Category: Executors and Trustees
It is not uncommon for a trust or a Will to provide a trustee with broad and unfettered discretion in the administration of the trust or estate. We have previously blogged about the powers and duties of estate trustees, stating that it can be difficult to determine how such discretion should be exercised. Often, a trustee is given broad discretion to encroach on the capital of a trust or estate, for the benefit of a beneficiary. The issue then is: what factors can a trustee consider in determining whether to exercise their discretion to make a capital encroachment?
Broadly speaking, if a trustee is given unfettered discretion by a settlor or testator, the court will only intervene in the trustee’s decision-making if the trustee has exercised his or her discretion on the basis of mala fides, or bad faith. While there are a number of specific factors that a trustee may properly consider, for the purpose of this blog I will focus on one, namely the extent to which a trustee can consider a beneficiary’s income and/or assets.
Where a trustee is being asked to encroach on capital for the benefit of an income beneficiary, the trustee must consider the application of the even hand rule (briefly discussed in this blog). In doing so, a trustee may be tempted to consider the income beneficiary’s financial circumstances, as this information could illuminate how the trustee’s decision may affect the income beneficiary as compared to the capital beneficiary. However, the case law seems to indicate that this would not be a proper consideration.
In Re: Luke,  O.W.N. 25, the court considered whether the income beneficiary, who was also the trustee, should first look to her own financial resources before exercising her power to encroach on capital for her own benefit. The court determined that she did not have to first exhaust her own resources, as the testator had not expressed an intention in his Will that she do so. Similarly, in Hinton v. Canada Permanent Trust Company, (1979), 5 E.T.R. 117 (H.C.), a corporate trustee requested information from an income beneficiary as to the beneficiary’s own financial resources in the context of the trustee exercising its discretion to encroach on capital. Again, the court found that the testator had not indicated an intention in his Will that the income beneficiary’s income should be a factor in determining whether to encroach on capital, and the income beneficiary’s resources were, accordingly, not relevant.
The foregoing principle has been followed in a number of other decisions over the years, thus appearing to support the impropriety of considering a beneficiary’s personal financial resources as a factor in making capital encroachments, absent an intention by the testator in this regard.
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It is that time of the year when media outlets release their “top” or “most popular” lists, like the Time 100.
I came across a rather interesting and topical list the other day called “The Most Obnoxious Celebrity Wills” by Ranker. This particular list features 24 celebrity Wills and I will excerpt some of the notable mentions here:
- Napoleon Bonaparte’s Will was first on the list. Apparently, his Will included a direction for his head to be shaved and for his hair to be divided amongst his friends.
- Harry Houdini asked his wife to hold an annual séance to contact his spirit.
- Philip Seymour Hoffman wanted his son to be raised in three different cities: New York, Chicago, and San Francisco.
- Charles Dickens gave directions for a particular dress code at his funeral.
- Fred Baur, the person who designed the Pringles can, wanted to buried in a Pringles can.
Turns out testamentary freedom is whatever you want to make of it but the enforceability of provisions like these are another matter.
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A critical decision when making your estate plan is deciding who will administer your assets after your demise. Given the importance of appointing someone you trust, some find it to be a painstaking decision, at times complicated for those having loved ones living outside of Canada. The attached article speaks to three things to first consider before naming a foreign executor:
- Bond Requirement – If the executor is a non-resident he/she will generally need to post an administration bond equal to the value of the estate when applying for probate. The process to obtain a bond is time-consuming and costly. Bringing a motion asking the court to dispense with the bond requirement also adds expense.
- Tax Implications – An estate may be deemed to be non-resident for tax purposes as a result of a foreign executor in control. The ensuing added cost to the estate could include losing preferential capital gains and Canadian dividend tax treatments. An estate’s reporting and tax withholding obligations are also increased. Further, even if the estate is considered Canadian, there lies a risk that it will be subject to the tax laws of the executor’s country.
- Practical Challenges — Among an estate trustee’s duties are the obligations to gather the assets, inventory them, preserve them and distribute them. Such administrative tasks take time and are made more challenging when the executor is in another jurisdiction. If there is no trusted local individual, one work-around is to appoint a professional trust company, which has the added bonus of eliminating the bond requirement and tax risks noted above.
It may be prudent depending upon one’s individual circumstances to get the comfort of legal advice on the issue.
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Applications to pass accounts are unique as civil proceedings go. The nature of the inquiries being made by the Court, the relief that a judge is empowered to grant, and the procedural considerations that apply are all features that distinguish applications to pass accounts from other civil applications. Procedural considerations in particular have garnered some notoriety recently as a result of several notable decisions released in the past few years. The recent decision of the Court of Appeal for Ontario (then sitting as the Divisional Court) in Wall v Shaw, 2018 ONCA 929, provides some clarity to a few of the loose ends.
In Wall, the Deceased died leaving a Will naming the appellant as estate trustee and which created two testamentary trusts for the benefit of her two children. The Deceased’s nieces and nephews were also named as contingent beneficiaries in the event that both children died before vesting in the trust property.
The estate trustee acted for more than 10 years, but never formally passed his accounts. Instead, the estate trustee held frequent informal meetings with the Deceased’s children to review the administration of the estate and to discuss the estate trustee’s compensation.
A dispute between the Deceased’s daughter and the estate trustee relating to the latter’s compensation eventually led the daughter to bring an application seeking an order compelling the estate trustee to pass his accounts.
The estate trustee subsequently commenced an application to pass accounts in March 2015. In June 2015, the Deceased’s daughter filed a notice of objection to the accounts, followed in January 2016 by a notice of objection delivered by two of the Deceased’s nieces.
In response, the estate trustee brought a motion seeking to strike out the objections of the daughter on several grounds. Notably, the estate trustee took the position that the daughter’s approval of the accounts at the informal meetings constituted acquiescence of the estate trustee’s conduct. In the alternative, the estate trustee argued that the daughter’s objections were now statute-barred pursuant to sections 4 and 5 of Ontario’s Limitations Act or barred by the doctrine of laches.
The estate trustee was unsuccessful at first instance on all three grounds, but only chose to appeal the first ground. Specifically, the estate trustee argued on appeal that the judge at first instance had erred in refusing to apply the two-year limitation period under section 4 of the Limitations Act. The appeal was dismissed, and the reasons on appeal provide some procedural clarity in respect of the interplay between limitation periods and passings of accounts.
Section 4 of the Limitations Act generally provides that a “proceeding” cannot be commenced in respect of a “claim” if more than two years have elapsed since the date the claim was discovered. The Court of Appeal took issue with each of the quoted terms.
Notably, the held that a notice of objection does not commence a “proceeding” for the purposes of section 4 of the Limitations Act. Rather, a notice of objection ought to be viewed as a response to a proceeding that has already been commenced, being the application to pass accounts. The Court also pointed to its prior ruling in Armitage v The Salvation Army, in which it was held that an application to pass accounts was not a “claim” pursuant to section 4 of the Limitations Act. Accordingly, it followed that a responding objection raised in that application could also not constitute a claim.
Finally, the Court highlighted an important distinction between applications to pass accounts and other civil applications. Unlike a traditional civil claim, the Court in an application to pass accounts is not tasked with awarding judgment in favour of one party or the other. The purpose of an application to pass accounts to is initiate a “judicial inquiry” into the management of an estate and, if appropriate, provide redress to the estate, rather than to the beneficiaries personally.
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The recent decision of Re Milne, 2018 ONSC 4174, has caused a lot of discussion among estate planners and litigators. As a recap, in that decision, Justice Dunphy of the Superior Court found that multiple Wills were invalid where so-called “basket clauses” in the Wills provided the Estate Trustees with the discretion to determine which estate assets fell under which Will. The Court found the Wills to be invalid on the basis that Wills are a form of trust and therefore must meet the requisite three certainties of a valid trust (see our blog on the decision here). The decision is now under appeal and many are eagerly awaiting the outcome.
In the interim, estate planners and litigators should be aware of the recent decision of Re Panda, 2018 ONSC 6734, which directly addresses and declines to follow Re Milne.
Like in Re Milne, probate was sought for a Primary Will where a Secondary Will was executed which contained a different, but substantively similar, basket clause allowing the Estate Trustee of the Will to essentially determine which assets fell under the Primary Will and which assets fell under the Secondary Will. The application for probate came before Justice Dunphy who refused to grant probate. A motion for directions was then heard by Justice Penny who carefully analyzed the decision of Re Milne before granting probate.
The Issues in Re Panda
Justice Penny analyzed one procedural issue and two substantive issues, being:
- whether, on an unopposed application for a certificate of appointment as estate trustee, it is appropriate to inquire into substantive questions of construction of the will or whether the inquiry is limited to “formal” validity of the will for purposes of probate [the procedural issue];
- whether the validity of a will depends upon the testamentary instrument satisfying the “three certainties” which govern the test for the valid creation of a trust; and
- whether, apart from the questions of the validity of the will itself, a testator can confer on his or her personal representatives the ability to decide those assets in respect of which they will seek probate and those in respect of which they will not.
Probate vs. Construction
Unlike Justice Dunphy in Re Milne, Justice Penny found that at the stage of determining whether to grant or deny probate, a Court must determine only whether the document presented is a Last Will and Testament. The formal requirements under the SLRA must be met and it must be determined whether the document is testamentary in nature (i.e. disclosing an intention to make a disposition of the testator’s assets on death). Beyond that, Justice Penny found that broader questions of interpretation, including the validity of the conferral of authority to decide under which Will property will fall, should be addressed separately as matters of construction, not on probate applications.
A Will is Not a Trust
Justice Penny also disagreed that a Will was a form of trust such that a Will requires certainty of intention, object, and subject-matter. As stated by Justice Penny, “A will is a unique instrument. A will shares some of the attributes of a contract and some of the attributes of a trust but it is neither; a will is its own, unique creature of law.”
Validity of Estate Trustees’ Authority to Determine Which Assets Fall Under Which Will
With respect to the final issue, Justice Penny found that such a question involves the issue of the construction of a particular instruction to or power conferred in the Wills to the estate trustees. Justice Penny therefore found that it would be inappropriate to make any determination as to the scope and validity of the basket clause found in the Wills as such issues were not before him on the Application for Probate; however, in obiter, Justice Penny went on to note that it was not clear how the basket clauses in issue were “any more extreme or ‘uncertain’ than other, well-established discretionary choices frequently conferred on and exercised by estate trustees.”
Until the determination of the appeal of Re Milne is in, the decision in Re Panda may provide some comfort to practitioners worried about the implication of Re Milne.
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In the Estate of Divina Damm the Court answers the following question – what form of accounts must a guardian of property use when filing an application to pass accounts?
The facts in Re Damm Estate are not remarkable. A guardian of property commenced an application to pass accounts in accordance with Rule 74.18 of the Rules of Civil Procedure seeking court approval of her accounts. No objections arose with respect to the accounts, such that the guardian proceeded to file the application ‘over the counter’ as an unopposed application to pass accounts.
Notwithstanding that there were no objections, the Court refused to approve the accounts. The Court was concerned with the lack of detail and itemization in the entries, as well as the failure to comply with Rule 74.17. The judge tried to “…link all numbers listed in the draft judgment with information presented in the accounts but [was] unable to do so – because the accounts are not in proper form”.
Interestingly, the judge considered whether smaller estates should be permitted to file accounts in a simple format, but noted that it was for the Legislature and the Rules Committee to consider.
Accordingly, the Court directed the guardian to re-serve and re-file the accounts prepared in compliance with Rule 74.17.
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A recent decision from the Royal Court of Jersey was recently discussed here with respect to a beneficiary’s right to disclosure from a trust. This blog by lawyers from Ogier is an insightful read on this particular area of trust law.
According to the authors at Ogier, M v W Limited and Others was a case that considered a beneficiary’s broad request for documents, such as copies of all trust instruments, latest accounts, financial statements for the corporations owned by the trust, and details about all past distributions from the trust. While Court’s decision was grounded in an interpretation of the relevant Jersey legislation, some of its commentary remains instructive for those of us who practice outside of Jersey.
In M v W Limited and Others, the nature and immediacy of the beneficiary’s interest is salient to the inquiry. For example, a contingent beneficiary may not be entitled to as much disclosure as a beneficiary who is entitled to the assets of the trust at that point in time. By extension, it is also relevant to consider whether the disclosure at issue would negatively affect another class of beneficiaries as well as the proportionality of the request.
As for the law in Canada, I have blogged on a recent Supreme Court of Canada decision about a trustee’s duty to disclose the existence of a trust to the beneficiaries. Justice Brown for the majority in Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, has stated the following at paragraph 19,
“In general, wherever “it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence,  the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust.”
This notion of whether a beneficiary would be unreasonably disadvantaged by the non-disclosure is important to keep in mind because the right to disclosure is grounded in a beneficiary right to hold trustees accountable and to enforce the terms of the trust.
Practically speaking, issues of disclosure often leads to a request for the trustee to commence an application to pass accounts. While the trustee will have the benefit of a court order approving his/her administration for that period (if and when Judgment is obtained), an application to pass accounts must be served on all beneficiaries with a contingent or vested interest pursuant to Rule 74.18 of the Ontario Rules of Civil Procedure. In turn, these beneficiaries will have the right to object to the trustee’s accounts and seek relevant disclosure from the trustee in the course of this process.
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A recent Superior Court of Justice decision illustrates the test to be met where one is alleging that an attorney for property should be removed.
In Crane v. Metzger, 2018 ONSC 5382 (CanLII), Ms. Metzger was determined to be incapable of managing her property. While capable, she appointed her brother, Mr. Cason, as attorney for property. Her daughter, Ms. Crane brought an application to remove Cason as attorney, and to have Crane appointed as guardian. Crane alleged impropriety on the part of Cason.
In determining the application, the court set out the test for removal. Citing the decision of Teffer v. Schaefers, 2008 CanLII 46929 (ON SC), the court stated that the courts have generally taken the view that a written power of attorney made at the time when the donor was of sound mind is simpler to deal with and gives the donee more flexibility in dealing on behalf of the donor. Continuing with the appointment respects the wishes of the donor. Thus, in order to set aside the power of attorney, “There must be strong and compelling evidence of misconduct or neglect on the part of the donee duly appointed under an enduring power of attorney before a court should ignore the clear wishes of the donor and terminate such power of attorney.”
The court summarized the test for removal as follows:
- There must be strong and compelling evidence of misconduct or neglect on the part of the attorney before a court should ignore the clear wishes of the donor, and
- The court must be of the opinion that the best interests of an incapable person are not being served by the attorney.
In Crane, Crane submitted a “lengthy list of grievances” in her affidavit materials. These grievances, while not fully enumerated in the decision, were apparently answered by Cason in his affidavit materials.
The court concluded that Cason was doing the best he could in the circumstances. There was no evidence of financial mismanagement, and Cason’s accounts were in order.
In dismissing the Application, the court also focused on two incidents where Crane acted improperly, which were said to seriously affect her credibility: one where Crane said that she was taking her mother to Wasaga Beach, but in fact took her to Seattle (and thereby putting her and her property at risk), and another where Crane took her incapable mother to the bank to withdraw $10,000. These two events “make her position untenable. … For these reasons, where there is a conflict between the evidence of the parties, I accept Mr. Cason’s evidence and reject that of Ms. Crane.”
The test for removal of a properly appointed attorney is a difficult one to meet. Further, the alternative, being the appointment of a guardian, must be compelling. The best interests of the incapable will be an overriding consideration.
Have a great weekend.
Many people make a will with careful thought and planning as to how their assets will be distributed. Usually, though, a will only disposes of valuable assets: money (of course), real estate, investments, etc. A person can never fully account for all their possessions, however. As a result, we often see Estate Trustees struggling to determine the best way to manage and distribute the various items that a person may leave behind. Estate sales can provide an effective way of handling those belongings.
An estate sale often (though not always) occurs following a person’s death where all of the possessions of that person are placed for public sale. Often, this can take place in the home of the person’s whose estate is being sold, though online auctions are also popular these days. Usually, professionals are engaged to take care of the estate sale. These professionals will assist in inventorying, pricing, and managing the sale. The goal for many is to maximize the value of the estate, an important consideration for Estate Trustees.
For family members and loved ones, however, an estate sale also offers a way of attending to the often overwhelming and potentially guilt-inducing taskof disposing of a the deceased’s belongings. For some, handing this task over to professionals can be immensely helpful. Consider, for example, this recent story out of Alberta of an estate sale of the assets of a woman who had amassed a spectacular collection of approximately 20,000 antiques. The deceased’s daughter was able to sift through her late mother’s collection, take items of sentimental value, and then hold an estate sale for the remaining thousands of items.
For those who are pondering what might happen totheir personal effects following their death, they might want to consider disposing of items before death. Many parents might naturally expect their children to take the parents’ belongings after death and make use of them As discussed in this New York Times article, however, the tradition of passing along heirlooms from generation to generation is losing popularity. Holding an estate sale long before death (say when moving homes) can allow a person to have some say in the disposition of assets while also generating funds for their own enjoyment.
For anyone interested in holding an estate sale, it is important to do your research and find a reputable company able to take on this important task.
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The death of the Queen of Soul, Aretha Franklin, on August 16 sent reverberations through Motown and the music industry as a whole. However, equally as shocking to estates law practitioners is the fact that Franklin died intestate, that is, without having executed a valid Last Will and Testament.
Reports have emerged that Franklin died leaving an estate valued at approximately US$80 million. Notwithstanding the insistence of her longtime lawyer to take proper estate planning steps, Franklin’s estate will now likely be distributed in accordance with Michigan intestacy laws rather than in accordance with her wishes. As Franklin died leaving four children and no surviving spouse, a cursory review of applicable authorities in Michigan suggests her estate will be distributed equally amongst her children, as would be the case under Ontario intestate succession laws.
With that said, the fact that Franklin died intestate means that the courts will now be tasked with the appointment of a personal representative to consolidate and distribute the assets of her estate and attend to the payment of any liabilities. In Ontario, where an individual dies intestate, the court is empowered to appoint an Estate Trustee without a Will pursuant to section 29(1) of the Estates Act. While the appointee is entitled to seek professional assistance from lawyers, accountants, and certain other professionals to provide assistance, the administration of an estate, particularly one as large as Franklin’s, can be burdensome especially if the trustee is unsophisticated.
The size of Franklin’s estate will also likely lead to all manner of creditors coming out of the woodwork to stake their claim and create further headaches for the eventual executor. As was the case with other celebrities who died intestate, the chaos that will presumably result is likely to be well-publicized in the media, notwithstanding the wishes of Franklin’s close family. A well-crafted estate plan, including the selection of a willing and competent executor to administer the estate, may very well have allowed the administration of Franklin’s estate to remain largely private. If recent history is any indication, that is no longer likely to be the case.
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