A recent decision of the Ontario Court of Appeal, Chambers Estate v. Chambers, 2013 ONCA 511, deals with the concepts of renunciation, resignation, removal and passing over of an estate trustee, and the sometimes subtle distinctions amongst the concepts.
There, a “renunciation” is defined as the “formal act whereby an executor entitled to a grant of probate (or person having the right to a grant of administration) renounces such right.” Renunciation is not available if a party has been appointed as estate trustee under a Certificate of Appointment, or has already intermeddled with the estate, or, put another way, where a party has dealt with an estate without having been formally recognized as estate trustee. Once an estate trustee has accepted the office, he or she cannot disclaim it by renunciation. In such a case, if the estate trustee no longer wishes to act, he or she must resign.
With respect to removal or passing over, the proper terminology is that an estate trustee is “passed over” before a Certificate of Appointment is issued, or before he or she has acted as estate trustee, and “removed” if a Certificate of Appointment is issued or he or she has intermeddled.
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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.
In the recent case of Re Estate of Assunta Marino, 2010 ONSC 5237 (CanLII), the court granted an order to set aside an unopposed judgment passing accounts obtained by the estate trustee, on a Rule 38.11(1) motion brought by a beneficiary who had failed to file a notice of objection to accounts within the prescribed time. Justice Brown, presiding, applied the test in HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894 (CanLII), 2008 ONCA 894, which has three elements:
(i) whether the motion was brought without delay after the defendant (i.e., the moving beneficiary) learned of the default judgment;
(ii) whether the circumstances giving rise to the default were adequately explained; and
(iii) whether the defendant has an arguable defence on the merits – in order to determine whether the interests of justice favour granting the order. To that end, the court should consider the potential prejudice to the moving party if the motion were dismissed, the potential prejudice to the respondent if the motion were allowed, and the effect of any order on the overall integrity of the administration of justice.
The first element was met: time elapsing between the beneficiary learning of the default judgment and the motion was the result of attempted negotiations rather than inactivity, so it was not "delay". The second element was met by the beneficiary’s lawyer filing an affidavit explaining the default. With respect to the the third element, the beneficiary had raised valid arguable objections, which is analogous to a defence. The prejudice resulting from a delay in the estate’s distribution combined with the fact that the estate trustee had properly engaged the court’s legal process to account for his administration was not enough to save the unopposed judgment. Justice Brown wrote that while the case was close, "significant weight should be given to the need to ensure that fiduciaries fully account for their management of property", and so the order setting aside the default judgment was granted. Mediation was ordered before further steps in the passing of accounts, and the beneficiary was ordered to pay all of the mediator’s costs.
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Chris M. Graham – Click here for more information on Chris Graham.
In the February 2009 edition of The Probator, I reported on the decision of Brown J. in Re McMichael Estate. There, Brown J. clarified the requirement that an application for a Certificate of Appointment be filed in the court office for the county or district in which the testator was living at the time of death.
In the recent decision of Re Pearsall released May 21, 2009, (Court File No. 05-36/09, not yet reported) Brown J. offers further clarification on the issue of where applications involving estates may be commenced.
Rule 13.1 of the Rules of Civil Procedure provides that a proceeding must be commenced at the place required by the applicable statute or Rule. If no statute or Rule applies, it may be commenced at any court office.
While the Estates Act stipulates where an application for a Certificate of Appointment must be made, no statute or Rule dictates where an application to pass accounts must be brought, whether as Estate Trustee or guardian for property.
Thus, as held by Brown J., an application to pass accounts can be brought in any county, regardless of where the Certificate of Appointment may have been issued.
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An attorney acting under a power of attorney may be required to account to the beneficiaries of the grantor’s estate after the death of the grantor. This is the holding in the decision of McAllister Estate v. Hudgin. Megan Connolly blogged on this case here, on the issue of accounting, and here, on the issue of removal of an estate trustee.
In the May 11/18, 2009 issue of the Law Times, in a comment titled “The duty of an attorney to account”, John O’Sullivan and Lori M. Duffy comment further on the McAllister decision. They note other cases where an attorney for property has been compelled to account to the beneficiaries of an estate after the death of the grantor.
The authors suggest that in light of the duty to account, “the wisest course for a person exercising a power of attorney for property following these decisions is to assume that he or she will be required at some point in the future to account to persons opposed in interest, and to conduct themselves accordingly throughout their tenure as power of attorney.”
The authors go on to suggest that attorneys should, if they can, ensure that the power of attorney document provides protection for the costs that they may be forced to incur in preparing the accounts and passing them before the court.
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On a contested passing of accounts, counsel may be requested to represent two or more clients, such as multiple beneficiaries of an estate or co-estate trustees. In such cases, it is critical to ensure that a conflict of interest does not exist. When counsel first meets with potential multiple clients their respective interests may well be perfectly aligned and identical and it may not appear that there is a potential conflict of interest. Further, all consent to the representation of multiple parties.
In the case of multiple executors, in order to avoid a conflict of interest the controversial issues need to be addressed and discussed in detail. For instance, how will executor’s compensation be apportioned as between them? Is there a different relationship between each executor and the beneficiaries? Does one executor disagree with any actions taken by any of the other executors? Will their evidence be the same? Do the executors share the identical expectations of how the litigation should proceed as well as in respect of potential settlement? The potential disagreements can be discovered by exploring the issues up front.
Listen to Deductions from Compensation.
This week on Hull on Estates and Succession Planning, Ian and Suzana finish up the discussion on the question of accounting by reviewing deductions from compensation and briefly sum up the procedure of the passing of accounts.
Listen to The Question of Compensation and Complaints.
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss the question of compensation and complaints regarding compensation.
Listen to The Investment Accounts.
This week on Hull on Estates and Succession Planning, Ian and Suzana conduct a quick lesson on capital encroachment and discuss the role of investment accounts in the passing of accounts.
Listen to Compensation for work done by estate trustees and solicitors.
This week on Hull on Estates, Paul Trudelle and Diane Vieira discuss compensation for work done by estate trustees and estate solicitors.
Rooney Estate v. Stewart Estate 2007 WL3019262 (Ont. S.C.J.), 2007 CarswellOnt 650