Is interest payable on legacies?

Is interest payable on legacies?

An Ontario Court of Appeal decision released yesterday provides clarity regarding the situations in which beneficiaries of legacies will be entitled to interest on the sum payable to them under a Last Will and Testament.

In Rivard v Morris, the testator had held farmland of significant value.  A prior Will left a farm of comparable value to each of his daughters (as the testator had previously gifted a farm property to his son), and divided the residue of the estate equally between the three children.  In the months preceding his death, however, the deceased amended his estate plan to provide for a greater benefit to his son, leaving him the residue of his estate (inclusive of the farm properties) after distributions to each daughter in the amount of $530,000.00.

After the testator died, the daughters challenged his Last Will on the basis of alleged undue influence.  The will challenge was unsuccessful.  The daughters subsequently commenced another proceeding after their brother (the sole remaining estate trustee after their previous resignations) refused to pay to the sisters interest with respect to the legacies of $530,000.00.  They argued that they were entitled to interest commencing one year after the date of their father’s death, notwithstanding that the payment had been delayed in part because of the will challenge initiated by the daughters.  Any interest would have been payable out of the assets to which their brother was otherwise entitled as sole residuary beneficiary of the estate.

The daughters were unsuccessful at the hearing of their application and appealed.  The Court of Appeal found in their favour.  Justice Paciocco ordered the payment to each daughter interest in the amount of $53,000.00 out of the residue of the estate.  In doing so, Justice Paciocco relied upon the “executor’s year” and the “rule of convenience”.  In describing the rule of convenience, Justice Paciocco stated as follows (at paragraphs 24, 25):

The “rule of convenience” can be easily explained, in my view.  One of the maxims of equity is that it presumes as being done that which ought to be done. Since the beneficiaries should be enjoying the earning power of their legacies by at least the anniversary date of the testator’s death, where that enjoyment is postponed and the testator has not provided an alternative date for payment of the legacy, interest is to be paid…This general rule has been adopted in Ontario.

The rule of convenience was considered by the Court of Appeal to promote certainty and predictability, and the lower court’s decision to deny the daughters’ interest on the basis that they had commenced litigation against the estate was said to be contrary to principle, as this would have the impact of discouraging “even meritorious litigation”.  While the Court of Appeal did neither confirmed nor denied whether judges are able to exercise discretion to deny interest to beneficiaries of legacies, it found that it had been inappropriate for the application judge to do so in this case.

Thank you for reading,

Nick Esterbauer

 

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