Author: Doreen So
Yesterday, I blogged on Public Guardian and Trustee v. Cherneyko et al, 2021 ONSC 107. Today’s blog will focus on some of the breaches of fiduciary duty that were found by the Court. For those who have not read yesterday’s blog, this is a case that involves Jean, a 90 year old woman, and Tina, the attorney for property, who was purportedly given a gift of $250,000.00 just days before Jean was hospitalized for acute delirium and progressive cognitive decline.
While the purported gift of $250,000.00 to Tina was found to be invalid, the Court went on to find that Tina was in breach of her fiduciary duty to Jean by accepting the money. Tina was in breach because she knew that Jean was exhibiting signs of cognitive decline when they went to the bank. In the Court’s view,
“a person acting in a fiduciary capacity for a person actively demonstrating moments of irrationality should be very cautious about any big financial moves that person claims they want to make in and around such periods of demonstrated incapacity. Even if Jean was clearly acting in a competent manner during the few hours she attended the CIBC with Tina on August 27, 2019, I agree with the submissions of the PGT it is no answer to an accusation of breach of duty to assert that an attorney was simply acting in accordance with the wishes of the grantor of the attorney. Tina should have proceeded with caution at that time. I find she did not exercise the appropriate degree of caution and good judgment given the circumstances about which she knew.” (para 42)
The Court also reiterated Justice Penny’s comments in Ontario (Public Guardian and Trustee) v. Harkins,  O.J. No. 3313, that a fiduciary’s first duty is to see to the best interest of the person regardless of what their stated wishes may be. The Court was very critical of how a $250,000.00 gift to Tina could possibly benefit Jean, and expressed disapproval on how there was no evidence of any effort on Tina’s part in considering whether this money would better serve Jean if it was applied towards Jean’s in-home care instead of admitting Jean to a long term care home.
Of relevance to the unique circumstances that surround the care of others during Covid-19, the Court commented that,
“since March 2020 more than at any time in the past, any genuinely concerned person charged with caring for an elderly person in long term care would have at least considered the issue of taking whatever steps could be taken to remove the person from this situation if it was in any way possible.” (para. 47)
Instead, Tina allowed her adult son to move into Jean’s home, and she was found to be actively misusing Jean’s assets for her own and her family’s benefit which were additional breaches of her duties as fiduciary. The Court also disapproved of how Tina did not take any steps to sell Jean’s house in order to maximize or preserve its value which, reading between the lines, seem to be a concern for the uncertainty in today’s markets.
Thanks for reading! Stay safe!
Right from the start, 2021 is starting to look like it will be another extraordinary year of historic significance. In the world of estates, trusts, and capacity litigation, there was a decision released on January 5th where serious breaches of fiduciary duty by an attorney for property were found and the PGT was ordered to take over. The facts in Public Guardian and Trustee v. Cherneyko et al, 2021 ONSC 107, read like a law school case study and the reasons are worth noting.
Jean Cherneyko is a 90 year old woman. Jean did not have any children of her own. Her closest known relative was a niece in the US. By the time of the PGT application, Jean was in a long term care home. Prior to that, Jean lived alone in the same home that she had lived in since 1969. Jean had a friend named Tina who she had known for about five years. On August 15, 2019, Jean and Tina went to a lawyer’s office. Jean named Tina as her attorney for property and personal care. Jean also made a new Will which named Tina as the estate trustee and sole beneficiary of her estate. A week or so later on August 27th, Jean and Tina went to Jean’s bank where $250,000.00 was transferred to Tina, and $195,329.50 was transferred to Jean’s niece. Days later on August 31st, Jean was hospitalized for acute delirium and progressive cognitive decline. During Jean’s admission, Tina noted that Jean had become increasingly confused over the prior few months and that Jean exhibited lethargic behaviour and complained of bodily soreness. On September 1, 2019, Jean was diagnosed as being cognitively impaired. Thereafter, Jean was transferred to long term care on October 1st based on Tina’s authorization as Jean’s attorney for property. Short time after that, Tina’s son moved into Jean’s home and the PGT started to investigate in March, 2020 when the bank froze Jean’s accounts.
As a result of their investigation, the PGT brought an application to remove and replace Tina as Jean’s attorney for property. The PGT also sought to set aside the $250,000.00 transfer to Tina and the return of various other sums that were received by Tina, which totalled approximately $350,000.00.
First, the Court found that the transfer of $250,000.00 to Tina was not a gift. Tina failed to rebut the presumption of resulting trust for the gratuitous transfer. Tina put forth evidence that there was a bank manager who spoke to Jean at the time of the transfer, and that the banker told Jean that she would have still have enough money to live after the transfers to Tina and the her niece. This evidence was tendered through Tina’s affidavit without any direct evidence from the banker. The Court disregarded Tina’s reliance on the banker’s involvement because Tina herself had deposed that Jean was having “moments of delirium and irrationality, her condition fluctuated between lucidity and confusion” in late August, 2019 (para. 31) and there was no evidence that the banker was informed.
The Court also seriously questioned whether any of the payments to Tina were truly what “Jean wanted” because Jean’s power of attorney for property clearly stated that there was to be no compensation. The Court agreed with the PGT’s contention that Tina should not have paid herself $2,000.00 per month in compensation and on how that sum was unreasonably high given that Jean’s long term care costs were only $2,701.61 per month.
The value of the transfers, which was about a quarter of Jean’s net worth at the time, when considered in the context of Jean’s September 1st diagnosis also led the Court to find that Jean lacked capacity to gift Tina such a substantial sum.
The Court’s focus on context, timing, and proportionality as benchmarks in its analysis are very important for litigators and advisors to keep in mind.
Stayed tuned this week for Part 2 on Cherneyko: the breaches of fiduciary duty.
Thanks for reading,
I’ve always loved a good story. I found this story from CNN particularly intriguing as it has to do with art that was stolen by the Nazis, and how this stolen piece of art eventually made its way to the U.S. just like its family had done after the Nazis came to power.
According to the Mosse Art Restitution Project, Rudolf Mosse was a successful Jewish entrepreneur in the late 19th and early 20th century. He had a large publishing and advertising business that included the publication of 130 newspapers and journals. In 1900, Mosse purchased “Winter” directly from the artist, Gari Melchers, at the Great Berlin Art Exhibit. Mosse later died in 1920. The sole heir of his estate was his daughter, Felicia Lachmann-Mosse. Thus, Felicia came to own Mosse’s extensive art collection. Felicia and her husband also took over and ran one of Mosse’s most prominent publications, Berliner Tageblatt, and the newspaper was renowned for its criticism of Adolf Hilter. When Hilter came to power in 1933, Felicia and her husband were forced to leave Germany. According to CNN, “Winter” was amongst the art that was seized by the Nazis when the Mosse family fled their home but “Winter” was only one painting out of the hundreds of pieces of artwork that were stolen at the time.
Some of this art was auctioned off by the Nazis; some have simply disappeared. “Winter” left the Nazis’ possession and changed hands a number of times before Barlett Arkell bought it, as an innocent purchaser who was none the wiser, from a prominent gallery in 1934. Since 1934, “Winter” has been displayed in the Arkell Museum in Canajoharie, New York. When the Museum discovered that “Winter” was taken illegally from its original owner, the painting was surrendered to the FBI in 2019.
“Winter” has since been reunited with the Mosse family by way of the Mosse Foundation which represents the remaining heirs of Felicia Lachmann-Mosse. To date, the Mosse Art Restitution Project remains actively engaged in their work to recover all of the artwork that was stolen by the Nazis.
The Mosse Foundation and the Project have plans to auction “Winter” in the near future and it is estimated to be worth hundreds of thousands of dollars.
Talk about a never-ending estate administration.
Thanks for reading!
“Happy wife; happy life” is an adage that we are all familiar with.
I recently came across a decision of the Manitoba Supreme Court that I thought was worthy as an adage for estates and trusts practitioners. What caught my eye was the way Justice Allen opened his reasons for the decision in Hamm v. Hamm (Estate of), 2014 MBQB 14:
“It is a very risky business for a farmer or business owner to undertake an estate freeze without informing his or her spouse of the plan and indeed, without arranging for independent legal advice to have the ramifications of the freeze explained. It is even riskier to divest oneself of the shares and shareholder loan received from that estate freeze, again without informing one’s spouse.”
The couple, in this case, were married for 41 years when the husband died. The husband was a widower with two sons and a daughter from his first marriage. The couple later had a daughter of their own. The couple and their children lived a typical farm life. In the late 90’s, the husband decided to pass the farm operation to his sons. This was done by way of an estate freeze. The sons were a part of some of the husband’s meetings with his lawyers and accountants, while his wife and daughters were not involved at all.
A NewCo was created in the course of the estate freeze. Over time, the husband’s land, machinery, and farm equipment were transferred into NewCo in exchange for preference shares and shareholder loans from NewCo. The husband also made a new Will that gave his interest in the NewCo to his sons. The husband did not tell his wife about this either and she only found out when he died.
On death, the wife elected for equalization of assets under the Manitoba Family Property Act and she claimed that the value of the husband’s farm assets, notwithstanding the estate freeze, ought to be included in their family property for equalization purposes.
The wife won. Justice Allen was not sympathetic to the Estate’s arguments that she ought to have known about the estate freeze, and made her claims earlier, by investigating further when she was told that NewCo was created for “tax purposes”. This was particularly so because the husband continued to run the farm operations as if nothing had happened.
This case is a straightforward example of how testamentary intentions can be thwarted when a spouse is kept in the dark. It is good practice for lawyers to advise their clients that their spouse should be informed and that their understanding should be documented with independent legal advice. In explaining why a spouse should know about an estate freeze, and the pitfalls of telling one’s spouse, this exercise will have the benefit of emphasizing to the client what he/she is truly giving up and bring “home” the realities of this rather legally complicated transaction.
Thanks for reading!
The answer is no in Ontario. Currently, only a limited number of Canadian provinces (Quebec, New Brunswick, Nova Scotia, and Saskatchewan) will allow a policy holder to sell his/her insurance policy to a third party.
Life insurance policies are commonplace in Canada. A life insurance policy is a contract with the insurance company and it is a contract to pay out a sum of money upon the death of the life insured. While most people may be content to maintain their life insurance policy, as is, until their death, those who are in need of cash during their lives may wish to sell the policy for a present-day payout while the purchaser maintains the premiums (and any other obligations to the insurance company) in exchange for the payout on the death. The sale of a life insurance policy by the policy holder is also known in the industry as a “life settlement”.
According to Tyler Wade’s article on ratehub.ca, the practice of selling one’s own insurance policy was popularized in the U.S. when investors saw the AIDS epidemic in the 1908’s as an opportunity where they could offer those suffering from AIDS a payout during their lifetime in exchange for the death benefit in their policies believing, then, that this group of individuals had a shorter life span. The vulnerability of the individuals within this market group and the potential for financial abuse are often cited as the reasons why life settlements ought to be prohibited for public policy reasons.
In Ontario, life settlements are prohibited under section 115 of the Insurance Act, as follows:
“Trafficking in life insurance policies prohibited
115 Any person, other than an insurer or its duly authorized agent, who advertises or holds himself, herself or itself out as a purchaser of life insurance policies or of benefits thereunder, or who trafficks or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation thereof to himself, herself or itself or any other person, is guilty of an offence.”
In 2017 and 2018, there was an attempt to legalize life settlements by amending section 115 (through Bill 162) and by amending the Act to allow third-party lenders to use life insurance policies as collateral (through Bill 20). Both Bills received opposition from non-profit groups like the Canadian Life and Health Insurance Association due to the potential for financial abuse and section 115 of the Act has remained as is in Ontario.
While it is difficult to comment on how the potential for financial abuse can be mitigated by implementing countermeasures, it is unfortunate that Ontarians have limited options once the policy is in place.
Thanks for reading!
I learned about Blue Zones recently through Zac Efron’s new Netflix travel show, Down to Earth with Zac Efron. Episode 4 brings Zac and the audience to Sardinia where Zac meets with Dr. Giovanni Pes, nutritionist and medical statistician, and Dr. Valter Longo, bio-gerontologist, to discuss their research on the centenarians who live there. Blue Zones are regions of the world where people live much longer on average than everywhere else. This concept was coined by Dan Buettner and there are five Blue Zones in the world:
- Sardinia, Italy
- Okinawa, Japan
- Loma Linda, California (side note: California is also home to some of the world’s oldest-known living trees)
- Nicoya Peninsula, Costa Rica
- Icaria, Greece
According to Wikipedia, these Blue Zones have the highest rates of centenarians (i.e. people age 100 or above), and the people who live there suffer a fraction of the common diseases that ails the rest of the world and they enjoy more years of good health.
During the episode, Zac also visits a local woman who was born on April 15, 1920. She was 98 years old when the episode was filmed. Her husband had lived to 103 years old before his passing. According to Dr. Longo, it is extremely rare to have a couple with such longevity. Thereafter, Liliana was asked to do a cognitive test that one-third of centenarians or people with dementia will have trouble with, but Liliana does this with flying colours by accurately drawing the numbers on a clock and overlapping shapes on camera.
Liliana’s test was administered in her native language. In North America, the Montreal Cognitive Assessment (also known as the MOCA) is commonly administered to seniors as a screening tool for cognitive impairment like dementia. The MOCA is in the news recently as a result of Donald Trump’s interview with Chris Wallace on Fox News Sunday. Trump didn’t actually identify the exact cognitive test involved but he was proud to have “aced” the test.
Thanks for reading!
The #FreeBritney movement is a social media movement driven by the fans of Britney Spears, and it has been trending recently this month according to Global News. Britney’s fans are concerned that Britney is being mistreated by her legal conservators. Britney Spears has been under a court-ordered conservatorship since 2008.
In the years leading up to Britney’s conservatorship, there were a multitude of public incidents that called Britney’s wellbeing into question, the most iconic of which was perhaps the viral, tabloid photograph of Britney shaving her head in 2007. In 2008, Britney was involuntarily hospitalized after police were called to her home. Thereafter, Britney was placed under an interim conservatory order, which was ultimately made permanent. Britney’s conservatorship meant that her father, James Spears, and lawyer, Andrew Wallet, had complete control of Britney’s assets, which is similar to a guardianship of property under the Ontario Substitute Decisions Act, 1992. James Spears was given control of Britney’s health like a guardianship of person.
Despite being stripped of the right to control her own property and personal care, Britney’s career has flourished in the twelve years after 2008. During the first year of her conservatorship alone, Britney appeared on television shows and even released a new album (Circus). Britney went on to release 3 more albums after that, and she was the star of a four-year concert residency in Las Vegas (which was excellent in my humble opinion). Britney was also a judge on the television competition show, X Factor, where the judges of the show mentor and critique contestants on their performances. For a list of her accomplishments, check out Britney’s extensive Wikipedia page.
In Ontario, a person is incapable of managing property if “the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision” (section 6 of the SDA).
With that in mind, Britney’s role as a judge on X Factor and her reactions on the show seem to show that she was appropriately reacting to the performances of the contestants and that she understood what was at stake in the competition. However, the lay opinion of her fans (myself included) alone would be insufficient to satisfy the statutory requirements of a motion to terminate guardianship of property and person under Part III of the SDA. If the motion is brought on a summary basis under section 73 of the Act, the moving party must include one statement from a capacity assessor and one statement by a second assessor or someone who knows the person, which indicate the following:
(a) that the maker of the statement is of the opinion that the person is capable of managing property, and set out the facts on which the opinion is based; and
(b) that the maker of the statement expects no direct or indirect pecuniary benefit as the result of the termination of the guardianship.
Similar statements are required to terminate a guardianship of person.
Earlier this year, Britney’s conservatorship was extended until at least August 22, 2020.
#FreeBritney and thanks for reading,
The late Donald Farb called his insurance company to renew his travel insurance policy before his trip to Florida. Mr. Farb spent about half an hour with a telephone representative from Manulife to complete the insurance application. He said “no” to a variety of questions regarding his medications and pre-existing conditions. Thereafter, the travel policy was issued on the basis of the information provided by Mr. Farb, and Mr. Farb went on his trip. While he was in Florida, Mr. Farb was unexpectedly hospitalized and he incurred over $130,000 (USD) in hospital expenses. Manulife later denied Mr. Farb’s claim for reimbursement and took the position that his policy was voided on the grounds of misrepresentation. Mr. Farb died before his insurance claim was resolved and his Estate commenced a court application to continue Mr. Farb’s dispute with Manulife.
In considering the Estate’s application, Justice Belobaba of the Ontario Superior Court of Justice reviewed the first principles of the Insurance Act and how the Act is designed to protect both the insurer and the insured. While insurance companies are protected by the insured’s duty to disclose, and the right to void coverage if there was a failure to disclose or misrepresentation, the consumer is protected by the requirement that the application process be done in writing so that the consumer will have the opportunity to review the information provided and to make any necessary corrections before the policy takes effect.
Justice Belobaba found that Manulife’s application process satisfied the requirements under the Insurance Act. He found that there was no issue with the telephone service provided by Manulife and the way that information is collected verbally from the applicant because the completed application form is emailed, in writing, back to the applicant for verification. The emailed and mailed copy of the insurance policy also contained a multitude of warnings asking the insured to review their policy carefully before traveling and that “the policy is void in the case of fraud, attempted fraud, or if you conceal or misrepresent any material fact in your application”.
As evidence before the Court, Justice Belobaba was provided with an audio recording of Mr. Farb’s telephone call with the insurance representative, and a copy of the materials that were emailed and mailed to Mr. Farb. Justice Belobaba found that Mr. Farb had two months to review his answers to the medical questions that were asked of him, and there was no evidence that Mr. Farb ever contacted Manulife to correct his answers, which was sufficient to conclude that Manulife was within its rights to void the policy.
The Estate’s application was dismissed, and you can read the full reasons for decision in Estate of Donald Farb v. Manulife, 2020 ONSC 3037, by clicking here.
Travel insurance should always be top of mind before travelling. It is a good idea to reach out to your insurance company and review your existing policy and the information contained in the underlying application before you go, especially under the present circumstances with COVID-19. The issue of whether testing and medical care for COVID-19 will be covered while abroad is important to consider before any travel plans are finalized.
Thanks for reading,
The University of Saskatchewan’s College of Law proudly displays the will that was etched onto the fender of a tractor by a dying farmer. That happened in 1948. Decades later, the Saskatchewan Queens Bench was similarly asked to determine whether a note handwritten on a McDonald’s napkin is a valid will.
Philip Langan died in 2015. He was a widower with eight children (Earl was predeceased and Landry died after the napkin was written but before Langan’s death). Shortly after Langan’s death, two of his children came forward with a McDonald’s napkin that they claim to be their father’s last will and testament. Ronald and Sharon explained that the napkin was made when their father thought he was having a heart attack at McDonald’s. Sharon said that she was not there when her father started to write on the napkin but she was there to see him sign his name. She said he gave the napkin to her and said “This is my will. I want you to keep this in case something happens”. A third child, Philip, supported the validity of the will because he was also at the McDonald’s that day. Like Sharon, Philip did not see his father write on the napkin but he was there when the napkin was given to Sharon and he heard what his father said to Sharon.
Maryann challenged the validity of the napkin because she was skeptical of whether it was in her father’s handwriting. She also stated that Langan told her that he would not leave a will because “he wanted us to fight like he had to”. Yet, interestingly enough, an intestacy would still give rise to the same result as the napkin on the consent of the siblings.
The napkin itself was described as follows in Gust v. Langan, 2020 SKQB 42 (CanLII):
“written in pen on a very thin, brown-coloured, paper restaurant napkin reads as follows:
Philip W. Langan
Marann Langan (Gust)
Split my property evenly,
“Dad Philip Langan”
The court found that the napkin was a valid holograph will. Justice Layh was persuaded by the propounders’ explanation that the napkin was made at a time when Langan thought he was having a heart attack “a time when one’s mind would reasonably turn to the question of estate planning, especially in the absence of an existing will. Mr. Langan’s immediate delivery of the will to his daughter, Sharon, and the comment he made to her – as evidenced by both Sharon and Philip’s statements – that she keep the document in case something happened to him, shows a clear testamentary intention.” (para. 22).
While the legal analysis in this case is based on the law in Saskatchewan (unlike Ontario, Saskatchewan has curative legislation that permits substantial compliance), Gust v. Langan is a timely reminder that, in addition to the formal requirements of a holograph will, testamentary intent is crucial in determining whether a document can be given effect as a will. On the face of the napkin, there was nothing to indicate when Langan intended to divide his property. The essential characteristic of a will is the intention to dispose of property after one’s death. Here, the court had to rely on the extrinsic of evidence from Langan’s state of mind and what he said to Sharon.
Should you find yourself in a situation where an emergency holograph will is needed, you may want to refer to Ian Hull and Jordan Atin’s blog on the subject:
I would also suggest that regular paper be used, if you have some, for practical reasons or to simply avoid media coverage since this particular McDonald’s napkin has made the news in New York and Australia.
Thanks for reading.
Further to my blog on Monday, the Court of Appeal also released another interesting decision last week with respect to the tort of conspiracy in the context of a family law proceeding. Leitch v. Novack, 2020 ONCA 257, is an appeal from a summary judgement motion that was brought by the husband’s father, a family trust, and a family company. Summary judgment was brought because the wife sought damages against the moving parties for an alleged conspiracy that they were intentionally withholding payments to the husband in order to reduce his family law obligations.
The motion judge, in 2019 ONSC 794, held that the conspiracy claim was appropriate for partial summary judgment. The conspiracy claims were dismissed even though the wife could still pursue a claim to impute additional income to the husband for the purposes of determining his income at trial. Over a million dollars in costs were later awarded to the husband and the moving parties and there was a subsequent order for security for costs that effectively froze all of the wife’s assets.
The appeal was allowed. The Court found that there was a material risk of inconsistent results because the wife was allowed pursue her claims that additional income ought to be imputed to the husband despite the motion judge’s finding that there was no unlawful conspiracy.
As for the tort of conspiracy, Justice Hourigan confirms and clarifies the application of this doctrine in the context of family law matters. The tort of conspiracy is part of the judicial toolbox to ensure fairness and for deterrence. It is also there for enforcement purposes because the purpose of the conspiracy is to hide income or assets and “a judgment against a co-conspirator will often be the only means which by which a recipient will be able to satisfy judgment” (paras. 46-47).
Justice Hourigan commented that
“a transfer of funds by loan, gift, or otherwise, is not the only way that the alleged co-conspirators could have acted in furtherance of the conspiracy. If the trial judge is satisfied that [the husband] had an entitlement to funds and that a co-conspirator withheld the transfer of funds to him as part of a conspiracy with the understanding that he would receive the money at some future date, the withholding of funds may itself be an act in furtherance of the conspiracy. It is not necessary to establish more than an acted-upon conspiracy to conceal [the husband’s] entitlement.” (para. 51).
The costs awards and the preservation order were also set aside.
This decision is certainly important to keep in mind when advising trustees of discretionary trusts.
Thanks for reading!