Section 9(1) of the Estates Administration Act, R.S.O. 1990, c. E 22 (“EAA” ) provides, among other things, that real property vests in persons beneficially entitled to that property under a will if that property was not disposed of, conveyed to, divided or distributed among the persons beneficially entitled by the personal representative within three years after the death of the deceased (unless a caution has been registered on title). The EAA does not provide further clarification on when vesting takes effect if a property is subject to a life interest, and further, what happens to that property upon the termination of the life interest.
The recent decision of Lewis Pelicos, Executor and Trustee of the Estate of James Pelicos v. The Estate of Stelios Pelicos, 2019 ONSC 5304 provides clarity on when vesting takes place in circumstances where real property is subject to a life interest.
In that case, the Applicant’s father, James, died testate. The beneficiaries of James’ estate were his two sons, Steven and Lewis (the Applicant). James’ last will and testament required his two sons, Steven and Lewis (the Applicant) to hold his residential property in trust for his wife, Lillian, for her lifetime. Steven passed away some years later, leaving only the Applicant as the beneficiary of his father’s estate. The Applicant was also the executor and trustee of his father’s estate.
Following the death of the life tenant, the Applicant wished to sell the property, but required the court’s direction on whether Steven’s estate would be entitled to a share of the proceeds of sale. The answer to that question depended on whether the property vested in the beneficiaries of James’ estate on his death, or the death of the life tenant.
The Applicant brought an application seeking the court’s directions, with the issues stated as follows:
(1) Can it be inferred that the property falls into the residue of the estate upon the termination of the life interest?
(2) In the alternative, do the beneficiaries of James’ estate take their interest on the testator’s date of death, or the date of death of the life tenant?
The court ultimately found that the property vested in both Steven and the Applicant as of the date of death of the testator, and as a result, the property did not fall into the residue of the estate upon the death of the life tenant.
To learn more about Vesting of Real Property, check out this blog:
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No words strike fear into the hearts of most estates lawyers like the “rule against perpetuities”. Horrible memories of first year property law class, and dire warnings about how nobody truly understands how to apply the ancient and archaic principles which have developed over centuries, leave most lawyers wanting to avoid the subject at all costs. Although the cases can sometimes be hard to understand, the foundational principles and modern application of the rule against perpetuities is actually relatively simple.
The rule against perpetuities is an ancient common law doctrine which restricts the ability of an individual to control property over a prolonged period of time. At its most simple, the rule against perpetuities can be understood as not allowing an individual to control the distribution or ownership of property for longer than the “perpetuity period”, with the perpetuity period equating to a “life in being” who is alive upon the death of the testator plus twenty one years. A “life in being” is the lifetime of an individual who may receive, or is somehow associated to, the gift of the property. To this respect, an individual cannot control the ownership or distribution of property in their Will for longer than the lifetime of an individual who is alive upon the death of the testator and somehow associated with the gift, plus twenty one years after such an individual’s death. If a gift offends the rule against perpetuities, it is declared void.
In Ontario, the application of the rule against perpetuities is governed by the Perpetuities Act. Section 4(1) of the Perpetuities Act establishes a “wait and see” approach to determining if a gift offends the rule against perpetuities. What this in effect means is that simply because a bequest could offend the rule against perpetuities does not result in the gift immediately being declared void, as you must wait to see if the gift actually does offend the rule against perpetuities. Only in the event that the gift does ultimately vest outside of the perpetuity period is it declared void.
Take for example the hypothetical bequest of a property to a local charity so long as they use the property for the benefit of the charity. Should the charity cease to use the property for the purpose of the charity, the property would instead be distributed to the deceased’s issue (i.e. descendants) in equal shares per stirpes. The “perpetuity period” in this instance would be the lifetime of one of the deceased’s descendants alive on the deceased’s death who ultimately lives the longest after the deceased’s death (likely the youngest descendant alive upon the deceased’s death, although not necessarily) plus twenty one years after such a descendant’s death. Although it is conceivable that the charity could continue to use the property for longer than the lifetime of such a descendant plus twenty one years, such that the gift-over to the deceased’s issue could offend the rule against perpetuities and be declared void, you do not immediately declare such a gift void at the time of the deceased’s death. Rather, you must “wait and see” if the triggering event (i.e. the charity ceasing to use the property) occurs during the perpetuity period (i.e. the lifetime plus twenty one years of the descendant in question). Only upon the triggering event not occurring during the perpetuity period would the gift be declared void for offending the rule against perpetuities.
See, not so scary after all.
The transfer of real property is one issue that often arises in estate matters. However, it is when real property has not been transferred to entitled beneficiaries within three years of the date of death of the owner of the property that the beneficiaries may require the assistance from an estate lawyer to have the property transferred to him or her.
Section 9(1) of the Estates Administration Act (the “ETA”) provides that real property not disposed of, conveyed to, divided or distributed among the persons beneficially entitled to it within three years after the death of the deceased shall vest in the persons beneficially entitled to the property. Simply put, if an estate trustee does not deal with real property owned by an estate within three years of the date of death then the real property will vest in the beneficiaries of the estate or in those who the testator specifically gifted the real property to in his or her Last Will and Testament.
While vesting can occur automatically where the deceased died intestate, that is not the case where the deceased died leaving a Will. Where the deceased died testate, Section 10 of the ETA provides:
- Nothing in section 9 derogates from any right possessed by an executor or administrator with the will annexed under a will or under the Trustee Act or from any right possessed by a trustee under a will.
A review of the case law on this issue suggests that where an estate trustee has the implied or express power to sell or convert real property at such times and in such manner as he or she sees fit, section 10 of the ETA will prevail and render section 9 of the ETA inoperative. However, consideration must be given to whether the deceased intended for the estate trustee named in their Will to have the authority to deal with the real property beyond the three year limit set out in the ETA.
Accordingly, when considering whether to seek a vesting order on behalf of a beneficiary, it is important to review the terms of the testator’s Will to determine what authority was granted to the named estate trustee with respect to real property and whether the testator had any specific intentions regarding the estate trustee’s discretion to delay the exercise of such authority.
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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