Applications for the Opinion and Direction of the Court

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Rectification – the Equitable Remedy to Fix Errors in a Will

November 12, 2010 in Applications for the Opinion and Direction of the Court, Challenging the Validity of Wills, Estate Litigation, Executors / Trustees, Public Policy & Estates, Solicitors’ Negligence in Estate Matters, Wills by Charles Wagner

Sometimes even professionals just drop the ball. Imagine walking into your lawyer’s and asking him to make a few changes to your will. Instead of typing in a bequest of $2,500.00 the lawyer types $25,000.00. The Will is signed and no one notices the mistake until after the testator dies. That is what happened in Nugent v. Lang (http://bit.ly/dhN38j ). The lawyer admitted the error was his and he testified that the testator wanted the bequest to be $2,500. It should be simple right? Not so fast.

The Plaintiff asked the court to fix the mistake. 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? In this case the court rectified the draftsman’s error and changed the bequest from $25,000 to $2,500.
Cases like Lipson v Lipson,( http://bit.ly/lipson ), Binkley Estate v. Lang, (2009) 50 E.T.R. (3d) 44 and Balaz v Balaz,( http://bit.ly/cq9BJi] ) all involve situations where the courts fixed some form of lawyer mistake. Either there was an accidental slip or omission because of a typographical or clerical error, the testator’s instructions had been misunderstood, or the testator’s instructions had not been carried out. Despite these recent cases where judges fixed mistakes made in the will it is very important to remember that not every error will be rectified by the courts.
In Re Estate of Blanca Esther Robinson (http://bit.ly/9x5g0B ) the court refused to fix the mistake. In that case the testator signed a Will dealing with her European property. She also signed a Canadian Will dealing with her Canadian property. Years later, she made a new Canadian Will but did not tell her new lawyer about the Spanish will. Since the lawyer had no knowledge about the Spanish Will the solicitor included the standard provision revoking all previous wills. The beneficiaries asked the court to fix the mistake. The court refused. The judge stated, “….if no errors were made by the solicitor and the words in the will were reviewed and approved by the testator, rectification will not be available simply because the testator was mistaken about their legal effect.” So it seems that not every mistake will be rectified.
This short review of the case law on rectification 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 are best advised to seek out competent legal counsel to determine your best course of action.

Charles B. Wagner is the managing partner at Charles B. Wagner and Associates. This Toronto office is a boutique litigation law firm whose practice is focused on estate and commercial litigation.

Do Mistresses Have a Right to Inheritance?

October 21, 2010 in Applications for the Opinion and Direction of the Court, Claims Against Estate: Summary Procedure, Claims by Common Law Spouse, Dependant Support Claims, Estate Litigation, Public Policy & Estates, Uncategorized, Unjust Enrichment, Constructive Trust and Quantum Meruit Claims in Estates by Charles Wagner

Can you imagine burying a spouse and then being sued for support by his mistress? For those who believe in primacy on marriage and that marriage obligates its partners to fidelity, the idea of rewarding a mistress to a portion of the family’s an inheritance is unjust. Others argue that financial obligations should flow from the intensity and duration of life partner relationships regardless of the partners’ marital status. What do the courts think?

In Nowell v. Town Estate (http://bit.ly/nowell ) the deceased had a 24 year extramarital affair. During the week he lived with his wife, but on the weekends this man spent time with his mistress, gave her gifts worth about $125,000 and promised to support her. The mistress contributed to the man’s work as an artist without compensation. Left nothing in the will she sued the estate. Do you think she deserved any money? The Ontario Court of Appeal did.

The judges recognized that a 24 year relationship was more than casual and for the last 13 years it was quasi-spousal. The judges felt the mistress should be fully compensated because the estate was unjustly enriched. Mr. Town accepted his mistress’ help, did not pay for it, and he benefited financially. The court was influenced by the fact that the mistress made Mr. Town the focal point of her life and that through the years Mr. Town assured his mistress that he would look after her. While this did not create a legal relationship it proved the nature of the relationship. The court still awarded her $300,000.

In Mahoney v. King 1998 CarswellOnt 2348 a mistress successfully sued a married man for support because the court found that she was a common law spouse. Arguably, a mistress suing her paramour’s estate could use this case as a precedent. As a “spouse” the mistress would qualify as a dependant and would be entitled to support under the Succession Law Reform Act, R.S.O. 1990, c. S.26 if her paramour did not provide her with adequate support. There are those like the late law professor James G. McLeod who disagreed with this decision. He took exception to the idea that a woman who had an affair with a married man who lived with his wife may be a “spouse”. While Professor McLeod understood the argument of making an unjustly enriched estate compensate a mistress like in Nowell v. Town Estate he felt that to suggest that a mistress was a spouse for support purposes takes away whatever meaning is in the word “spouse”.

The different views of a mistress entitlement to support under the law should tell you that this issue is not a simple one. My short review of these cases 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 are best advised to seek out competent legal counsel to determine your best course of action.

DISINHERITING CHILDREN WHO MARRY OUTSIDE THE FAITH

October 3, 2010 in Applications for the Opinion and Direction of the Court, Capacity, Challenging the Validity of Wills, Estate Litigation, Executors / Trustees, Halacha and Estate Litigation, Public Policy & Estates, Wills by Charles Wagner

While I have previously addressed the legality of disinheriting intermarried children in both in the Tribune (http://bit.ly/9ADVJY ) and in the Ontario Lawyer’s Weekly (http://bit.ly/bv9Rjm) a recent case suggests another review is warranted. In Re Estate of Max Feinberg (http://bit.ly/cb5CKo ) three Illinois courts reviewed what they called the Jewish Clause which stated: “A descendant of mine other than a child of mine who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendents shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.”

The court weighed testamentary freedom against the common law’s disdain for wills that restrain people from entering into an otherwise legal marriage. The Illinois’ court of first instance and appellate court ruled that the Jewish Clause was invalid because it seriously interfered with the right of individuals to marry a person of their own choosing. It was now up to the Supreme Court of Illinois.

The Illinois Supreme Court held that the Jewish Clause was valid. The test was whether the provision was capable of producing harm that its enforcement would be contrary to the public interest. The Illinois Supreme Court upheld the Jewish Clause because they placed a premium on the right of individuals to decide what happens to their assets after they die. They disagreed with the lower courts who suggested that the clause in question was a restraint of marriage.

What is the position of other jurisdictions? As Illinois’ Justice Greman, pointed out, “… In most states they allow this – not just with Jews but for Catholics and others.” So what about Ontario? The Ontario Court of Appeal, in a non-binding aside (obiter), addressed this issue in the Fox Estate case (http://bit.ly/98b5gw). Fox’s will gave the executor absolute discretion to use trust money for his grandchildren. The executor removed all the money to disinherit her son because he married a non Jew. At issue was whether the executor’s conduct was proper. The judge commented, “….in response to a query from the bench, counsel in this case were not prepared to argue that any court would today uphold a condition in a will which provides that a beneficiary is to be disinherited if he or she marries outside of a particular religious faith”.

Given the treatment of this issue in the US, does that mean a Jewish Clause would be void in Ontario? Maybe – Maybe not. The fact that three Illinois courts came to different conclusions should tell you that this issue is complicated and this review should not be taken as legal advice. I receive calls about this and other similar issues all the time. Cases often turn on the specific facts. If you have a legal question relating to something similar, you are best advised to seek out competent legal counsel to determine your best course of action.

Money Missing? Powers of Attorney, Executors and Adverse Inferences

September 21, 2010 in Applications for the Opinion and Direction of the Court, Estate Litigation, Executors / Trustees, Orders for Assistance, Passing of Accounts and Executor's Fees, Retirement and Removal of Trustees by Charles Wagner

Very often a parent appoints the favourite child to manage the parent’s property (“power of attorney”) or be the executor under the parent’s will. Perhaps the child is honest but has no idea what obligations are involved with being an attorney for property or as an executor and fails to keep proper records. Perhaps that child is very dishonest and the lack of records is simply his way to hide the improper use of his parent’s money. So what typically happens?

The power of attorney or executor may put his money together with his parent’s money (intermingling). Caregivers may be paid cash and there are no receipts. Expenses (both appropriate and inappropriate) may be incurred and no records are kept. All of the above scenarios, which may be very innocent, are problematic.

There is both a common law and legislative duty to keep accounts of all transactions involving the parent’s property by the attorney for property (FN1) and the executor (FN2) if called upon by those with a financial interest to pass those accounts. What this means is that The Executor/Attorney for Property prepares his records in a form acceptable to the court and a judge approves of the accounts.

Based on my experience in this area it seems as if the strict obligation to keep proper records is often “honoured in the breach”. People sometimes just do not keep proper records. So in the scenario I raised above let’s assume this favourite son is unfamiliar with the fiduciary duty (F3) to keep proper records and to show his records, if asked, to people with a financial interest in his mother’s affairs. So what happens if – like in many cases – the son has no records and cannot show where he spent mom’s money? The court’s often will draw on adverse inference and assume the son has used the money for his own purposes and not for his mother’s benefit.

In Zimmerman v. McMichael Estate (FN4) Justice Strathy provides a wonderful summary of the obligations to account and the risks for not doing so. It is worthwhile for anyone interested in this area of law to review this case. In part, His Honour explains,

A trustee (FN4) must keep a complete record of his/her activities and be in a position at all times to prove that he/she administered the trust prudently and honestly. He/she must have the accounts ready and give full information.
A trustee must make a proper accounting as a condition precedent to being awarded compensation.
An adverse inference (FN5) may be drawn if the trustee fails to retain receipts supporting substantial cash withdrawals or expenses charged against the incapable person’s property and that attorney will be held personally liable for the unsubstantiated withdrawals. (FN 6).

The bottom line is that those people who take on the responsibility of being a power of attorney and or an executor should familiarize themselves with the obligations flowing from that position. Some good sites to look at to start your research are listed below in the footnotes. As well, I suggest you see the following:

Executorship: A Guide for Those Called Upon to Act as an Estate Trustee published by the Certified General Accounts of Ontario http://www.cga-ontario.org/assets/file/publication_executorship.pdf
Objections to Accounts http://www.estatelawcanada.ca/category/passing-of-accounts-and-executors-fees/
Elder Abuse in Ontario http://www.estatelawcanada.ca/category/court-appointed-guardians-of-property-and-of-person/
Put Your Own Interests Aside – Poa http://www.cbwagnerlaw.com/articles/aside-interests.php

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FN1 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 Accounts and Records of Attorneys and Guardians, O. Reg. 100/96

FN2. The RULES OF CIVIL PROCEDURE – R.R.O. 1990, Reg. 194 outlines how the accounts should be prepared. Please see Rules 74.15 and 74.16. Also see section 39 of the Estates Act and section 23(1) of the Trustee Act, R.S.O. 1990, c. T.23. As well the LSUC has a very useful site indicating steps to be taken to pass accounts at http://rc.lsuc.on.ca/jsp/ht/passingAccounts.jsp#s9

FN3. A fiduciary duty describes a special obligation of a person placed in a position of responsibility or trust in which that person manages the assets or property of another person. For example, a power of attorney and executor are both at common law and by statute viewed as fiduciaries. So a person who is appointed as power of attorney has an obligation to act honestly, in good faith and strictly in the best interests of the person who granted that power of attorney. The same is true for an executor who must act strictly in the best interests of the estate. Please see 32(1) of the Substitute Decisions Act, 1992, S.O. 1992, c. 30

FN4. A Trustee includes an executor under a will and these obligations apply equally to a power of attorney.

FN5 Justice Strathy did not use the words “adverse inference”. This phrase is my own based on his comments in paragraph 35 of the case.

FN6 This can be found on line at http://www.canlii.org/en/on/onsc/doc/2010/2010onsc2947/2010onsc2947.pdf . In paragraph 35 of his endorsement Justice Strathy refers to a number of cases to support his proposition including Lanthier v. Dufresne Estate, [2002] O.J. No 3397, [2002] O.T.C. 671 (S.C.J.) at paras. 52-57; Re Ronson, [2000] O.J. No 1294 (S.C.J.) at paras. 15-20.

May An Executor Buy Estate Assets?

June 10, 2010 in Applications for the Opinion and Direction of the Court, Estate Litigation, Executors / Trustees, Orders for Assistance, Passing of Accounts and Executor's Fees, Retirement and Removal of Trustees, Uncategorized, Unjust Enrichment, Constructive Trust and Quantum Meruit Claims in Estates, Variation of Trusts by Charles Wagner | 4 comments

Executors often want to buy assets belonging to an estate. Beneficiaries often suspect the executors of wrong doing. So I often am asked whether it’s legal for an executor to buy an asset from the estate. The short answer is maybe, possibly, but not usually.

To demonstrate the problem let’s imagine that Ben just died. He and his brother Harry owned an apartment building. These brothers loved and trusted one another their whole lives. Ben never married and treated Harry’s wife like his own sister and Harry’s kids like his own children. Ben was appointed as the executor and estate trustee for his late brother’s estate. The beneficiaries of the estate are the deceased’s wife and two children. The only asset of the estate is 50% of the apartment building.

Ben gets two independent appraisals valuing the apartment building at $2 million. He offers the estate $1.5 million dollars for its ½ of the apartment building. Each of the beneficiaries gets independent legal advice approving the sale. So what do you think? Under these circumstances can Ben buy the estate asset eventhough he is the executor and estate trustee? Would you change your opinion if immediately thereafter Ben gets a call and someone offers to buy the apartment building for $4 million?

The general rule of thumb, as articulated by Professor Waters in his book Waters Law of trusts is that “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”.

Estate Trustees/Executors are considered fiduciaries. The common law is very clear that as fiduciaries have an exclusive duty of loyalty to the beneficiaries. If so, a court will wonder how could Ben negotiate a deal fairly when he represents the buyer (himself) and the seller (the estate)? That is why at common law, the fiduciary is absolutely forbidden from dealing with estate property for his own benefit regardless of how honest or fair the purchase may be. Nonetheless, despite that general rule of thumb, the courts have not always been consistent in how they apply this rule. While there is a consensus that the executor must act in a way that is in the best interests of the estate the courts differ on how strictly to apply the rule.

Some court decisions suggest that Ben could not buy the estate’s interest in the apartment building because even if he was being honest and even if he meant well he cannot possibly give the exclusive loyalty to the beneficiaries when he himself stands to make a profit. Those cases would suggest any such purchase is a breach of fiduciary duty and the deal can later be set aside even if the purchase was reasonable and the beneficiaries were not harmed. For a review of those cases I refer you to CED Trusts VI.4.(c).(ii) and WatersTrusts 18.II.

Other courts have considered the Fiduciary’s duty of loyalty as being intended to prevent actual harm to the beneficiaries. If there is no harm then these cases suggest there may be some flexibility that would permit the purchase. If Ben could show that the sale caused no harm to the beneficiaries and that his actions were reasonable his purchase may be allowed. For example, Ben might argue that he paid over market value because the apartment was worth more to him because he already owned ½ . Ben might say that the beneficiaries would not have gotten a price as high from anyone else. However, a disgruntled beneficiary might suggest that Ben did not disclose that he had an offer for $4 million dollars for the apartment.

While at common law, the fiduciary is absolutely forbidden from dealing with estate property for his own benefit regardless of his honesty and fairness of the purchase, there are infrequent circumstances that courts have allowed fiduciaries to buy trust property. Examples include Re Nathanson (1971), 18 D.L.R. (3de) 495 (N.S.T.D.) and Mochan v. Omega Oil & Gas Ltd, [1988] 1 S.C.R. 348 (S.C.C.). In these cases the courts approved of sales to a fiduciary. In one instance the trustee showed he unsuccessfully tried to find a buyer and the sale was in the best interests of the estate. In the other it was clear the price was fair and those to whom the fiduciary duty was owed consented to the sale with full knowledge.

Fiduciaries who wish to purchase trust property are well advised to make 100% full disclosure to beneficiaries and obtain their consent to the sale of trust property to the trustee. As well, it would be prudent to for all the beneficiaries to obtain independent legal advice. Furthermore, the purchase price should be somewhat more then fair market value. With all these arrows in his/her quiver the trustee might be well advised to seek preapproval of the sale from the court by bringing an application for the opinion, advice and direction of the court under Rule 14.05(3)(d), and under section 60 of the Trustee Act, R.S.O. 1990, c. T.23. It may happen that a judge will decline to hear the application because they might believe that preapproval of a sale is not the advice or opinion contemplated by the legislation. A judge might point out that if this offer to purchase came from a arms length third party no application for directions would have been made. One senior counsel suggested to me that there are other legal paths which might be a better option. But that – is for another time and another blog. The bottom line is that anyone faced with this issue, whether he/she be a trustee or a beneficiary, should not treat this blog as legal advice and is best advised to seek out a competent experienced lawyer to guide them.

When is Probate Not Needed

May 4, 2010 in Applications for the Opinion and Direction of the Court, Claims Against Estate: Summary Procedure, Elder Law, Estate Litigation, Executors / Trustees, Probate, Wills by Charles Wagner | 3 comments

It is important for people who wish to stop estate assets from being distributed to know that a certificate of appointment (“Probate”) is not always necessary to effect the transfer of assets. For example,

When there is jointly-owned real property or bank accounts those assets pass to the surviving joint tenant by right of survivorship. In this instance the only thing needed by the surviving joint tenant is to have a death certificate. There may still ways to prevent the transfer depending of the facts specific to the situation.
Real Estate, under certain circumstances, may be transferred under a will without probate. See Bob Aaron’s article at http://www.thestar.com/article/248950 and the Memo to Land Registrars from Kate Muray dated October 30, 2000 at Registrar’s Memo where land registars are provided guidelines under what circumstances they are authorized to waive the requirement of a certificate of appointment of estate trustee when approving the transfer of property.
Insurance Policies, RRSPs may designate a beneficiary and probate may not be necessary to access those funds.
Shares in a private corporation. In order to avoid probate fees sophisticated investors use multiple wills. Since a great deal of wealth may be concentrated in the shares of these private corporations the testator may have made a separate will to deal with these shares and probate would not be necessary. For those interested in this topic I refer you to the Granovsky Estate case.

For those who wish to stop the distribution of non probatable assets it is important to know that more might be required then simply blocking probate by filing a notice of objection. If the asset in question is real property then one should contact a lawyer and investigate the possibility of obtaining a certificate of pending litigation or caution against title. If one seeks to stop the transfer of shares then one must go to court and seek judicial intervention. Those who ignore these possibilities do so at their peril.

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