Author: Natalia R. Angelini
At a recent CLE on The Family Business: Administration and Litigation of Trusts and Estates Holding Business Assets, Angela Casey delivered her paper on the topic of passing trustee accounts when there are business assets. A sampling of Ms. Casey’s advisable considerations and steps for the parties to take when an estate holds or controls a business include:
For the Objecting Party
- Before objecting to the trustee accounts, carefully review all of the powers, authorities and discretions granted to the trustees in the will or trust instrument; they could contain privative or exculpatory clauses;
- Hire an accountant, obtain a business valuation or an investment professional when you are first considering objecting to accounts; this can help determine, among other things, if a business was sold prudently, whether a business has suffered losses as a result of the trustee’s actions or whether the accounting records comply with GAAP; this information can help you determine what objections to make;
- Review the company’s constating documents, so you are aware of what rights are associated with the deceased’s shares and what restrictions may exist with respect to their disposition; and
- Consider the application of section 49(10) of the Estates Act, which permits the judge to appoint an accountant or other skilled person to assist in auditing the accounts when in the judge’s opinion they are intricate or complicated and require expert investigation.
For the Accounting Party
- Consider the applicability of section 35 of the Trustee Act, which can protect a trustee in breach of trust who has acted “honestly and reasonably”;
- In situations where the allegation is that the trustee continued to run the business without authority, consider relying on section 27(5) of the Trustee Act, which allows a trustee to consider the assets’ “special relationship or special value, if any, to the purpose of the trust or to one or ore of the beneficiaries”; and
- Consider seeking to strike frivolous and vexatious objections.
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It is helpful in assisting our clients in statutory guardianship matters to get the PGT’s perspective. Dermot C.G. Moore did so in his paper presented at the Six-Minute Estates Lawyer on May 6, 2015. In it he comprehensively reviews the several factors that come into play in statutory guardianship applications, including:
- Who can apply – he discusses the differences in who can apply for guardianship of property and guardian of the person, and as replacement guardians (only certain persons can replace the PGT as statutory guardian of property: (i) the incapable person’s spouse; (ii) the incapable person’s relative; (iii) an attorney for property that does not grant authority over all the incapable person’s property (rare); and (iv) a trust corporation, if on consent of the incapable person’s spouse/partner (uncommon).
- Interim Arrangements – in statutory guardianship applications, the PGT will manage the incapable person’s property until the application is processed.
- Deferral to act – the PGT may decide to defer all or part of the administration for a short period of time where a replacement is likely and the finances of the client can be dealt with appropriately in the interim.
- Timing – statutory guardianships are often a more difficult route for applicants, as the PGT has more direct access to information, asks more questions and the process generally takes longer.
- Complexity – the time taken to process statutory applications is lengthened by a variety of factors, including self-represented applicants, the administrative process and competing applications.
- Security – security requirements in non-resident applicants are stricter in statutory applications.
- Refusals – the PGT may refuse the statutory application on the broad grounds of there being reasonable grounds to believe the applicant is unsuitable or the management plan is inappropriate. Mr. Moore’s paper cites several other specific grounds that have resulted in applications being denied.
Thanks for reading and have a great weekend,
The objective of an in terrorem clause is to restrict a bequest made in a will, by prohibiting litigating issues relating to the will. If a lawsuit is pursued, the testator’s wish is that the gift not be made. While some types of in terrorem clauses will be upheld, others will be struck down on public policy grounds as improper restrictions on gifts in a will.
Such clauses will be struck down when:
- The gift is of personal property or blended personal and real property;
- The condition is either a restraint on marriage or forbids the beneficiary to dispute the will; and
- The threat must be “idle”, in that the condition is imposed solely to prevent certain behaviour.
In contrast, such clauses will be upheld when:
- They provide for a gift over in the event that the condition is breached; and
- Are not contrary to a public policy objective – a no contest clause cannot preclude all forms of litigation that would entirely remove a court’s jurisdiction e.g. it can restrict a will challenge, but not an action for the interpretation or enforcement of a will; it also cannot restrict a person from seeking dependant support).
For a more fulsome discussion on this topic, which includes consideration of some recent decisions on the issue, I suggest you read Eric Hoffstein and Lisa Filgiano’s paper presented at the Six Minute Estates Lawyer on May 6, 2015.
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There are few court decisions dealing with the issue of payment by mistake of fact. However, this may be in part because there is settled law for the proposition that when a beneficiary receives an inheritance by mistake he/she is obliged to return it to the estate: Cronan Estate v. Hughes, 2000 CarswellOnt 4587, 37 E.T.R. (2d) 27.
In Cronan Estate, the estate trustee redeemed a RIFF and mistakenly thought that the bank had held back appropriate income tax. The estate trustee held back monies for income tax liabilities and expenses and made an interim distribution to each defendant. The amount owing for income tax at the time of trial was in excess of the holdback, with interest and penalties continuing to run.
The court held that the interim distribution was made on a mistake of fact, and that the estate trustee was not aware that there was income tax liability which had not been taken care of by deduction from the proceeds of the RIFF. The estate trustee was therefore an innocent party in making the interim distribution payments. The court also held that the monies ought to be repaid by the beneficiaries equally, unless they were able to show a “counter-veiling equity” to make it unjust to order the return of the monies. Making a significant investment in a vacation property in anticipation of receiving the funds was not considered a counter-veiling equity in that case.
The principle behind this ruling is that, prima facie, it is against equity and good conscience that the party who receives the money should retain it. Although a beneficiary can avoid payment by showing “a countervailing equity” to make it unjust to order the return of the monies, this will likely be decided on the facts of each specific case, and where the party has altered his position to his prejudice or has placed himself in a compromising situation.
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I attended a very helpful CLE yesterday on trial strategies. While a large amount of material was covered addressing preparation for trial, I particularly identified with the following points made by various speakers about events during trial:
- Ensure the tone and style of your presentation suits the case;
- A great advocate is a master story-teller – this doesn’t mean distorting the truth but drawing together a clear, coherent and complete picture that persuades the judge;
- To tell a good story you need to know and keep in mind the theory of your case – this is adapting your story to the legal issues of the case; this appeals to the judge’s logic;
- To tell a good story you need to know and keep in mind the theme of your case – appeal to shared values or common motivations; this appeals to the judge’s heart;
- Consider not doing an agreed statement of fact in certain cases, in order to have persuasive human faces tell your story;
- Examinations in chief are difficult – put your strongest witnesses up first and last;
- Don’t get deflated by judge’s questions that appear to forecast a leaning against your case, the judge usually just needs more information;
- Choose closing arguments made orally, this is more powerful than written submissions;
- In closing argument highlight how the opposing counsel oversold their case in their opening statement;
- In closing argument don’t oversell the evidence – cite it accurately and fairly; and
- Be prepared to constantly re-evaluate your client’s case -don’t get discouraged by the unexpected, remember the big picture.
Have a great weekend!
In wills variation proceedings in British Columbia, the date for determining whether a testator made adequate provision for a claimant is the date of death. However, in Eckford v. Vanderwood the British Columbia Court of Appeal considered the situation where the claimant’s circumstances changed after death, and whether that should impact upon the date to determine sufficiency of support.
In this case, the testator (age 57) and claimant (age 56) were common law spouses. They had a home owned as joint tenants, and on its sale after the testator’s death the claimant received almost $310,000.00. The deceased had other assets with a gross value of about $400,000.00. However, the claimant was not a beneficiary in the testator’s Will (made prior to he and the claimant moving in together).
After the testator’s death, the claimant left her secretarial job due to a lung infection. Various subsequent ailments left her disabled and it seemed unlikely that she would be able to return to work. The claimant pursued a claim under the former Will Variation Act (in Ontario such a claim would be brought under part V of the Succession Law Reform Act (SLRA)).
The judge found that adequate provision was made for the claimant, and the medical problems developed post-death were not reasonably foreseeable to the testator. The judge also concluded that he could not take into account the claimant’s current medical situation. The claimant appealed.
The appellate court agreed with the trial judge. It cited the two-stage process of first determining whether adequate provision was made, and, if adequate provision was not made, then at stage two the court would look at what provision would be just and equitable in the circumstances – the claimant’s current circumstances could be reviewed as part of that process ( the SLRA is similar in effect ).
It was concluded that for stage one the date for determining adequate provision is the date of death, as that is the last opportunity one has to make a will. The circumstances existing at that date are relevant. Also relevant are circumstances that are reasonably foreseeable to the testator at that time, which is a question of fact to be determined in each case. In this case, such a rapid decline in health shortly after the testator’s death was not reasonably foreseeable. Accordingly, the claimant did not pass the first stage of the test.
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At the recent Estates and Trust Summit, Ian M. Hull spoke about the difficult legal consideration of testamentary capacity, and the impact of Narcissistic Personality Disorder (NDP) on one’s soundness of mind.
In Mr. Hull’s paper, the medical information cited refers to persons with NPD as viewing themselves in grandiose terms, believing themselves to be superior to others and viewing others with disdain. They have unrealistic confidence in their ability to realize their grandiose fantasies, denying their weaknesses and displaying anger when their expectations are not met. They have significant impairment in personality functioning (often setting goals based on gaining approval from others) and interpersonal functioning (they are excessively self-attuned), and struggle with intimacy (relationships are largely superficial and exist to serve self-esteem regulation).
There are a few instances in which NPD has come before the courts:
In Verma v. Verma (Guardian ad litem of), a British Columbia Court decision, a person with NPD was found to be incapable of managing their affairs.
In Brammall v. Brammall Estate, another British Columbia Court decision, a person was diagnosed with NPD prior to preparation of a Will. While the testator’s NPD may have contributed to a misinterpretation of his relationship with family members, the court found that it did not amount to a deprivation of testamentary capacity. Nevertheless, the Court intervened on the grounds of a moral duty not to unfairly disinherit his children without good cause.
Aging is problematic for persons with NDP, as they are threatened by the decline in physical attractiveness, intellectual abilities and health. They may also be susceptible to undue influence and manipulation by others given, among other things, their quest for praise and admiration.
This issue will surely arise again in time, and courts will need to carefully examine the evidence to determine whether a Will merely reflects an eccentric, capricious, unfair mind or a mind rendered unsound by the NPD, likely aggravated by old age.
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