Tag: interim distribution
The recent case of Tilley v Herley 2019 ONSC 5405 serves as a reminder that courts will not approve an interim distribution of the funds in an estate if there is the possibility of new testamentary documents coming to light.
In this case, the deceased had been estranged from her four children for much of their lives; however, she reconciled with one of her children, Roxanne, before her death in 2019. Roxanne was appointed as sole executrix and trustee and was named as the only beneficiary of the entire estate in the most recent will which was executed in 2008. Prior to her death, the deceased transferred the main asset of the estate, a residence in Mississauga, to herself and Roxanne as joint tenants. When she died, the residence passed to Roxanne by right of survivorship.
Two of the other children brought a challenge to the will on the basis that their mother lacked testamentary capacity, that she was unduly influenced by the Respondent Roxanne, and that the will was executed under suspicious circumstances. They also sought a declaration that the residence should be subject to the presumption of resulting trust and should not pass to Roxanne by right of survivorship. Roxanne had already sold the residence and both parties agreed that the proceeds of the sale would be held in trust pending litigation. Roxanne then brought a motion seeking an interim distribution of 25% of the funds held in trust. The rationale behind this was that even if the other siblings’ will challenge was successful and Roxanne lost at trial, she would still receive 25% of the estate as it would be divided up in equal parts amongst the four children.
The case turned on the fact that even though no will prior to 2008 had been located, there was evidence that an earlier will may have existed. This made it impossible to determine that the Respondent’s interest in the estate would be a minimum of 25% and the court found that making an interim distribution of the proceeds would be “premature and inappropriate”. Another relevant factor was that at this early stage in the litigation, there had not been an accounting with respect to the entire estate, including debts and liabilities, as well as future expenses including litigation costs, making it impossible to determine the value of 25% of the estate.
The court dismissed the motion, as there was a possibility that the deceased may have made an earlier will and until this will could be located or its existence could be discounted, it was impossible to know the extent of Roxanne’s entitlement should the will challenge be successful. The court also noted that it was conceivable that none of the deceased’s children would be beneficiaries under a previous will if the 2008 will were to be declared invalid by the court. This case demonstrates that applying for an interim distribution of estate funds can be ill-advised and will likely fail if there is evidence indicating the potential existence of an undiscovered prior will. This would make it impossible for the court to determine the minimum amount that either party may receive if the contested will is declared invalid.
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Ian Hull and Sean Hess
What do you do as a lawyer when you represent someone who is waiting to receive money from an estate, but the Estate Trustee will not pay? An interim distribution can commonly be made. The Estate Trustee can hold back some of the funds for potential liabilities and distribute some of the money immediately. Potential liabilities can involve delayed tax filings related to Canada Revenue Agency (CRA) procedures being slow, or other estate liabilities. Final distribution can be delayed for a matter of 2-3 years, or even longer. As an example, on a $1,000,000 estate, the hold back might be $200,000 on $50,000 of estate liabilities that are known or can be knowledgeably estimated. This safely leaves $800,000 for immediate interim distribution, without waiting years until concluding administration of the estate. However, the practice of the Office of Public Guardian and Trustee (OPGT) in Ontario is not to do interim distributions. They take the position that even if there is the remotest potential for liability they will not take the risk. As a government entity there is certainly no incentive to take any risk. The following rhetorical question illustrates the problem – What civil servant in a bureaucratic government agency is going to move quickly to take on liability and risk?
A recent decision clearly directs the Office of Public Guardian and Trustee (OPGT) of Ontario to make an immediate interim distribution as Estate Trustee.
It is unfortunate, in my view, that anyone would have to take steps to seek an Order in these circumstances. This is what happened in Foundation for Human Development and Jack Benson v The Estate of Keith Irwin-Reekie, 2020 ONSC 299, with the decision released on January 15, 2020. The court directed an interim distribution by the OPGT, to distribute the inheritance to which the moving parties were entitled. The court found that it was appropriate to exercise discretion under rule 74.15 (1) (i) “Orders for Assistance” of the Rules of Civil Procedure, Courts of Justice Act. The reasoning was that it was usual practice for estate trustees to make interim distributions out of estates, “once the Estate Trustee has a good understanding of the taxes and other liabilities of the estate, holding back sufficient funds in the estate to satisfy those expenses / liabilities”.
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A question that I am often asked by both beneficiaries and Estate Trustees, is whether the Court can compel an Estate Trustee to make an interim distribution.
Beneficiaries and Estate Trustees are often at odds as to how quickly they wish to proceed with an interim distribution. A beneficiary is generally eager to receive their entitlement from an Estate as soon as possible. Estate Trustees, however, carry significant personal liability should they too hastily pay out Estate funds, and therefore tend to exercise caution before distributing.
In the decision of Parson v McGovern, a motion by a beneficiary (who had a one-half interest in the Estate) sought to compel the Estate Trustees to make an interim distribution of almost all of the remaining assets of the Estate to the beneficiaries. The beneficiary requested that this distribution be made before the Estate Trustees passed their accounts (and obtained Court approval).
The Court considered the prior decisions in Re Blow, Brighter v. Brighter Estate, and others, and concluded that the following factors should be considered by the Court when deciding whether to compel an Estate Trustee to make an interim distribution to a beneficiary:
- are the Estate Trustees deadlocked;
- have the Estate Trustees acted with mala fides;
- have the Estate Trustees failed to exercise their discretion to make an interim distribution;
- have the Estate Trustees behaved unreasonably or breached their fiduciary duty and duty of good faith and fairness to the respondent (the beneficiary); and,
- would a beneficiary suffer under undue prejudice.
In applying these factors to the case at hand, the Court considered, in part, that the Estate Trustees were not deadlocked, had proceeded to pass their accounts in an expeditious fashion, did not extort the beneficiary into signing a waiver/release, did not cause delay in administering the Estate, and there was no evidence the beneficiary would be unduly prejudiced if an interim distribution was not made. Based on this, the Court did not compel the Estate Trustees to make an interim distribution, and the motion by the respondent beneficiary was dismissed.
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