Category: Executors and Trustees
With so much taking place around us now, I forced myself to choose a topic for today’s blog that, although still estates related (this being, after all, an estates blog), allows me to think about something beautiful. I landed on art.
Full disclosure: I have blogged about art and estates before. See here and here for some shameless self-promotion. Without wanting to revisit these topics, I did some searching and was intrigued by this Financial Times article about the Art Loss Register (ALR).
The ALR is the world’s largest private database for lost and stolen art, antiques, and collectibles. Their services are essentially twofold. First, the ALR assists to deter the theft of art by promoting the registration of all items of valuable possession on its database and also the expansion of checking searches. Second, by operating a due diligence service to sellers of art, the ALR operates a recovery service to return works of art to their rightful owners. In addition, the ALR has expanded to negotiate compensation to the victims of art theft and the legitimising of current ownership.
In addition to art dealers, insurers, and museums, the ALR also assists private individuals including beneficiaries and trustees. A trustee who is intending to liquidate art may wish to rely on the ALR to prove title and authenticity, thereby potentially increasing value and mitigating risk of fraud.
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Trustees may be cautious or uncertain when administering trusts, even when the trust deed gives them unfettered discretion in carrying out their duties.
In Ontario, trustees are able to seek advice and directions from the court under section 60 of the Trustee Act and also seek advance approval of various exercises of discretion in administering a discretionary trust. The jurisdiction of the Court to approve the exercise of discretion by trustees was formally recognized in Public Trustee v. Cooper  WTLR 901, a decision of the High Court of Justice in the UK. These orders are often referred to as “Cooper orders”. However, trustees must consider when it is appropriate to involve the Court in decisions that should be made by trustees.
Justice Hart in Cooper outlines instances in which trustees can seek directions from the Court. He states that parties may seek to obtain the blessing of the Court for a “momentous decision” that they have resolved to make in the trust’s life. As long as the proposed course of action is within the proper exercise of the trustees’ powers and where there is no real doubt as to the nature of the trustees’ power, the Court may make a declaration that the trustee’s proposed exercise of power is lawful. The Courts have made it clear that they will not exercise discretionary powers on behalf trustees.
Cooper Orders have been successfully sought in Canada. In Toigo Estate (Re) 2018 BCSC 936, the Trustees of an Estate sought the Court’s declaration that their exercise of discretion was lawful. The deceased created a spousal trust which permitted the trustees uncontrolled discretion to encroach on the capital of the estate in favour of his wife. After his wife’s death, the residue of the estate was to be divided amongst the deceased’s children and grandchildren.
The wife asked the trustees for a significant encroachment. The trustees had uncontrollable discretion to make the encroachment. However, they still wanted the Court’s “opinion, advice or direction” as to whether they should proceed.
The Court held that because of the magnitude of the encroachment, the Court could provide advice on this “momentous decision”. In making the decision, the court asked the following questions:
- Does the trustee have the power under the trust instrument and the relevant law to make the “momentous decision”?
- Has the trustee formed the opinion to do so in good faith and is it desirable and proper to do so?
- Is the opinion formed by the trustee one that a reasonable trustee in its position, properly instructed, could have arrived at?
- Is the Court certain that the decision by any actual or potential conflicts of interest?
Ultimately, trustees need to consider whether it’s suitable in their circumstances to apply to the court for a stamp of approval when taking drastic or “momentous” action.
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On March 30, 2020, Noah Weisberg blogged about the estate trustee’s duty to invest during COVID-19, a time when market fluctuations have become the norm. Today, I consider how pandemic-induced changes in the housing market may impact an estate trustee’s management of real property held by an estate.
Real properties – including primary residences, cottages, and vacation properties – are often some of the largest assets an estate trustee will deal with during the course of their administration of an estate. Unless otherwise stated in the deceased’s will, the estate trustee has a fiduciary duty to sell the estate’s real property for its fair market value and is expected to do so in a timely manner.
However, the exact timing for the market and sale of real property can depend on many factors. It is common for a will to grant an estate trustee the discretion to choose whether to sell or retain assets. As it pertains to real property, this power allows the estate trustee to hold onto a property until such time as they can achieve the best possible sale price on behalf of the beneficiaries. At the same time, the estate trustee needs to be mindful of the costs incurred by the estate in having to maintain the property. Beneficiaries of the estate may also put pressure on an estate trustee to sell the property and convert it to money sooner rather than later.
Like most industries, the real estate market has been impacted by COVID-19. An estate trustee should be attentive to whether recent changes in the housing market make it an ideal or inopportune time to market a particular property for sale, while also bearing in mind the factors described above.
If an estate trustee decides to list a property for sale in today’s uncertain housing market, there are a few things they can do to help protect themselves against future claims from beneficiaries. First, the estate trustee should have the property appraised for its fair market value by a professional appraiser who is an independent third party. For added protection, the estate trustee may want to have the beneficiaries sign off on the property’s price. The estate trustee should also make an effort to keep the beneficiaries apprised of each step of the sale process. Lastly, the estate trustee should take care to keep detailed records of all advice received and steps taken in the event that they need to justify their actions at a later date.
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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.
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There is so much in flux right now due to COVID-19. In the area of estates and trusts though, the obligations that an estate trustee owes to beneficiaries remains stable. During this time, estate trustees need to consider how best to administer an estate, and what they should be doing to limit future claims against them. The purpose of today’s blog is to consider the estate trustee’s duty to invest.
According to section 27(1) of the Trustee Act, “In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments”. This is often referred to as the prudent investor rule. Section 27(5) sets out certain criteria the trustee is required to consider in investing trust property, including, amongst other things, the general economic conditions and the possibility of inflation or deflation.
Given the current market fluctuations, estate trustees need to give invested trust property considered attention. While they cannot be expected to produce resounding returns for the beneficiaries, they can take steps to make sure their investments are prudent in the circumstances and avoid future claims from beneficiaries. These could include claims that the estate trustee failed to properly invest trust assets or that they failed to exercise their discretion.
The estate trustee should consider doing at least four things. First, they should review the terms of the will as to whether there are any specific investment requirements. Second, they should contact their investment advisor to obtain professional advice and share any relevant terms of the will. Third, the estate trustee should ask the investment advisor to put their advice/comments in writing and the estate trustee should hold on to this. Fourth, if the trustee is afforded some sort of discretion (for instance, considering the interests of capital versus income beneficiaries), the trustee should prepare a memorandum to themselves. The memorandum should set out the reasons why they reached the investment decision that they did and the factors they considered, which should include the section 27(5) criteria.
Stay safe and wash your hands,
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Today’s blog is a continuation of yesterday’s discussion regarding the limitations analysis in Piekiut v. Romoli, 2019 ONSC 1190, 2020 ONCA 26. No limitation period was found to apply where an estate trustee was simply seeking a determination and declaration as to whether certain codicils were valid or not valid.
The testators in this case died in 2008. They had 3 children, Helen, Victor, and Krystyna. A meeting took place in 2008 between all 3 children and a lawyer to discuss the administration of the Estate. During this meeting, Krystyna revealed, for the first time, the existence of codicils and declarations of gift that provide her with an interest in certain properties. Helen refused to acknowledge the validity of these new documents.
In 2015, Helen brings a court application. Her application was later amended, on the consent of parties, in 2018 to reflect that Helen was only seeking a declaration in respect of the validity of the codicils. Thus in 2019, Justice Dietrich’s decision was made in the context of Krystyna’s motion for summary judgment to dismiss Helen’s application on the basis that it was statute barred and Helen’s cross-motion for summary judgment on her application. Justice Dietrich found that, since Helen did not ask the court to determine the ultimate beneficiaries of the properties that were subject to the Codicil or to vest such properties in any particular beneficiary or beneficiaries, her application was not barred by the Limitations Act, 2002.
The Court of Appeal agreed with Justice Dietrich. The panel was also of the view that this case is distinguishable from Leibel v. Leibel, 2014 ONSC 4516 and Birtzu v. McCron, 2017 ONSC 1420 because of the consequential relief that was pleaded in those cases. Since the Court of Appeal decision did not go into the details of the relief sought in Birtzu (unlike its description of Leibel), it is helpful to understand the breadth of the Statement of Claim in Birtzu, which sought the following:
- an Order setting aside the Will;
- an Order setting aside the Deceased’s Powers of Attorney;
- an accounting of the entire Estate, as well as all financial transactions undertaken by the Deceased, or on his behalf, or on behalf of his Estate, from the date that the Deceased’s matrimonial home was sold in 2003 to the date of trial;
- Orders for the production and release of financial and medical information;
- an Order reversing all transactions undertaken by the Defendant, either directly or indirectly, without authority or in breach of her authority, or in breach of her fiduciary duties to the Deceased and to his beneficiaries, including the Plaintiffs;
- an Order tracing the property of the Deceased into the property owned by the Defendant, including her home;
- Orders for injunctive relief, including the issuance of a certificate of pending litigation;
- a Declaration that all property held in the name of the Defendant, or part thereof, is held by her for the benefit of the Plaintiffs;
- damages against the Defendant in the amount of at least $400,000.00, for conversion of property, breach of statutory duty, and/or breach of fiduciary duty;
- pre- and post- judgment interest; and
- costs fixed on a substantial indemnity basis, plus H.S.T.
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The main issue on appeal was whether Justice Dietrich was right in finding that the applicant could still ask the court to determine whether certain codicils were valid (or invalid) seven years after death. Justice Dietrich based her limitations analysis on whether this proceeding would fall under section 16(1)(a) of the Limitations Act, 2002 where there is no limitation period in respect of “a proceeding for a declaration if no consequential relief is sought”.
In her reasons, Justice Dietrich distinguished the case before her from the other limitations cases that have applied the two-year, basic limitation period to will challenges: Leibel v. Leibel, 2014 ONSC 4516, Birtzu v. McCron, 2017 ONSC 1420, and Shannon v. Hrabovsky, 2018 ONSC 6593. The case before her was different from Liebel, Birtzu, and Shannon because nothing had been done by the respondent beneficiary to propound the codicils that she had an interest in. If the proceeding was started differently in 2015, by the very beneficiary who has an interest in the codicils, then the estate trustee would have a limitations defence against the beneficiary. Since the beneficiary had done nothing, it remained opened to the estate trustee to commence an application for declaratory relief. Such declaratory relief is “a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs.’ It is restricted to a pronunciation on the parties’ rights” (see para. 46, 2019 ONSC 1190).
The Court of Appeal agreed that there was no limitation period in this case because the applicant did not seek consequential relief in addition to a determination of the validity or invalidity of the codicils. The Will had not been probated and nothing had been done for seven years to resolve the issue.
“In these circumstances, Helen was entitled to seek declaratory relief, simply to establish the validity, or lack of validity, of the codicils – to define the rights of the parties in order to avoid future disputes.”, Strathy C.J.O., MacPherson J.A., and Jamal J.A.
Thanks for reading and more on these limitation cases to follow later this week!
It appears that the Ontario government is taking action to make it easier and more affordable for executors of modest estates to access the courts.
Where the value of an estate is relatively small, the cost of obtaining a Certificate of Appointment (otherwise known as “probate”) can be perceived as too expensive. As a result, an executor (“estate trustee”) of a small estate often administers the estate without the protection of probate. In some cases, people choose not to administer a small estate at all and abandon the assets altogether.
Foregoing probate may lead to roadblocks when administering an estate. Third parties (like banks and persons buying the deceased’s real or personal property) will often require that the estate trustee obtain a Certificate. Probate reassures these third parties of the estate trustee’s authority and protects third parties from liability, as it verifies that the person they are dealing with is authorized to deal with the estate’s assets.
In the past, we have blogged about the Law Commission of Ontario’s efforts on this issue, including the release of a questionnaire to Ontarians who have administered what they consider small estates.
It now looks like the provincial government is looking to address the issue as well. Attorney General Doug Downey recently introduced the Bill 161, Smarter and Stronger Justice Act. If passed, the Act is intended to improve how court processes are administered to make life easier for Ontarians.
Notably, one of the proposed amendments includes allowing for a simplified procedure to make it less costly to administer estates of a modest value.
Right now, the probate process for all estates in Ontario is the same, no matter the size of the estate.
The Smarter and Stronger Justice Act would make amendments to Ontario’s Estates Act to exempt probate applicants from the requirement to post a bond for small estates in certain cases.
Other proposed changes to the Estates Act include safeguards to protect minors and vulnerable people who have an interest in an estate, and to increase efficiency by allowing local court registrars to perform the required estate court records searches, rather than a central court registrar.
It will be interesting to see if the proposed changes will be passed, and how they may encourage more people to apply for probate and administer an estate of lower value.
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One of the ways a Will can be declared invalid is if the court finds that there were suspicious circumstances surrounding the preparation of it. In Graham v. Graham, the Ontario Superior Court of Justice found that significant involvement from the testator/grantor’s child was indicative of suspicious circumstances regarding the preparation of a Will and Power of Attorney (POA).
The testator, Jackie, had four children: Tim, Robert, Christine and Steven.
Jackie suffered from terminal cancer. She was hospitalized from November 22, 2015 to December 7, 2015, and again from December 22, 2015 to December 24, 2015, to receive treatment for severe pain.
In mid-December 2015, Robert’s wife, Tammy, searched for and contacted a lawyer to prepare a Will and POA for Jackie. Tammy obtained a Client Information Sheet (CIS) from the lawyer’s office and completed it herself. The lawyer prepared the documents based on this CIS. At Robert’s request, the lawyer went to the hospital to meet Jackie and have her sign the Will and POA. This was the first time Jackie met the lawyer and saw the Will and POA.
Jackie’s Will named Robert as estate trustee and sole beneficiary of her estate. The POA named Robert as Jackie’s sole attorney for property. Robert’s wife, Tammy, was named as the alternate estate trustee and attorney.
On January 4, 2018, Robert used the POA to transfer Jackie’s house to himself as sole owner. Four days later, Jackie died of cancer.
Tim challenged the validity of Jackie’s Will and POA claiming that they were prepared under suspicious circumstances and that Jackie was subject to undue influence by Robert and Tammy.
- Jackie had been in ill health for a long time prior to her death, so it was reasonable to infer she had chosen to die without a will, until Robert’s involvement.
- Jackie was treated with heavy painkillers on the night and morning of the day she signed the will and POA.
- Robert and Tammy “orchestrated virtually every aspect of the Will and the POA”, which included searching for a lawyer, providing instructions, arranging for the lawyer to meet Jackie, remaining in Jackie’s room for part of the meeting, and taking part in the discussions concerning the Will and POA.
- The drafting lawyer relied entirely on Robert and Tammy to provide him with all of the information concerning the Will and POA.
After finding that suspicious circumstances existed, the burden then shifted to Robert to prove that Jackie had testamentary capacity and that she knew and approved of the contents of the Will and POA. Using the test for testamentary capacity as outlined in Banks v. Goodfellow (1870), the court found that Robert could not establish that Jackie had testamentary capacity. In coming to this conclusion, the court considered the following:
- There was no evidence that Jackie was given the Will or the POA to read or that it was read to her.
- Although Jackie knew where she was living, there was no evidence to indicate that she had any knowledge or understanding of the monetary value of her house.
- It was unclear whether Jackie could do more than repeat what she was told.
- Jackie was confused and/or mistaken in certain beliefs about her son, Tim.
- The medications that Jackie was taking for her pain left her confused and drowsy.
As a result, the Will and the POA were declared invalid.
Graham v. Graham serves as a cautionary tale for adult children who become too involved in the drafting of their parents Wills and POAs. It warns us that the courts view this type of involvement as suspicious. Moreover, Graham v. Graham suggests that physical impairment can impact a testator’s mental state, thus making them vulnerable.
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Ian Hull and Celine Dookie
Earlier this year, Ian M. Hull, Suzana Popovic-Montag, and I were pleased to co-author the Canada Chapter of the 2019 Chambers & Partners Global Private Wealth Guide for the third consecutive year.
The guide provides an overview of the law as it relates to a number of issues relevant to financial planning and estate planning in jurisdictions throughout the world. Specifically, the following topics are covered (among others):
- tax regimes;
- succession laws;
- laws relating to the transfer of digital assets and other assets;
- family business planning;
- wealth disputes;
- elder law; and
- obligations of fiduciaries.
With chapters summarizing the state of the law and related trends in 34 countries, including the United Kingdom, United States, Switzerland, France, and Israel, the guide can be a great resource to be used as a starting point when assisting clients who have assets (or are beneficiaries of assets) in other jurisdictions.
A complete electronic copy of the 2019 Chambers & Partners Global Private Wealth Guide is available here: https://practiceguides.chambers.com/practice-guides/private-wealth-2019. The online version includes a “compare locations” feature, which allows readers to quickly review differences between two or more jurisdictions.
Thank you for reading.