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.
Thank you for reading,
Other blog posts that may be of interest:
When speaking of the gifts left in a Will, people often hear the terms “legacy”, “bequest” and (less frequently) “devise” thrown around interchangeably. But what specifically do these terms refer to?
A “bequest”, which can be used interchangeably with “legacy”, refers to testamentary gifts of personal property. While both terms are used, the Succession Law Reform Act uses the term “bequest” in referring to these types of gifts. There are three types of bequests: general bequests, specific bequests, and demonstrative bequests.
General bequests refer to gifts that are to be provided out of the estate generally. It does not refer to any particular thing. Thus a gift of “$10,000.00 to my friend F” is a general bequest. The money is to be raised from any of the general assets of the testator.
Specific bequests refer to gifts of particular property or which are to be funded by particular assets. For example, gifts of “my car” or “the cash held in bank account X” are both specific bequests as they refer to particular property which the recipient is to receive. Where the asset is no longer in the possession of the testator at the time of death, the gift will fail.
A demonstrative bequest is a hybrid between general and specific bequests where a gift of money is left with the intention that it is to be funded primarily out of certain assets. But where the assets are insufficient to meet the gift, the gift is to then be funded out of the general estate. A gift of “$10,000.00 to be paid first from the proceeds of sale of my car” would be a demonstrative bequest.
Unlike a “bequest”, a “devise” refers to a testamentary gift of real property. Society and the law have long distinguished between real property and personal property. This can be seen, for example, in the traditional availability of specific performance as a remedy for breaches of contracts involving real property. In such situations, real property was accepted as something unique enough to require specific performance, rather than mere monetary damages.
The primacy of real property over personal property can equally be seen in estates law in situations where there are insufficient assets in the estate to satisfy all debts, bequests, and devises. In such a situation, the principles of abatement provide the following order of abatement: general bequests, demonstrative bequests, specific bequests, and finally devises.
To learn more about the principle of abatement, see this recent blog.
With the continuing distinction between real property and personal property, the difference between devises and bequests remains important. Which brings us back to the title of this blog; Can you bequeath your home to a stranger in Ontario? Nope, that would be a devise.
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As I was reading the Financial Post, I came across an interesting article entitled, What Will You Do With Your Estate? In this article, Jonathan Chevreau explains that there are two schools of thought when a parent is deciding how to plan their estate.
On the one hand, some parents believe in transferring the wealth that they have accumulated during their lifetime to their children. On the other hand, some parents believe in “dying broke”. Although it sounds harsh, parents from the second school of thought, often follow the belief that their “kids should stand on their own feet.”
Most of us will fall in between the two extremes; however in his article, Mr. Chevreau reviews the strategies associated with both schools of thought.
Parents who wish to maximize their estate often don’t like to leave their kids with any debts. Parents from this camp are more likely to “Commute the value of their death benefit pensions in order to maximize RRSP assets … wipe out any lien’s on their residence … give an inter-vivos gift to their children and pre-pay their funeral.”
In the other camp, parents leaning towards the “die broke” philosophy often try to maximize their assets during their lifetime by using three main techniques: pensions, annuities and reverse mortgages. The nature of all three is to maximize income for the parent and their spouse during their lifetime, while leaving little or nothing for their children.
Wherever along the spectrum you fall, it bears discussing your estate plan with your spouse, kids and a good financial planner or estate planning expert.
Rick Bickhram – Click here for more information on Rick Bickhram.
In the days prior to the evolution of the Internet, planning and administering an estate was relatively simple as the physical belongings of the deceased could be carefully sorted through, packaged, and divided according to the Deceased’s testamentary document or the applicable legislation.
In the days since the Internet has become a common household tool, planning and administering an estate has not been so easy. In a study commissioned by Remember A Charity, The Dying in a Digital Age, it was discovered that four in five people own digital assets, but only nine per cent have considered how these will be distributed upon their death.
According to the study, the nation’s digital music collection is worth an estimated £900 million alone.
Three quarters of those surveyed for the study indicated that their digital music and photo collections had strong sentimental value, while eight out of ten said their digital assets were financially valuable.
Rob Cope, director of Remember A Charity said: ”Bank accounts, music and photograph collections are increasingly stored online…meaning families will wave goodbye to a small fortune if details are not passed on.”
There is now an entire cyber existence that both the Deceased and Trustees need to turn their mind to when planning or administering an Estate. For instance, what will become of Facebook, Twitter, Flickr and PayPal accounts? One easy solution is to subscribe to a website called Legacy Locker. Legacy Locker was created in 2009 and it maintains a master list of user names and programs for online bank accounts, social networking sites and document repositories.
In the digital era, it is important that we consider and make arrangements for how our digital assets will be distributed, and for estate planners, it may be just as important that you consider including in your questionnaire or checklist, a question that forces a client to turn their mind to consider their digital assets.
Thank you for reading, and have a great weekend.
Rick Bickhram – Click here for more information on Rick Bickhram.
The Smithsonian in Washington DC is the largest museum in the world and houses the legacy of an entire country. A little known fact is that this American national treasure is owed to a legacy of a different kind, a single charitable bequest by a man who had never even visited the United States.
British Scientist James Lewis Smithson, in a Will drawn three years before his death in Genoa Italy in 1829, bequeathed a life interest in his estate to his only living heir, his nephew Henry James Hungerford and thereafter to Hungerford’s heirs. In a charitable giftover, if Hungerford died without heirs, the estate was to go to the United States of America. When Hungerford died unmarried and without children just 6 years later, Richard Rush as agent for President Andrew Jackson claimed the money, which was awarded to the United States by the English Court of Chancery. The estate was worth half a million dollars in English Gold Sovereigns at the time, about $8M today.
It remains a mystery to this day, why Smithson left his fortune to a country with which he had no social or political ties. If you would like to read more about Smithson click here. If you would like to hear more about Smithson, click here.
The Will stated that the estate was to go to the "United States of America, to found at Washington, under the name of the Smithsonian Institution, an establishment for the increase & diffusion of knowledge among men." And the rest, as they say, is history – literally and figuratively!
Sharon Davis – Click here for more information on Sharon Davis.
The creating of a legacy is not just about the size of an estate left behind by a testator. A publication of Imagine Canada entitled Philanthropic Success Stories details the nature of philanthropy and gives all of us pause to consider how best to create a lasting legacy. As the authors note, philanthropy is best defined by heart, time and spirit rather than one’s bank account balance.
Imagine Canada is a charitable organization which has as its mandate the fostering of non-profit and charitable causes. The authors of Philanthropic Success Stories observe that Philanthropists (in the traditional sense) are being replaced by people better defined as: "champions, advocates and volunteers" The authors specifically note that philanthropy is being pushed out in new directions that embrace such adjectives as: risk-taking, pioneering, innovative, and being "ahead of the curve."
As an example, the authors refer to the Caledon Institute of Social Policy which is credited for spearheading, among other things, the implementation of the National Child Benefit.
Have a great weekend!
David M. Smith
David M. Smith – Click here for more information on David Smith.
The death of Edward M. Kennedy on August 25, 2009 marked the end of era. The Lion of the Senate received much praise for his 47-year contribution to American politics.
In his memoir – True Compass – “Teddy” provides a posthumous review of his life and of his famous family. It is a reminder that people leave a range of legacies when they die. Several of his siblings left their own mark, including his sister Eunice. Edward Kennedy’s political accomplishments are a great part of his legacy. (I have read about JFK and Bobby and will enjoy this read.)
There is the financial side of Edward Kennedy’s life (and of each Kennedy) which presumably continues to back many of the endeavours of the current generation. Edward Kennedy, apparently, reported a net worth in 2008 between $15 million and $72.6 million, but a year earlier the range was between $46.9 and $157 million. As a U.S. senator, Kennedy earned a base salary of $165,200 a year.
The main source of Kennedy’s wealth was his father and family patriarch Joseph P. Kennedy, a former U.S. Ambassador to Great Britain, whose fortune stemmed from banking, real estate, liquor, films and Wall Street holdings that eventually grew to an estimated $500 million by the 1980s.
A big portion of that wealth came from Kennedy Sr.’s purchase of Chicago’s Merchandise Mart in 1945 for $12.5 million. Spanning two city blocks and rising 25 stories, the sprawling limestone and terra-cotta mart had its own zip code. It was the world’s largest building until the Pentagon was built in the 1940s. The Kennedy family sold its interest in the Merchandise Mart in 1998 for $450 million in cash and a $100 million interest in the purchasing trust. The holdings of Edward Kennedy included a string of publicly and non-publicly traded trusts and assets.
The Kennedy family contributed a great deal to public service. Liberal projects and public service work by the family is supported in part, I expect, by the resources available to them through family investments.
While we did not know the patriarch of the Kennedy family, we can glimpse the satisfaction he likely felt that his investments – in his family and businesses – contributed to the greater good.
The scale may be far different, but within our own families, each of us can support the work and the dreams of the next generation with careful planning and wise investments of our time, energy and financial resources.
Thank you for reading.
Jonathan Morse – Click here for more information on Jonathan Morse.
A good friend of mine recently reminded me that death is not just about dividing up the spoils (a common theme in estate litigation), but also about remembering the lasting contributions made by a person during their lifetime. I was reminded of this in reading about the recent deaths of two well-known figures, Donald Marshall and Eunice Kennedy Shriver.
Donald Marshall passed away last week in Sydney, Nova Scotia. In 1971, when he was just seventeen years old, Mr. Marshall was wrongfully convicted of a crime he did not commit and jailed for eleven years. He subsequently challenged the legal system and blazed a trail for other wrongfully convicted Canadians to fight to have their convictions overturned. His case led to a Royal Commission in 1990, which produced a slew of recommendations that fundamentally changed the criminal justice system in Nova Scotia. In 1993, Mr. Marshall again reluctantly stepped into the spotlight, when he was arrested and eventually convicted of various fishing violations. Mr. Marshall fought his convictions all the way to the Supreme Court of Canada, winning acquittals and a significant victory for the native treaty rights of his people, the Mi’kmaq Nation.
This week, Eunice Kennedy Shriver (President John F. Kennedy’s sister) passed away. Eunice Kennedy Shriver was a champion for the rights of the mentally disabled and founded the Special Olympics, which has grown into a truly global event. President Obama noted in a statement that Mrs. Shriver will be remembered as "as a champion for people with intellectual disabilities, and as an extraordinary woman who, as much as anyone, taught our nation — and our world — that no physical or mental barrier can restrain the power of the human spirit".
Thanks for reading,
Bianca La Neve
Bianca La Neve – Click here for more information on Bianca La Neve.
Tomorrow is July 1st. It makes me think of Hatley, a small village in Quebec’s Eastern Townships and its annual Canada Day Celebration. (My wife grew up nearby.) Across Canada, flags fly high and memories abound.
If you will allow this segue, memories are often a significant part of estates that are easily overlooked. When an estate arises, we often focus on assets without putting our mind to the deceased’s legacy. For many of us, our papers and personal files do not amount to much. But it’s a different story for politicians.
An interesting paper from the Faculty of Information Quarterly at the University of Toronto compares the treatment of Presidents’ papers versus Prime Ministers’ papers. The retention of U.S. papers seems to be more statute driven, although presidential Executive Order can govern the ultimate treatment of documents.
Apparently, on his first day on the job, President Obama overturned President Bush’s order that had limited access to presidential papers.
In Canada, Prime Ministers’ papers fall into two categories: government/institutional records and personal/political records. Former Prime Ministers receive tax credits for the value of the personal papers they donate to Library and Archives Canada. That value is not disclosed.
Similarly, in the U.S., some financial incentives exist for Presidents: in 2000, the Justice Department paid the Nixon estate $18 million to compensate for records seized in 1974.
In both cases, restrictions regarding the release of certain documents might apply. For example, apparently here in Canada, for 2.5 million records in the National Archives, one must write to Mr. Mulroney directly for permission.
Have a safe, relaxing Canada Day.
Section 35 of the Substitute Decisions Act ("Act") states that "a guardian of property shall not dispose of property that the guardian knows is subject to a specific testamentary gift in the incapable person’s will." And under s 33.1 of the Act, a guardian of property needs to make reasonable efforts to determine "whether the incapable person has a Will" and, if so, "what the provisions of the Will are."
Under the authority of these sections of the Act, a beneficiary of a specific testamentary gift can legitimately make enquiry into the actions of the guardian who, more often than not, is also the estate trustee under the Will. Take, for instance, a demonstrative legacy of a bank account at a specific financial institution. If the account is no longer in existence at the date of death, the legacy will usually be subject to ademption: the gift has failed because the account was closed before the date of death. But what if the account was accessed by the guardian either: (i) for his own purposes or (ii) for the care of the incapable person when there where other assets available to fund the care of the incapable person? In such a situation, the beneficiary of the account under the Will may seek redress.
To prove his or her case, the beneficiary will seek an accounting from the guardian in order to ascertain to what extent his or her beneficial entitlement was wrongfully encroached upon in breach of the Act. Given the imperative under s. 33.1 of the Act, it questionable whether the guardian/estate trustee could ever successfully argue ignorance of the terms of the Will as a defence to such claim.
David M. Smith