A recent blog by Hull & Hull LLP, found here, highlights the methods that Estate Trustees may use in advertising for creditors. Such options included advertising in local newspapers, the Ontario Gazette, and online services. A recent Judgment by the Ontario Superior Court of Justice considers the appropriateness of advertising for creditors through the online service of NoticeConnect.
The unreported decision by the Honourable Madam Justice Conway dated July 7, 2017 (Court File No.: 05-118/17), declared that the Notice to Creditors published by the Estate Trustee on NoticeConnect, “was an appropriate notice to creditors and the [Estate Trustee] is therefore entitled to the liability protection provided by s. 53(1) of the Trustee Act“.
Therefore, Estate Trustees who properly advertise through NoticeConnect may proceed to distribute assets of an estate with the peace of mind that they will not be held personally liable should a claim against an estate later arise.
Hull & Hull LLP has closely followed the development of NoticeConnect having written numerous blogs about it. It will be interesting to continue to follow NoticeConnect and other technological advances in the estates and trust community, such as Hull e-state Planner, which will certainly assist lawyers in providing quality and efficient service to their clients.
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One of an estate trustee’s duties in administering an estate is to satisfy any outstanding debts owed by the deceased person upon his or her death. An executor who is aware of an outstanding claim by a creditor, but nevertheless distributes the estate, may be personally liable to the creditor. Although there is no requirement in Ontario to advertise for creditors, it is generally advisable to do so in order to enjoy the protection afforded to estate trustees by s. 53 of the Trustee Act, R.S.O. 1990, c. T.23.
Section 53 provides that upon the expiration of due notice to creditors, the estate trustee may proceed to distribute the estate assets, and will not be held personally liable should there be later notice of a claim following such distribution. The notice does not extinguish the debt, but removes the personal liability of the estate trustee.
The Trustee Act does not specify the manner in which notice should be made, nor the length of time that should pass before the notice expires. One commonly accepted method is to advertise in the local newspaper in the location where the deceased lived, usually for 3 consecutive weeks, after which the estate trustee will generally wait at least 30 days before taking steps to distribute the estate. Another option has been to advertise in the Ontario Gazette, which publishes, among other things, legislative decisions and public notices.
However, the Ontario Gazette recently advised that as of January 1, 2017, it will no longer be accepting requests to publish private notices where there is not a statutory requirement to publish in the Ontario Gazette.
According to Widdifield on Executors and Trustees, the practice of advertising for creditors in the Ontario Gazette may, in any event, not have been the most effective manner of publishing a notice, as many people do not read it. On the other hand, Widdifield notes that if the creditors of a deceased person are located throughout Ontario, and are therefore unlikely to see a local advertisement, it may be prudent to advertise in the Gazette as well as the local newspaper. Accordingly, although the Ontario Gazette may not have been the most commonly used method of advertising for creditors, it did provide an option for publishing notices in a more far-reaching manner than the local newspaper, in situations where a more widespread notice is advisable.
We have previously blogged about an online service for publishing notices to creditors (here and here). The company notes that their website is search-engine optimized so that a Google search by a creditor will locate a notice posted with their service. This may provide an alternate option for an estate trustee who feels it is necessary to reach a broader geographical range than is generally reached by a local newspaper.
It has also been noted in Widdifield that, in Ontario, the cost of advertising is a relevant factor. Whether through the company mentioned above (which notes a cost of around $150.00 for a notice and a notarized affidavit of publication), or some other online service, it seems likely that an online advertisement may be more cost-efficient than a print publication.
Based on the convenience and cost-efficiency of online advertising, we may be able to avoid a significant disturbance in the process of administering estates due to the fact that the Ontario Gazette will no longer publish private notices. Change can be a good thing and if we can adapt accordingly, we may be able to establish a new and more efficient customary way of advertising for creditors.
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The first instance decision in Roulston v McKenny was recently upheld on appeal. In this case, the deceased, Mr. Penner, and his ex-wife, Ms. McKenny, entered into a separation agreement requiring Mr. Penner to maintain $150,000.00 in life insurance, with Ms. McKenny as the designated beneficiary. Mr. Penner failed to pay the premiums on the life insurance policy, which lapsed prior to his death.
Mr. Penner died in March 2013. Shortly thereafter, the estate trustee (the deceased’s sister, also a beneficiary of the estate) discovered that Mr. Penner’s life insurance policy had lapsed. However, her lawyer did not advise Ms. McKenny’s lawyer until September 2013.
Ms. McKenny commenced her claim against the estate in September 2015, before the two-year expiration after learning of the lapse, but after the expiration of the two-year limitation period from the date of death. The estate trustee sought the court’s directions as to whether the claim was statute-barred.
The application judge held that Ms. McKenny’s claim was not statute-barred, applying the doctrine of fraudulent concealment to toll the limitation period. On appeal, the appellant submitted that the judge made the following errors:
- In finding that a special relationship existed between the estate trustee and Ms. McKenny.
- In finding that the conduct of the estate trustee was unconscionable, such as to attract the operation of the doctrine of fraudulent concealment.
The Court of Appeal for Ontario denied the appeal, reasoning that:
- The special relationship between the estate trustee and Ms. McKenny did exist, arising from a combination of: (i) duties owed at law by an estate trustee to creditors; and (ii) the estate trustee’s exclusive control over information – the insurer would only release information to her.
- By withholding material facts, the estate trustee concealed from Ms. McKenny that she was a legitimate creditor of the estate. It was unconscionable for the estate trustee to initially suggest that insurance was in place, then delay matters and then later take the position (that would benefit the estate trustee as a beneficiary) that the limitation period had expired.
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An estate trustee must ensure that the deceased’s debts have been discharged prior to making any distributions. This is usually done by advertising for creditors in a newspaper. With today’s emphasis on technology, however, is advertising in a newspaper still the most efficient way to reach potential creditors?
The Standard Practice
An estate trustee will usually not be personally responsible for paying the deceased’s debts, as debts are paid from estate assets. The estate trustee may be found personally responsible for debts, however, if they begin to distribute the estate prior to paying the deceased’s debts.
An estate trustee may avoid personal liability for failing to pay a debt of the estate if they advertise for creditors. Section 53(1) of the Trustee Act provides personal protection for an estate trustee who advertises for creditors prior to distributing the estate assets.
The standard practice for advertising for creditors is to advertise in a newspaper three consecutive weeks in a location where the deceased lived and worked, and then wait at least one month from when the advertisement was first published to begin administration of the estate. The newspaper publisher will then usually send an Affidavit certifying that the estate trustee has properly provided notice to creditors. The Affidavit can be filed with the court as proof that the estate trustee has taken the proper precautions to advertise for creditors.
Does the Standard Practice Need an Update?
While the newspaper may be the most common means of advertising for creditors, is it the most efficient way to reach a creditor?
It is worth considering advertising for creditors online. Advertising through an online service may be more cost effective than in a newspaper. We have previously blogged on a service that provides online advertisements for creditors, and provides affidavits in support of the estate trustee’s advertisement. Using a service to publish notice to creditors has the potential to reach a larger majority of individuals, in a more cost-effective manner. Furthermore, the internet has the ability to provide information to creditors that may be located outside of the deceased’s jurisdiction, allowing for the advertisement to reach more individuals as compared to a newspaper advertisement that is generally confined to one jurisdiction.
As the Trustee Act does not specify the proper form of advertising for creditors, there is the potential for online services or cellphone applications to provide advertisements for creditors in a more efficient and effective way.
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Debt owing by an individual does not terminate upon death. The estate trustee is therefore obliged to satisfy any outstanding debts owing from the assets of the estate even after an individual has passed away. I recently came across a new service which assists estate trustees in locating any such debts in order to satisfy them.
Generally speaking, an estate trustee is not personally liable for debts owed by the deceased. However, if debts remain and the estate trustee distributes the assets of the estate, they may be personally liable to satisfy them. In order to avoid personal liability, estate trustees advertise for creditors in accordance with section 53 of the Trustees Act, often referred to as Notice to Creditors. According to this section, an estate trustee will not be personally liable for claims by creditors should they place a ‘notice’ specifying a period of time in which claims by creditors must be made. It is important to note that a Notice to Creditors does not prevent creditors from tracing distributable assets to beneficiaries.
The Trustee Act does not specifically provide how such a ‘notice’ must be posted. However, it has become common practice to advertise multiple times in a local newspaper where the deceased domiciled, and wait at least 30 days before taking steps to administer the estate.
A new service, NoticeConnect, publishes these notices to creditors online. According to the creators of the site, “…publishing notices with NoticeConnect is superior to print advertising because the notice will be found by any creditor conducting a basic Google search and because the ad is promoted across multiple internet platforms with larger potential audiences than print newspapers”.
Furthermore, proceeding online “…is an economical option for the many solicitors and estate trustees who are not publishing Notice to Creditors because of prohibitively high costs, exposing themselves to potential liability”.
Full details of the service provided by NoticeConnect can be found on their website.
Estate Trustees have the authority to settle claims against the estate. Claims may be asserted by a creditor, often in response to an Advertisement for Creditors.
An Advertisement for Creditors typically runs for three consecutive weeks in a daily newspaper in the area where the deceased lived and worked at the time of death. The date by which all claims must be submitted to the estate solicitor is usually one month after the first date that the advertisement is published whereafter, once the time period for filing claims has expired, the newspaper will provide an Affidavit of Proof of Publication.
While there is no statutory requirement to advertise for creditors, there are several reasons why it is prudent practice:
- to confirm that there are no outstanding creditors (especially if the deceased carried on an active business) and thereby eliminate liability with respect to such a claim if it arises after the estate has been distributed;
- if the estate trustee wants to pass his accounts it is usually required on the first passing of accounts; or
- on an intestacy, if the estate trustee wants to distribute the estate prior to the expiration of one year after the death of the intestate.
David Morgan Smith – Click here for more information on David Smith.
It is a trite principle of estate administration that "debts must be paid before beneficiaries." Assuming this maxim is followed, the estate trustee will not assume any personal responsibility for the debts of the deceased. On the other hand, if the estate trustee distributes the estate without due consideration to creditors’ entitlements, the estate trustee may be left personally exposed unless the beneficiaries return their entitlement to the estate trustee to fund any unpaid debts.
To be fully relieved from personal liability, the estate trustee must make reasonable efforts to locate and satisfy the creditors of the deceased. Advertising for creditors is therefore an essential step in protecting the estate trustee from liability and ensuring that the creditors of the deceased have had the opportunity to be paid. But the importance of the advertisement ought not to be overstated. If an estate trustee can be proven to have had independent knowledge of a creditor who does not claim (for whatever reason) in response to the advertisement, and if the estate trustee distributes in the face of this knowledge, he or she could conceivably be personally responsible to such a creditor.
The bottom line is that the estate trustee, understandably focused on his or her fiduciary duty to the beneficiaries, stands in the shoes of the deceased and must give more than a passing regard to the creditors of the estate.
David M. Smith
David M. Smith – Click here for more information on David Smith.
Listen to The Business of Being an Estate Trustee.
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the business side of being an Estate Trustee and talk about what to do with assets.