Sometimes a Will may include an “option to purchase” clause. Basically, this type of clause will provide that a particular person shall have the option to purchase a particular asset of the estate, for a particular price. Usually the option will end after a certain period of time, to allow the estate to continue being administered, depending on whether the person decides to exercise the option. Typically, options to purchase will play out in a fairly straightforward way—either the option is exercised, or it expires. However, in the recent decision in Crawford v Culbert et al, 2019 ONSC 1048, the chain of events was not quite so simple.
Hannah died in February 2018, and was survived by her four children: a son, Terry, and three daughters, Tammy, Tracey, and Tina.
At the time of Hannah’s death, the four siblings were not specifically aware of the contents of Hannah’s Will. A few days after Hannah died, they located an unexecuted document that appeared to be a Will, which Tina read out loud. The Will contained a provision that Terry would have a first option to purchase a farm property owned by Hannah’s estate, for $200,000.00, and that he had a period of 30 days “from the date that express written notice” of the option is given to him. At that time, it was unclear whether the Will had been executed.
The next day, the three sisters obtained a notarial copy of the executed Will from the law firm that had prepared it, but did not provide or show a copy to Terry. Some text messages were exchanged between Terry and Tammy about a month later, in which Terry commented that he did not intend to purchase the property. A short while after that, all four of the siblings met at the office of the lawyer who drafted the Will. It was at this time that Terry learned that Hannah’s Will was in the same form as the unexecuted document the siblings had located following her death. Twenty days later, Terry advised the lawyer that he intended to exercise the option to purchase. Both Tracey and Tammy took the position that Terry was out of time to exercise the option.
The court considered what constituted “express written notice” as required by Hannah’s Will. It easily concluded that Tina’s reading of the unexecuted Will did not constitute express written notice. The court also found that the earliest date that the 30 day period could have commenced was the day that all four siblings attended at the lawyer’s office, and Terry learned that the Will had been executed. Additionally, the court found that nothing Terry said or did prior to the date of the lawyer’s meeting could be considered an effective waiver of his entitlement to the option.
This decision may serve as a reminder to anyone who encounters an option to purchase that being crafty to try to circumvent the option is unlikely to be successful.
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In Ontario, we are fortunate to have the ability to execute powers of attorney in respect of our property and our health care. I recently learned that Jersey, in the Channel Islands, has only lately gained the ability to execute a “Lasting Power of Attorney” to record their decisions and intentions in respect of their assets and care. On that note, I thought I would take the opportunity to provide a quick reminder of the importance of executing powers of attorney, and the possible consequences of not doing so.
Powers of attorney in Ontario are governed mainly by the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (the “SDA”). The SDA sets out, among other things, the requirements for powers of attorney, the requisite capacity to grant a power of attorney, and the powers and duties of attorneys. There are two types of powers of attorney: powers of attorney for personal care (dealing with your health, medical care, and other matters related to your well-being) and powers of attorney for property (dealing with your property and financial matters). Generally, powers of attorney will come into play if you become incapable of managing your property or personal care, respectively, but it is also possible to grant a power of attorney for property that is effective immediately (that is, not conditional upon later incapacity).
What Happens if I Don’t Execute Powers of Attorney?
If you do not execute powers of attorney, and you never lose capacity, you may never realize how important they are. However, as we have blogged about previously, as our population begins to live longer, there has been an increase in dementia and other aging-related conditions associated with cognitive decline, meaning that the use and activation of powers of attorney is increasing.
Taking the step of executing powers of attorney means that you have the chance to make your own decision regarding who will handle your affairs in the event that you are no longer capable. If you become incapable, and have not named an attorney for property or personal care, it is open (and may become necessary, depending on your circumstances) for an individual to bring an application seeking to be appointed as your guardian for property or personal care, thus allowing them to act as your substitute decision-maker. The application process requires that notice be given to certain people (including certain family members), and if someone disagrees with the appointment of the proposed guardian, they may contest the guardianship—but the key detail to remember is that the ability to make the decision is taken away from you.
A guardianship application can also be brought if a person has executed a power of attorney, but the existence of a power of attorney will be an important factor for the court’s consideration: pursuant to the SDA, if the court is satisfied that there is an alternative course of action that is less restrictive of the person’s decision-making rights, the court shall not appoint a guardian.
Naming someone to act on your behalf with respect to your property and personal care is a big decision. It is almost certain that you are in the best position to make a determination as to who you want acting for you in this regard. We should all take the opportunity to exercise our own decision-making rights, to choose the person that we want to play the important role of attorney, and not leave it up to others to make this decision for us.
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In the past, in estate litigation matters, it was often the case that some or all of the litigating parties’ costs would be paid out of estate assets. However, in more recent years, the courts have been moving away from this general practice, and increasingly making costs awards providing for the payment of costs by one of the parties, personally. In particular, if the court views a party, including an estate trustee, to have behaved improperly or unreasonably, it may decide that such a party must pay the other party’s costs, personally. We have blogged about instances of such an outcome before.
A recent decision of the Ontario Superior Court of Justice has reaffirmed this general trend. The decision in Ford v Mazman, 2019 ONSC 542, involved a motion to pass over the named estate trustee, and appoint the two sole beneficiaries of the estate in question, as estate trustees. Although the named estate trustee and the beneficiaries were initially on good terms, within several months of the testator’s passing, the relationships began to break down, with the estate trustee beginning to make accusations towards the beneficiaries, in relation to the testator. The court found that it was “not a case of mere friction—this is a case of outright hostility from [the estate trustee] to the beneficiaries”, also commenting that it was difficult to fathom why the estate trustee acted as she did, and that her accusations were unwarranted. Ultimately, the court made an order passing over the estate trustee.
After the parties were unable to reach an agreement as to costs, the court made an endorsement in this regard in Ford v Mazman, 2019 ONSC 1297. After a discussion of the costs principles applicable to estate litigation, the court stated as follows:
“I am mindful that an estate trustee should be fully compensated for any reasonable costs incurred in the administration of the estate. However, the actions of the [estate trustee] are far from reasonable. I was not provided any rationale as to why her animus became necessary in the administration of her good friend’s estate.”
Ultimately, the court made a costs award in favour of the beneficiaries, payable by the estate trustee, personally.
This costs decision serves as an important reminder that parties entering into estate litigation proceedings should not count on their costs being paid out of the estate. Additionally, even though the estate trustee’s conduct in this case appears to be extreme, litigants should still keep in mind the importance of acting reasonably.
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I recently blogged about the growing use of home DNA tests and what impact an unexpected result could have upon your rights as a beneficiary of an estate. While such a blog was from the perspective of an individual who discovered through a home DNA test that their biological father was not in fact the individual they previously believed it to be, and the potential impact such a finding could have upon their status as a beneficiary of their “father’s” estate if their interest was based on their status as a “child”, questions would also emerge in such a scenario if you were the Estate Trustee of such an estate regarding what you should do.
If you are the Estate Trustee of an estate in which a bequest is based on parentage (i.e. an intestacy or a bequest to a testator’s “issue” or “children”), and you discover that one of the beneficiaries has voluntarily taken a home DNA test which revealed that they were not in fact related to the deceased, could you still make a distribution to such a beneficiary? If you have already made a distribution to such a beneficiary, is there a risk that the other beneficiaries could now make a claim against you as Estate Trustee, alleging that you distributed the estate to the incorrect individuals and that they have suffered damages as a result?
In response to whether an Estate Trustee could potentially be liable to the other beneficiaries for historically paying out amounts to a beneficiary who it is later discovered was not actually related to the deceased, it would appear that the Estate Trustee likely would not be liable under such a scenario. In my previous blog I discussed the provisions of the Children’s Law Reform Act (the “CLRA“) which establish a person’s legal parentage in Ontario, and the various presumptions establishing an individual’s father. While sections 13(1) and 14(1) of the CLRA allow the court to make a subsequent different declaration as to a person’s parentage, section 14(2) of the CLRA provides that such an Order “does not affect rights and duties that were exercised or performed, or interests in property that were distributed, before the order was set aside“. As a result, it would appear, arguably, that if an Estate Trustee historically made a payment to an individual based off of parentage, and a subsequent declaration is made by the court that the individual in question was not actually the parent of the beneficiary, the historic payment to the beneficiary could not be put in issue or reclaimed provided that at the time the payment was made the beneficiary was still presumed and/or declared to be the child of the deceased.
The issue of what an Estate Trustee is to do if a payment has not yet been made and they discover that an individual who they previously believed to be a beneficiary is not in fact related to the deceased could be more complicated. In the event that the other beneficiaries who could be affected by the distribution do not unanimously consent to continue to allow the distribution to the individual notwithstanding the results of the DNA test, it is possible that one or all of the other beneficiaries may later bring a claim against the Estate Trustee for negligence, alleging that the Estate Trustee knew about the results of the DNA test before making the distribution and that they have suffered damages as a result of the distribution. To offset such a risk, it may be wise for the Estate Trustee in such a scenario to bring an Application for the opinion, advice and direction of the court pursuant to section 60(1) of the Trustee Act and/or rule 14.05, asking the court to determine whether the distribution may still be made to the potential beneficiary in light of the results of the home DNA test.
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One of the most gifted items this past holiday season were apparently the home DNA tests which can reveal your genetic ancestry or even if you are predisposed to certain health conditions. As anyone who has taken one of these tests (myself included) can tell you, the test results also contain a long list of other individuals who have also taken the test who you are related to, allowing you to reconnect with long lost relatives.
While my own test results did not reveal any family secrets, the same cannot be said for other individuals who have taken the test, as there have been a growing number of articles recently about how home DNA tests have revealed family secrets which otherwise may never have come to light. Although not all of these secrets are necessarily negative, such as finding a long-lost sibling, others, such as finding out that the individual who you believed to be your father was not in fact your biological father, could be life changing. For the latter, the phenomena is apparently common enough that the Atlantic has reported that self-help groups have formed around the issue, such as the Facebook group “DNA NPE Friends”, with “NPE” standing for “Not Parent Expected”.
In reading through these stories I couldn’t help but wonder if having such a result could impact your potential entitlements as a beneficiary of an estate. What happens if, for example, the individual who you previously believed to be your biological father but the test reveals was not in fact your father should die intestate, or should leave a class gift to his “children” in his Will without specifically naming the children. Could finding out that you were not actually biologically related to your “father” result in you no longer being entitled to receive a benefit as a beneficiary? Could you potentially be disinherited as a beneficiary of an estate by voluntarily taking a home DNA test if your right to the gift is founded upon you being related to the deceased individual?
Who is legally considered an individual’s “parent” in Ontario is established by the Children’s Law Reform Act (the “CLRA“). Section 7(1) of the CLRA provides that, subject to certain exceptions, the person “whose sperm resulted in the conception of a child” is the parent of a child. Section 7(2) of the CLRA further provides for a series of presumptions regarding the identity of the individual’s “whose sperm resulted in the conception of a child“, including, for example, that there is a presumption that such an individual is the birth parent’s spouse at the time the child is born, or the individual in question certified the child’s birth as a parent of the child in accordance with the Vital Statistics Act (i.e. signed the birth certificate). To the extent that there are any questions about parentage, section 13(1) of the CLRA provides that any interested individual may apply to the court at any time after a child is born for a declaration that a person is or is not the legal parent of the child.
In applying these presumptions to our previous questions about the home DNA test, if, for example, the individual who you previously believed was your biological father was your birth mother’s “spouse” at the time you were born, or signed the birth certificate, it would appear that, subject to there being a declaration under section 13(1) of the CLRA to the contrary, there would continue to be a presumption at law that the individual who you previously believed to be your biological father would continue to be your legal “parent” in accordance with the CLRA. To this respect, in the absence of a formal declaration under section 13(1) of the CLRA that the individual was no longer your legal “parent”, there would appear to be an argument in favour of the position that the individual who you previously believed to be your biological father would continue to be your legal “parent”, and that you should continue to receive any benefits which may come to you as a “child” on the death of your “father”, whether on an intestacy or a class bequest to his “children” in his Will.
This presumption, of course, is subject to the ability of any interested person (i.e. the Estate Trustee or one of the other beneficiaries) to seek a formal declaration under section 13(1) of the CLRA that you were not in fact a “child” of the individual you believed to be your biological father. If such a formal declaration is ultimately made by the court, you would cease to be the legal “child” of the individual who you previously believed to be your biological father, and would likely lose any corresponding bequests which may have been made to you on an intestacy or as a member of the class “children” in the Will.
The use of DNA tests to establish the potential beneficiaries of an estate is not a new phenomenon (see: Proulx v. Kelly). What is new, however, are people voluntarily taking such tests en masse in a public forum, potentially voluntarily raising questions about their rights to receive an interest in an estate when such questions would not have existed otherwise.
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There’s a lot to like about Paul Allen – the Microsoft co-founder who died on October 15 at age 65. He was a brilliant man, whose perfect SAT score of 1600 during his college years foreshadowed his financial success.
Few can match this success. Allen died with an estate estimated at $26 billion. But it’s not just the size of the estate that’s impressive, it’s the scope of his interests that are remarkable, most of which played a role in building the value of his holdings. At his death, Allen ownership interests included:
- Three professional sports teams – the Seattle Seahawks, Portland Trail Blazers, and the Seattle Sounders
- A space-travel company, Vulcan Aerospace
- A film production company, Vulcan Productions
- A real estate company, Vulcan Real Estate, with a large focus on the redevelopment of land in the Seattle area; and
- An extensive fine art collection.
In 2010, he signed the Giving Pledge , a commitment by billionaires around the world to donate at least half of their fortune to philanthropic causes. He also invested in, or donated money to, a number of other initiatives, from artificial intelligence research to elephant conservation in Africa. More locally, he played in a band, Paul Allen and the Underthinkers, and was an accomplished guitar player.
The life lessons
Admittedly, we aren’t all billionaires with perfect SAT scores. So, what can we learn from Paul Allen? This quote from him says it all:
“You look at things you enjoy in your life, but much more important is what you can do to make the world a better place.”
Here are three takeaways that I think are worth considering:
- He enjoyed life: He owned homes in several countries, owned two of the largest yachts in the world, and surrounded himself with people accomplished in the art, sport and film world. He rarely courted media attention – and he remained low-key until the end – but he seemed to thoroughly enjoy his life. So many people in every wealth bracket forget this important part of the equation.
- He followed his interests in making the world a better place: He saved sports franchises from relocation, movie theatres from demolition, and ensured that important stories were preserved and told. He knew intuitively that following personal interests was critical to his active involvement in projects and ultimately each project’s success.
- Much of his focus was local: We can likely do our most effective work if we focus locally, on the area of the world we know best. Paul Allen’s initiatives certainly had a global reach, but many of his projects were Seattle-based and he transformed the city and the U.S. north-west in significant ways.
Paul Allen’s estate is, not surprisingly, complex – and could take years to settle as this article explains. But it appears that the family business structure he left behind will continue to make the world a better place for many years to come.
Happy New Year – and thanks for reading!
A recent decision of the Ontario Court of Appeal considered whether s. 7 of the Limitations Act, 2002 applies to extend the time within which an estate trustee can bring a claim that arose prior to a deceased person’s death.
Section 7 of the Limitations Act, 2002 provides as follows:
7 (1) The limitation period established by section 4 does not run during any time in which the person with the claim,
(a) is incapable of commencing a proceeding in respect of the claim because of his or her physical, mental or psychological condition; and
(b) is not represented by a litigation guardian in relation to the claim.
(2) A person shall be presumed to have been capable of commencing a proceeding in respect of a claim at all times unless the contrary is proved. 2002, c. 24, Sched. B, s. 7 (2).
(3) If the running of a limitation period is postponed or suspended under this section and the period has less than six months to run when the postponement or suspension ends, the period is extended to include the day that is six months after the day on which the postponement or suspension ends.
In Lee v Ponte, 2018 ONCA 1021, the estate trustee of the deceased person commenced a claim more than 2 years after the date on which the limitation period began to run, as determined by the trial judge. As a result, the action was statute barred.
The estate trustee appealed, taking the position that section 7 of the Limitations Act, 2002 should be “liberally construed”. The estate trustee argued that a deceased person is incapable of commencing a proceeding because of “his or her physical, mental or psychological condition”. He also argued that policy reasons support allowing additional time for an estate trustee or litigation guardian to be appointed and take over the management of the affairs of the incapable/deceased person.
The Court of Appeal disagreed and did not allow the appeal. In its view, the “grammatical and ordinary sense of the words of s. 7 are simply not elastic enough to apply to a deceased person and to construe an estate trustee to be a litigation guardian.”
Although the outcome is not surprising, it does serve as a reminder that limitation periods can be unforgiving. Estate trustees would be well-advised to act swiftly in reviewing the affairs of a deceased person in order to determine whether any claims may have arisen prior to death, and whether the expiry of any limitation periods are looming.
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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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Although knowledge and understanding of the issue of elder abuse is growing, I don’t think we have yet arrived at a point where it is openly discussed among different groups of people, or where victims of abuse feel completely comfortable coming forward.
In New Brunswick, the Abuse and Neglect of Older Adults Research Team (ANOART) is conducting research into abuse of older adults, and specifically looking at how abuse affects older men and women differently. This article discusses ANOART’s work and an upcoming conference on this topic.
According to the ANOART, older men more often suffer abuse from their children, but older women are more likely to experience intimate partner violence. This specific type of abuse in relation to older women is not mentioned in discussions of elder abuse as often as other types of abuse, such as financial abuse, or general physical abuse. However, ANOART has found that intimate partner violence against women earlier in life does not stop later in life, but rather evolves.
Although the aggressor of intimate partner violence may be less physically capable of physical abuse as they age, the older woman who is being abused may still feel pressure not to speak out, as to do so may create tension or conflict within their family. Older women may also be financially dependent on their partner, which can be a significant barrier to reaching out.
Services for intimate partner violence are usually focused and targeted at younger women, leaving a gap when it comes to older women. ANOART is working to break the stigma surrounding intimate partner violence against older women, to spread information, and to raise awareness. The hope is that this will assist in reaching out to those who need help more effectively, and make it easier for olden women to seek help.
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Although there are certainly some benefits that may result from making ownership of a property or other asset joint with another individual (e.g. avoiding payment of estate administration tax in relation to that property upon the death of one of the joint owners), there can also be risks associated with jointly-held property.
In the recent British Columbia Supreme Court decision in Gully v Gully, 2018 BCSC 1590, a mother added her son as a joint tenant on real property that she owned (the “House”). Her decision to do so was based on estate planning advice that she had received. The mother did not tell her son that she had added him as a joint tenant, and the son did not contribute to the House in any way, either before or after it was transferred into joint tenancy. Contemporaneously with the registration of title to the House in joint tenancy, the mother also executed a last will and testament specifically setting out that in naming her son as a joint owner, she intended that the asset would belong to him upon her death.
A couple of years after the mother had added the son as a joint tenant on her House, the son and his software company consented to judgment in favour of a creditor in the amount of $800,000.00. At the time he consented to judgment, the son was still not aware that he was a joint owner of his mother’s House. The creditor subsequently registered a certificate of judgment on the son’s undivided half interest in the House.
The mother brought an application seeking a declaration that the son held his interest in the House on a resulting trust in her favour. The court stated that the proper evidence of a transferor’s intention is at the time of the transfer, because a transferor can change his or her mind subsequent to the transfer, but may not retract a gift once it has been made. In this case the court concluded that the mother did intend to gift an interest in the House to her son at the time the joint tenancy was registered on title, and that the son did not hold his interest on a resulting trust in favour of the mother.
Further, the court stated that even if it had found that the mother had not intended to gift the House to the son, the fact that the joint tenancy was registered on title to the House meant that the creditor could rely on title to enforce its judgment against the son’s interest in the House. Although the issue of whether or not a resulting trust arises in the circumstances may be relevant as between family members or beneficiaries of an estate, it is not applicable in the case of a third party creditor claiming against a registered interest in land. As a side note, the creditor in this case did advise the court that it did not intend to execute the judgment against the House while the mother was still living there.
Before making any changes to ownership of an asset, it is crucial to obtain comprehensive advice as to all of the possible consequences of doing so—both positive and negative. Communication regarding joint tenancy is also important. This will help ensure that all parties are aware of the assets in which they may have an interest and the nature of any such interest, so they are in a position to manage their affairs accordingly.
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