Category: Executors and Trustees
What’s an Estate Trustee to do when faced with a situation in which an individual has threatened to bring a claim against the estate but has not yet actually taken any formal steps to advance the claim. As Estate Trustee you have certain obligations to the beneficiaries of the estate, including seeing to the administration in a timely manner. An Estate Trustee also has obligations to the creditors of the estate however, and needs to ensure to that all debts of the estate are paid prior to distributing the estate to the beneficiaries. If they fail to do so, the Estate Trustee could face potential personal liability to the creditors of the estate.
An active claim being commenced against the estate can significantly delay the amount of time it takes for an estate to be administered, as the Estate Trustee cannot see to the final administration of the estate while the claim remains active as they must ensure that there are requisite funds in the estate to satisfy any damages award should the estate ultimately not be successful in the claim. The same is also true for a claim that has been threatened against the estate, as the Estate Trustee may be apprehensive to distribute the estate in the face of a claim possibly being commenced for the same reason. When faced with a such a threatened claim the Estate Trustee could be put in a difficult dilemma, for on the one hand they wish to administer the estate in a timely fashion to the beneficiaries and there is no active claim that has been commenced that would otherwise stop them from doing so, yet because of the threatened claim they may be reluctant to do so for fear of their own potential liability should the claim later be commenced after the funds have been distributed. When faced with such a situation the “Notice of Contestation of Claim” could become the Estate Trustee’s new best friend.
At its most basic the Notice of Contestation of Claim provides a mechanism by which a Estate Trustee can require the potential claimant to formally advance their claim against the estate failing which they are deemed to have abandoned the claim. The “Notice of Contestation of Claim” process is governed by sections 44 and 45 of the Estates Act. If a potential claimant is served with a Notice of Contestation of Claim they are provided with 30 days to issue a “claim” pursuant to the Notice of Contestation of Claim, failing which they are deemed to have abandoned the claim. The 30 day deadline may be extended up to a maximum of three months by the court if the claimant should seek such an extension.
The process by which a Notice of Contestation of Claim is issued is governed by rule 75.08 of the Rules of Civil Procedure, providing the form (Form 75.13) that the Notice of Contestation of Claim must be in, as well as the steps that the claimant must follow to bring their claim before the court upon being served with the Notice of Contestation of Claim should they intend to pursue the matter.
Through the Notice of Contestation of Claim an Estate Trustee can force a potential claimant to make a decision regarding whether they intend to bring a claim against the estate. If the potential claimant does not take the appropriate steps following being served with the Notice of Contestation of Claim their potential claim is deemed to be abandoned and can no longer be pursued before the court, with the Estate Trustee being theoretically free to proceed with the administration of the estate.
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The Ontario Court of Appeal recently set aside an order committing an estate trustee to 15 days in jail, to be served on weekends, for contempt of an order requiring the estate trustee to pass his accounts.
In Ross v. Ross, 2019 ONCA 724 (CanLII), the estate trustee was a lawyer, 73 years of age, with no prior convictions or findings of contempt. At the time of the appeal, the estate trustee had purged his contempt.
At the hearing below, the judge found that the contempt arose from “a failure to understand and appreciate or to ignore the need for, and importance of, complying with the order within the specified time or within a reasonable time.” The Court of Appeal held that this finding meant that the estate trustee’s actions did not amount to a callous disregard for the court’s authority. Accordingly, a jail sentence was not appropriate.
For other cases on contempt and sentencing, see our blog, here and here. In the first blog, reference is made to a case where an 88 year old litigant with health issues was sentenced to 30 days in jail for contempt. In the second blog, we discuss a case where an attorney for property failed to pass accounts as required by court order. He was fined $7,000.
Finally, consider the case of Canavan v. Feldman, 2004 CanLII 4787 (ON SC). This was a claim by an estate trustee against his former lawyer. There, the estate trustee, 67 years old, spent 35 days in jail for contempt of court orders relating to a passing of accounts, and was only released when new counsel put further evidence before the court. The estate trustee’s prior lawyer had consented to an order of contempt without the estate trustee’s knowledge. The lawyer told the estate trustee that he had “nothing to worry about”. At a sentencing hearing, the lawyer did not attend. The estate trustee was sentenced to 6 months in jail. The estate trustee was awarded general damages of $200,000 and punitive damages of $100,000 against his prior lawyer.
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A common question encountered by estate practitioners is what happens if an estate trustee dies before completing the administration of an estate. In today’s blog, instead of focusing on the devolution of executorship, I look at procedural steps that can be taken to confirm the authority of surviving estate trustees, where one of multiple appointed estate trustees dies, during the administration of the estate.
In such an instance, the surviving estate trustees may experience difficulty in completing the administration of the estate, if third-party institutions require the consent and approval of each jointly appointed estate trustee listed in the Certificate of Appointment of Estate Trustee with a Will.
If this occurs, there is a fairly straightforward procedure for “confirming” the authority of the surviving estate trustees. This process is governed by Rule 74.14.2 of the Rules of Civil Procedure. This rule applies if:
- there has been a change of estate trustees as a result of: (a) a devolution of executorship on the death of an estate trustee with a will, (b) the death of an estate trustee, if one or more surviving estate trustees continue to be authorized to act, (c) a court order, or
- there has been no change of estate trustees.
The Rules set out that the confirmation of the status of a person as an estate trustee may be obtained by making a written request to the registrar of the court that issued the applicable certificate of appointment for a court status certificate providing confirmation.
In the example provided above, where the request for the status certificate results from the death of another estate trustee appointed by the same certificate of appointment, the request must be accompanied by an affidavit confirming the death of the estate trustee and the circumstances under which the surviving estate trustee(s) continues to be authorized to act, including proof of death of the deceased estate trustee.
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Earlier this year, the Ontario Court of Appeal considered the issue of an estate’s entitlement to the residual assets of a partnership upon the death of its sole limited partner.
Canadian Home Publishers Inc. v. Parker, 2019 ONCA 314, is a lawsuit between the general partner and the Estate Trustees of the deceased limited partner, David. Canadian Home Publishers Inc. was incorporated when Lynda and David decided to purchase Canadian House and Home magazine in 1985. Lynda and David were married at the time. The corporation was owned by Lynda as the sole general partner and by David as the sole limited partner. It was their intention that Lynda would run the company as her own business and David would make use of its tax losses.
The couple later divorced in 1991. Litigation ensued and there was a previous decision about the nature of the parties’ oral partnership agreement in the ’90s. David dies in 2012. By the time of his death, David had received over $26 million from his interest as the limited partner. The magazine itself was valued at over $50 million. Lynda, as the general partner, sought a declaration that 1) the limited partnership was dissolved upon David’s death, and 2) that David’s Estate was only entitled to a share of the profits to the date of his death and a repayment of his remaining capital contribution (i.e. that the Estate was not entitled to share in the residual value of Canadian Home Publishers).
The lower court found that 1) the limited partnership was indeed dissolved upon David’s death and 2) that David’s Estate was entitled to an equal share of the residual value of Canadian Home Publishers with Lynda. While the Court of Appeal upheld the finding that the limited partnership was dissolved on death, the second finding was overturned and the Estate was limited from any additional benefit over above its share in profits as of the date of death and a return of capital.
The Court’s analysis provides a helpful description of the differences between limited partnerships and ordinary partnerships. A limited partner is meant to be a passive investor whose exposure to liability is limited to the extent of his or her capital contribution unless otherwise provided in the Limited Partnerships Act (see paras. 20-21). A limited partner has no broader right to participate in the upside of the limited partnership, just as the limited partner has no broader obligation to suffer or contribute in the downside (para. 25).
Since we are talking about House & Home, here is a recipe from their website for pineapple honey ribs 🙂
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There is no shortage of complications, stress and potential expense that can occur when a will cannot be located following a party’s death. This is particularly true in Ontario, where the law provides for a presumption of revocation with respect to lost wills: namely, a will will be presumed to be revoked by destruction when the original will cannot be located after the death of the deceased.
Pursuant to Rule 75.02 of the Rules of Civil Procedure, the validity and contents of a will that has been lost or destroyed must be proved by way of an Application before the Court. As the Ontario Court of Appeal held in Sorkos v Cowderoy,  O.J. No. 3652, a party who seeks to prove a lost will bears the onus to prove due execution of the will; provide particulars tracing possession of the will to the date of the testator’s death; provide proof of the contents of the will; and rebut the presumption that the will was destroyed by the testator with the intention to revoke it.
As we have blogged on previously, will registries are a mechanism which may help parties avoid a missing will debacle altogether. One such registry is the new Canada Will Registry, launched this past May 2019 by NoticeConnect. While NoticeConnect has previously specialized in assisting estate practitioners and trustees to advertise for creditors, and to publish notices looking for missing wills, their blog advises that the development of the Canada Will Registry will aim to provide a comprehensive, Canada-wide system for finding wills.
According to the NoticeConnect website, the Canada Will Registry will enable lawyers and firms to upload the basic information about wills they are storing, and to organize, transfer and receive related digital records. Once the Canada Will Registry amasses 100,000 wills, the program will enable the ability for will searches to be submitted.
When someone is searching for a will, NoticeConnect will publish a Knowledge of a Will notice and its system will compare and cross-reference the search terms against the system’s registered wills. If the terms match with a registered will, the registry will notify the registering firm or company, and provide them with the searcher’s contact information. The platform is used by lawyers, trustees, banks, and government.
It will be interesting to see how technology will continue to develop and assist the legal community, and how effective the advancement of will registries will be in combating the challenges of lost or missing wills.
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I noticed a rip in a twenty dollar bank note in my wallet the other day. I was struck by the rip because Canadian bank notes are now made with a polymer that is meant to last longer than paper bank notes. The idea that money can be accidentally damaged is a potential issue for estate trustees who are charged with the responsibility of gathering and preserving the assets of an estate until it’s distributed to the beneficiaries.
Luckily enough, The Bank of Canada has a policy on contaminated or mutilated bank notes. Under certain circumstances, The Bank of Canada will redeem bank notes that have become contaminated or mutilated beyond normal wear and tear and issue the claimant with replacement bank notes. The Bank of Canada will carefully scrutinize each note and the circumstances of each claim in order to determine whether the claim is legitimate.
According to The Bank of Canada, a claim will be rejected if it is their opinion that:
- the identity of the claimant cannot be substantiated;
- the notes are counterfeit or there are reasons to believe that the notes were acquired or are connected to money laundering or other criminal acts;
- there has been an attempt to defraud the Bank or there exists contradictory or improbable explanations about significant aspects of the claim, such as how the notes were damaged or how they came into possession of the claimant;
- any of the security features of the notes have been removed or altered or where the notes have otherwise been altered or damaged deliberately or in a systematic fashion, including dyed or chemically washed or treated, by a process that could be reasonably expected to have the effect of altering them.
While this particular problem might seem unlikely to occur, our blog has covered past instances where cash was found to have been destroyed. There is also a very thorough wikiHow on how to replace damaged currency in the U.S. with some practical tips for worldwide application, such as tips on how to package and deliver the damaged currency to the appropriate authorities.
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Were you recently appointed as Estate Trustee and needed to obtain a Certificate of Appointment of Estate Trustee (otherwise known as “probate”)? In that case, you need to know that an Estate Information Return must be filed with the Ministry of Finance within 90 days of the date of the appointment, setting out the assets in the Estate and their corresponding date of death values.
Typically when an Application for Certificate of Appointment is filed with the Court, a trustee may not have access to every asset of the Estate such that that the value of the Estate may not necessarily be accurate.
As a result, when an Estate Information Return is filed following the Certificate of Appointment being granted, all of the assets of the Estate must be listed. Depending on the values of the assets as confirmed by the trustee following the Certificate of Appointment being granted, a refund may be issued in the event that Estate Administration Tax was overpaid or additional tax may be payable in the event that the value of the assets as listed on the Application is lower than what was listed on the Estate Information Return.
The Estate Information Return may be audited by the Ministry of Finance for up to four years after it is filed. As such, it is important to retain all relevant records in the event of such an eventuality. Another important consideration is that the Ministry of Finance will not typically provide confirmation of receipt of an Estate Information Return so it is prudent to send it via means that would provide you with confirmation of delivery such as fax.
Finally, if a trustee finds out any additional information regarding the value of the assets of the Estate that has any bearing on the Estate Administration Tax payable, an amended Estate Information Return must be filed within 30 days of the new information being uncovered.
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When is it appropriate for a court to reduce estate trustee compensation? The Supreme Court of Nova Scotia addressed this issue in Atlantic Jewish Foundation v Leventhal Estate (“AJF”).
Before getting into the AJF decision, it is worthwhile to include the caveat that determination of estate trustee compensation in Ontario (a summary of which can be found in my paper here) differs somewhat as compared to Nova Scotia. Nonetheless, both provinces use 5% of the value of the estate, subject to the discretion of the court, as the starting point in determining the quantum of compensation. As such, AJF remains informative in Ontario.
The deceased left a Will naming his friend, who was also a lawyer, as his Estate Trustee. AJF was named as the residuary beneficiary. The Will was silent as to estate trustee compensation. As the estate was valued at over $15 million, the Estate Trustee sought compensation in the approximate amount of $896,000, being 5% of the gross adjusted value of the estate. AJF maintained that the amount was excessive and proposed compensation in the amount of $300,000.
In determining how much compensation the Estate Trustee should be entitled to, and applying an approach similar to Ontario’s ‘five factors’, the court made the following observations: the level of responsibility is often greater for higher value estates; the increasing level of responsibility does not necessarily rise in direct proportion to the size of the estate; the Estate Trustee arranged and supervised the funeral and burial, which was mainly handled by telephone; the Estate Trustee acted promptly in selling the house; many of the assets were already in the form of cash, and the Estate Trustee knew the banks the deceased used; the Estate Trustee was diligent, wise and prudent and had to be a hands-on executor; the Estate Trustee made no mistakes; a large part of the estate was made up of investments that were readily converted into cash for distribution; and, the estate was larger rather than complex.
The court noted that 5% should be reserved for estates where there are complicating features that require more than wise and careful planning to maximize the value of the estate. Therefore, the court awarded compensation in the amount of $450,000, being slightly more than 50% of the maximum amount that could be awarded. A larger amount of compensation would have the effect of reading into the Will a bequest to the Estate Trustee that the deceased did not intend to make.
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The requirement to post a bond can be found in section 35 of the Estates Act. An Estate Trustee will be required to obtain an administration bond in instances including where: the deceased passed away without a will; the will does not name the applicant seeking to be appointed; or, the Estate Trustee resides outside of Ontario.
The amount of the bond is to be double the sworn value of the estate. However, practice has developed (see D’Angelo Estate) such that the size of the bond has been reduced to the sworn value of the estate.
While section 36(1) of the Estates Act sets out specific instances where security is not required, it is section 37(2) which gives the court the general power to reduce the amount of the bond or dispense with it altogether. In the helpful decision of Henderson (Re), the court indicates that the applicant Estate Trustee who seeks an order dispensing with the requirement to post a bond, should file affidavit evidence in support, containing the following:
- The identity of all beneficiaries of the estate;
- The identity of any beneficiary of the estate who is a minor or incapable person;
- The value of the interest of any minor or incapable beneficiary in the estate;
- Executed consents from all beneficiaries who are sui juris to the appointment of the applicant as estate trustee and to an order dispensing with an administration bond should be attached as exhibits to the affidavit. If consents cannot be obtained from all the beneficiaries, the applicant must explain how he or she intends to protect the interests of those beneficiaries by way of posting security or otherwise;
- The last occupation of the deceased;
- Evidence as to whether all the debts of the deceased have been paid, including any obligations under support agreements or orders;
- Evidence as to whether the deceased operated a business at the time of death and, if so, whether any debts of that business have been or may be claimed against the estate, and a description of each debt and its amount;
- If all the debts of the estate have not been paid, evidence of the value of the assets of the estate, the particulars of each debt – amount and name of creditor – and an explanation of what arrangements have been made with those creditors and what security the applicant proposes to put in place in order to protect those creditors.
Applicants should make sure to address each of these factors when applying to dispense with an administration bond.
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We have previously blogged on the various ways that an estate trustee may be removed and/or replaced. Examples include scenarios where an estate trustee dies in the midst of administering an estate, or renounces from his or her position, or where an estate trustee is removed by court order.
Ontario legislation provides guidance for beneficiaries and estate trustees in the aforesaid circumstances. Ontario legislation does not, however, specifically address what to do if an estate trustee is deemed mentally incapable to administer an estate, either before or after probate is granted. For more information on what mental incapacity is, and how to address mental incapacity, click here.
If an estate trustee is deemed mentally incapable, the first question to consider is how far along they were in the administration of the estate.
If the estate trustee has not yet applied for a certificate of appointment of estate trustee with a will (hereinafter referred to as the certificate of appointment of estate trustee), then another person may apply for a certificate of appointment of estate trustee in their place. A person acting under a valid continuing power of attorney for property for the mentally incapable estate trustee may renounce and consent (as appropriate) for the estate trustee. If the incapable individual has not appointed an attorney for property, then their statutory or court appointed guardian assumes this responsibility. Where the will names an alternate estate trustee in the event the estate trustee is unable to act, the alternate should be contacted to discuss whether they are willing and able to assume this role.
In circumstances where an estate trustee has been declared mentally incapable of administering an estate after the certificate of appointment of estate trustee has been issued, any person appearing to have a financial interest in the estate may bring a notice of application for the removal and replacement of the estate trustee. Again, the incapable estate trustee’s power of attorney or statutory or court appointed guardian would likely be involved in this process. Once a court order for removal and replacement is obtained, the replacement estate trustee may apply for a Court Status Certificate of Appointment of Estate Trustee with a Will pursuant to Rule 74 of the Rules of Civil Procedure.
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