that burden of proof. Under the principle stated in Cooke v. Lamotte, supra, the $20,000 cannot be allowed as a gift and must be refunded." 

Even more recently, in Volchuk v. Kotsis, 2007 CanLII 28527 (ON S.C.) Justice Langdon disallowed a series of purported gifts (cheques and money transfers) effected by an attorney, noting in addition that attorneys were precluded from relying solely on their own evidence by section 13 of the Ontario Evidence Act, which provides that the claimant “shall not obtain a verdict, judgment or decision on his or her own evidence in respect of any matter occurring before the death of the deceased person, unless such evidence is corroborated by some other material evidence.” 

In estates litigation, this rule is very useful in passings of accounts initiated pursuant to section 42 of the Sustitute Decisions Act by disappointed beneficiaries of an estate against the deceased's former attorney for property.  Of course, this rule forms part of the Common Law and is not confined to passing of accounts proceedings.

Merry Christmas to fiduciaries including attorneys, and enjoy your presents.

Chris Graham

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

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Listen to Managing Estate Issues

This week on Hull on Estates, Ian Hull and Suzana Popovic-Montag talk about how to manage an estate dispute as opposed to preventing it. They use an example of a joint account shared between 'Mom' and 'daughter' to examine the best way to approach posthumous problems and misunderstandings.

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

Managing Estate Issues - Hull on Estates Podcast #140

Posted on December 9^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to episode 140 of our podcast on Tuesday, December 9^th, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.  Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.

Suzana Popovic-Montag: Hi and welcome to another episode of Hull on Estates. I’m Suzana Popovic-Montag.

Ian Hull: And I’m Ian Hull.

Suzana Popovic-Montag: And we’re very glad to be back on Hull on Estates. Just a quick reminder to our listeners that if you’d like to be heard on Hull on Estates, you can participate by leaving us a comment, e-mail us with any thoughts you may have at hull.lawyers@gmail.com.

Ian Hull: Or please visit our blog at estatelaw.hullandhull.com.

Suzana Popovic-Montag: How are you today, Ian?

Ian Hull: Terrific, thanks.

Suzana Popovic-Montag: That’s good.

Ian Hull: We thought we’d talk today about a very practical issue and that is, how to manage a problem as opposed to preventing. We spend a lot of time on Hull on Estates and on our companion podcast, Hull on Estates and Succession Planning, on talking about how to avoid problems, which is great, which we like to do and we encourage. But the reality is, problems do creep up, people don’t listen, people don’t understand, people don’t do what may be needed to be done or people simply just make an honest mistake and a problem gets created after death. So one of the illustrations we thought we’d talk about how we manage problems is in the context of a joint account. So let’s create this scenario, let’s make a very simple scenario and that is, we’ve got a dutiful daughter and a dutiful brother. One daughter, though, lives in the city with her Mom, looks after the Mom attentively, everyday and did so for 10 years. And then over the course of the 10 years, Mom wanted to give her more than her son, so she actually got some advice and did it during her lifetime. So she created joint accounts. And let’s use the illustration of a joint account with say $100,000 in it, and then another account which was not joint but was simply an outright gift. And it was smattered over the 10 years. So it happened once 8 years ago and another 6 years ago. So we’ve got these two different scenarios and the clients come to see us and they say well what can we do? And we look at the Pecori case and we sit back and we create a practical solution to that problem.

So we’ve got our first steps we would take. And the first step is that how do we prove that this is indeed a gift or a series of gifts? And secondly, how do we convince the other side? And let’s presume we’ve got a lawyer on the other side. 

Suzana Popovic-Montag: And the reason, of course, Ian, that we are concerned about how it is that we go about proving this is because as a result of the Pecori decision, we know that there is a presumption that there was not a gift being made but that the joint account would revert back to the mother’s estate in this case. And so we need to be able to demonstrate at the end of the day that this was the intention, that this was what was supposed to happen and I guess that’s where you’re sort of leading us to in terms of how we go about preventing these?

Ian Hull: Right. So, we’ve got a situation where we need to justify, because we’re acting for the dutiful daughter who got the money; we need to justify this. There are the non-litigation steps and the litigation steps. But the first non-litigation step I would typically take is to set out in a letter sort of a two-part letter. The first part is, okay, let’s acknowledge that these are the assets of the estate, these need to be administered, let’s set up a plan of action for them, and identify whatever is left in the estate; and secondly, put in the letter at the early stage full disclosure as to your position on the joint accounts. I find it’s better not to hide behind this issue as opposed to saying to the other side here is the estate assets, there’s $10 left, and the rest flowed outside of the estate and I’m not going to tell you about it. I find that early detection and early acceptance of the fact that you’re going to have potential conflict there is somehow best managed by setting out with particularity what the joint assets are or what assets you say flow outside of the estate.

Suzana Popovic-Montag: And we know, certainly from our experience, that a lot of people are hesitant to do that but the reality is if they don’t do it, they create an aura of mistrust right from the get go and its very, very hard to overcome that no matter how much you start disclosing afterwards.

Ian Hull: Absolutely. And I say to my clients look, be proud of the gift, don’t be ashamed of it. And if you’re ashamed of it, then you have something to hide.

Suzana Popovic-Montag: That’s a really good thought, Ian, and that’s a really good mindset because many times people are apologetic and they’re on the defensive already without anyone even making it necessarily an issue and so to think positive and work forward I think is great advice.

Ian Hull: Because after all, it is usually in the circumstances, it is clearly the intention of the mother to have gifted that money. And it wasn’t intended to be shared and you know, you want to be able to show the other side quickly and efficiently. Now that may not solve the problem, but if we start with that attitude and we start with the attitude of full disclosure, let’s talk a little bit about what that opening letter or that opening discussion with the other side might include.

And the first thing I like to include in it is the date the account was established. So I particularize that, I will get back-up if necessary. But I like to try to identify the date it’s established.   The second thing I like to do is I sit back and I say well look, if I’m on the other side of this, what is going to really bother me is the source of this money. Because this is, at this point in time with mother now dead, money that people will perceive to be family money, it’s part of the family. So with some particularity, I like to create the source of the money. If it’s just come out of a GIC that Mom rolled into you, or if it came out of the sale of the proceeds of the cottage or something like that, identify where it came from. Again, setting the tone for how the specific, exclusive account is set up. And I try to describe these as exclusive accounts as opposed to joint accounts, because once she’s dead, it’s no longer joint. It’s exclusive, it was exclusive during their lifetime and it is exclusive now. And when I say exclusive, of course, during the lifetime it was shared between the two as joint tenants but it was exclusive in the sense that no other family member had access to it or used that money. 

Now, another demonstration of how I like to set out early on some of my protection to the joint account case is I like to set out and say to my client, alright, how was the money indeed used during the lifetime? And in our earlier illustration, we talked about a joint account that was set up 8 years ago and then one that was set up 6 years ago. And just for the purposes of illustration, let’s say the 8 year ago one wasn’t joint, it was simply a gift because the daughter had taken her mother through a very tough time, she’d just had hip surgery and daughter basically quit her job and spent 6 months with Mom to rehabilitate. So Mom was at that point, 8 years ago, said geez, you know, I just want to give you something for this. I know you’ve lost a lot of salary and money and so here’s a $100,000. And it comes out of a GIC, goes into daughter’s name exclusively and then how does the daughter use that money during her lifetime is an important question, because the judge will want to know, and its an important thing to disclose early, and especially if the money was used exclusively for the daughter. For example, in that 8 year old account, the daughter used the money to send her kid to private school. And now there is only $30,000 left and the other child wants to split the $30,000 of course, but the daughter is saying well, first of all, it was set up a long time ago; second of all, I used it as though it was my own; third of all, I never even talked to Mom how I used it. I used it to my exclusive benefit. So its treated like a gift in that sense.

Suzana Popovic-Montag: So you’re suggesting, Ian, that its very different from a situation where the money would be used somehow for mother’s benefit going forward and the idea there being that of course it was always intended to be hers, it was just in someone else’s hands as trustee or whatever you want to describe the relationship.

Ian Hull: Absolutely. So the second illustration is more problematic. And that’s the joint account where it is set up with daughter and mother, with joint right of survivorship. And typically the bank document is all that has been established. We always tell people to do more but let’s say they haven’t. Again, it seems to me that two threshold questions are: source of the money, when it was opened, and then describe how the money was used. And if it was used exclusively for mother, or if it was used in part for Mom and part for daughter, I don’t know; depends on your facts and your circumstances. But if you can take those three steps along the way to establish your core position, the other side…I’m not saying people fold their tent, but the other side has to seriously consider whether or not they are going to pursue this because it’s sounding very gift-like.

Suzana Popovic-Montag: Now, Ian, from your experience, would you say that the inter vivos gifting tends to be easier to prove than the joint account gifting? Or not?

Ian Hull: I think its slightly easier, yeah, I think because you put it in your name alone, that helps. But, you know, I still think at the end of the day, its so much depends on how much, well without a note or some additional evidence, so much depends on what the intention was of the parties. And part, you really only have, because you aren’t typically planning for this fight, all you have to show the other side is how the money was used. And if it was just sitting there accumulating interest, never touched, that’s okay too, if you have a reason. And then your reason might be look, I took it, Mom gave it to me and I saw that as my retirement savings.

Suzana Popovic-Montag: Right.

Ian Hull: I don’t know, you always have separate facts and stuff. So anyway, I think that that’s just an illustration of how we like to sit down and begin the problem-solving process as opposed to the other end of the day when we would love to see all of the problems solved before they get to us, but that’s not always the case.

So there’s that three-part step: identify the source of the asset, second of all identify when the account was established, and third of all, identify how the money was used during lifetime, and it may go a long way to either resolving or at least crystallizing the issues quickly.

Suzana Popovic-Montag: Well I think that, Ian, brings us to a wrap for this week’s discussion. Thanks to everyone for listening and thank you, Ian, for joining me today.

Ian Hull: Thanks very much, Suzana.

Suzana Popovic-Montag: Just a quick reminder, of course, please feel free to send us an e-mail at hull.lawyers@gmail.com or visit our blog at estatelaw.hullandhull.com. Thanks very much.

This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

/mem

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Listen to Guardianship in Canada

This week on Hull on Estate and Succession Planning, Suzana Popovic-Montag speaks with Rodney Hull about how the law has changed in Canada as it pertains to the appointment of guardians. Rodney suggests that today's laws (post-1994) are clearer than they were in the past.

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

Guardianship in Canada - Hull on Estate and Succession Planning - Podcast #142

Posted on December 9, 2008 by Hull & Hull LLP

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag that will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto, here are Ian and Suzana.

Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening, and some of you may be watching, episode 142 of our podcast on Tuesday, December 9^th, 2008.

Hello there Rodney.

Rodney Hull: Hi Suzana.

Suzana Popovic-Montag: I’m very pleased to have Rodney Hull join me again this week to fill in for Ian Hull. We’re very pleased to have you and thank you for joining us, Rodney.

Rodney Hull: Thank you very much for having me.

Suzana Popovic-Montag: What I thought we might do a little bit today, since we have you sort of here in the hot seat is to get your thoughts, and I know we’ve talked a lot in the past about capacity litigation and this whole grey zone as to whether or not someone is capable or incapable and what happens if they’re no longer capable. And so I thought having you here, we’d have the opportunity to maybe talk a little bit about the change in the law since when you started practicing back in 1957 and we still called it like a committeeship, and how things may have changed since 1994 when the new Substitute Decisions Act came into place.

Rodney Hull: Well in the pre-1994 legislation, the first distinction was that they changed the fiduciary, the name of the fiduciary from a committee to what it is today, which is the…

Suzana Popovic-Montag: Guardian.

Rodney Hull: Guardian. And basically though the function of the guardian is the same today as it was then.  There is a far superior structure created by the new Substitute Decisions Act which gives a great deal more guidance to persons involved in committeeships as we used to call them. Before you simply applied, we did the same thing: we had psychiatrists and one would say this and one would say that, we would have doctors, we would have bankers, we would have investment people saying whatever their opinion was, and a committee was appointed for the person if it could be shown that the person was not capable of managing his or her affairs. Now it’s exactly the same but we have guidelines, much more direct, clear guidelines as to who we use, what we’re doing, we have referees, we have persons who are directed to make decisions as to whether or not there is the capacity to manage your own affairs. That’s clear, they’ve been set out. Before it was by guess and by God. The judge would listen to the evidence and it would be the judge that made the determination. Not a very satisfactory way of doing it, not because the judges weren’t every bit as good then as they are now or had less ability. It’s just that there is a scientific aspect to the appointment of guardians that I think we didn’t realize as much then as we do now, and that it isn’t basically simply a judicial function. It’s a function that involves almost all the aspects that one would put into ordinary daily living concepts.

Suzana Popovic-Montag: Right and you say that comes about because of the clearer definition that’s set out in our statute now.

Rodney Hull: That is correct. Yes, I think so. I think it gives us great guidance. It makes clear what we should be doing and the procedure is far, far more closely defined. Before it was, as I say, by guess and by God. You brought an application to have a committee appointed under the Act and of course the Children’s Lawyer would sometimes be involved, and the Public Guardian and Trustee was involved, as they are today.

Suzana Popovic-Montag: That’s right. And now that’s certainly from the financial perspective. So when we’re appointing someone to manage property, but how would you say, if at all, its changed in terms of having someone appointed for personal care?

Rodney Hull: That, of course, is probably the most difficult aspect to try and deal with.

Suzana Popovic-Montag: Yeah.

Rodney Hull: You know you…there are some people you don’t want to have the ability to pull the plug on you, that’s for certain. And we can all figure out who some of them are. But basically, I think the ones that are nearest and dearest to you are the ones that should have that decision. There is nothing worse, in my mind, than having no direction really, no written direction, but to have a gathering of 6 or 7 people around and there you are with one of these breathing devices in you, you hate it, your arms are tethered, you can’t tear it out, and they’re sitting around the table arguing whether or not it should be pulled out. We want Dad or Mom or Auntie so and so to have every chance to live and come back, even though the doctors say he or she is going to be a vegetable. That’s not good. But to be able to show the directing people that you have the authority to do it I think is very important. Finding that person is where the rubber hits the road.

Suzana Popovic-Montag: It’s so true and, you know, I wonder, from your experience, like I know certainly judges are reluctant these days to make those kinds of decisions, because those are such personal decisions that they don’t necessarily feel qualified in many cases to make that kind of a determination. Was it any different under the prior legislation?

Rodney Hull: Oh I don’t…I think myself that there was no clear authority to do it but the doctors looked after it pretty well.

Suzana Popovic-Montag: That’s true.

Rodney Hull: But everybody has become very conscious of taking on any responsibility that might involve you with bad feelings between people and I think that basically is how it was done. It was just done by guess and by God and sometimes oxygen didn’t get through, that’s all, sorry about that.

Suzana Popovic-Montag: It really seems to underscore, to me anyway, the importance of this planning, of planning during your lifetime, of telling people what it is you want and why it is you want it so that when these tough decisions have to be made, then you know at least you’ve got some guideposts.

Rodney Hull: You really don’t have to be too clear as to what you want. You don’t want to be going through a lifetime of pain and suffering and stuck with one of those things in your head backed up, and the pump going and you’re there, you’re not conscious. You don’t have to be a Rhodes scholar to figure that person doesn’t want to hang around very long.

Suzana Popovic-Montag: That’s for sure.

Rodney Hull: You know.

Suzana Popovic-Montag: So just in terms of some advice, Rodney, what would you say to people who are dealing with individuals who are sort of in this grey zone, where we’re just not sure if they are fully cognizant and capable or maybe they’re on the cusp of no longer having capacity? Any thoughts or any guidance for us in terms of dealing with those kinds of individuals?

Rodney Hull: Well I guess kindness is the only word that really comes on bidden to the lips. It’s a very difficult responsibility to take on; it’s a very difficult responsibility to pass on. So it just has to be guided by common sense and as I say, kindness, probably.

Suzana Popovic-Montag: Yeah. Well thank you very, very much, Rodney. It was a pleasure having the opportunity to podcast with you again, and to seek some of your thoughts and guidance to us, so thank you for joining us.

Rodney Hull: Thank you, Suzana, for having me.

Suzana Popovic-Montag: And just a quick reminder to everyone to feel free to provide us with any comments, any feedback, at hullandhull@gmail.com or feel free to visit our blog at estatelaw.hullandhull.com.

You have been listening to Hull on Estates and Succession Planning by Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current issues in estates and estate planning. It is not legal advice and you are reminded to always speak with a legal professional regarding your specific circumstance.

To listen to other Hull & Hull podcasts, or to leave any questions or comments, please visit our website at hullestatemediation.com. 

/mem

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In 1949, Georgia O'Keeffe donated the Alfred Stieglitz Collection of Modern American and European Art to Fisk University ("Fisk") in Nashville, Tennessee.  O'Keeffe, as executor of her late husband's estate, divided his collection of paintings, sculptures, prints and photographs and donated the nearly 1,000 pieces to six institutions, including Fisk.  O'Keeffe had donated the collection to Fisk with the express stipulation that the paintings not be sold or exchanged, as evidenced by a letter written that year to then Fisk-President Charles S. Johnson.  

In 2005, cash-strapped Fisk attempted to sell the paintings from the collection in order to rectify its 'troubled financial condition'.  In court filings, Fisk officials indicated that the school would run out of operating funds by the end of 2007 without selling 50 percent of the collection.

In March 2008, the Court enjoined Fisk from selling the painting and ordered the school to put the collection on display by October 6th or forfeit the collection to the Georgia O'Keeffe Museum in Santa Fe, New Mexico. 

Since then, Fisk, arguing that selling the art for a reported $30 million does not violate O'Keeffe's original intent, has filed an appeal to sell half the collection to a museum in Arkansas.  This week, Fisk asked the appeals court to send the case back to trial court saying the judge should not have blocked the sale without a more comprehensive hearing.  Those of you familiar with my recent Machu Picchu blog, and the Beaverbrook blog trilogy of March 2007, October 2007 and August 2008 will find  some parallels here:  In court documents, the parties disagree as to whether the collection is a charitable gift as opposed to an asset that Fisk can dispose of at will.

Interestingly, the Fisk website indicates that "The Alfred Stieglitz Collection is unavailable for viewing due to renovations currently underway at the Carl Van Vechten Gallery". 

David M. Smith

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Payment of Legacies - Hull on Estate and Succession Planning Podcast #109

Posted on April 22^nd, 2008 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #109 of our podcast on Tuesday, April 22^nd, 2008.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada.  Here are Ian and Suzana.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: Hi there Ian, how are you?

Ian Hull: I’m just great, thanks. How you doing today?

Suzana Popovic-Montag: Good thank you.

Ian Hull: Spring has come to our cold part of the world so all is well.

Suzana Popovic-Montag: That’s for sure, I love this time of the year.

Ian Hull: Well, we’ve got probate so before we get into our ongoing discussion about what we do next, let’s just not forget that if you’re interested in commenting, please feel free to give us a call at 206-457-1985.

Suzana Popovic-Montag: Or send us an e-mail at hullandhull@gmail.com. Of course, you can also visit our blog at estatelaw.hullandhull.com as well.

Ian Hull: Now as I said, we’ve got probate and we want to sort of continue to work through the administration process. One of the – what are typically a flash point in our world when things get contentious is the payment of legacies or the lack thereof. So hoping to avoid contentiousness, let’s talk a little bit about the payment of legacies and what are legacies and what are we getting ourselves involved with.

Suzana Popovic-Montag: Well at this point Ian, what we’re talking about are gifts that are actually set out in the Will.  So a legacy is a gift in the Will and presuming that there is in fact a Will as opposed to an intestacy, then you know, the estate trustee is going to turn his or her mind to preparing cheques for the amounts of those legacies to send to the beneficiaries and to consider obtaining releases or receipts from the beneficiaries as well.

Ian Hull: Okay, sorry. That’s the great thing about podcasting. Just had a drink of water and I’m dying here. Alright, so we’ve got this specific gift outlined in the Will as opposed to the residuary gift, which we’ll talk about and we’ve talked about in other podcasts where there’s sort of a global gift of whatever’s left. But we’ve got this idea, say a $10,000.00 gift, for example, could be to a charity, could be to a niece or a nephew or, someone who’s being identified with a specific amount. One of the things that – in terms of before we get into the mechanics of it, is that I worry about is the general proposition that the Courts have continued to insist on is that you’ve got to pay these legacies.  Typically the cases say you’ve got to pay these legacies within a year of the date of death. Or if it doesn’t happen then, interest is supposed to be accruing on that gift. So you want to be careful that it’s done in a timely way. And as I say, from a mechanic’s standpoint, really this kind of thing, when people know they’re expecting a specific amount, the sooner you pay them in most cases, the better. Just to sort of keep the pot from boiling over. But anyway that’s sort of a side comment to the fact that you want to prepare the letters to the beneficiaries, get the cheques ready and get the receipts organized. Now what’s the difference with a gift of a legacy and a gift of a residue in terms of what kind of release or receipt you’re entitled to?

Suzana Popovic-Montag: Well a legacy, Ian, is usually a fixed amount and so in that case, you’re looking to obtain a receipt from the beneficiary who’s going to acknowledge the fact that they’ve received that amount of money. A release, on the other hand, is normally what we look for when we send gifts of the residue to the beneficiaries. And the reason for that is because residue is typically not set out specifically in the Will, it’s going to be what’s left at the end of the day after all the legacies and all the debts of the estate have been paid and all the other liabilities of the estate. And so it’s not quantified, it’ll have to depend on what has ultimately happened during the course of the estate administration and that’s how that amount comes about.

Ian Hull: And I find that some of my clients get a bit alarmed when I say to them, when you’re giving a legacy a specific gift to an individual or to a charity, you’re actually not technically entitled to a release per se. All you’re entitled to is a receipt to show that you actually paid it. Some of my clients get a little nervous, well if I’m going to pay it, I want a release. And as I say, in technical terms, you’re not really entitled to it. But lots of times you ask for a release as well when you pay out the specific bequest.

Suzana Popovic-Montag: Another thing that I remind my clients to keep in mind, Ian,  when they’re paying out these legacies is that when you’re paying out amounts on behalf of beneficiaries, our statute here in Ontario specifically says that you can pay an amount of up to $10,000.00 to a parent of a minor and if it’s an amount over $10,000.00 then steps have to be taken to obtain some form of guardianship, and we’ve talked about that in the past, over the minor’s property or alternatively a trustee can pay that money into Court.

Ian Hull: Okay great, well now that we’ve satisfied the legacies, and here again in Ontario and across Canada, of course, we are lurching toward the deadline of income tax filing. So let’s talk a little bit about income tax, filing returns at this point because it seems to be a good next step to consider.

Suzana Popovic-Montag Well what we know will typically happen in these situations is that the trustee is going to collect all the information and send it on to the accountant in order to prepare what we call the T1 Terminal Income Tax Return. And that’s the tax return that’s filed from the date of the deceased’s death to pick up all of the income and the things that have occurred during that course of time until they’ve died and that is prepared for the purposes of the estate.

Ian Hull: So what I will often do is tell the executor to get this stuff to the accountant obviously, but also make your own note or I’ll diarize it for them, to look for the Notice of Assessment with the T1 Terminal Return filing. You’re not going to always be personally involved with the actual filling out of the tax return, you’re going to get professional advice typically for that. But you – it doesn’t hurt to stay on top of the process and one of the things you want to look for is essentially the response from the tax authority as to whether or not it is an appropriate filing and, you know, sort of a benchmark is you can look to getting those Notices of Assessment approximately 6-9 months after filing.

Suzana Popovic-Montag And the reason we’re looking for that, of course, is so that as soon as we’ve got that in hand, we can request the Clearance Certificate from CRA so that we can get that comfort that, up until the day of the deceased’s death, CRA at least is saying that all the taxes have properly been paid.

Ian Hull: And we’ve had just as an administrative thing and somebody – some of you may run into this.  Over the years, CRA has been sort of a bit inconsistent on this point. There’s two points in time that you obviously need to get sort of a technical sign off from CRA. One is the Terminal Tax Return which we’ve just talked about.  And the other is the Final Return that you file once you want to close the estate off. And sometimes it is difficult to get this sort of interim Clearance Certificate from CRA. Sometimes they will require us to wait until we’ve filed the Final Return which, as I say, it’s a bit case by case, but it always, I think anyway, makes sense to ask our tax advisor to try to get your Clearance Certificate to the date of death after the Notice of Assessment has come in because if CRA agrees to issue it, that is truly a great release that you want to have in your pocket as an executor.

Suzana Popovic-Montag So Ian, maybe you can turn now to discuss – we talked about it a bit at the beginning about the payment of the actual residual bequest to the beneficiaries and one of the things that I thought we would mention and you eluded to it earlier, was the fact that, you know, typically there is what is called an executor’s year. A year’s frame of time during which the executor has to actually deal with the estate and at that time, once that year has expired, then bequests under the Will are going to start to incur interest possibly. When you’ve got an intestacy, however, you typically won’t even administer or pay out those bequests until the year has passed. And the reason for that is because there’s an expectation that you’ll be advertising for creditors and making sure that, you know, any expenses or liabilities of the estate are satisfied before you start making payments out on account of the estate.

Ian Hull:  So we talked – that’s right, because when we talk about this…I mean this is all about keeping the client happy. And when I’m an executor, I tell my clients, I say look, think of yourself as the person who is in charge of servicing the client, keeping them happy. One way you keep beneficiaries happy is that you properly file tax returns and you do what is being required as an administrator. But two is, and sometimes more importantly to the beneficiaries, is show me the money. And we talked about paying the legacies in a timely way.  Another option, of course, is to talk about when you have a Will, not when - as Suzana points out, you’re in an intestacy situation, to pay interim distributions to the residuary beneficiares. I remind my clients that where you can, it is a crucial step to take because they shouldn’t be treated more unfairly than the legacy gifts recipients if it is appropriate to get them some money now. And what you can do is sit down with your financial advisor and benchmark what makes sense on an interim basis to pay out, because you have to watch that you don’t pay too much out.

The reason for not paying too much out is, of course, you want to hold back for sort of ongoing – like anything. You’re running a business, you need to pay the accountants to finalize the return, you need to pay compensation to the executor, you need to consider other tax liabilities that may arise when you go to make your final filing application. So a sensible holdback is important, coupled with a timely payment of an interim distribution to the residuary beneficiaries if possible.

Suzana Popovic-Montag: And that really does underscore again the importance of actually retaining an accountant to help you with these steps because you’ll rely on their guidance in terms of some of the proposed numbers to pay out these interim distribution.

Ian Hull:  Okay, well I think that gives us a good summary of this portion of the administration. Because it is tax time, we will also tie into our theme and talk a little bit about some more tax issues that we want to keep in mind on the administration side. But I think it’s been interesting and thank you for your comments, Suzana.

Suzana Popovic-Montag: Thanks very much to you too, Ian, and just a quick reminder of our call-in number if anyone would like to comment on our podcast. The number there is 206- 457-1985.

Ian Hull:  Thanks again Suzana.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

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Listen to Karkus v. Cotroneo 2007

This week on Hull on Estates, Paul Trudelle and Diane Vieira discuss the case of Karkus v. Cotroneo 2007. The case addresses many of the issues that estate lawyers face on a daily basis, such as: proving or disproving gifts, slander of title and the importance of corroborative evidence.

Karkus v. Cotroneo 2007 - Hull on Estates Podcast #93

Posted on January 15^th, 2008 by Hull & Hull LLP

Paul Trudelle: Hi and welcome to Hull on Estates.  You’re listening to Episode 93 on Tuesday, January 15^th, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills.  Now, here are today’s hosts.

Paul Trudelle: I’m Paul Trudelle.

Diane Vieira:  I’m Diana Vieira.

Paul Trudelle:  Hi Diane.  How are you?

Diane Vieira:  I’m good.  How are you?

Paul Trudelle:  Very good.  This is our first podcast together and our first podcast of 2008, so I wish everyone a Happy New Year.  And why don’t we get into what we thought we would talk about today.

Diane Vieira:  Sure.  This is an interesting case that deals with a lot of things that we deal with in our practice.

Paul Trudelle:  Yeah, the case is Karkus and Cotroneo.  It’s a 2007 case, April 19, 2007, out of the Ontario Superior Court of Justice.  It’s a decision of the Honourable Mr. Justice Sheppard.  And I thought that it would be great to talk about this case because it deals with a number of issues that we deal with day in and day out.  It deals with issues such as gifts, proving a gift or disproving a gift, corroborative evidence required, remedies where there is a finding that there was no gift.  It talks about resulting trusts, set-offs, slander of title, costs regarding Certificates of Pending Litigation when those are resorted to early in the litigation, and also costs of the litigation.  So there’s a lot in this relatively short case…11 pages…but I thought we would spend a little time going through some of those issues.   Perhaps we can talk a bit about the background or the facts of the case.

Diane Vieira:  Oh, sure.  This is a case where the deceased died without a Will and her daughter was appointed the estate trustee.  The deceased was a business woman and near the end of her life, her business had been failing so there was a number of creditors.  And her daughter, the estate trustee, who is the plaintiff in this action, was looking through her mother’s financial records and an entry in her bank book showed a $65,000 transfer from her mother to her mother’s boyfriend, who’s the defendant in this case.

Paul Trudelle:  Right.  And I think just before we go on, I think the fact that the deceased was in some financial difficulty in her business, is an important factor that the Court relies on later on, so that’s important to note.

Diane Vieira:  Later on, the defendant admits that he received the $65,000.  His position is that this was a gift.  The daughter’s position is that this represents money that the defendant was holding on behalf of his mother.  A little more explanation to that was that the $65,000 the defendant used to purchase a property.  And then on that property, the defendant’s name is listed alone, but the property is listed as registered as being in trust.

Paul Trudelle:  That’s right.  And I think that’s important as well.  The Court deals with the resulting trust claim and looks at that factor, and we’ll talk about that briefly in a second.  So in essence the claim was by the estate for the return of the $65,000 and for a claim that the defendant held a property on a resulting trust and the estate had an interest in that property.  The Court looked at the evidence with respect to the gift and before doing that, set out the test that is required and what the estate must argue or try to establish in order to show that there was a debt or resulting trust and what the defendant needs to show in order to prove that there was in fact a gift.

Diane Vieira:  I just wanted to…another point of fact is where the $65,000 came from and when it was transferred.  The deceased had sold her house and she was moving in…she moved in with her boyfriend, who is the defendant.  And the $65,000 represents the proceeds of the estate…the proceeds of the sale of the house, excuse me.  And the money wasn’t gifted or transferred to the defendant until six or seven months later on, which is something that the Court reflected on.

Paul Trudelle:  That’s right. They looked at the fact that the parties had moved in together, the $65,000 was used to, in part, to purchase this house and make renovations that the plaintiff wanted.  The Court considered the fact that the onus is on the defendant to prove, or the recipient to prove that this was a gift, there was no presumption that would work in his favour.  And in fact, the presumptions which aren’t really referred to, would be the opposite, that there was a resulting trust or the money was owed back to the estate.  And the Court found ultimately that the defendant wasn’t successful in proving that this was a gift.  His evidence was that the money was used…was given to him to help with the purchase of the house and to pay for expenses and that was contrary to a finding of a gift.  Just another point on that - the Court refers to the evidence required in order to establish a claim by or against an estate and dealt with the issue of corroborative evidence.  Perhaps we can talk a bit about what corroborative evidence is required and what the rule is there.

Diana Vieira:  With respect to corroborative evidence, Section 13 of the Evidence Act requires that there be some corroboration of the material evidence.  And the onus is the civil litigation onus, but with corroboration.  And in this case, the judge and the Court had problems with the defendant and the plaintiff’s evidence.  He called that evidence unreliable.

Paul Trudelle:  Right.  He felt that the evidence of the parties was of questionable credibility and in the absence of any corroborative evidence, he wasn’t able to find that there was in fact a gift.  And as you mentioned, the Court referred to the burden on the defendant to prove it but said that there was also what he said was a healthy scepticism in addition to that.  Now there’s other cases that talk about whether there’s a higher burden on a party.  The burden is still the civil burden but the Courts will look at these claims with some scepticism.

So the result of the defendant’s failure to prove that it was a gift meant that money was owing to the estate.  The Court went on to deal with the issue of whether the estate had a trust claim against the defendant.  And the Court dismissed the trust claim for a number of reasons.  The first reason, or one of the reasons was that in establishing a trust, there is case law to the effect that evidence of an illegal scheme will not be received to support a resulting trust.  And the illegal scheme that the Court referred to here was the fact that the monies were transferred by the deceased to the plaintiff probably for the purpose of avoiding creditors.  And as a result, they had…the Court had a difficult time in finding that the estate could rely on the doctrine of resulting trust in these circumstances.   So how did the Court deal with the money owing to the estate then?

Diane Vieira:  The Court goes on to find that the defendant does owe money to the estate.  It’s a debt to the estate.  And he then goes on to discuss the concept of unjust enrichment.

Paul Trudelle:  Yeah, and the Court found that the money was owing to the estate and I guess the defendant had assets here.  The Court felt that it wasn’t necessary, in fact, to rely on the concept of trust or impose a trust over the property owned by the defendant.  A judgment, a monetary judgment, was sufficient.  You mentioned the unjust enrichment part of it and the Court talked a bit there about when they will find unjust enrichment in order to bring in the equitable remedy.

Diane Vieira:  Yes, the Court refers to the Supreme Court of Canada case, Peter vs. Bellow and the three steps that are needed for a finding of unjust enrichment.  And all three were here in this case.  There was an enrichment on behalf of the defendant receiving the $65,000 and a corresponding deprivation to the deceased, now the estate of the deceased, and then an absence for the reason of this enrichment.

Paul Trudelle:  Yeah, but having found all of those circumstances present, the Court still goes on to say that they won’t impose the equitable remedy of a constructive trust.  The Court refers to that Supreme Court of Canada decision and extracts a point to the effect that a monetary award would be the appropriate remedy in many cases, and that was the case here.  And the Court concludes that a monetary award is appropriate and makes an Order that the defendant pay back the $65,000 to the estate.  However, he doesn’t end there.

Diane Vieira:  No, it’s…the Court goes on to find that the estate is not entitled to that full $65,000 because the defendant did provide something in the excess of $20,000 in renovations to the house.  And if the deceased’s $65,000 was in a gift to the defendant, then the money that he contributed to the relationship was also not a gift. 

Paul Trudelle:  That’s right.  So in effect, they awarded the defendant…they made an award in favour of the defendant with respect to his Counterclaim for money that he said he spent on behalf of the plaintiff, and that reduced the recovery by the estate.  There is also the issue of a claim by the defendant for slander of title.  The defendant alleged that a Certificate of Pending Litigation put on his property was slander of title, and the Court dealt with that in very short order.

Diane Vieira:  Yes, the Court found that the plaintiffs did not…didn’t have a credible position to have had that Certificate of Pending Litigation registered.  And consequently they awarded the money that the defendant had spent on removing that Certificate, credited back to the defendant.

Paul Trudelle:  That’s right.  And finally, on the issue of costs of the action itself, the Court considered the fact that the plaintiff had some success, made recovery for the estate.  However, it didn’t establish its claim for resulting trust.  The Court also felt that the evidence of the witnesses was unreliable to a certain extent and in fact in some parts the judge said that in some parts, the evidence was fabricated.  And as a consequence of that he ordered that there be no order as to costs, and each party had to bear its own costs.

Well, I think that’s an interesting case on a number of grounds.  We’ve touched on a few of the points that the case deals with.  I recommend the case highly to anyone dealing with those types of situations where there are gifts, where you’re considering a claim for a resulting trust, an interesting counterclaim where you’re faced with a claim for the return of a gift or money advanced on the basis of benefits provided to the deceased, and also considerations for dealing with Certificates of Pending Litigation and the costs that may be involved in that.

Well thank you very much, Diane.

Diane Vieira:  Thanks Paul.

This has been Hull on Estates with the lawyers of Hull & Hull.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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In the recent case of Gubo Estate v. Cotroneo, the Court considered a claim on behalf of an estate for the recovery of funds advanced by the deceased to her boyfriend.

The deceased had sold her home and had given the proceeds of sale, being $65,000, to her boyfriend, and then moved into his home.

The Court found that there was insufficient evidence to establish that the advance was a gift. 

As to a remedy, the Court heard evidence that the advance was likely for the purpose of defeating creditors of the deceased. As such, the Court declined to apply the doctrine of resulting trusts, applying a Court of Appeal statement to the effect that "evidence of an illegal scheme will not be received to support a resulting trust."

However, the Court found that it was not necessary to rely on the doctrine of resulting trusts. The Court found that it was able to make a monetary award, and granted judgment in favour of the deceased’s estate.

In advancing a claim on behalf of an estate, the imposition of a trust is not always necessary, and a monetary award will often be the most appropriate remedy.

Have a great day,

Paul Trudelle