Primer for Accountants on Amended EAT

June 11, 2013 by Charles Wagner | No comments

The purpose of this short primer for accountants on the Amended Estate Administration Tax Act 1998[i] [“EAT”] is to provide a concise summary of concerns for those accountants dealing with estate administration issues.

Professionals’ Potential for Personal Liability

An accountant who assists an executor in preparing the quantum of assets for an application for a certificate of appointment may find himself/herself personally liable. There might be a negligence claim against accountants who incorrectly advise the estate trustee not to include certain assets. More troubling still, the specific wording of subsection 5.1(2) seems to be broad enough to impose personal liability on anyone assisting the estate trustee.  The section states,  “Every person is guilty of an offence who, in giving information required under section 4.1 [the disclosure obligations], makes or assists in making a statement that, at the time and in light of the circumstances under which it was made, is false or misleading in respect of any fact, or that omits to state any fact the omission of which makes the statement false or misleading.”  The addition of those four words “or assists in making” raises the question whether an accountant’s advice leading to a “false statement” by the client constitutes “assists in making” and puts the accountant at risk.  To that end it is prudent for accountants to be doubly vigilant in documenting the advice provided whereby the accountant explains the importance of proper disclosure.

As an Executor – When is it Prudent to Distribute?

Prior to the passing of the EAT it was standard practice for the executor to make an interim distribution prior to obtaining a clearance certificate from the CRA[ii]. The executor would consult with his/her accountant, obtain a worse-case scenario of taxes owing, and hold back sufficient funds to ensure taxes and professional fees were covered. After obtaining a clearance certificate the executor would feel safe to distribute the balance after either obtaining a release or passing of accounts. The premise of this protocol was to protect the executor if the CRA discovered taxes owing and the beneficiaries already spent the money distributed. Without the clearance certificate, the concern is that the CRA will look to the executor for the shortfall. Now, after the passage of the amendments to the EAT, the executor and his accountant have to worry about schedule 14. Schedule 14 of Bill 173 has introduced significant changes to the powers and duties existing in the Estate Administration Tax Act, 1998, S.O. 1998, c. 34, Sch. (the “EAT”). Notably:

  1. The Minister of Revenue can now assess or reassess an estate for its tax payable under the EAT at any time within four years after the day on which the tax became payable. There is no mechanism for obtaining an EAT clearance certificate. In fact, the Minister can assess or reassess an estate for its tax payable under the EAT at any time whatsoever if the person failed to comply with his or her disclosure obligations or made a misrepresentation. Are your clients aware of the potential consequences of improper disclosure? Are the executor and/or his/her accountant in danger if they distribute the assets of the estate within four years?
  2. Any person who fails to comply with the disclosure obligations or who makes a false or misleading statement (or omission) may face imprisonment of up to two years in prison and a fine of twice the amount of tax payable under the EAT. Are your clients aware of their heightened personal liability? Or do they assume that once the certificate of appointment of estate trustee is granted that the executor will suffer no sanction or personal liability?

 

For a more comprehensive treatment of the EAT we refer the reader to several articles which deal with the EAT in more detail.

  1.  Barry S. Corbin, “Estate Administration Tax – The Nightmare Begins”;
  2. Barry S. Corbin, “Changes to the Estate Administration Tax Act, 1998: Implications of Audit, Reporting and Enforcement”;
  3. M. Jasmine Sweatman, “The Amendments to the Estate Administration Tax Act: Watch Out”; and
  4. Mary-Alice Thompson, “Amendments to the Estate Administration Tax Act, 1998”

This article is intended to help those involved in the administration of estates to be familiarized with some of the concerns related to the amendments to the EAT. It is not a substitute for consulting with a competent lawyer whose own research and analysis may be relied upon. It is not intended to provide substantive legal advice nor opinions.

The authors are Charles B. Wagner and Brendan Donovan. Brendan is an associate and Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.[iii] This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

 


[ii] Please see www.cra-arc.gc.ca/tx/ndvdls/lf-vnts/dth/clrnc-eng.html which is  a Canada Revenue Agency website which provides details of the value of a legal representative obtaining a clearance certificate

[iii] The authors gratefully acknowledge the assistance of David Wagner, J.D. candidate, in preparing this paper.

 

Undue Influence in the Estate Context amongst Orthodox Jews – is Arbitration before a Beis Din a viable option?

May 6, 2013 by Charles Wagner

Is there a moral dilemma for the Orthodox Jewish litigator?  On June 4, 2013, the B’nai Brith Canada Trust and Estates Group will be presenting a seminar on dealing with fraud as it impacts on the elderly, their assets and estate disputes.  In choosing topics for this year’s seminar and having in mind our constituency, the committee felt it would be remiss if it did not address this topic and how members of our community who face this issue deal with alternative dispute resolution avenues.

Many Jews believe that when there is a dispute between Jews, those altercations must be decided in accordance with Jewish law and before a Jewish court.   Such Jews may believe that, to do otherwise, would be tantamount to declaring publicly that the secular court system of justice is preferable to that of the Beis Din.  The Shulchan Aruch condemns those who go before a secular court for challenging the value of the Torah’s legal system.  Nonetheless, both in commercial and estate contexts, we sometimes see Orthodox Jews bringing their disputes before the secular courts.

For an Orthodox Jewish lawyer who is representing Jewish parties who are suing one another in a secular court, an ethical question arises.  It gets further complicated where the client’s rights under secular law far exceed the rights they may have under Orthodox Jewish law.  And this may very well be the case in the laws of inheritance.  For the upcoming seminar on June 4, 2013, we have invited Archie Rabinowitz of Dentons Canada LLP and Rabbi Mordechai Torczyner of Yeshiva University to address this topic.  What happens when an Orthodox Jewish client believes that his Orthodox Jewish sibling has committed a fraud to secure assets he might otherwise be entitled to under secular law but not under Jewish law? How would a secular court deal with these issues and how would the Beis Din?  Both Archie Rabinowitz and Rabbi Mordechai Torczyner are uniquely suited to address these questions.

Rabbi Mordechai Torczyner is Rosh Beit Midrash of the Yeshiva University Torah miTzion Beit Midrash Zichron Dov, Toronto, Ontario.  Previously he served as a pulpit rabbi in Allentown, Pennsylvania, and in Pawtucket, Rhode Island.  Since his arrival in Toronto, he has impressed many in the community with his intellectual honesty, breath of knowledge in both secular and religious studies and commitment to raising the level of Jewish study amongst the modern Orthodox Jewish community.

Archie is certified by the Law Society of Upper Canada as a specialist in Estates & Trusts Law.  He has chaired the prestigious Law Society of Upper Canada Annual Estates and Trusts Summit since 2008 and is preferred counsel for LawPRO advising on professional negligence cases arising out of contentious estate and trust matters.  He has extensive trial and appellate experience, including cases which in part deal with Halachic issues.

The event will take place on June 4, 2013at Shaarei Shomayim Synagogue, 470 Glencairn Avenue, Toronto, Ontario, M5N 1V8.  Registration is at 7:30 a.m. and the presentations will begin at 8:00 a.m. sharp.  The event is open to lawyers and accountants.  Those lawyers and/or accountants who are interested in attending should contact Anita Brombergof B’nai Brith Canada at 416 633 6224 x130 or email abromberg@bnaibrith.ca.

Dealing with a Testator Whose English is Suspect

April 18, 2013 by Charles Wagner

It seems self evident and almost trite to say that a will must reflect the intention of the testator.  Accordingly, those parties who come to court and submit that the will in question is authentic and valid must prove, among other things that the Testator knew and approved of the content of the will.[1]  Mistakes in how instructions are taken and the execution of the will may result in disappointed beneficiaries and liability to the solicitors who took the instructions, drafted the Will and saw to its execution.  The purpose of this paper is to:

  1. examine how courts have dealt with the issue of knowledge and approval of contents as it relates to non English speaking testators;
  2. reflect on the risks to having the will declared invalid; and
  3. address the issue of potential liability to disappointed beneficiaries and consider the wisdom of certain practices when dealing with such testators.

A careful review of the court’s treatment of these issues may give solicitors reason to reexamine and adjust their will drafting practices.

What is Knowledge And Approval of Contents

In Lidstone v McWilliams[2], the Supreme Court of Canada stated that:

“…The propounder of a will must satisfactorily establish (a) that the testator had testamentary capacity at the date of the execution of the will; (b) that the will had been duly executed and attested, and (c) that the testator knew and approved of the contents thereof.”

The Supreme Court of Prince Edward Island[3]  described the obligation of knowledge and approval as follows:

“For knowledge and approval it must be proven that the testator knew and approved of the contents of the will, that the testator realized what is in the will and agreed that is what she wanted. Once the propounder proves that the will was properly executed after it was read to or by the testator and the testator appeared to understand it, the propounder is aided by a rebuttable presumption that the testator knew and approved the contents. The presumption is rebutted if it is shown that the testator did not really understand the contents even though it was so read. When suspicious circumstances are shown, the propounder must show knowledge and approval affirmatively, or depending on the circumstances probate may be refused for all or part of the will: Oosterhoof on wills and Succession (5th ed.), at pp. 168-169; Feeney’s Canadian Law of Wills (4th ed.), at § 3.1.”

It is important to note that knowledge and approval may overlap with issues relating to capacity or undue influence, but they are not the same thing.  One may understand and approve of a aill, but still not possess the testamentary capacity either because the decisions contained therein are rooted in delusions or a result of disease or forgetfulness.[4]  Furthermore, a testator may know and understand the contents of a will, but has been coerced to sign because of undue influence which goes to capacity.[5]

In Vout v Hay[6]  the Supreme Court of Canada indicated that while the propounder of the will has the legal burden to show due execution, knowledge and approval, and testamentary capacity, once there is evidence of due execution and of the will having been read over to the testator, who appeared to understand it, a rebuttable presumption exists that the testator knew and approved of the contents of the will.  The Court further went on to explain that this presumption of knowledge of form and content is rebutted where there are suspicious circumstances present.  At that time those seeking to establish that the will is authentic reassume the legal burden of proving knowledge and approval.

Suspect English and Suspicious Circumstances

Does the inability of the testator to read or write English constitute suspicious circumstances?  In certain circumstances the courts have concluded that the testator’s inability to read or speak English gives rise to suspicious circumstances.  Let’s review the case law.  In Re Sopel[7]  an elderly woman could neither read nor write English, but knew the language well enough to understand what was being said to her in English.  The testatrix executed a will, the prime beneficiary of which was the wife of the lawyer who drafted and facilitated its execution.  The application for probate was rejected, in part, because the will was not read to the testatrix and the court concluded that she did not know or approve of the contents of the will.   While it was in dissent, one of the judges made the following comment that impacts on our discussion:

“Mrs. Sopel was in the position of a marksman or blind person. It was the duty of the appellant to advise her that it was necessary that it be read over to her in the presence of the witnesses. Considering the bequest to his wife, the fact that he did not so advise her gives rise to suspicion.”

In the Schatz Estate case, [8] the testatrix was a woman whose native tongue was German.  She was not comfortable speaking English and could neither read nor write.  The testatrix’s daughters (and beneficiaries under the will) reviewed the will with their mother and summarized its contents to her in German.  The Court referred to the Saskatchawan Surrogate Court Act which required that the due execution of a will for an illiterate person required that the will was read over to the testator.  The Court also noted comparable practice in Ontario and quoted MacDoneel, Sheard and Hull which stated:

“When the testator has executed his will by making his mark, the proof shall show that before its execution the will was read over to him and that he had knowledge of its contents and appeared perfectly to understand the same.  This rule does not mean that if the will has not been read over to such a testator it can never be proved, but only that it cannot be proved in common form.  The will could still be propounded in solemn form, and if it was established that the testator had a clear knowledge of its contents it would be entitled to probate.”

In the Schatz Estate case, the court considered what “read over” meant in this context.  Its relevance to our discussion bears it being quoted in full.

5.      There is something to be said for reading the words “read over to” in a wide sense to include “summarized to”, “explained to” and the      like.  In fact, one dictionary definition is “to cause another to become acquainted with the contents of something written”.  If narrowly interpreted, petitions which really involve only non-contentious business may come to involve proof in solemn form.  Moreover, those involved in the execution of wills know that, in fact, wills are, in circumstances involving execution by mark, often summarized or explained rather than read over word for word, the latter being, in many situations, a futile exercise. Putting this thought into terms of the present petition it may be said:

(1)

   That word for word translation from a will written in   English (to a testator whose “comfortable” language was German) to   German is not theoretically possible.  

(2)

   The testator would not have understood a word for word   reading of the will in any event.  

Does this lead to a wide and flexible interpretation of the words “read over” as a practical step?

6.      I think, as seems to be suggested in Probate Practice, supra, that the words “read over” mean exactly what they say.  If a broad and flexible interpretation were accepted, witnesses to the execution of wills executed by mark would soon be swearing that the will had been “read over” in various broad and flexible senses and all that would be coming before a surrogate or probate judge would be the affidavit in statutory form provided by section 38(2).  There would be no question by the surrogate or probate judge — the statutory requirement would have technically been met.  The decision would be for the petitioner and his solicitor whether the circumstances of the execution and explanation or summarization justified the swearing of the affidavit in statutory form.  The words would eventually come to mean different things to different people.

7.      In result, in my view, it is better that the words “read over” be regarded as meaning read over verbatim and not be equated with “summarized”, “explained” or “made acquainted with”.  If the words “read over” are to routinely appear in affidavits in support of common form petitions for grants of probate, it is best, and the legislature must have so intended, that the words have the usual and restricted meaning.  If it were otherwise it would be for an individual deponent to use the words as he sees fit.  While a layman may be able to “explain” or “summarize” this will adequately, it will not always be so.  Errors — intentional and nonintentional — are certain.  There are not that many cases of testators executing by mark without the will having been read over.  Solicitors rarely omit reading over and they supervise most executions by mark.  Executions by mark are unusual with lay people.  Proof in solemn form need not be, in non-contentious cases, overly formal or lengthy.  In the present case my present inclination is that little will be required to prove the will of the testatrix in solemn form.

In a 1999 Alberta Surrogate Court case[9] the validity of the will was attacked.  The testator’s English skills were virtually non-existent and the interpreter for both the providing instructions and reading of the will was a non-arm’s length party to the beneficiary. The court concluded,

“The problem in this case is that the deceased had little or no ability with the English language. His interpreter was a loyal supporter of the beneficiaries named in the will. I am not sufficiently satisfied that the deceased understood how he was disposing of his property in order to be able to hold, in good conscience, that in this case there was a proper testamentary disposition.”

In the 1994 Sguigna Estate case before the Ontario Court of Justice – General Division[10] the testratix could not read or write English and had only very basic verbal English skills.  The court opined that her inability to communicate in English directly related to her lacking knowledge and approval of the contents of the will.    The Court quoted the principle stated in Tyrrell v. Painton et al.,[11] by Davey L.J. as follows:

“the principle is, that wherever a will is prepared under circumstances which raise a well-grounded suspicion that it does not express the mind of the testator, the Court ought not to pronounce in favour of it unless the suspicion is removed.”

The lawyer taking instructions spoke to the testator in Italian.  However, the lawyer was from the north of Italy and the testator was from the south. They spoke different dialects so that while the lawyer could understand the testator, the testator was unable to completely understand the lawyer.  The son of the testator, who was the prime beneficiary under the will, picked up the copy of the will and presented it to his mother for signature before two witnesses (who also did not speak English).  The court rendered the following decision.

“I am satisfied from this evidence that Annetta [the testator] was presented with a document which was entirely in English, which she could not read, and which Fred confirms he did not read to her. Nor did he explain to her its contents. I find that it was witnessed by two persons who did not know what was in the document and who cannot testify to the formalities for execution required under the Succession Law Reform Act. On those grounds and on that evidence alone I find that Fred, as the person offering the will for probate, has failed to meet the onus of proving due execution and knowledge and approval of the contents of the will by the testratrix. Accordingly this will shall not be admitted to probate.”

Clearly this case indicates that when a testator does not speak English, it can give rise to suspicious circumstances which rebuts the presumption that the testator had knowledge and content of the will. Claims of solicitor’s negligence may arise if those who propound the will fail to prove it authentic and are unable to establish that the testator knew and approved of the content of the will.  For those with non English speaking clients this issue suggests that one would be wise to review the manner of taking instructions and seeing to the execution of a will.

Of particular interest to me is paragraph 31 of Haley J.’s decision, “It is not sufficient in establishing the knowledge and approval of the contents of the will by the testatrix to show that she understood the primary dispositive feature of the will. While she may not understand the technical law relating to powers of executors and priority in payment of debts it is essential that she understand the complete chain of the dispositive provisions, e.g., gifts over.”   Often lawyers dealing with unsophisticated illiterate clients only deal with the main points in the will in a very summary fashion.  Is that enough?  For Justice Haley the answer seems to be no.

Dealing With Testator Who Cannot Read, Speak or Understand English

Solicitors who do not take proper steps to ensure that the will properly reflects the testator’s instructions risk liability to disappointed beneficiaries.  In discussing the issue of solicitors’ liability in negligence cases, Ontario’s Court of Appeal[12] referred to M.M. Litman & G.B. Robertson G.B. article on “Solicitor’s Liability for Failure to Substantiate Testamentary Capacity”. [13]  The Court states:

“….The authors then identify solicitors’ common errors that have been either the subject of criticism by the courts or the basis of liability for professional negligence in the preparation of a will. These include:

•     the failure to ascertain the existence of suspicious circumstances,

•     the failure to react properly to the existence of suspicious circumstances,

•     the failure to provide proper interview conditions (e.g., the failure to exclude the presence of an interested party),”

So what is the best way to deal with a testator whose English skills are so suspect such that those who oppose a will may use that deficiency in the English language to challenge the will?

In preparation for this paper I have reviewed a number of the checklists, text books and cases relating to this issue and will review some of the options presently in use by solicitors and recommended by different authorities.

The Client’s English is good enough……

There are some solicitors who feel quite capable of communicating with a testator whose English is suspect either because the testator’s will is a simple one or they are persuaded that the testator’s English is good enough to understand the explanation given.  Some cases suggest that regardless of a testator’s suspect English skills, a will should be probated if the solicitor satisfies the court that he sufficiently explained the will so that the testator had knowledge and approved of the will’s Content. [14]

On the other hand, there is case law that says the exact opposite.  In the case of the Dansereau Estate[15] the testator was bilingual in matters of everyday living, but her first language was French.  She felt more comfortable speaking French when dealing with complicated or sensitive issues.  Therefore even when the will was reviewed and explained to her by a senior estate lawyer, the court found that the testator did not have the requisite knowledge and approval of the will because the lawyer seeing to its execution was unable to explain in French the documents that he presented to her for execution.

Clearly, the court’s decisions will always turn on facts specific to each case.  However, the best practice is to ensure that the manner of a will’s execution leaves little room for doubt and that the testator’s knowledge and approval of the will can later be proven in court.

Someone in my office speaks……

A common practice for people working with ethnic communities is to hire administrative staff who speak the language.  As well, lawyers sometimes work in their own ethnic communities and use their supplementary languages skills as a marketing feature.  Under these circumstances the courts have often approved of lawyers who read over and explain the will to testators in their own language[16] and the various law society and text book checklists often recommend referring such a testator to someone who speaks the testator’s language in order to avoid the allegation of suspicious circumstances.[17]

Unless the person in the law office has a proper command of both the English language and the language of the testator there is the risk that the will cannot be probated and the solicitor who took the instructions and saw to its execution risks liability to disappointed beneficiaries.  The courts have looked askance at wills when the comprehension of the testator was put into question because the lawyer and client spoke Italian of different dialects.[18]  Each case will turn on its facts, but common sense dictates that if either the testator’s or translator’s language skills are not sophisticated enough to accurately communicate the contents of the will the risk of the will being overturned and liability to the solicitor is enhanced.[19]

Testator’s Friend acts as Interpreter

The testator brought in a friend and makes it clear in broken English that this friend will translate on his behalf.  The friend translates the instructions and reads over the will and summarizes it for the plaintiff.

This practice poses a number of difficulties.  Unless the solicitor is familiar with the client and his friend it is difficult to independently determine the testator’s intentions, capacity and knowledge of the content of the will.  In Re Vleeming Estate[20]  the testator knew no English.  He brought in a friend to act as translator who, unbeknownst to the solicitor who drafted the will, was a loyal supporter of the beneficiaries named in the will.  The court ruled that this was not a proper testamentary disposition.

In his book, W. A. McIntyre rejects this option because “doubt will remain as to the competence and objectivity of the interpreter.”[21]

Employ A Certified Interpreter – The Gold Standard

The Law Society of British Columbia recommends, “As for the testator whose first language is other than English, the wisest course, if the solicitor does not speak the client’s first language, is either to send the client to a solicitor who does speak that language, or if that is not possible, to employ an interpreter.”[22]  One author suggests that the solicitor should retain an independent professional interpreter who will certify that the will was fully and fairly translated to the testator.[23]

Two objections have been raised with respect to this solution.   Some suggest it raises the bar too high and that the additional costs make it impractical.  Adding an additional $150 will price the solicitor’s services out of the market.

Despite these objections, McIntyre’s suggestions seem like the best way for a solicitor to ensure that the propounders of the will can later prove that the testator possessed knowledge and content of the will.   The fact that this practice may be more than is usually necessary should not dissuade those considering its uses.  An independent interpreter’s certification kept on file will further limit will challenges and reduce the chance of accusations of negligence.

The concern that using a translator makes the drafting of simple wills cost prohibitive is a concern.  However, for many who practice in this area it is rare that a solicitor ever recovers his/her usual hourly rate for the preparation of a simple will.  They are drafted in any event because the solicitor anticipates additional revenue streams from the fees associated with acting for the estate upon the testator’s demise.  If that is the case the additional costs are a low price to pay.

One final comment. This article is intended to help those involved in the estate planning process to be familiarized with some of the issues relating to the requirement that a testator have knowledge and approval of the contents of his or her will.  It is not a substitute for lawyers’ own research and analysis.  It is not intended to provide substantive legal advice nor opinions.

 


[1] Feeney’s Canadian Law of Wills, 4th ed., loose leaf, by Thomas G. Feeney & James Mackenzie (Toronto: Butterworths, 2000) Chapter 3 page 3.1

[2] Lidstone v McWilliams, [1931] 3 D.L.R. 455 (S.C.C.)

[3] Praught Estate, Re, 2002 PESCTD 1, 2002 CarswellPEI 2, 208 Nfld. & P.E.I.R. 64, 624 A.P.R. 64, 43 E.T.R. (2d) 289 (P.E.I. T.D.)

[4] Batten Singh v Amirchand (1947), A.C.. 161 (P.C.) 170

[5] Martin Estate, Re 53 D.L.R. (2d) 126; [1965] S.C.R. 757,

[6] Vout v. Hay, [1995] 2 S.C.R. 876, 7 E.T.R. (2d) 209, 125 D.L.R. (4th) 432

[7] Reference Re Sopel Estate,  1951 CarswellMan 39, 3 W.W.R. (N.S.) 451

[8] Schatz Estate, Re (1976), [1976] 5 W.W.R. 549, 1976 CarswellSask 68 (Sask. Surr. Ct.)

[9] Vleeming Estate, Re [1999] A.J. No 180; 1999 ABQB 141

[10] Sguigna Estate, Re, 1994 CarswellOnt 3298, [1994] O.J. No. 1612 (Ont. Gen. Div.)

[11] Tyrrell v. Painton et al., [1894] p.151 at pp. 159-60

[12] Hall v Bennet Estate 2003 CarswellOnt 1730, 15 C.C.L.T. (3d) 315, 171 O.A.C. 182, 64 O.R. (3d) 191, 227 D.L.R. (4th) 263, 50 E.T.R. (2d) 72

[13] “Solicitor’s Liability for Failure to Substantiate Testamentary Capacity” [13](1984), 62 Can. Bar Rev. 457.

[14] Krzanstek Estate v. Volcko [1990] A.J. No. 416

[15] Dansereau Estate v. Vallee[1999] A.J. No. 878 1999 ABQB 557

[16] Boutzios v. Boutzios, 2004 CanLII 14219 (ON S.C.);  Karzanstek Estate v Vocko 74 ALtlR 2d 221

[17] http://www.lawsociety.bc.ca/docs/practice/checklists/G-2.pdf; www.lawsociety.bc.ca/docs/practice/checklists/G-3.DOC

[18] Sguigna Estate, Re, 1994 CarswellOnt 3298, [1994] O.J. No. 1612 (Ont. Gen. Div.)

[19] Dansereau Estate v. Vallee[1999] A.J. No. 878 1999 ABQB 557

[20] Vleeming Estate (Re) [1999] A.J. No. 180;  1999 ABQB 141

[21] McIntyre, WA, Practical Wills Drafting. Toronto: Butterworths, 1992 p. 6.

[22] http://www.lawsociety.bc.ca/licensing_membership/pltc/docs-material/estates _ch3.pdf  paragraph 3.05; Re Shumlay Estate [1946] 3 W.W.R.. 540

[23] McIntyre, WA, Practical Wills Drafting. Toronto: Butterworths, 1992 p. 6 and Chapter 14.

The Unseen Risk to Personal Injury Victims

February 11, 2013 by Charles Wagner

The recent Ontario case of Timbers Estate v. Bank of Nova Scotia,[1] illustrates the vulnerability of those who are victims of a catastrophic injury. Jeffrey Timbers was in a car accident in 1993 and remained in a coma until his death in 2005. Who negotiates for someone like him? Who hires the personal injury lawyer or gives the lawyer instructions?  When there is a settlement, who manages the money received? In this case, Jeffrey Timbers’ brother-in-law, Gordon Wood, was appointed his guardian of property[2] and managed the money received from the insurance company. When Mr. Timbers died, his daughter became the estate trustee of his estate. After reviewing the documents, she came to the conclusion that her uncle Mr. Wood had stolen settlement money from the structured settlement payments.   There seemed to be a lot of missing money and Jeffrey Timbers’ daughter, in her capacity as estate trustee, ended up bringing a claim for damages for breach of trust in the amount of $900,000.  While the case itself is interesting, for the purpose of this blog, I want to address the concern about how the process failed Mr. Timbers.  What steps might have been taken to catch an allegedly dishonest power of attorney or guardian of property and better protect someone like Jeffrey Timbers?

 

It may help to review the personal injury claims process for parties under disability.  In Ontario, an injured person may be entitled to make a personal injury claim.[3]  When the injured person is unable to manage his property,[4] he is considered to be a person under disability.[5]   If the injured party has a power of attorney for property, then the person he appointed as his attorney will hire a lawyer who will file the appropriate affidavit with the court so that the attorney can act as the litigation guardian.[6]  If there is no power of attorney, then someone has to go to court to be appointed guardian of property.  Even though someone can file an affidavit to be a litigation guardian without being an attorney for property or a court appointed guardian of property, it is prudent to make an application to court for the appointment of a guardian of property so that, outside the litigation, someone is able to speak on behalf of the injured person who cannot speak on his own behalf.  For example, once the claim is settled, someone has to be able to manage the settlement money.

 

The guardian of property has the ability to do everything the incapable person could have done except make a will. The application to appoint a guardian of property is brought under the Substitute Decision Act (the “SDA”).[7]  There is a process to ensure that the incapable person receives a fair deal and is protected.  Rule 7.08[8] of the Ontario Rules of Civil Procedure provides that every settlement involving a person under disability requires a judge’s approval.  The judge reviews everything from the quantum of the settlement to the reasonableness of the fees charged by the lawyer.  The judge also reviews affidavits of the litigation guardian and the lawyer acting for the litigation guardian.  These affidavits set out the reasons why the litigation guardian and the lawyer believe the settlement is in the best interests of the person under disability.  Notice must also be provided to the Public Guardian and Trustee (the “PGT”) and the judge may ask the PGT for its views.[9]  Up to that point, there is a protocol in place to protect a victim of a catastrophic injury.  The real risk begins once the settlement is finalized and the insurance company has paid the money.  At that point, the court appoints a guardian of property to manage the assets of someone who has suffered a catastrophic injury. The problem is, after the appointment, there is rarely someone checking up on him or her.

 

One of the problems in these types of cases is that the person who is appointed guardian for property is usually a trusted member of the family.  It may be  the accident victim’s wife, child, parent or sibling who selflessly gives up their rights to compensation to get more for their family member who needs it most.  While the PGT may make spot-checks, there is no one really watching the guardian of property on a regular basis to ensure that the guardian of property is using the money for the benefit of the injured party.  Will the trusted family member act as selflessly as we hope? Unfortunately, as alleged in the Timbers Estate case, there are times when even trusted family members take advantage of the most vulnerable.

Remember that in personal injury cases there is quite often a lot of money involved.  A successful motor vehicle accident claim can provide income replacement benefits, caregiver benefits, medical and rehabilitation benefits, attendant care benefits, and the payment of various other expenses.  In cases of truly catastrophic impairment, this can mean a payout of millions of dollars.[10] After tough negotiation about the cause and consequences of the personal injury, the insurance companies will usually agree to some form of lump-sum payment or structured settlement agreement. A structured settlement is a type of insurance product called an annuity that guarantees the injured person a fixed stream of tax-free payments, usually for life.  One of the key advantages of the structured settlement is, of course, that the injured person is in no danger of outliving his benefits.  What can or should family members do to protect the person under disability and ensure that the guardian of property does not take advantage of the situation?

Here are some options to consider when a member of their family has gone through a catastrophic injury:

 

  1. Obligation of Guardian of Property to Keep Records: It is important to remind the guardian of property that he or she is a fiduciary[11] who has both a common law and statutory duty to keep accounts of all transactions involving the disabled person’s property.[12]  If the proposed guardian of property is aware of his or her obligations, and is aware that concerned family members know of that duty, this may make him or her think twice before taking advantage of the situation.   The regulations are quite comprehensive, but in summary, a guardian of property must keep vouchers showing a list of assets at the beginning of the process, a list of what cash and assets were required and what was disposed of, and any investments made.  If the guardian of property is not keeping records or is not prepared to show the records to concerned family members, you may consider this a red flag for concern.

 

  1. Passing  of Accounts.  There are three points where family members should ask that the court make an order that the guardian of      property pass his or her accounts at regular intervals. Making the guardian pass his or her accounts means that the guardian will have to  show all the records of what transpired with the property of the incapable person while the guardian of property was in charge. It will allow those who brought the motion to compel a passing of accounts to verify if the guardian of property has properly managed the incapable person’s money.  If the objections are not answered,  the matter goes to trial. The three points in time where one might ask a      court to order that a guardian of property pass his or her accounts are as follows:

 

  •  Application to appoint guardian of property.  When there is a catastrophic personal injury resulting in the accident victim  becoming incapable, a motion to appoint a guardian of property will take place. At that point, family members can ask for the order to provide that the guardian of property pass his or her accounts at regular intervals;
  •  Motion for Approval of Settlement.  As indicated above, any settlement negotiated on behalf of an incapable person has to be approved by the court. The guardian of property must bring a Rule 7 motion seeking approval of the settlement by a judge. At that point, family members can also ask the court to include a provision in the judgment that the guardian of property pass his or her accounts at regular intervals;
  • Section 42(4) Motion seeking leave to compel an accounting.   As explained above, the guardian of property is a fiduciary whose powers and duties must be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit.[13]  Section 32(6) of the SDA requires the guardian of property, in accordance with the regulations, to keep accounts of all transactions involving the property. Now what happens if there is suspicion of foul play and the guardian of property refuses to disclose the bookkeeping?  Arguably, this is contrary to his or her obligations under the SDA, which provides that the guardian of property must consult with supportive family members and friends of the incapable person.[14]  Failure to share what’s going on should be a red flag of concern and, arguably, gives reasonable cause for a concerned family member or friend to consider bringing an application under subsection 42(4) of the SDA for leave to compel the guardian of property to pass his or her accounts.[15]

 

This short overview of the law should not be taken as legal advice In the event that you or a person you care about is injured and/or potentially incapable, nothing is as useful as retaining a competent personal injury lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice about the prospects of an accident benefits claim, a structured settlement, a guardianship application or, if necessary, a breach of trust claim or application for leave to have the guardian of property pass his accounts.

The authors are Charles B. Wagner and Brendan Donovan.  Brendan is an associate and Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.  This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

 

 

 

 

 

 

 

 


[1] Timbers Estate v. Bank of Nova Scotia, 2011 ONSC 3639 (CanLII).

 

[2]   The process for appointing a guardian of property in Ontario is set out in sections 22-30 of Substitute Decisions Act, 1992, S.O. 1992, c. 30.

[3] Under the statutory accident benefits scheme created by, inter alia, the Insurance Act, R.S.O. 1990, c. I.8, the Statutory Accident Benefits Schedule, O. Reg. 34/10, and the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, O. Reg. 403/96.

[4] Please see section 6 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30, which provides that a “person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.”

[5] Under Rule 1.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the definition of “disability” includes a person who is mentally incapable within the meaning of section 6 or 45 of the Substitute Decisions Act, 1992 in respect of an issue in the proceeding, whether the person has a guardian or not.  Section 6 of the Substitute Decision Act is set out above in endnote iv.

[6]   See Rule 7.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which provides that, for a party under disability, the lawsuit must be commenced by a litigation guardian.  A court appointment for a plaintiff and applicant is not necessary if the mentally incapable person has a guardian with authority to act as a litigation guardian.  No person except the Office of the Childrens Lawyer or the PGT can act as a litigation guardian for the plaintiff or applicant until that person has filed an affidavit which sets out that the person: (a) consents to act as litigation guardian in the proceeding; (b) confirms that he or she has given written authority to a named lawyer to act in the proceeding; (c) provides evidence concerning the nature and extent of the disability; (d) in the case of a minor, states the minor’s birth date; (e) states whether he or she and the person under disability are ordinarily resident in Ontario; (f) sets out his or her relationship, if any, to the person under disability; (g) states that he or she has no interest in the proceeding adverse to that of the person under disability; and (h) acknowledges that he or she has been informed of his or her liability to pay personally any costs awarded against him or her or against the person under disability.

[8]    See subrule 7.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194: “No settlement of a claim made by or against a person under disability, whether or not a proceeding has been commenced in respect of the claim, is binding on the person without the approval of a judge.”  As well, please see DeMichino (Guardian of property of) v. Musialkiewicz (June 28, 2012, Juriansz, LaForme and Epstein JJ.A., Ontario Court of Appeal) 217 A.C.W.S. (3d) 709.  In this case the lawyers for he plaintiff (who suffered catastophic injuries) sought a premium for legal services rendered.  The motion judge did not approve of the settlement because the judge felt the premium to be excessive.  On appeal the plaintiff’s lawyer suggested a reduced premium which was approved.  Decision reflects the court’s desire to ensure that the settlement is in the best interests of the incapable person.

And subrule 7.08(2): “Judgment may not be obtained on consent in favour of or against a party under disability without the approval of a judge.”

[9] See subrule 7.08(5):“On a motion or application for the approval of a judge under this rule, the judge may direct that the material referred to in subrule (4) be served on the Children’s Lawyer or on the Public Guardian and Trustee as the litigation guardian of the party under disability and may direct the Children’s Lawyer or the Public Guardian and Trustee, as the case may be, to make an oral or written report stating any objections he or she has to the proposed settlement and making recommendations, with reasons, in connection with the proposed settlement.”

[10]  The legislation and case law surrounding the definition of “catastrophic impairment” is complex. For a recent decision of the Ontario Court of Appeal, see Pastore v. Aviva Canada Inc., 2012 ONCA 642 (CanLII).

[11] A fiduciary is a person with both a legal and ethical duty of trust.  There is both a common law and statutory fiduciary obligation on an attorney for property. The statutory duties are set out in sections 32 and 38 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30. As articulated by Professor Waters in his book Waters’ Law of Trusts: “It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests completely aside. In the common law system this duty may be enforceable by way of an action by the principal upon the contract of agency, but the modes in which the rule can be breached are myriad, many of them in situations other than contract and therefore beyond the control of the law of contract. It was, in part, to meet such situations that Equity fashioned the rule that no one may allow his duty to conflict with his interest.”

[12] Someone who is appointed as an attorney for property has a duty to keep proper records, which includes a duty to obtain and keep receipts. In Ontario, that common law duty has been codified under the Substitute Decisions Act, 1992, S.O. 1992, c. 30, see sections 32(6) Duties of guardian, Accounts; 33(1) Liability of guardian and 42; Passing of Accounts, as well as under Accounts and Records of Attorneys and Guardians, O. Reg. 100/96.

[14] See subsection 32(5) of the SDA, the Substitute Decisions Act, 1992, S.O. 1992, c. 30 .

[15] Under subsection 42(4) of the SDA the Substitute Decisions Act, 1992, S.O. 1992, c. 30 .  The legislation provides that the following persons may apply to have the guardian of property pass his or her accounts: (1.) the grantor’s or incapable person’s guardian of the person or attorney for personal care; (2.) a dependant of the grantor or incapable person (in our case, Jeffrey Timbers’ daughter, if she was a dependant, could have applied to court to have her uncle pass his accounts);  (3.) the PGT (if there are suspicions and you report them to the PGT, the PGT may commence an application for an accounting); (4.) the Children’s Lawyer; (5.) a judgment creditor of the grantor or incapable person.; or (6.) any other person, with leave of the court.  Normally, “any other person with leave of the court” is the category most concerned family members will fall under.  But “any other person” must first seek leave of the court in order to apply to have the guardian of property pass his or her accounts.

Capacity in the Estate Context

November 28, 2012 by Charles Wagner

I was invited to speak at a Law Society of Upper Canada CLE seminar that took place on October 30, 2012.  It featured many people who I consider some of the best practioners in this area.  My paper[1] analyzed whether Justice Cullity, in Banton v. Banton,[2] expanded the test on insane delusions.  At the actual presentation, Jordan Atin, the Chair of the program, asked Ian Hull and me to address a potpourri of issues.  My topics included capacity, undue influence, managing client expectations, and evidence in the context of estate disputes.  Ian Hull spoke on strategy in estate litigation among other topics.  At the conclusion of the seminar I received a number of requests to provide my notes or something more formal to those who enjoyed the presentation. They felt the time was short and wanted specifics of some of the source material I referred to for use in their practice.  This blog is, in part, a response to those requests and provides a review and sources for my comments on capacity and undue influence.

When challenging a will, testamentary capacity is often the key issue.  Let’s first review the seminal English case Banks v. Goodfellow[3] which has been adopted in Ontario[4].  This case stands for the proposition that the testator has testamentary capacity if:

  1. the testator understands the nature of making a will and its effects;
  2. the testator understands the extent of the property being disposed of;
  3. the testator understands the nature of the act and its effects;
  4. the testator appreciates the claims to which he or she ought to give effect; and
  5. finally, no insane delusion influences his or her will in disposing of the property and brings about a disposal of which, if the mind had been sound, would not have been made.

In the authoritative text of Feeney’s Canadian Law of Wills[5] the learned author answers the question “what is testamentary capacity” as follows, “To use the time-honoured phrase, a person must be “of sound mind, memory and understanding” to be able to make a valid will. When a will is contested on the ground of mental incapacity, the propounder must prove that the testator understood what he or she was doing: that the testator understood the “nature and quality of the act.” The testator must be able to comprehend and recollect what property he or she possessed, the persons that ordinarily might be expected to benefit, the extent of what is being given to each beneficiary and, finally, the nature of the claims of others who are being excluded.”

 

For the purpose of this blog I prefer not to revisit in detail the issue of delusions.  I have addressed that topic extensively in the paper I delivered at the CLE event which is available online for the reader at this link Insane Delusions – Has The Test Been Expanded?  Suffice to say that the test for delusions is two pronged. Firstly for a testamentary document to be set aside there must be a delusion.  For it to be a delusion the belief held must be one that no one could reasonably believe.  Secondly, mental disease is not enough.  For the will to be set aside the decision by the testator to disinherit a person must be rooted in the delusion.    It behooves us to remember that in Banks v. Goodfellow[6] the testator believed that he was molested by evil spirits, but the will was upheld because there was no connection between the delusions and the dispositions made by the testator.

A very important question regarding the issue of testamentary capacity is at what time in the process is the capacity of the testator relevant?  The rule is set out in Parker v. Fieldgate – the key moment is the time the testator provides instructions.[7]  What is also important is that at the time of execution the testator needs a sufficient level of capacity to comply with the formalities of execution.[8]  A will may be set aside for failure to comply with the formalities of execution[9].

A foundation point in these sorts of discussions is that the testamentary document should genuinely reflect the decisions of the testator[10].  Was there coercion?  Did the testator know and approve of what was set out in the will?  These two issues are referred to as undue influence and “knowledge and approval”.  To be clear it may very well be that a person has testamentary capacity but the testamentary document can be set aside for other reasons.  For example, it may be set aside because of coercion and/or fraud (i.e. undue influence).  The testamentary documement may be set aside because the testator did not understand the wording or there perhaps it will be rectified because there was an error when drafting the will such that the testator’s intentions were not set down accurately.  In that sort of case it is arguable that the testator did not know or approve of the testamentary document.  This topic of rectification is one that is beyond the scope of this blog, but merits careful review.  As a starting point, I refer the reader to Rectification – the Equitable Remedy to Fix Errors in a Will.

One basis for challenging the validity of a Will is the allegation of undue influence. If there are suspicious circumstances surrounding the testator then the normal presumption, that a Will is valid if properly executed, is rebutted.  It is now up to the person claiming that the new testamentary document is valid to prove that there was no coercion or undue influence on the testator.[11]

The equitable doctrine of undue influence was developed[12],not to save people from the consequences of their own folly but to save them from being victimized by other people. These cases may be subdivided into two groups.  In the context of a will challenge the question is whether there was any coercion by a beneficiary on the testator.   Whether the influence is “undue” is a matter of fact and there is arguably a sliding scale depending on the vulnerability of the testator and his/her dependence on the person exercising the influence.  Has the person being accused of exercising undue influence exercised some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, some sort of fraud?

The second group deals with disputes surrounding gifts that took place prior to the demise of the testator. At issue is whether the person accused of undue influence has gained some personal advantage because of the reliance of the donee on the recipient of the benefit.  In Ontario, Canada those who are appointed as Attorney for Property are designated by statute as a fiduciary. Other parties may also be considered fiduciaries depending on the role they played in the testator’s lives[13].  As articulated by Professor Waters in Law of Trusts in Canada, Second Edition (Carswell: 1984, Toronto): “It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests completely aside”.  So what happens when a fiduciary gets a gift?  There is a presumption of undue influence.[14]

Mr. Justice Cullity[15] set out the following factors to consider in an undue influence claim:

  • the willingness or disposition of the persons to have exercised undue influence;
  • whether an opportunity existed;
  • the vulnerability of the testator[16];
  • the degree of pressure that would be required;
  • absence of moral claims of the beneficiaries;
  • whether the will departs radically from the dispositive pattern of earlier wills.

When investigating if someone knew and approved of the testamentary document these are some red flags to watch for including blindness, illiteracy, inability to understand English,[17] unexplained radical departure from previous wills, sequestration of testator, manipulative behavior by the main beneficiary to obtain all of the deceased’s assets, the presence of a new lawyer or the absence of independent legal advice, and whether statements or actions of the testator subsequent to the making of the alleged will were fundamentally inconsistent with its terms.

The capacity to grant or revoke powers of attorney and capacity to manage one’s property and personal care is a different test.  These disputes often arise when families wrestle over control of aging parents’ assets or the responsibility for their care.  Ever increasingly the behaviour of financial predators, caregivers, friends and family members lead to disputes regarding the capacity of seniors to make gifts and even the capacity to marry.  The latter becomes all the more significant because marriage can involve revocation of previous wills[18], entitlement to property and support rights under Part II and Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26.  When discussing the different types of capacity it is important to remember that the definitions of capacity are task specific.  From highest to lowest they are:

    1. Testamentary capacity.[19]
    2. Capacity to manage property has a lower threshold than testamentary capacity.[20]
    3. Capacity to manage personal care has a lower threshold than the capacity to make a will or  manage property.[21]
    4. The threshold for capacity to appoint or revoke a power of attorney is lower than the threshold for  testamentary capacity and or the capacity to manage property or personal care.[22]
    5. Capacity to make a gift or enter into a contract is a sliding scale depending on the size of the  gift.[23]
    6. The threshold for the capacity       to marry seems to the lowest. I caution the reader that this may be subject to change and there are several excellent papers and books written that should be reviewed when confronted with this situation[24] 

 

This short blog was based on my notes, with respect to capacity, from the CLE event.  It is not meant to provide anything more than an overview of the topic on capacity as well as access to some of the very excellent books and papers on the topic.

 

 

[1] C. Wagner and N. Herrmann, Insane Delusions – Has The Test Been Expanded? (Toronto: LSUC Estate Litigation Practice Essentials, 2012).

[2] 1998 CarswellOnt 3423, 164 D.L.R. (4th) 176, 66 O.T.C. 161.

[3] Banks v. Goodfellow (1870), All E.R. Rep. 47 (Q.B.) is the seminal case. See page 565, which sets out the test. It has been adopted by Canadian courts. See Popke v. Bolt (2005), ABQB 214 (Alta. Q.B.), and Larocque v. Landry (1922), 52 O.L.R. 479 (Ont. C.A.). I would also refer the reader to Justice Laskin’s summary of the elements of capacity in Schwartz v. Schwartz, [1970] 2 O.R. 61 (Ont. C.A.). The testator must be sufficiently clear in his understanding and memory, to know on his own and in a general way, (a) the nature and extent of his property, (b) the persons who are the natural objects of his bounty, and (c) the testamentary provisions he is making; And he must be capable of (d) appreciating these factors in relation to each other, and (e) forming an orderly desire as to the disposition of his property.

[4] Banks v. Goodfellow has expanded on the factors that will demonstrate that a testator has the “sound and disposing” mind necessary to make a valid will. Justice Charron, of the Ontario Court of Appeal, summarized these requirements in Hall v. Bennett Estate, noting that in order to have a sound and disposing mind a testator:

• must recollect the nature and extent of his or her property;       *must understand the extent of what he or she is giving under the will;

• must remember the persons that he or she might be expected to benefit under his or her will; and   * where applicable, must understand the nature of the claims that may be made by persons he or she is excluding from the will.

[5] Feeney, Thomas G. & Jim Mackenzie. Feeney’s Canadian Law of Wills, 4th ed., looseleaf (Toronto: Butterworths, 2000), paragraph 2.6

[6] See Footnote 3 for the citation.

[7] Parker v Fieldgate (1883), 8 P.D. 171.  The rule, in Parker v. Felgate provides that even if the testator lacked testamentary capacity at the time the will was executed, the will is still valid if:  The testator had testamentary capacity at the time he or she gave the lawyer instructions for the will; (b) The will was prepared in compliance with those instructions; and (c) When the testator executed the will, he or she was capable of understanding that he or she was signing a will that reflected his or her own previous instructions.This, keeping in mind the requirements for due execution as set out in the Succession Law Reform Act, R.S.O. 1990, c. S.26

[8] Section 4.(1) of the Succession Law Reform Act, R.S.O. 1990, c. S.26 states, “Subject to sections 5 and 6, a will is not valid unless,

(a) at its end it is signed by the testator or by some other person in his or her presence and by his or her direction;

(b) the testator makes or acknowledges the signature in the presence of two or more attesting witnesses present at the same time; and

(c) two or more of the attesting witnesses subscribe the will in the presence of the testator.

[9]   Please see Have Ontario’s Courts Dispensed with Strict Compliance with the Formalities of Execution? – this is article found at http://www.hg.org/article.asp?id=27886

[10]   I make this comment with some trepidation given the recent case law on rectification.  Often disappointed beneficiaries ask the court to fix the mistake where the lawyer who drafted the will may admit that he inadvertently drafted the will contrary to the instructions of the deceased. The legal term for this request is “Rectification”. Courts use this equitable remedy very carefully. Exactly what type of evidence a judge may consider is being debated in the courts. How sure does the court have to be to fix the mistake? Is the court limited in how it can fix the mistake? In exercising the remedy is the court limited to only being able to delete certain parts of the will? Can a judge add missing words? I refer the reader to Rectification – the Equitable Remedy to Fix Errors in a Will  .

[11] See analysis of  Vout v. Hay 1995 CarswellOnt 186, 7 E.T.R. (2d) 209, 125 D.L.R. (4th) 431, [1995] 2 S.C.R. 876, 183 N.R. 1, 82 O.A.C. 161 at http://www.wagnersidlofsky.com/articles/grounds-for-challenge.php

[12] as was pointed out by Lindley L.J. in A/Icard v.Skinner. 36 Ch. D. 145, [1886-90] All E.R. Rep. 90 (C.A.),

[13] I found the looseleaf text “Fiduciary Duties in Canada” By: Mark Vincent Ellis a useful reference for this issue.

[14]  For those advocating that a challenged gift is valid I refer you to section 2(4) of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 which deals with onus of proof, contracts and gifts.  The section provides, “In a proceeding in respect of a contract entered into or a gift made by a person while his or her property is under guardianship, or within one year before the creation of the guardianship, the onus of proof that the other person who entered into the contract or received the gift did not have reasonable grounds to believe the person incapable is on that other person.”  Query whether a gift is valid if the recipient of the gift had reasonable grounds to believe the incapable person to be capable?  I know of no determinative judicial review of this section.

[15]  See Scott v. Cousins (2001), 37 E.T.R. (2d) 113 (Ont. Sup. Ct. J.),

[16] For an excellent article on this topic see Assessment of Testamentary Capacity and Vulnerability to Undue Influence Kenneth I. Shulman; Carole A. Cohen; Felice C. Kirsh; Ian M. Hull; Pamela R. Champine Am J Psychiatry 2007;164:722-727.

[17] See “Testator Does Not Speak English by Charles B. Wagner

[19] The threshold for testamentary capacity is the highest. See Penny v. Bolen, 2008 CanLII 48145 (ON.S.C.) at para. 19: “There are different tests for the capacity to make a Power of Attorney for personal care and for property. A person may be incapable of managing property but capable of making a Power of Attorney for Property. With respect to Powers of Attorney for Personal Care the capacity threshold is much lower than for Power of Attorney for Property which is lower than the capacity required to execute a will.”

[20] The test for determining the capacity to manage property is found at section 6 of the  Substitute Decisions Act, 1992, S.O. 1992, c. 30 . Capacity to manage property is defined as: (a) The ability to understand the information that is relevant in making a decision in the management of one’s property; and  (b) The ability to appreciate the reasonably foreseeable consequences of a  decision or lack of a decision.

[21]    Under section 45 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 , the test for determining capacity required for managing personal care is: (a) The ability to understand the information that is relevant to making a decision relating to his or her own health care, nutrition, shelter, clothing, hygiene or safety; and (b) The ability to appreciate the reasonably foreseeable consequences of a decision or lack of decision. A person who is sixteen years of age or older is presumed to be capable of making personal care decisions.

[22]   Please see section 8 of the 47 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 .  For property the threshold requires  (a) knowledge of what kind of property he or she has and its approximate value;  (b) awareness of obligations owed to his or her dependants;(c) knowledge that the attorney will be able to do on the person’s behalf anything  in respect of property that the person could do if capable, except make a will,

subject to the conditions and restrictions set out in the power of attorney; (d) knowledge that the attorney must account for his or her dealings with the person’s property;  (e) knowledge that he or she may, if capable, revoke the continuing power of attorney;  (f) appreciation that unless the attorney manages the property prudently its value may decline; and (g) appreciation of the possibility that the attorney could misuse the authority given to him or her.

[23] The test for capacity to give a gift changes if the gift is significant in value, in relation to the donor’s estate. In such cases, the applicable capacity test changes to the test for capacity to make a will, that is , testamentary capacity.  In the English case of Re. Beaney, the judge explained the difference in tests for capacity to give gifts or make gratuitous transfers as follows: At one extreme, if the subject-matter and value of a gift are trivial in relation to the donor’s other assets a low degree of understanding will suffice. But, at the other, if its effect is to dispose of the donor’s only asset of value and thus for practical purposes to pre-empt the devolution of his estate under his will or on an  intestacy, then the degree of understanding required is as high as that required to make a will, and the donor must understand the claims of all potential donees  and the extent of the property to be disposed of.  See Kimberly Whaley, “Comparing the Various Tests of Capacity” Law Society of Upper Canada, 13th Annual Estates& Trusts Summit (November 18, 2010).  See http://www.whaleyestatelitigation.com/

[24]  A must read for anyone dealing with this issue is the book “Capacity to Marry and the Estate Plan” in 2010, with co-authors: Kimberly Whaley, Dr. Michel Silberfeld, Heather McGee and Helena Likwornik, the February 9, 2012 paper “The Capacity to Marry and Divorce” presented at the OBA Institute Trusts and Estates Law Seminar on February 9, 2012 and the decision of Justice Cullity in Banton v Banton.   This is a case that addresses this threshold issue.   Section 7 of the Ontario Marriage Act  prohibits a person from issuing a license to or solemnizing “the marriage of any person who, based on what he or she knows or has  reasonable grounds to believe, lacks mental capacity to marry by reason of being under the influence of intoxicating liquor or drugs or for any other reason.”  Common law capacity to marry was essentially equivalent to the capacity to enter into any binding contract, and certainly at a lower threshold than testamentary capacity.

Estate Litigation Often Starts With These Questions

September 27, 2012 by Charles Wagner

Did the Testator have capacity to make a will?  Did the Grantor have capacity to grant a power of attorney?  Courts look to a number of factors to answer these questions.  There are a number of excellent articles and textbooks 1 that address the tests and difficulties in litigating capacity.  Addressing those issues is beyond the scope of this paper.  The purpose of this article is to address the utility of a retrospective capacity assessment in the face of apparently overwhelming contemporary medical opinion evidence that opines that the person in question had capacity.

The value of a retrospective assessment was addressed in Wilson v. Mack Estate2.  The deceased Mary Mack was an alcoholic before her death.  She executed a will and her long time lawyer and family doctor as well as the hospital’s capacity assessors all testified that Mary had the capacity to make her will.  Those doctors were familiar with capacity assessments and the issues involved.  Nonetheless, the plaintiff still did not believe that Mary had capacity.  Mary imagined that the plaintiff, Wilson, stole from her and that was the reason for the disinheritance.  Her lawyers retained Dr. Nathan Herrmann 3 to review all the medical evidence and do a retrospective analysis of capacity.  While he never met the testator, upon his review of the medical evidence Dr. Herrmann was persuaded that Mary lacked testamentary capacity.

It’s important to remember that Dr. Herrmann never treated Mary.  He did not have an opportunity to assess Mary in person. However, he was able to review much of the documentary evidence filed with the court. His evidence was in direct contradiction to the evidence presented by Baycrest’s capacity assessors and of Dr. Hardy (her primary care physician).  Based on the review of the evidence Dr. Herrmann believed:

  • Mary likely suffered from delusions about Wilson which affected her testamentary capacity;
  • The decision to disinherit Wilson was based on delusional ideation as evidenced by her mental status examination, as well as significant recent memory problems and confabulations;
  • The assessors at the Baycrest Department of Psychology did not sufficiently appreciate the pattern of prominent behavioural disturbances, and specifically the presence of paranoia and delusional ideation;
  • While Mary was able to superficially appear competent on relatively brief cross-sectional examinations, her long-standing behavioural disturbances and detailed neuropsychological testing clearly indicated significant psycho pathology and cognition disturbances.

So who did the judge believe?  The judge accepted Dr. Herrmann’s evidence over the doctors who treated Mary and assessed her while she was alive.  In paragraph 175 of the judgment, Sanderson J. stated, “While it would have been preferable for Dr. Hermann to have examined Mary in person, and to have tested her himself, he was able to review and interpret the extensive testing done by the Baycrest team. I find his evidence credible and helpful.”4

What this case demonstrates is that contemporary medical assessments are not unassailable when qualified expert testimony is sufficiently persuasive.  It would be a mistake to review this case and paper and conclude that courts always accept an expert’s retrospective review of capacity over evidence of doctors who treated the patient.  What this case illustrates is that where medical professionals disagree there is no certainty as to whose evidence will be accepted by the court.

Our short review of the law should not be taken as legal advice. Based on our experience in dealing with these cases, they often turn on their specific facts. If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

The author is Charles B. Wagner who is certified by the Law Society of Upper Canada as a specialist in Estates &. Trusts Law and is a partner at Wagner Sidlofsky LLP. This Toronto Law office is a boutique litigation firm whose practice is focused on estate, commercial and tax litigation.

Have Ontario’s Courts dispensed with Strict compliance with the Formalities of Execution?

August 12, 2012 by Charles Wagner

Imagine that Johnny is dying.  The doctors tell him to get his affairs in order.  The patient’s only living relative is an elderly aunt whom he despises.  Johnny wants to give all his money to his Church but, without a Will, by virtue of Ontario’s laws of intestacy that aunt will inherit everything.  A lawyer prepares a Will setting out Johnny’s testamentary wishes.  Johnny walks into the lawyer’s office, reads the will, and says it’s perfect.  There is no doubt as to Johnny’s intent as the lawyer has taken the precaution to videotape the whole process.  Johnny picks up the pen, is about to sign and dies.  Is the Will valid in Ontario?  It is almost certainly not valid [FN1], but there remains some doubt.  If everyone knows Johnny’s true testamentary intentions what rationalization exists for not accepting the unsigned document as a valid Will?

The legislatures, courts and Law Reform Committees in Canada have provided different policy reasons to justify strict compliance with the formalities of execution.  It’s been suggested [FN2] that the formalities of execution:

  1. Ensure that the Will was executed by the person purporting to be the testator and prevents a ne’er-do-well from impersonating the testator or someone from forging the testator’s signature;
  2. Avoid fraud, undue influence and coercion;
  3. Enhance the testator’s appreciation of the importance of the document;
  4. Make the administration easier with respect to granting probate; and
  5. Prevent opening the flood gates to various claims respecting documents that are purportedly wills.

In Ontario the rules with respect to wills, known as the formalities of execution, are set out in the Succession Law Reform Act, R.S.O. 1990, c. S.26 [SLRA].  The formalities of execution require that a will be in writing (s.3) and signed by the testator (or by some other person in the testator’s presence and by the testator’s direction), with the testator acknowledging their signature in the presence of two or more attesting witnesses present at the same time. Further, the will must then be signed by the two or more witnesses in the presence of the testator (s.4).  Section 4(1)(a) of the  SLRA is clear and unambiguous.  A will is not valid unless, at its end, it is signed by the testator or by some other person in his or her presence and by his or her direction [FN3].   Do Ontario courts have discretion to dispense with the formal requirements imposed by the SLRA ?  Several Ontario cases suggest the answer may be yes.

In Sisson v. Park Street Baptist Church [FN 4], the Court upheld a will where two witnesses were present when the testator executed the will, but only one witness signed the will. It is important to note that in Sisson the application was not opposed and the witness that had not signed had failed to do so inadvertently.  In Malichen Estate [FN 5] a husband and wife inadvertently executed each other’s wills. The Court upheld both wills.  Before jumping to any conclusions that these cases are reflective of a trend for Ontario courts to recognize substantial compliance  it is important to note that in both these cases the errors were inadvertent. Moreover, many believe these cases were decided incorrectly.  O’Flynn J. in Sills et al. v. Daley reviewed Sisson, Malichen and declined to follow them.  Instead, he followed Hindmarsh v. Charlton, Ellis v Turner, Bolton v Tartaglia and Re Murphy Estate.

In paragraph 40 of Sisson v. Park Street Baptist Church [FN 6], Justice Murphy of the Ontario Court of Justice stated, “that the absence of legislation on point should not stop the court from developing the common law where, in circumstances like this, there has been substantial compliance, given that the dangers which two witnesses are to guard against does not exist here.”  Justice Murphy’s judicial activism on this issue stands in stark contrast to Justice Cullity’s approach in Etorre [FN 7] where in response to a submission seeking substantial compliance His Honour stated, “….I would be reluctant to apply the principle of substantial compliance in the absence of a legislative mandate, or its endorsement by an appellate court.”[FN 8]  It seems that most other cases in Ontario adopt Justice Cullity’s approach [FN 9]. From Justice Cullity’s perspective courts must comply with the directions of the legislature and are not at liberty to change the law introducing uncertainty.  As the court stated in Hindmarsh v Charlton [FN 9a]  “…we must obey the directions of the legislature, and are not at liberty to introduce nice distinctions which may bring great uncertainty and confusion”

When considering the issues in this debate it is important to remember that the SLRA. provides certain instances where a testamentary disposition is valid without compliance with the formalities of execution.  These include:

  1. Holograph wills which are wills wholly in the testator’s writing, and signed by the testator without the necessity of subscribing witnesses [FN 10];
  2. Wills prepared by member of forces on active duty [FN 11]. Wills prepared by members of the forces, such as the Canadian Forces, on active duty do not need to be witnessed; and
  3. Gifts Mortis Causa [FN 12];

Hillary Laidlaw’s article, “Sills v Daley and the doctrine of substantial compliance:  Is close enough good enough?”[FN 13] provides a very interesting perspective on this debate.  She quotes John Langbeins’ article [FN 14], in support of substantial compliance.  Lanngbein asserts, “The rule of literal compliance… is a snare for the ignorant and the ill-advised, a needless hangover from a time when the law of proof was in its infancy”.

It is clear that the logic of the “substantial compliance” argument has impacted on the Canadian legal landscape.  A number of provinces have enacted legislation specifically giving judges the discretion to dispense with the formalities of execution, as long as the document in question substantially complies with the formalities of execution required by its local provincial legislation and is in accordance with the testator’s wishes. Examples of such legislation include the Saskatchewan Wills Act [FN15], Manitoba Wills Act [FN16], Nova Scotia [FN17] and soon British Colombia [FN18].  Ontario has not amended its legislation to provide for substantial compliance.

Right now, in Ontario, there remains a level of uncertainty because certain judges have appeared to step outside what seems to be the clear intent of the governing legislation.  This issue will be resolved only when either Ontario’s legislature or the Ontario Court of Appeal or legislature eventually deal with the issue.

Our short review of the law should not be taken as legal advice.  Based on our experience in dealing with these cases, they often turn on their specific facts.  If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

The authors are Charles B. Wagner and Liliana Ferreira. Liliana is an associate and Charles is certified by the Law Society of Upper Canada as a specialist in Estates &. Trusts Law and is a partner and at Wagner Sidlofsky LLP. This Toronto Law office is a boutique litigation firm whose practice is focused on estate, commercial and tax litigation.

 

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FN 1.     In Ontario, almost all the cases that address this issue stand for the proposition that full compliance with the formalities of execution is required for a will to be valid.  The two exceptions are Sisson v Park Street Baptist Church (1999), 24 E.T.R. (2d) (Ont. Gen Div.) [Sisson] and Malichan Estate 6 E.T.R. (2d) 217, (Ont. Gen. Div.).

FN 2.     Please See the Alberta Law Reform Institute, “Wills and the Legal Effects of Changes Circumstances” Final Report No.98 August 10, 2010 found at http://www.law.ualberta.ca/alri/docs/fr098.pdf   Alberta Law Reform Institute – Wills:  Non-Compliance with Formalities, Formal Report No. 84 June 2000.  Alberta Law Reform Institute, “Wills:  Non-Compliance With Formalities.  December 1999 found at http://www.law.ualberta.ca/alri/docs/cm008.pdf  ; Estate Litigation basics – 2010 Update CLE BC found at http://www.cle.bc.ca/PracticePoints/WILL/11-ProbateActions.pdf .  See Hillary Laidlaw’s article, “Sills v Daley and the doctrine of substantial compliance:  Is close enough good enough?” found at http://www.stepjournal.org/pdf/TQR2004i4p6.pdf .

FN 3.  Brian A. Schnurr, Estate Litigation, 2nd ed., chapter 18.13; Papageorgiou v. Walstaff Estate, [2008] 2620, 42 E.T.R. (3d) (S.C.J.).

FN 4.  Sisson.

FN 5.  6 E.T.R. (2d) 217, (Ont. Gen. Div.).

FN 6.  Sisson.

FN 7.  Ettorre Estate, Re (2004), 2004 CarswellOnt 3618, 11 E.T.R. (3d) 208 (Ont. S.C.J.) [Etorre].

FN 8.  See paragraph 37 of Etorre and Hidmarsh v. Charlton (1861) H.L. Cas. 160.

FN9.   See Sills v. Daley (2002), 3 E.T.R. (3d) 297 (S.C.J.) and  Papageorgiou v. Walstaff Estate, [2008] 2620, 42 E.T.R. (3d) (S.C.J.).

FN 9a.   Hindmarsh v. Charlton (1861), 8 H.L Cas. 160 at 166-167.  For more on the issue of judicial activism in Canada I refer the reader to  “Remarks of the Right Honourable Beverley McLachlin, P.C.” which can be found at http://www.scc-csc.gc.ca/court-cour/ju/spe-dis/bm04-11-12-eng.asp .  In her address she tries to address the following question, “What then of the accusation that courts have gone beyond their proper role? The charge is made that activist judges – politicians cloaked in judicial robes – have gone beyond impartial judging to advocate for special causes and achieve particular political goals, and that this is undemocratic.”

FN 10.  Section 6 of the Succession Law Reform Act, R.S.O. 1990, c. S.26.

FN 11.  Succession Law Reform Act, R.S.O. 1990, c. S.26. , sections 5 and 6;

FN 12.  Section 72(1)(a) the Succession Law Reform Act, R.S.O. 1990, c. S.26;

FN 13.  See pdf copy of the article at http://www.stepjournal.org/pdf/TQR2004i4p6.pdf ;

FN 14.  John H. Langbein “ Substantial Compliance with the Wills Act” (1975) 88 Harv. L. Rev. 489;

FN 15.  The Wills Act, Chapter W-12.1, 1996, section 37.

FN 16.  The Wills Act, C.C.S.M., c. W150, section 23.

FN17.  Wills Act, R.S.N.S., 1989, c. 505, section 8A

FN18.   Wills, Estates and Succession Act, S.B.C. 2009 c. 13 (Bill 4) (not yet in force), section 58(3)

Dependant’s Relief, Support and Gifts Mortis Causa

August 8, 2012 by Charles Wagner

Suppose Jane knew she was dying and gave the keys to her cottage to her favourite niece.  Jane’s lawyer transferred title of the cottage to the niece. After Jane’s death, her husband, Mark started a law suit against the estate for support.  He claimed to be a dependant and sought to have the capital value of the cottage deemed to be part of the net estate for purposes of ascertaining the value of estate.  His lawyers claimed that the gift was invalid.  Let’s take a moment to review Mark’s claim.

In his seminal text, Waters’ Law of Trusts in Canada, 3rd Edition, Professor Waters states,

“For a gift mortis causa to arise there are three requirements: 1. an intention to give immediately, but subject to the condition that absolute title shall vest in the donee only on the donor’s             death; 2. Delivery in the appropriate form, though in this case a chose in action can be given by delivery of the document by which it is represented, and; 3. a contemplation of death at the time of the intent and delivery.”[FN 1]. 

Spouses and children who are disinherited often commence applications for dependant’s relief under Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26.  Even if a party qualifies as a dependant, it is important to ensure that there is sufficient assets in the estate to fund support.  To that end, section 72 of the Succession Law Reform Act, R.S.O. 1990, c. S.26 includes assets which ordinarily are normally excluded to fund that support.  One such asset is a  “gift mortis causa”.

The first question Mark must ask is whether the “gift” was just a gift or was it a gift mortis causa.  It’s an important distinction because, except under certain circumstances,  Jane is allowed to give her belongings away during her lifetime.  A regular gift is not considered to be a section 72 asset.   Let’s see how the case law understands the meaning of “gift mortis causa”.  The explanation of gifts mortis causa dates back to the late 1800s. In Cain v. Moon [FN2], the court provided the classic definition. The court stated:

 “It is…conceded that for an effectual donatio mortis causa three things must combine: first, the gift or donation must have been made in contemplation, though not necessarily in expectation, of death; secondly, there must have been delivery to the donee of the subject-matter of the gift; and, thirdly, the gift must be made under such circumstances shewing that it is to take effect only if the death of the donor follows…[FN3]“

Although there have been very few Canadian decisions which expand upon this definition, the Court of Appeal has provided some guidance. Whether a donation is made in ‘contemplation, though not necessarily in expectation of death’ can be hard to identify. The Court of Appeal has stated that the donor must be in extremis at the time of making the gift [FN 4]. Essentially, a person must be beyond the hope of recovery and near death to be in extremis.   In our case, Jane knew she was dying.  She knew she had no hope of recovery and was near death, so the first part of the test was met.

The second element of the test relates to the laws of gifts; more specifically, there must either be actual or constructive delivery of the gift by the donor. For example, if the donor handed a Picasso to the donee, that would constitute actual delivery. An example of constructive delivery, on the other hand, would be the donor handing the donee keys to his Ferrari (as opposed to the Ferrari itself).   In our case, not only did Jane give her niece the keys to the cottage – she transferred title. The second prong of the test has been met.

Finally, and perhaps most challenging, is the third element. This part of the test states that the gift can only take effect if the death of the donor follows the gift having been made. Bayoff Estate [FN 5] is an interesting case on point. In that case, the deceased was diagnosed with cancer and his demise was imminent. The keys to a safety deposit box were given to the donee. The first two elements of the test for gifts mortis causa were easily fulfilled.   However, the court had to delve into the difficulties of the third prong of the test. The court noted that the deceased had not indicated that the gift was conditional on death in the required sense. Bayoff did not, either by words or by action, suggest that the gift was to take effect only if he died. The court also noted that the gift was made during the donor’s lifetime, but title would not vest until the donor died. In its conclusion, the court stated:

 Bayoff did not, either by words or actions, suggest that the gift was to take effect only if he died.  He had just finished signing a Will in contemplation of his death.  It is likely that any gifts which he intended to take effect on death were included in his Will.  The gift of the contents of the safety deposit box, in my opinion, was intended to be a gift inter vivos [FN 6].

In this case, the court focused on the timing that the will was made in its determination of whether the gift was indeed a gift mortis causa. Based on this conclusion, the gift in question was not a “gift mortis causa”.  If we apply this test to our fact situation, title to Jane’s cottage was transferred to her niece during Jane’s lifetime.  It was intended to take place when the transfer was made – not on Jane’s death.  Hence – it is not a gift mortis causa and will not be included as a section 72 asset.  Mark , the spouse/dependant,  will not be able to treat the capital value of the cottage as part of his wife’s estate for the purpose of funding his dependant’s relief claim.  The transfer was just an inter vivos gift [FN 7].

Whether the gift in question will be considered a section 72 asset for the purpose of dependant’s support under the Succession Law Reform Act, R.S.O. 1990, c. S.26 is not a simple issue.  Our short review of the law should not be taken as legal advice.  Based on our experience in dealing with these cases, they often turn on their specific facts.  If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

 The authors are Charles B. Wagner and Joanna Lindenberg.  Joanna is an associate and Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.  This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

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FN 1.  Waters’ Law of Trusts in Canada, 3rd Ed., 6 — Constituting or Setting up the Trust, 6.XI — Exceptional Modes whereby the Trust Becomes Completely Constituted [Waters]

FN 2.  [1896] 2 Q.B. 283 at 286.

FN 3.  Ibid.

FN 4.  Thompson v. Mehan [1958] O.R. 357.

FN 5.  Re Bayoff Estate S.K.Q.B. 23. [Bayoff].

FN 6.  Bayoff, supra note  4 at 10.

FN  7.  See Waters whose explanation on this issue is informative.  He states,  “It should be recalled that for a gift inter vivos to be valid at common law there must be an intention to give immediately, and a deed of gift or actual delivery. Delivery passes the donor’s dominion over the property to the donee, and must therefore be in the appropriate form to pass the full title in the property in question. For a gift mortis causa to arise there are three requirements: 1. an intention to give immediately, but subject to the condition that absolute title shall vest in the donee only on the donor’s death……”

What is a Resulting Trust

August 4, 2012 by Charles Wagner

“I don’t care who paid for the property – it’s in my name.”  But that’s the middle of the story – let’s start at the beginning.

Situations arise where legal  title may be in one person’s name , but the courts presume there was a decision to create a trust so that the equitable or beneficial ownership really belongs to another.  Let’s take a look at the recent  British Colombia Supreme Court  case of  Borkenhagen v. Kessler (FN 1).  It is a worthwhile read for those interested in area of estates and trusts because it reviews the basic tenets of resulting and constructive trusts.

Mr. and Mrs. Borkenhagen purchased a rental property which they agreed to rent to Mr. Borkenhagen’s elderly aunt, Mrs. Kessler. The terms of the agreement were that the aunt would pay a modest rent, approximately equivalent to the rent that she was paying in her previous apartment, and the aunt could remain at the rental property for as long as she liked. Prior to the purchase of the rental property, it was discovered that the bylaws and strata had a restriction requiring anyone who lived in the unit to be an owner and over the age of 55. Neither of the plaintiffs was over the age of 55 and as such the aunt was the only one that could satisfy the requirements for ownership. It was decided that all three parties would go on title to the property as joint owners. The relationship between the parties soured, the aunt severed the joint tenancy and asserted that she was the legal and beneficial owner of 1/3 of the rental property. The plaintiffs on the other hand, sought a declaration that they were the sole and legal beneficial owners of the property.

The parties each relied on Kerr v. Baranow (FN 2), which dealt with the issue of unjust enrichment and the “common intention” resulting trust.  A resulting trust is created when title to a property is in the name of a party that did not provide any value for the property, and that party is then required to return the property to the true owner (FN 3). The Court determined that the focus of analysis with respect to a resulting trust is the actual intention of the transferor, in this case, the plaintiffs. On the review of the evidence, the Court found that the plaintiffs’ intent was that their aunt would occupy the rental unit as a renter and not as an owner. The aunt did not contribute to the purchase price of the rental property and did not assume any of the normal obligations associated with ownership.  The purpose of the aunt’s title was simply to satisfy the strata requirements. The Court found that in this instance, there had been a gratuitous transfer and the presumption of a resulting trust had not been rebutted. As such, the Court found that the aunt held her 1/3 interest in trust for the plaintiffs, reaffirming that the concept of a resulting trust stems from the idea that people make bargains – not gifts.

The Court arrived at the same result when applying the principles of unjust enrichment and constructive trusts. A constructive trust is imposed when there has been unjust enrichment, regardless of the intention of the parties. Unjust enrichment occurs when there has been (1) an enrichment to the defendant; (2) a corresponding deprivation to the plaintiffs; and (3) there is an absence of any juristic reason for the enrichment. The Court found a constructive trust in favour of the plaintiffs based on the fact that the plaintiffs had paid all of the purchase money, and that the aunt did not have any obligations that an owner would normally have, such as paying property taxes. Therefore the aunt would be unjustly enriched if she was allowed to retain her 1/3 interest in the property.  The Court did find that there was an agreement between the parties which permitted the aunt to remain at the property until she wished to leave, but it did not amount to a juristic reason for the enrichment nor the defendant’s acquisition of title to the property.

Every situation is fact specific and you might think that your facts resemble this case enough to jump to a legal conclusion. That would be a mistake. This short review of the law is not meant to be legal advice. In our experience dealing with these cases, the Court’s decisions turn on the specific facts. If the reader has a legal question dealing with a similar problem the reader would be well advised to seek out competent legal counsel to determine the best course of action.

The authors are Charles B. Wagner and Liliana Ferreira. Liliana is an associate and Charles is certified by the Law Society of Upper Canada as a specialist in Estates &. Trusts Law and is a partner and at Wagner Sidlofsky LLP. This Toronto Law office is a boutique litigation firm whose practice is focused on estate, commercial and tax litigation.

 

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FN1      2012 BCSC 467I

FN2      2011 SCC 10

FN 3     Pecore v. Pecore, [2007] 1 S.C.R. 795.  The Supreme Court of Canada defined a resulting trust as follows:  “A resulting trust arises when title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner. While the trustee almost always has the legal title, in exceptional circumstances it is also possible that the trustee has equitable title.”   Pecore is the seminal case that deals with the presumption of a resulting trust that arises when children hold joint accounts with their elderly parents.  The presumption is that upon the parent’s demise the money does not pass by right of survivorship to the child – rather   it is held in a resulting trust for the estate.

How To Remove an Executor

July 28, 2012 by Brendan Donovan

Trustees have a duty to act with loyalty, prudence and good faith.(1)  Executors who breach their fiduciary duty risk being removed.  So let’s review how that might take place.

Under the Trustee Act of Ontario, it is possible for any person with an interest in the estate(2) to apply for an order removing a trustee.(3)  The courts are reluctant to use this power, however, and will only remove a trustee if it is in the best interests of the beneficiaries.(4)

A recent and striking example of this rule is the Ontario case of Venables v. Gordon Estate.(5)  In his will, Percival Hector Gordon established a generous trust for his daughter Helen. The income was to be paid to her for her life, with the remainder distributed equally to her two sons, Peter Gordon and Michael Venables.  Helen was appointed as trustee, with Peter named as an alternative should his mother become unable to act.  At the time of the litigation, the value of the trust was about $570,000.00 and Helen had reached the ripe old age of 100. Not surprisingly, she was having difficulty in carrying out some of her duties as executor.

In mid-September, 2006, Peter notified Michael that he would be taking over as trustee according to their grandfather’s will. This led to almost immediate problem. Peter started taking management fees out of the income account,(6) making unauthorized investments,(7) and at one point even stopped making payments to his mother.(8)  Michael, who was Helen’s attorney under a power of attorney, applied to have Peter removed as executor.

Was Peter’s behaviour bad enough for the court to order him removed as the executor of his grandfather’s estate?  In a word, yes. This case was different from some previous cases that held that a trustee can only be removed where it is clearly necessary,(9) where there is no other course to follow,(10) or where non-removal would prevent the proper execution of the trust.(11) The court in Venables found that Peter had crossed the redline. The court appointed a corporate trustee to take his place.

The Venables case is interesting to lawyers for several reasons.  First, it re-emphasizes the fact that, when deciding whether or not to remove a trustee, the courts tend to focus on the best interests of the beneficiaries and the future administration of the estate.(12)  Removing a trustee is primarily about protecting the beneficiaries and not about punishing the trustee for past misdeeds.  Second, Venables suggests that the courts might be more willing to remove a trustee where the conflict erupts between the trustee and someone who is “more than a mere beneficiary.”(13)  In Venables, Michael was the litigation guardian and attorney for property of his mother, who was the original trustee. Michael and Peter had also signed a settlement agreement in 2009 pursuant to which Peter agreed to give monthly bank statements to Michael and seek his approval for new investments. The court found: “Even if Michael was considered a mere beneficiary, Peter’s removal would be justified; but Michael stands in an enhanced position.”(14)  A question that intrigued me was why Michael did not seek his own appointment.  Why did Michael want a corporate trustee instead?  In our experience, when families argue over who should be executors, the court’s default position is to appoint a neutral estate trustee. I speculate that perhaps – being aware of that, Michael’s counsel may have advised him to take the high road and opt for a corporate trustee.

So what’s the bottom line?  Every situation is fact specific and even if you think your situation resembles a case you read about, it would be a mistake to jump to a legal conclusion.  However, as a general rule, when considering whether to remove an executor, judges tend to focus on the future administration of the trust, the protection of the beneficiaries and the status of the applicant seeking the executor’s removal. This short review of the law should not be taken as legal advice. Based on my experience in dealing with these cases, they often turn on the specific facts. If you have a legal question relating to something similar, you would be well advised to seek out competent legal counsel to determine your best course of action.

The authors are Charles B. Wagner and Brendan Donovan.  Charles is a partner and Brendan is an associate at Wagner Sidlofsky LLP. This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

 

Footnotes

(1)       In addition, trustees have a duty to avoid conflicts of interest, to account, to act gratuitously, etc. The various duties of trustees are outlined in Donovan Waters, Waters’ Law of Trusts in Canada, 3d Ed. (Thomson Canada Limited, 2005) at Chapter 18. See, e.g., Banton v. Banton, [1998] O.J. No. 3528, 164 D.L.R. (4th) 176 (Ont. Gen. Div.).  Joint trustees also have a duty to act jointly; that is, unanimously.  See A. Oosterhoff, Oosterhoff on Trusts: Text, Commentary and Materials, 7th Ed. (Thomson Reuters Canada Ltd., 2009) at p. 1050-1051.

(2)       Trustee Act, R.S.O. 1990, c. T.23, s. 37(3).

(3)       Trustee Act, R.S.O. 1990, c. T.23, s. 37(1).  The court also has an inherent jurisdiction to remove a trustee.

(4)       The classic statement of the rule may be found in Lord Blackburn’s speech in Letterstedt v. Broers (1884), 9 App. Cas. 371 (P.C.).

(5)       Venables (Litigation Guardian of) v. Gordon Estate (2012), 76 E.T.R. (3d) (Ont. S.C.J.).

(6)       Supra, at paras. 12 and 16. By taking management fees out of income, a person entitled to the remainder is essentially preserving his own inheritance at the expense of the life tenant.

(7)       Supra, at para. 17. He executed trades totaling $56,000.00 in one month.

(8)       Supra, at para. 14.

(9)       Re Weil, [1961] O.R. 888 at 889 (C.A.).

(10)    Crawford v. Jardine, [1997] O.J. No. 5041 (Ont. Ct. (Gen. Div.), citing Re Tempest (1866), L.R. 1 Ch. 485.

(11)    Supra, Crawford.

(12)    See St. Joseph’s Health Centre v. Dzwiekowski (2007), 162 A.C.W.S. (3d) 348 (Ont. S.C.J.).

(13)    Venables, supra at para. 32.

(14)    Venables, supra, at para. 36.