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 use of a protector to assist in the administration of a trust was traditionally limited to offshore trusts. However, a protector clause is garnering attention in the USA & Ontario, and is an important clause that estate planners should consider in preparing a will or trust.
Most people are familiar with the office of a trustee – they administer the trust, invest assets, and look out for the best interests of a beneficiary. But, the administration of a trust is no different than life itself – things do not always go as planned. Issues can arise between a beneficiary and a trustee and sometimes between trustees themselves. Before you know it, bickering ensues, litigation follows, and legal costs accrue.
A protector clause, properly drafted, may be useful in avoiding litigation.
A trust protector has been defined as a third party, independent from the trustee and beneficiary, who has the authority to perform certain duties with regard to a trust.
The protector oversees the administration of the trust, looking out for the interests of a beneficiary, and to intervene if necessary. The powers included in a protector clause can vary, but may include the ability to: remove/replace a trustee; oversee investment decisions; resolve deadlock between trustees and between trustees and beneficiaries; and, approve proposed distributions. While a beneficiary may have some of these same abilities, not all beneficiaries are sophisticated enough to know when to speak up or, if they do, end up in lingering and costly litigation.
The use of a protector is not without headaches – do they owe fiduciary obligations to a beneficiary? Do they destroy the role of a trustee?
Nonetheless, as discussed in our prior blog, a protector clause can be a worthwhile feature of a trust or will if litigation is a real possibility. Some have even proposed that every trust should include a protector clause.
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An Ontario Court of Appeal decision released yesterday provides clarity regarding the situations in which beneficiaries of legacies will be entitled to interest on the sum payable to them under a Last Will and Testament.
In Rivard v Morris, the testator had held farmland of significant value. A prior Will left a farm of comparable value to each of his daughters (as the testator had previously gifted a farm property to his son), and divided the residue of the estate equally between the three children. In the months preceding his death, however, the deceased amended his estate plan to provide for a greater benefit to his son, leaving him the residue of his estate (inclusive of the farm properties) after distributions to each daughter in the amount of $530,000.00.
After the testator died, the daughters challenged his Last Will on the basis of alleged undue influence. The will challenge was unsuccessful. The daughters subsequently commenced another proceeding after their brother (the sole remaining estate trustee after their previous resignations) refused to pay to the sisters interest with respect to the legacies of $530,000.00. They argued that they were entitled to interest commencing one year after the date of their father’s death, notwithstanding that the payment had been delayed in part because of the will challenge initiated by the daughters. Any interest would have been payable out of the assets to which their brother was otherwise entitled as sole residuary beneficiary of the estate.
The daughters were unsuccessful at the hearing of their application and appealed. The Court of Appeal found in their favour. Justice Paciocco ordered the payment to each daughter interest in the amount of $53,000.00 out of the residue of the estate. In doing so, Justice Paciocco relied upon the “executor’s year” and the “rule of convenience”. In describing the rule of convenience, Justice Paciocco stated as follows (at paragraphs 24, 25):
The “rule of convenience” can be easily explained, in my view. One of the maxims of equity is that it presumes as being done that which ought to be done. Since the beneficiaries should be enjoying the earning power of their legacies by at least the anniversary date of the testator’s death, where that enjoyment is postponed and the testator has not provided an alternative date for payment of the legacy, interest is to be paid…This general rule has been adopted in Ontario.
The rule of convenience was considered by the Court of Appeal to promote certainty and predictability, and the lower court’s decision to deny the daughters’ interest on the basis that they had commenced litigation against the estate was said to be contrary to principle, as this would have the impact of discouraging “even meritorious litigation”. While the Court of Appeal did neither confirmed nor denied whether judges are able to exercise discretion to deny interest to beneficiaries of legacies, it found that it had been inappropriate for the application judge to do so in this case.
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In Tyrell v. Tyrell, 2017 ONSC 4063, the Ontario Superior Court of Justice was faced with a situation in which the testator died domiciled in Nevis, having drafted a Last Will and Testament which was executed in Nevis, which itself dealt with estate assets the vast majority of which were located in Nevis. The Will named the testator’s sister, who normally resided in Ontario, as Estate Trustee. Letters probate were issued to the Estate Trustee from the Nevis court following the testator’s death.
When concerns arose surrounding the Estate Trustee’s conduct following the testator’s death, certain of the beneficiaries brought an Application before the Ontario court seeking, amongst other things, the removal and replacement of the Estate Trustee, as well as an accounting from the Estate Trustee regarding the administration of the estate to date. The beneficiaries who brought such an Application were themselves located across several jurisdictions; being located in Nevis, Ontario, and New York.
In response to being served with the Application, the Estate Trustee took the position that the Ontario court was not the proper jurisdiction to seek such relief as against the Estate Trustee, maintaining that Nevis, being the jurisdiction in which the testator died domiciled, was the proper jurisdiction in which to adjudicate such disputes. The beneficiaries disagreed, arguing that the jurisdiction in which the Estate Trustee was normally resident was the proper jurisdiction in which such disputes should be adjudicated.
In ultimately agreeing with the beneficiaries, and ordering the Estate Trustee to complete certain steps regarding the administration of the estate within 60 days, the Ontario court provides the following commentary regarding Ontario’s jurisdiction over the matter:
“For the purpose of administering the Will, the most significant connecting factor is the residence of the estate trustee. Therefore, the Will is most substantially connected to the province of Ontario and the applicable law on matters relating to the administration of the Will is the law of Ontario. Thus, the Courts of Ontario have jurisdiction over matters relating to the administration of the Will.” [emphasis added]
The court’s rationale in Tyrell v. Tyrell appears to be in contrast to the Alberta Court of Appeal’s previous decision in Re: Foote Estate, 2011 ABCA 1. Although Re: Foote Estate dealt with a determination of domicile for the purpose of deciding which jurisdiction’s laws would apply in the context of a dependant’s support case, the court provided general commentary regarding what jurisdiction’s laws governed the administration of an estate. Indeed, in the opening paragraph of the Court of Appeal’s decision in Re: Foote Estate, the following comment is made:
“This appeal arises from a trial finding that the late Eldon Douglas Foote was domiciled on his death in Norfolk Island. The domicile of the deceased determines the applicable law for estate administration purposes.” [emphasis added]
Re: Foote Estate appears to suggest that it is testator’s domicile that determines which jurisdiction’s laws are to govern the administration of an estate, making no reference to the location of the Estate Trustee. Tyrell v. Tyrell appears to suggest the opposite, with the court concluding that, notwithstanding that the testator died domiciled in Nevis, the laws of Ontario governed the administration of the estate on account of the Estate Trustee being located in Ontario.
The contrasting decisions of Tyrell v. Tyrell and Re: Foote Estate likely leave more questions than answers. Whether the fact that Tyrell v. Tyrell is a decision of the Ontario court, while Re: Foote Estate is from Alberta (although from the Court of Appeal), could also potentially play a role. An interesting hypothetical would be what would happen if a testator died domiciled in Ontario with an Estate Trustee located in Alberta. In accordance with Tyrell v. Tyrell, notwithstanding that the testator died domiciled in Ontario, the laws of Alberta would apply to the administration of the estate on account of the location of the Estate Trustee. In accordance with Re: Foote Estate however, Alberta law dictates that it is the law of the jurisdiction in which the testator died domiciled which governs the administration of the estate, which could have Alberta send the matter back to Ontario. Confusion abounds.
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Section 61(1) of the Succession Law Reform Act (the “SLRA”) provides that an application for dependant’s support must be made within 6 months from the issuance of the Certificate of Appointment of Estate Trustee (also known as “Probate”).
An application may be made beyond the six-month limitation period, with leave as, s. 61(2) of the SLRA provides the Court with discretion to allow an application to be made by a dependant “at any time with respect to any portion of the estate remaining undistributed at the date of the application”.
Generally, case law has interpreted s. 61(2) to limit any claim made after six months to the remaining, undistributed portion of the estate, and to bar any claim made after the assets have been fully distributed. Paul Trudelle previously blogged on this application of s. 61(2).
The recent decision of the Ontario Superior Court of Justice in Weigand v. Weigand Estate, 2016 ONSC 6201, deviates from this prior case law, in that it grants leave for an application for support, despite the fact that the assets of the estate had already been distributed.
In that case, the Deceased died on May 5, 2013. He was survived by his common law spouse and three children from a prior marriage. The Deceased left a Will, in which he named his common law spouse the Estate Trustee and sole beneficiary of his Estate. The Estate consisted of the matrimonial home, two promissory notes and the Deceased’s bank accounts.
The common law spouse obtained probate on November 5, 2013 and took steps to administer the Estate. Eleven months after the Estate had been fully administered, two of the Deceased’s three children brought an Application for leave to advance their respective claims for dependant support. They alleged to have been misled by the common law spouse and provided Affidavit evidence, which was corroborated by evidence from their grandfather. Specifically, they alleged that the common law spouse had told them she intended to sell the house and distribute the proceeds equally among the Deceased’s children. They relied on her promise, to their detriment, as the home was subsequently transferred into the common law spouse’s name after the limitation period had expired.
In deciding to grant leave, George J, stated that the discretion to extend (or refuse) is a question of what is equitable between the parties, in all the circumstances (para. 32). He stated that it would be wrong to allow the respondent to rely on the fact that she has distributed the Estate as a basis to not grant an extension and that it would be unconscionable to allow her to defeat a claim by virtue of a passed limitation period (para 34). He also reasoned that it was inconceivable that the language used in s. 61(2) was intended to shield administrators who engage in such behaviour (para 34).
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Being a trustee of a trust can be perilous, with trustees facing potential personal liability should they make the wrong decision. As a safeguard against such potential liability, when issues arise in the administration of a trust, trustees may consider commencing an Application for the opinion, advice or direction of the court in accordance with the Trustee Act. Section 60(1) of the Trustee Act provides:
“A trustee, guardian or personal representative may, without the institution of an action, apply to the Superior Court of Justice for the opinion, advice or direction of the court on any question respecting the management or administration of the trust property or the asserts of a ward or a testator or intestate.”
Should the court accept such an Application, and provide the trustees with directions regarding the issue, the trustees are insulated from liability as it relates to the beneficiaries regarding such an issue so long as they act in accordance with the directions of the court. This is made clear by section 60(2) of the Trustee Act, which provides:
“The trustee, guardian or personal representative acting upon the opinion, advice or direction given shall be deemed, so far as regards that person’s responsibility, to have discharged that person’s duty as such trustee, guardian or personal representative, in the subject-matter of the application, unless that person has been guilty of some fraud, wilful concealment or misrepresentation in obtaining such opinion, advice or direction.”
Notably, while section 60(1) of the Trustee Act allows trustees to direct a specific issue for the “opinion, advice or direction” of the court, the court has been clear that on such an Application the court will not exercise discretionary decisions on behalf of the trustees. Such a point was recently made clear by Justice Broad in Keller v. Wilson, where at paragraph 25 the court states:
“The fact that trustees are expressly permitted by the Trustee Act to apply for the opinion advice or direction of the Court does not authorize the court to exercise discretionary powers on behalf of trustees, thereby shifting responsibility from the trustees, on whom the settlor of the trust placed such responsibility, to the court. This is so even though subsection 60(2) of the Trustee Act provides a specific indemnification to trustees who act upon the opinion, advice or direction of the court.” [emphasis added]
Cases like Keller v. Wilson make it clear that on an Application for opinion, advice, or direction, the court will not exercise discretionary decisions on behalf of the trustee, with their jurisdiction to provide directions being limited to questions of a “legal” nature relating to the discharging of the trustees’ duties. To this effect, the court’s direction can be thought of the court advising whether the trustee “can” not “should” do a particular action. While the court will advise whether the trustee has the legal authority to do a particular action, they will not make such a discretionary decision on behalf of the trustee.
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This week on Hull on Estates, Natalia Angelini and Doreen So discuss Deborah Petch’s paper, “Safe Practices: Reducing the ‘Risky Business’ Factor”, which was presented at The Six-Minute Estates Lawyer OBA conference on May 3, 2016”.
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
Estate trustees can have a difficult task ahead of them, especially when it comes to the administration of complex estates. While the following list is not exhaustive, it outlines some questions for individuals to consider when acting as estate trustees.
- How much do you expect to get paid? Estate trustees are entitled to compensation that is a “fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate”. While there is no statutory calculation for trustee compensation, section 62(1) of the Trustee Act allows a judge to determine what is allowed.
- How far do you need go to find beneficiaries? Section 24(1) of the Estates Administration Act requires a trustee to make reasonable inquiries for persons who may be entitled by virtue of a relationship traced through a birth outside marriage. In situations such as an intestacy or where beneficiaries are not specifically named in a will, this can be an onerous task complicated by geography, language and family dynamics. Doreen So previously blogged about searching for beneficiaries here.
- Who needs to be served? When applying for probate, an estate trustee must issue an application to the court and serve all persons entitled to a share in the distribution of the estate. This is governed by the Rules of Civil Procedure. Of note is the provision that if a person entitled to a share is less than 18 years of age, notice of the application is to be served on the Children`s Lawyer. The Children’s Lawyer is also to be served in circumstances involving unborn and/or unascertained beneficiaries.
- When can you start distributing assets? While estate trustees need to be prudent about their distribution responsibilities, there may be factors that prevent the early distribution of estate assets. For example, s. 6(14) of the Ontario Family Law Act prevents the distribution of a deceased spouse`s estate within 6 months of the spouse`s death without consent in writing from the surviving spouse or court authorization.
- What is worth keeping? When it comes to cleaning out a deceased`s papers and personal effects, there may be a fine line between valuable items and junk. In the case of items such as photographs, letters and documents that beneficiaries do not want, do the items have any significance? When items possibly have historic or academic value, estate trustees may consider canvassing options of donation to university archives or libraries.
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An estate trustee must, as soon as possible after the death of the testator, acquaint him or herself with the nature and circumstances of the estate assets and scrutinize all relevant documents that may help ascertain the condition of the estate.
Once the estate assets are ascertained, the estate trustee must take possession or secure the estate assets within a reasonable period of time.
The concern is not simply to realize the assets of the estate but to ensure their preservation and to optimize their value. The nature of this obligation will depend on the nature of the asset. The simpler the asset, the simpler the duty. For instance, there is very little difference between realizing a bank account and ensuring its preservation. For more complex assets, the duty becomes more onerous. For example, the estate trustee will need to ensure that adequate insurance is in place on real property. He or she will need to see to the making of any necessary repairs required to catch the highest sale price. A property manager may have to be engaged if there is an apartment complex (for example) that is required to generate income for a life tenant.
A Company that was a going concern at the time of the testator’s death presents special challenges which demand far more sophistication of the estate trustee. In all likelihood, the choice of estate trustee will have been dictated by his or her familiarity with the Company in question or his or her degree of business acumen. It is not uncommon to see a professional institutional trustee appointed either in such capacity or as co-estate trustee.
David Morgan Smith – Click here for more information on David Morgan Smith.
Yesterday, I blogged on the September 14, 2011 LSUC CLE program entitled “Practice Gems: The Administration of Estates 2011: Avoiding the Pitfalls. This excellent program featured a number of great speakers. The program is being repeated on October 31, 2011, and I highly recommend it.
Another speaker was our own Craig Vander Zee. Craig spoke on the topic of administering an estate where there are claims made against the estate, such as claims for equalization under the Family Law Act, dependant support claims under Part V of the Succession Law Reform Act, or trust claims, such as claims involving jointly held assets, or quantum meruit claims.
Such claims necessarily complicate the administration, and give rise to a number of issues and considerations on the part of the Estate Trustee. Craig’s paper addresses a number of these issues, including the nature of the claim, what procedural steps must be taken to defend the claim, representation and notice to all of the interested parties, limitation periods, and the thorny issue of costs.
Thank you for reading, and have a great weekend.
Paul E. Trudelle – Click here fore more information on Paul Trudelle.