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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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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Other blog posts that may be of interest:
Rule 48.14 Interpreted! When will the Registrar Dismiss an Action for Delay? How Does it Apply to Estate Matters?
As recently as November 25, 2016, the Associate Chief Justice of the Superior Court, the Hon. Justice Marrocco, released a written endorsement in Daniels v. Grizzell, 2016 ONSC 7351, interpreting portions of Rule 48.14 since administrative dismissals may now occur from and after January 1, 2017.
The Registrar will Not Dismiss for Delay When…
According to the Hon. Justice Marrocco, “the Registrar will not dismiss an action for delay if the following events take place at least 30 days before the expiry of the applicable period:
- a party files a timetable signed by all the parties; and
- a party files a draft order establishing the timetable;
In addition, if a consent timetable signed by all the parties, and a draft order is filed, the Registrar shall not dismiss the action pursuant to Rule 48.14.”
Motion for Status Hearing and Motion to Set Aside the Dismissal
If the parties are unable to reach a consent, a motion for a status hearing may brought before the expiry of the applicable period pursuant to Rule 48.14(5). The Hon. Justice Marrocco clarified that “the Registrar shall not dismiss the matter until the motion is heard even if the matter is heard after the dismissal date prescribed by the Rule.”
Moreover, “the dismissal of an action by the Registrar can be set aside under Rule 37.14”.
Rule 48.14 Does Not Apply to Applications and Applications Converted to Actions
As it pertains to those of us engaged in estates, trusts, and substitute decision making matters, Rule 48.14 “does not apply to proceedings commenced by an application. Accordingly, estate matters which are commenced by way of an action are subject to the Rule; estate matters commenced by application are not. For practical reasons grounded in the coding of actions and applications in the court’s information management system, the application of Rule 48.14 is determined at the time the proceeding is commenced. For the same reason, applications which are converted to actions are not subject to Rule 48.14.”
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The phrase “the expiry of the applicable period” is repeated in the various subrules to Rule 48.14 and we want to take this opportunity to illustrate the meaning of this particular phrase. This phrase is important because it pertains to when an action may be automatically dismissed by the Registrar pursuant to Rule 48.14(1).
Essentially, going forward, actions are given five years from the date of commencement before they may be dismissed for delay by the Registrar. “The expiry of the applicable period” is the expiration date that is referred to in Rule 48.14(1), in which,
48.14 (1) Unless the court orders otherwise, the registrar shall dismiss an action for delay in either of the following circumstances, subject to subrules (4) to (8):
- The action has not been set down for trial or terminated by any means by the later of the fifth anniversary of the commencement of the action and January 1, 2017.
- The action was struck off a trial list and has not been restored to a trial list or otherwise terminated by any means by the later of the second anniversary of being struck off and January 1, 2017.
The expiry of the applicable period for an action commenced on the date of this blog, i.e. November 29, 2016, will be November 29, 2021.
The expiry of the applicable period for an action commenced on the date Rule 48.14 came to force and effect, i.e. January 1, 2015, will be January 1, 2020.
The expiry of the applicable period for an action commenced on the date the Winter Olympic games began in Vancouver, i.e. February 12, 2010, will be January 1, 2017.
This is the case because January 1, 2017 is later than the fifth anniversary of an action commenced on February 12, 2010, whereas the fifth anniversary of the commencement dates in examples 1 and 2 are later than January 1, 2017.
Therefore, it is extremely important to keep in mind that any actions commenced before January 1, 2012 may be dismissed by the Registrar on January 1, 2017.
You are the Estate Trustee of an estate. In going through the Deceased’s personal belongings, you become aware that shortly prior to the Deceased’s death they had commenced a lawsuit, and that it appeared that such a lawsuit was still before the court. As you are the Estate Trustee of the estate, you begin to question whether it now falls to you, as the estate’s representative, to continue the lawsuit on behalf of the Deceased, and what steps, if any, are you required to take?
The death of a party during a court proceeding is considered a “transmission of interest” in accordance with the Rules of Civil Procedure, insofar as the interest of the party who has died has now been transferred to their Estate Trustee (or other duly appointed individual in accordance with the Rules of Civil Procedure). In accordance with rule 11.01 of the Rules of Civil Procedure, when there is a transmission of interest at any stage of a proceeding (whether as a result of the death of a party or otherwise), the proceeding is automatically stayed as against the party whose interest has been transferred. To this effect, upon the death of the individual in our example, the proceeding which they had commenced was automatically stayed as it relates to them.
In accordance with rule 11.02 of the Rules of Civil Procedure, in order for the proceeding to continue on behalf of the deceased individual, an “Order to Continue” must be obtained. To obtain the Order to Continue, the party to whom the interest has been transferred (i.e. the Estate Trustee) must file with the registrar an affidavit verifying the transmission of interest, together with a requisition. Upon the issuance of the Order to Continue, it must be served on all parties.
Notably, in accordance with rule 11.03 of the Rules of Civil Procedure, if an Order to Continue is not obtained within a “reasonable” amount of time following the transmission of the interest, a defendant may move to have the proceeding dismissed for delay. To this effect, if it is the intention of the Estate Trustee to continue the proceeding on behalf of the estate, it is important that they obtain the Order to Continue as soon as possible following the Deceased’s death, as otherwise they may risk the proceeding being dismissed for delay.
As with any matter regarding the administration of an estate, it is important that the Estate Trustee receive competent legal advice concerning the proceeding before deciding whether to continue it on behalf of the estate. While there could be cost consequences to the estate for not continuing with the proceeding, there is certainly no obligation that the Estate Trustee continue the proceeding on behalf of the estate if they consider it unwise to do so. Issues such as whether the proceeding has any merit, and exposure to cost consequences, are important factors for the Estate Trustee to consider.
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As of January 1, 2015, the Ontario Rules of Civil Procedure were amended such that all actions not set down for trial will be automatically dismissed within five years of their commencement. Pursuant to Rule 48.14(1), unless the court orders otherwise, the Registrar shall dismiss an action for delay if the action has not been set down for trial or terminated by the fifth anniversary of the commencement of the action (or by January 1, 2017 if the action was commenced prior to January 1, 2012) subject to a list of statutory exceptions.
The Applicant in Michie v. Turalinski, 2015 ONSC 5491, brought an application to require an Estate Trustee Without a Will to file a Statement of Assets of the Estate on March 17, 2011. Notwithstanding the court ordered timetable for next steps, cross-examinations did not occur and counsels’ attempts to schedule cross-examinations appears to have ceased in or about 2012.
Ultimately, the Court ruled against the Respondent’s motion for dismissal for delay and provided the following comments in respect of the statutory authority for this relief:
 Ronald has framed his motion under rule 24.01 of the Rules of Civil Procedure. That rule sets out the circumstances in which the court may dismiss an action for delay. The rule does not apply here, since the rule applies to actions but not to applications. Since this case is an application, r.24.01 does not apply.
 Ronald also relies on rule 48.14 to support his positon. Rule 48.14 deals with the circumstances when the Registrar is required to dismiss an action for delay. The rule was amended effective January 1, 2015, and now provides that the Registrar shall dismiss an action for delay if it has not been set down for trial within five years after the first defence is filed. Again, the rule deals with actions not applications, but even if it did, Susan’s application was commenced in March of 2011. Five years have not elapsed since then, and thus cannot have elapsed since delivery of any response to it. If this application were an action, rule 48.14 would not require the Registrar to dismiss it. In any case, Ronald has never really delivered a response to the application itself, which would be equivalent to a defence.
Please click here if you are interested in our podcast of the recent Regulations amending the Rules of Civil Procedure.
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Listen to Delay in the Granting of Probate.
This week on Hull on Estates, David and Sarah discuss issues that cause delay in the granting of probate.