Writing under the pseudonym ‘Poor Richard’, Benjamin Franklin wrote in 1736 that “He that can have patience can have what he will.” Franklin’s advice – or perhaps caution – is that often the best thing to do to grow one’s financial interests is simply to wait.
However, where one has a financial interest under a Will, while patience is a virtue, it should not be without limit.
Should interest be paid on an interest under an Estate?
The short answer is yes, eventually – but you’ll first have to wait.
For almost as long as would-be investors have been taking a page from Ben Franklin, the law of equity has recognized a rule, often referred to colloquially as the “Rule of Convenience”. In short, the Rule of Convenience provides that “where no special time is fixed for the payment of a legacy, it carries interest … from the expiration of a year from the testator’s death”: Widdifield on Executors and Trustees, loose-leaf (2016-Rel. 11), 6th ed. (Toronto: Carswell, 2016) at p. 5-6.3.
This rule relates to perhaps a more well-known ‘rule’, the ‘executor’s year’, a practice of giving estate representatives a full calendar year to administer estates. This allows for the assumption of assets, payment of debts, and eventual distribution to beneficiaries. The executor’s year is itself a common law rule whose roots are traceable to English Ecclesiastical courts who traditionally had jurisdiction over the administration of estate assets.
The reason these two separate rules are intertwined is because if an estate trustee is given the general allowance of a full year to gather and distribute estate assets – it is unreasonable then for the accrual of interest to be applied while this administrative effort is concurrently undertaken. More simply, it’s difficult to expect interest arising from delay, when strictly speaking, no delay exists until after the first year.
However, after the first anniversary of the Deceased’s passing, the maxims of equity come into play, and beneficiaries can generally expect to accrue interest upon their inheritance.
In Rivard v Morris, the Ontario Court of Appeal confirmed the applicability of the Rule of Convenience in Ontario. The court further held that even where the delay arises due to litigation commenced by the party seeking interest, that party should still receive interest, so as to avoid discouraging meritorious litigation. My colleague Nick Esterbauer wrote an excellent article summarizing this 2018 decision, which can be found here.
After Rivard – Changes Since 2018
Following Rivard, the most frequent modifier of the Rule of Convenience’s application has been the amount of interest owed. In 2021, the Ontario Superior Court decision of Campbell Estate v Campbell, the Court held that while interest was owed to the beneficiaries, said beneficiaries would only be entitled to realistic rates of return through short-term interest-bearing vehicles – in that case, attracting an interest rate of only 1%.
Additionally, since the accrual of interest necessarily grows one beneficiary’s benefit, the money must be paid from other assets of the estate in question – which could in turn threaten to shrink the beneficial interest of another beneficiary. In Veiga v Veiga, the Court provided that interest would be payable only at a rate of 2% so as not to unfairly reduce the interest of the estate’s residual beneficiaries.
So, in summary, whether you are an estate trustee or the beneficiary of an estate – it is worthwhile to be aware of when interest begins to accrue on an estate interest, and what a realistic entitlement to interest may be.
Thanks for reading!