On February 27, 2015, I chaired a workshop titled, The Estate Administration Tax Act, 1998: New Reporting Requirements, which was provided as part of the LSUC’s Continuing Professional Development.
As part of this workshop, our speakers, among other things, canvassed the various issues and concerns raised in relation to the introduction of the new Regulation, which came into effect January 1, 2015.
One area of concern we discussed during the workshop was the treatment of mortgages on real property. Specifically, the situation in which a deceased dies with real property in Ontario that is subject to a mortgage and that mortgage is secured by way of life insurance with the proceeds of the life insurance policy made payable to the mortgagee.
At that time of the workshop there was some uncertainty as to what information would need to be included in the value of the estate for the purposes of estate administration tax and the Estate Information Return in such circumstances.
Following the workshop, discussions were held at the Ministry of Finance and the Ministry has since clarified its position on this issue.
The Ministry’s position is that under these circumstances, since the insurance policy is payable to a designated beneficiary, the proceeds do not flow through the estate. They do not form part of the value of the estate for the purposes of estate administration tax. They do not need to be reported on the Estate Information Return. Since the real property is in Ontario, it should be included as an asset of the estate. The mortgage, since it is registered against real property in Ontario, can be deducted from the value of the estate for the purposes of estate administration tax.
So, for example, let’s say Jim dies the registered owner of real property in Ontario valued at $500,000. Prior to his death, Jim registered a mortgage against this property in favour of CIBC. Jim secures the mortgage by way of life insurance with the premiums paid by Jim and the proceeds of the life insurance policy made payable to CIBC.
Upon Jim’s death, the amount owing in respect of the mortgage registered in favour of CIBC, as at Jim’s date of death, is deductible from the fair market value of the property and the life insurance proceeds, as payable to CIBC, would not be included as an estate asset.
Thank you for reading,
In a recent decision out of the Supreme Court of B.C., Re Thomasson Estate, the Honourable Justice Gerow considered the circumstances where the court may pass over an executor, on an application by a co-executor/beneficiary.
The two Deceased (collectively referred to as the “Deceased”) had been married and had four children together, all of whom survived the Deceased. In their Wills, they named two of their children, as their executors, and directed the executors to distribute the estate to three of their four children.
One son commenced this application to obtain an order that would pass over the other son as his co-executor for the Estates. The Applicant argued that it is necessary for the Estates to make a proper enquiry into the nature of inter-vivos transactions between the co-executor Respondent and the Deceased and such an inquiry must be made independent of the co-executor Respondent as he would be in a conflict of interest.
The co-executor Respondent opposed the Applicant’s application, and argued, amongst other things, that the court should not interfere with the testator’s right to nominate his or her executor and removing him would be prejudging the case.
In her decision Justice Gerow states:
In the circumstances of this case, it is my opinion that there is a perceived conflict of interest between the co-executor Respondent in his role as an executor and his interest in his personal capacity. If an action is instituted by the executors as a result of the transfer of the Property, it would be against the co-executor Respondent. In my opinion, the co-executor Respondent, in his capacity as executor, cannot attack the transfer of the Property to himself while at the same time maintaining, in his personal capacity, that the transfer of the Property was proper. By making such a finding I am not prejudging the case. I am simply of the view that, in the circumstances of this case, if an action is commenced as a result of the enquiries into the transfer, the co-executor Respondent cannot conscientiously act as a plaintiff in his capacity as an executor in a case where he will be the defendant.
B.C. legislation is unique compared to the legislation that governs estate trustees in Ontario; however, if a similar situation arose, an application seeking similar relief could be brought under Rule 14.05(3) of the Rules of Civil Procedure.
Rick Bickhram – Click here for more information on Rick Bickhram.
I don’t know about you, but I love it when the courts consider novel ideas as a practical solution to a legal problem. That is why the decision of Re D’Angelo Estate, 2010 ONSC 7244 (CanLII) caught my attention.
In D’Angelo Estate, Faust D’Angelo, deceased, resided in St. Catharines, Ontario. In his Last Will, he appointed his son, Emidio, and Emidio’s daughter, Denise as co-executors. His estate was divided equally amongst Emidio and his three surviving siblings. The estate, situate in Ontario, was worth approximately $1.5 Million.
Emidio and Denise, because they both lived in the United States, were obliged to obtain a Foreign Executors’ Bond. The insurer would only issue a bond if a lawyer in counsel’s firm was appointed by the Court as a monitor to supervise the administration of the estate.
The Court allowed the co-executors’ motion and appointed the monitor. Here are a few of the interesting findings leading up to its decision:
· The co-executors both had standing under Rule 74.15(1)(i) as persons who appeared to have a financial interest in the estate. Emidio had a financial interest because he was a beneficiary. The Court found that the financial interest contemplated by the rule may be direct, indirect or contingent and although Denise was not a beneficiary, she had standing due to her entitlement to claim executor’s compensation, which was a contingent financial interest in the estate.
· The Court noted that monitors had been appointed by courts in other situations to monitor the business and financial affairs of a charity and under the oppression remedies in the Ontario Business Corporation Act, which makes no provision for a monitor.
· The monitor would be an officer of the court and the responsibilities of an officer of the Court are: 1) to act fairly, honestly and impartially as a fiduciary on behalf of all persons having a financial interest; 2) to comply with the powers granted in the order of appointment; and 3) to be accountable to the Court and to the persons in 1).
· The appointment of a monitor did not require approval or input from the beneficiaries (the motion was made without notice).
· Pursuant to Rule 1.01(6), it was okay to modify the prescribed forms as circumstances required and so the form of Certificate could be varied to a “Certificate of Appointment of Estate Trustees with a Will and Court-Appointed Monitor”.
I certainly think this case is novel and provides an alternative that could be quite a useful solution in some situations.
Sharon Davis – Click here for more information on Sharon Davis.
In blogs published on our site in March 2008 and January 2010, the fascinating story of the estate of Franz Kafka was considered. As we have discussed in other blogs (see this blog on Nabakov), an executor of the estate of a literary giant may face temptation to publish unfinished works even in the face of an expressed intention of the testator to the contrary. Such was the case with Kafka: his named executor and trusted friend chose to edit and posthumously publish certain works (to great acclaim it may be added).
In the second blog, Nadia Harasymowycz noted that certain letters and drawings gifted by Kafka to his mother and sisters prior to his death remained in a safety deposit box. As reported yesterday online by the National Post, a bank in Zurich "opened up four safety deposit boxes containing some of the unpublished work, and will allow Kafka scholars to look at the work." This decision follows on the heels of a ruling by the Israeli courts last week, wherein Tel Aviv banks were ordered to produce other similar documents.
Once the process of documentation is complete at the three banks, a judge will rule about the future of the papers: “whether they are the private property of the Hoffe sisters, who can then do with them whatever they want, or whether they constitute a literary treasure that must be transferred to a public archive.”
David M. Smith – Click here fore more information on David Smith.
Estates law often has distinct legal meanings for common terms. Take the term "personal representative". The term is defined in estates statutes, but also appears with and without definition in business corporations statutes and other statutes.
Adams v. Ontario (1996) provides that when the phrase "personal representative" is used in connection with a deceased and the administration of the deceased’s estate, it can have only one meaning, which is the meaning set out in the definition contained in the Estates Administration Act, the Trustee Act, and in the Succession Law Reform Act:
1(1) “personal representative” means an executor, an administrator, or an administrator
with the will annexed.
The term is therefore very broad: it includes both the executor (who may never receive probate) and the recipient of a Certificate of Appointment of Estate Trustee with a Will.
The same case acknowledges that the term “personal representative” can have other meanings when it is not applied to a deceased or the administration of a deceased’s estate, such as in Ontario’s Business Corporations Act.
Thanks for reading,
Christopher M.B. Graham – Click here for more information on Chris Graham.
The estate trustee of a deceased doctor has to secure that doctor’s medical records. Standing in the shoes of the deceased doctor, the executor of his or her estate assumes the legal obligation that the doctor had to safeguard the privacy of his or her patients. But, as reported online in the Globe and Mail over the weekend, the Saskatchewan Privacy Czar, Gary Dickson, has raised concerns over the perceived failings of executors of such estates in his province.
As quoted in the Globe and Mail, Gary Dickson states that "A trustee has to take responsible measures to safeguard information…generally that means records being locked away in a place that somebody else doesn’t get access to." Notwithstanding this expectation, Mr. Dickson details various examples of medical records being abandoned or, in one case, being released for profit.
As in Ontario, it appears that the College of Physicians and Surgeons of Saskatchewan has bylaws that address the situation of a doctor discontinuing practice but not the situation wherein an estate trustee assumes custody of the records.
The duty of the estate trustee to the patients of the deceased doctor is likely of no concern to the beneficiaries. Accordingly, it would be interesting to consider how the beneficiaries would view a claim by an executor for a special fee for securing these records.
David Morgan Smith
David Morgan Smith – Click here for more information on David Smith.
“He who touches the ashes of the past,
Will burn himself with still glowing coals.” –Elizabeth Heyking
Han Sachs invoked this quote in his autobiographical work: "The World’s Greatest Poster Collection: How it came into being and How it Disappeared From the Face of the Earth." As the title of his book suggests, Sachs (who was, among other things, Einstein’s dentist) compiled an invaluable poster collection that was confiscated by the Nazis in November, 1938. He died without ever recovering his treasured collection.
In a recent essay published in the Timesonline, his great-granddaughter recounts the subsequent efforts made by Sachs’ son to recover his late father’s collection. Despite the fact that Germany: (i) committed to return confiscated art found in museums by signing the Washington Conference Principles on Nazi-Confiscated Art in 1999, and (ii) where the Third Reich was implicated, implied that it would not invoke any statute of limitations, a recent Court decision in favour of the estate was nonetheless appealed by the German government and the decision is pending.
The efforts of an executor of an estate to recover lost art poses special challenges that I recounted in this blog reviewing the efforts of the estate trustees of the estate of Max Stern and the advent of the Lost Art Internet Database.
David M. Smith
David M. Smith – Click here for more information on David Smith.
A claim of devastavit may be made against an estate trustee where mismanagement of estate assets is suspected. Black’s Law Dictionary (seventh edition) provides the following definition for devastavit:
A personal representative’s failure to administer a decedent’s estate promptly and properly, especially by spending extravagantly or misapplying assets. A personal representative who commits waste in this way becomes personally liable to those having claims on the assets, such as creditors and beneficiaries.
In the case of Commander Leasing Corp. v. Aiyede, 16 E.T.R. 183 (1984), an estate trustee distributed an estate even though there was an outstanding claim by a company, Commander Leasing, as a creditor of the estate. The estate trustee did not plead that there were no (“plene administravit”) or insufficient (“plene administravit praetor”) assets in the estate to satisfy the company’s claim. Instead, she stated at her discovery that all of the assets had been distributed.
The effect of the estate trustee’s failure to plead plene administravit or plene administravit praeter was that she must be taken to have admitted that there were assets to satisfy the judgment. The Court ultimately held that in distributing the estate, the estate trustee acted in clear disregard of the company’s outstanding claim as a creditor. Her conduct constituted a devastavit for which she was personally liable to the company creditor.
Have a great day!
Bianca La Neve
What does an executor do?
The first responsibility is to tend to funeral arrangements and then to gather up all the information relevant to the Estate. This information includes the ownership and value of assets, as well as the nature of all Estate liabilities. These responsibilities need to be taken seriously.
Some other duties include: make provisions for dependants; notify various government agencies of the deceased’s death; collect income from assets; decide about investments; seek advice as required. The executor’s role is similar to that of a trustee: both owe a duty to the beneficiaries.
When one plans his or her Estate and prepares a Will, it is useful to consider the attributes of a successful executor. Some questions might be:
- Is the person organized?
- Does the person have financial skills?
- What is the demeanour of the person who is being considered as an executor?
A recent British article asks more questions. One point, among many, is that “Honesty and conscientiousness are important, but if you are appointing more than one executor – and often that’s a good idea – they also need to be team players.”
Each situation is different but the hard and soft skills of a potential executor are likely useful considerations.
Examples abound to illustrate what might go awry. Take the Estate of the renowned violinist, Isaac Stern. In 2004, the beneficiaries of the Estate were disappointed when the executor failed to include the value of the deceased’s New York apartment in the calculation of the Estate’s value. This decision resulted in a shortfall of funds to meet the Estate’s liabilities. Legacy items, including musical instruments, were apparently sold at auction to the beneficiaries’ collective dismay.
Choose your executor(s) wisely.
Enjoy your Thursday.
In Langston v. Landen, a recent decision of the Ontario Court of Appeal, one of three co-executors of an estate having a value of some $24 million (in the words of the Court) "managed to shunt the other two executors to the sidelines. He started to loot the estate." Among Landen’s transgressions was his use of estate assets to purchase a home in Forest Hill which he had put in his wife’s name. On a motion for summary judgment, Justice Greer had imposed a constructive trust on the house for the benefit of the estate.
Landen’s wife appealed. However, the Court easily concluded that the fact that legal title was in her name was irrelevant in circumstances in which the entire purchase proceeds came from the estate. Adopting a quote from the Reasons for Decision of Justice Greer, the Court stated: "Since the money came from Landen in his capacity as a fiduciary, the constructive trust or express trust flows from him and the money can be traced from him to the house purchase and renovation."
So too, for the same reasons, the wife’s entitlement to any share of the property as the "matrimonial home" was negated. Of passing interest to the profession was the Court’s additional conclusion that Justice Greer was well within her jurisdiction by imposing a vesting order on the house for the benefit of the estate in the absence of a motion seeking such relief.
David M. Smith