Who Administers the Estate When There's No Executor?

Last week I blogged about an executor’s ability to renounce his appointment if he doesn’t want to act, which leaves an important question – who administers the estate where there’s a will and no executor willing or able to act?  A similar question arises where the deceased dies without a will (an “intestacy”), meaning there was no one named as executor.   

Where the deceased died with a will, she may have named an alternate executor.  In this case, that individual has the authority to act.  However, where there is no one named as alternate executor (or there was no will to begin with) the court must appoint one. 

Section 29(1) of the Estates Act provides the court with the authority to appoint an estate trustee where this is an intestacy or where the executor named in the will cannot act. Specifically, s. 29(1) allows the court to appoint the deceased’s (a) spouse/common law partner; (b) next of kin; or (c) spouse/common law partner and next of kin.  Where there are more than one individual “equal in degree of kindred” asserting rights as next of kin, the court has the authority to appoint more than one person.       

The general practice of the courts has been to prefer the spouse/common law partner’s right to the appointment over that of the next of kin.  However, this is not an absolute rule – in Mohammed v. Heera, Justice Warkentin noted that while there might be a “usual” order of priority when determining who should receive the appointment as estate trustee the court maintains an unqualified discretion.  This means that the ultimate decision is that of the judge alone. 

The practical reality is, as noted above, that where the deceased is survived by a spouse, the court will appoint the spouse unless there is good reason not to do so. 

What Happens When Limitation Periods Conflict?

The recent case of Whorpole v. Echelon General Insurance raised the issue of how to interpret a conflict between a limitation period in the Trustee Act relating to claims by a deceased’s executors and other limitation periods that may apply to the claims. 

In this case, the deceased had been killed in an automobile accident and just less than two years after her death her executor commenced an action against the deceased’s insurer.  The insurer brought a motion for summary judgment arguing that the claim was statute barred because the Insurance Act provided that claims of this nature must be commenced within a year. 

S. 259.1 of the Insurance Act provides that a proceeding against an insurer regarding loss/ damage to an automobile or its contents must be brought within a year of the loss/damage occurring.  However, s. 38 of the Trustee Act gives a deceased’s executor the right to maintain an action for tort or injuries to the person or property of the deceased and provides for a limitation period of two years from the deceased’s death. 

The plaintiff’s counsel argued that a claim against an insurer in regard to loss/damage to an automobile/its contents constituted a claim for injuries to the property of the deceased as contemplated by s. 38 of the Trustee Act and that the limitation period found in s. 38 of the Trustee Act overrode the limitation period set out in the Insurance Act.    

Justice Heeney, the motion judge, noted that neither the plaintiff’s counsel nor that of the defendant had submitted case law for or against this interpretation.  In fact, Heeney J. noted that there didn’t appear to be any case law at all on this issue. 

In examining the point of law, Heeney J. found it would make a lot of sense that s. 38 of the Trustee Act operated to extend any limitation period that would have otherwise applied to the deceased and found that if s. 38 did not do so then the section could potentially be rendered meaningless. 

Ultimately, Heeney J. declined to make any “new law” on the issue and instead found that the plaintiff’s claim could proceed for other reasons he set out in his decision. 

When Should the Court Appoint a Monitor?

The recent decision of Justice Quinn in the D’Angelo Estate considers the interesting question of whether the court has the authority to appoint a monitor to oversee the administration of an estate. 

By way of background, the deceased died leaving a will in which he named as executors two individuals residing in New York.  As foreign executors, they were obliged to post a bond in order to obtain probate; however, the insurer, being concerned that the executors’ assets were considerably less in value than the deceased’s estate, advised that it would only issue a bond if a member of the estate solicitor’s law firm was appointed by the court as a monitor. 

The executors brought a motion for assistance under R. 74.15(1)(i) of the Rules of Civil Procedure seeking the appointment of a monitor.  R. 74.15(1)(i) permits any person appearing to have a financial interest in an estate to move for an order seeking the court’s direction on issues relating to the administration of an estate. 

Quinn J. noted that while the court has very limited discretion when it comes to granting probate, it enjoys wide discretion when determining whether to attach conditions to the grant.  While the appointment of a monitor is very unusual, he found that the court does have the discretion to do so (an appointment of this nature occurs with the most frequency in commercial disputes). 

Although Quinn J. was satisfied he had the discretion to appoint a monitor, he pointed to the fact that the role of monitor was extremely ill-defined.  He determined that a monitor could be classified as an “officer of the court” (which, again, is not the most well defined concept). However, in this particular case, he found that the duties of the monitor would be to (1) monitor the co-executors; (2) ensure the estate was administered properly; (3) comply with the terms of the order of appointment; and (4) be otherwise “faithful to the responsibilities of an officer of the court.”

Accordingly, he allowed the appointment of the monitor.   

Considering the Duty to Disclose in the Pension Context

The recent decision in Pryden v. Swiss Reinsurance Company considers the circumstances under which a trustee is obligated to disclose information to a beneficiary and, in particular, the application of the joint interest principle.

The case involved a class proceeding over a pension plan (which is a form of business trust) and specifically whether surplus assets attributable to the wind up of a company pension plan belonged to the class members (who were former employees of the company).  An issue raised was whether the respondent (who had employed the class members) had improperly amended the plan so as to recover surplus contributions.

The applicant brought a motion seeking the production of documents contained in the files of the law firm who had represented the company at the time the plan had been amended. She argued that she was joint in interest with the respondent (the employer) and, as such, no privilege attached to the files. 

The joint interest principle provides that when a lawyer’s advice is obtained for the administration of a trust or estate, there is no privilege since the advice is obtained for the interests of the beneficiaries and the trustees. There is a shared interest between trustees and beneficiaries because trustees have an obligation to act in the beneficiaries’ best interests and, accordingly, any legal advice obtained must be to further those interests. The court has previously held that the principle applies in the context of pension law.    

The respondent argued that there was no joint interest because if the law firm in question had given advice about the amendment it was to the company, not to the trustees of the plan. 

Master Glustein agreed with the respondent.  He pointed to the distinction between being a plan sponsor (i.e. the employer) and being the plan administrator (i.e. the trustee).  A plan sponsor does not owe trustee-like obligations to the plan members. If an employer in its capacity as plan sponsor (and not as plan administrator) obtains legal advice regarding the plan then it is not subject to the joint interest principle.  Here, Master Glustein found that it was clear the legal advice was provided to the company as plan sponsor, not to the trustees, and the joint interest principle did not apply.    

Estate Tax Debate Continues in the United States

Back in September, I blogged about the uncertainty over the estate tax in the United States. The estate tax had lapsed this year and was set to return on January 1, 2011 with an exemption of $1 million per person and a maximum rate of 55%. 

Instead, as part of the tax plan approved by the US Senate on Wednesday (and which is awaiting approval by the House of Representatives) the exemption might be set at $5 million per person and at a maximum rate of 35%.  The Democrats have supported a $3.5 million exemption and a 45% maximum rate. 

For the last couple of days, the New York Times has featured an interesting debate about whether estate taxes really matter – are they really necessary or can the same policy goals be achieved with other forms of taxation? 

Robertson Williams, an economist and senior fellow at the Tax Policy Center, argues that the taxes have an important role to play: the country requires increased revenue and estate taxes affect the wealthy (who have benefitted the most from the economy and who have the greatest ability to pay).

Russell Roberts, an economist at George Mason University, argues that the estate tax is wrong because it amounts to double taxation – people are taxed once when the money is earned and again when it is given away on death. The main result, he says, is that people simply use various estate planning techniques to avoid it. 

Ian Shapiro, a political scientist at Yale University, argues that the Democrats’ focus is wrong – rather than worrying about the exemption rate, they should focus on the tax rate, because that’s where the revenue is generated.

Finally, Kevin Hassett, a senior fellow with the American Enterprise Institute, points to studies suggesting that most Americans (including those who would never be affected by the estate tax) don’t support it. He argues that despite the revenue generated by the tax, Americans value liberty more and this compels them to oppose the tax.   

If the bill passes, the tax is going to be effective for two years – which makes me think it won’t be long before we’re hearing this debate again.

When Should the Court Approve a Sale by an Executor?

The recent decision of Jochem v. MacPherson addresses the circumstances under which the court should approve a sale transaction made by an executor. 

By way of background, the applicant was one of four executors of the deceased’s estate.  The other three executors were the applicant’s children. The applicant, as an executor of the estate, accepted an offer to sell shares the estate held in a privately-owned company to a corporation owned by her son (who was also an executor). 

The applicant then brought an application seeking a declaration that she had acted within her discretion and in accordance with her fiduciary duties when accepting the offer and an order approving the transaction. 

Justice Hoy set out the test that the court should apply when determining whether to approve a sale transaction.  Specifically, the court must be satisfied that the sale price is the “best which can be obtained” and that the sale is in the best interests of the beneficiaries.  In seeking court approval, the trustee has an obligation to obtain and put before the court all the material appropriate to allow the court to make the determination sought. 

In this situation, Hoy J. had significant concerns about the sale of the shares, including the following:

  • The applicant did not consult the other executors about the selection of the valuator of the shares or the parameters of the valuation;
  • A number of the valuator’s underlying assumptions appeared questionable;
  • The valuation was a “limited exercise” and the information used appeared to have been received, in part, from the prospective purchaser of the shares;   
  • No attempts had been made to sell the shares on the open market and alternate purchasers had not been sought; and
  • The other executors were neither consulted with nor informed of any discussions regarding the sale.

While the proposed purchase price was the appraised value of the shares, given the limitations of the valuation and the material before the court, Hoy J. was not persuaded that the applicant was acting in accordance with her fiduciary duty.  She was also unconvinced that the offer was the best price that could be obtained.  As a result, Hoy J. declined to approve the sale of the shares.  

Setting Aside a Settlement on the Basis of Duress

It’s not uncommon for litigants who have settled a matter to question whether they could have done better.  Usually, they just live with it.  However, in situations where an agreement was entered into under duress and the terms are unconscionable, the court has the discretion to set aside the agreement.  In the recent decision of Pytka v. Pytka, Brown J. considered the circumstances under which this should occur.   

By way of background, the daughter of a deceased brought an application for dependant support (under Part V of the Succession Law Reform Act) against her late mother’s estate.  The mother’s will divided the estate equally amongst her four children but the daughter argued that she was a dependant and her needs were such that she was entitled to support.    

The litigation continued until the eve of trial, when the parties settled the dispute.  Pursuant to the settlement, the daughter was entitled to continue residing in the estate residence for a period of time and was to receive 47.5% of the residue. The parties proceeded to obtain a judgment incorporating the settlement terms.

The daughter later brought a motion to set aside the settlement on the basis that she entered into it under duress and the terms were unconscionable.    

Brown J. held that an agreement could only be set aside for duress if it was imposed by a counter-party to the agreement or, if the duress came from a third party, the counter-party was aware of it.  In order for duress to occur the pressure exerted must be to the extent it amounted to a “coercion of will”.

In this case, Brown J. found that there was simply no evidence that the estate exerted duress on the daughter to enter into a settlement.  On the contrary, the stress she experienced was that which is naturally associated with litigation.  The daughter was the one who initiated settlement discussions, so it could not be said she was forced into settlement and the terms of the settlement itself were fair considering the nature and strength of the daughter’s claim. 

The decision itself is an interesting and comprehensive one and certainly worth a read. 

Estate Planning Considerations for Separated Spouses

When spouses separate, they usually pay a lot of attention to how their assets are being divided up – however, something that’s often forgotten is what estate planning steps should be taken.  I am sometimes asked by clients what effect their separation will have on their will or the distribution of their estate and my answer is usually “none.” 

In Ontario, when spouses are legally divorced, s. 17(2) of the Succession Law Reform Act (“SLRA”) provides that any appointment of the spouse as executor and any provision leaving a share of the estate to the spouse are revoked.  However, there is no similar provision dealing with situations where spouses are merely separated – meaning, the surviving spouse will maintain his or her entitlement under the will unless the will has been changed. 

In situations where there is no will (an “intestacy”) the separated spouse will come under the definition of “spouse” in s. 1(1) of the SLRA.  Accordingly, he or she will be entitled to inherit pursuant to the intestacy rules found in Part II of the SLRA – depending on the value of the estate and whether or not the deceased had children, the separated spouse may be entitled to everything!

For the reasons above, wills should generally be revised (or made) when spouses separate.  Beneficiary designations (such as on RRSPs, TFSAs, and insurance policies) should also be reviewed and changed where desirable. It is also advisable to have a separation agreement in place which specifically addresses what, if any, rights each spouse is to have on the death of the other. 

An additional concern relates to powers of attorney for property and for personal care.  If a spouse has appointed a (now estranged) spouse as attorney for property or for personal care, terminating the powers of attorney is certainly something to consider. 

It’s important to understand a person can’t just be “fired” as an attorney.  Rather, if the spouse wishes to terminate the powers of attorney, he or she should either execute new ones or revoke the existing ones (and keep in mind that s. 12(2) of the Substitute Decisions Act, 1992 requires the revocation to be in writing and witnessed by two people).

An RESP on a Subscriber's Death: Should it Stay or Should it Go?

A Registered Education Savings Plan (“RESP”) is a great way for an individual (the “subscriber”) to put away money for the post-secondary education of a loved one.  There are also benefits that come from tax deferral and permissible income splitting at the time of withdrawal.  However, something that is often not considered is what will happen to the RESP on the subscriber’s death.     

The administration of an RESP on a subscriber’s death will depend on the terms of the contractual agreement and the terms of the subscriber’s will.  Unlike an RRSP or a TFSA, the proceeds of an RESP cannot flow outside the subscriber’s estate into the hands of a designated beneficiary.    

An RESP is an asset of the subscriber.  As such, on the subscriber’s death, unless he or she has set out instructions to the contrary, the right to the contributions to the RESP arguably belongs to the subscriber’s personal representatives and should be returned to the subscriber’s estate.  In some situations, this is not what the subscriber would have intended.

If the subscriber wants the RESP to be continued, then a successor subscriber should be named.  The contractual terms of the RESP should be examined to determine if they permit any person (including the subscriber’s personal representatives) to acquire the subscriber’s rights under the RESP and thus become succeeding subscribers. 

It is possible to continue an RESP by naming successor subscribers in a will; however, again, it’s essential to examine the terms of the contract before doing so.  If the RESP is to be continued, important considerations include how it will be funded; who the intended beneficiaries are; and how the funds should be invested.

If the subscriber doesn’t want the RESP continued after his or her death, there are a number of options, including: the contributions can simply be returned to the estate and fall into the residue; they can be withdrawn and distributed to beneficiaries named in the subscriber’s will (or the right to withdraw can be transferred to named beneficiaries); or they can be withdrawn and used to fund an education trust created for named beneficiaries. 

As a final note, it’s important to remember that RESPs are a creature of s. 146.1 of the Income Tax Act.  Accordingly, the relevant provisions should be reviewed before any estate planning occurs.

As Income Trust Tax Changes Draw Near, Earth's Rotation Continues Uninterrupted

October 31, 2006, was a dark day for Canadian investors.  That was when our federal Finance Minister, Jim Flaherty, surprised everyone with the news that the government was introducing policy changes aimed at eliminating the tax benefits associated with income trusts and that those changes would be implemented January 1, 2011.  

The news promptly caused the business trust sector to tank.  In a two day period, the $200 billion sector lost $35.6 billion (a 16% decline).  

Prior to the tax changes being announced, income trusts were wildly popular in Canada.  First introduced in the mid-1980s, they are an ownership vehicle for businesses or assets that sell units to investors (who are the beneficiaries of the trust). The assets pay a return to the trust, which is then paid out to investors as either cash distributions or a return of capital. 

The tax benefits came because the trusts were able to “flow through” income to investors so that tax was not paid at the entity (i.e. asset/business) level, only by the unit holders.  This differs from a corporate structure where taxes are paid by the corporation and then again by the shareholders receiving dividends.  The other tax benefit came from the fact that income trusts could pay out as a return of capital, which is received by the unit holders on a tax deferred basis.   

With the proposed tax changes, most of the income trusts decided to convert back to a corporate structure.  This prompted fears that the payouts to investors would dry up. 

As it turns out, despite the catastrophic predictions, things have not been as bad as originally feared.  Of the 226 income trusts in existence in 2006, 60 have already converted to a corporate structure and 65 have announced they will be doing so.  Only 4 have stated they intend to remain as trusts. 

While many investors have seen a reduction in payouts (the average being 33%), approximately half the trusts plan to maintain dividends at the same level once the conversion to corporation has been completed. 

When It Comes to Money, Some Dead Celebrities Won't Stop 'Til They Get Enough

Michael Jackson may have died, but his ability to make money certainly has lived on! Over the past year, the King of Pop’s estate has raked in more than $242 million. In fact, Jackson apparently made more than any living celebrity, with the exception of Oprah.   

The sources of income are numerous – the estate has made money from last year’s film, “This is It”, radio play and album sales, memorabilia, a Jackson-themed video game, and the re-release of Jackson’s autobiography. 

The cash flow doesn’t show any signs of slowing – there’s a deal with Sony to put out unreleased recordings by Jackson which is expected to bring in a grave-rattling $200-250 million over the next seven years.  Additionally, the estate still holds the music catalogue that Jackson purchased, which includes songs by, amongst others, the Beatles, Elvis Presley, and Bob Dylan. 

Jackson’s not the only celebrity making money in the afterlife.  Jackson topped Forbes’ recent list of the 13 top earning dead celebrities, but there were others who made a decent showing.  In at number 2 was Elvis Presley, whose estate brought in a cool $60 million. 

Charles Schulz, the creator of Charlie Brown and the rest of the Peanuts gang, placed 4th ($33 million) with Theodor Geisel (a.k.a Dr. Seuss) coming in 7th place ($11 million). An interesting addition to the list was Albert Einstein, whose estate landed in 8th place with $10 million – most of Einstein’s post-death earnings have come from tie-ins with his name or image.

Forbes’ also produced a list of the “also rans”, who didn’t make the top 13, but whose estates are still making money.  Making the list are Michael Crichton, James Dean, Bob Marley, Marilyn Monroe, Tupac Shakur, Frank Sinatra, and Andy Warhol.   

Happy Hallowe’en!

Interested in a Little Post-Death Procreating? Make Sure to Put It in Writing

The Globe and Mail reports that this past Friday a judge in New York City gave a woman permission to harvest the sperm of her husband, who had died Monday of last week.  An interesting twist is that the woman did not plan to carry any child conceived herself but rather intended to use a surrogate. 

The article notes that doctors aren’t optimistic that she will be successful conceiving because of the length of time that has elapsed since the husband’s death.  When the BBC News reported on another woman’s bid to harvest her partner’s sperm in April 2009, it noted that sperm should be collected within 36 hours of death. 

In Canada, the posthumous collection of reproductive material (such as sperm or eggs) appears to be much more restricted than in the United States.  In 2004, the federal government enacted the Assisted Human Reproduction Act (“AHRA”) which governs the collection and use of genetic materials. Section 8(2) of the AHRA is specific that reproductive material cannot be used after an individual’s death unless the donor had given free and informed written consent while living. 

I came across an interesting article from the National Post, posted on an infertility blog. In it, Dr. Keith Jarvi, the head of urology at Mount Sinai Hospital, noted that prior to the enactment of the AHRA, it was not unheard of for genetic material to be harvested from a deceased for reproductive use.  Dr. Jarvi has also co-authored a paper in the Journal of Andrology on the legal and ethical issues surrounding posthumous sperm retrieval which is worth a read. 

From an estate planning perspective, it’s worthwhile asking clients about post-death collection of reproductive material.  Once they get over the initial shock of the question, they may be happy you’ve asked!

Stieg Larsson's Books Might Be Good, But His Estate Planning? Not So Much...

Swedish author Stieg Larsson died without knowing how successful the publication of his “Millennium Trilogy” would be.  Since his death, it is estimated that worldwide sales of his books have topped 40 million. Unfortunately for Eva Gabrielson, Larsson’s partner of more than 30 years, she will not be sharing in any of the financial benefits.

Larsson died without a will (this is called dying “intestate”) and Swedish law does not provide inheritance rights to common law spouses on an intestacy.  As a result, the beneficiaries of Larsson’s estate are his father and his brother.    

Gabrielson’s recent interviews on the CBC radio show, The Current, and with the Globe and Mail provide additional information about her situation.    

While the intestacy law in Ontario is more forgiving to common law spouses than it is in Sweden, it does not make things particularly easy.  Part II of the Succession Law Reform Act provides inheritance rights to a spouse on an intestacy.  However, it defines “spouse” as either of two people who are married to each other, leaving a common law spouse without rights. 

Similarly, while s. 5(2) of the Family Law Act entitles a surviving spouse to elect to equalize net family property (which is the same property division that occurs on divorce), the election is available only when the spouses were married - it doesn't apply to common law relationships.   

This does not mean that a common law partner has no redress at all.  Under Part V of the Succession Law Reform Act, a common law partner has the right to bring a claim for dependant support.  Depending on the circumstances, common law claims on the basis of quantum meruit or constructive trust might also be available. 

Still, it hardly seems desirable for a surviving partner to be put to the expense and uncertainty of litigation on the other partner’s death.  Additionally, the litigation can become very contentious when the family members who are to receive the estate under the intestacy rules become reluctant to part with any of their inheritance. 

The best way to avoid these types of problems is to have a will.  That way the deceased's estate will be distributed as she or he intended – no doubt that Eva Gabrielson is wishing that Stieg Larsson had one. 

You've Received Your Inheritance...So Now What?

Receiving a large inheritance can carry with it exciting possibilities.  But suddenly “coming into money” can be daunting and even a little scary – particularly in situations where the amount is great enough to fundamentally change the beneficiary’s financial circumstances. 

Manulife Investments predicts that over the next couple of decades, Canadians will inherit $1 trillion.  In 2010 alone, Manulife estimates that Canadians will inherit $70 billion – and with no inheritance tax in this country, that money will be the beneficiaries’ to keep. 

For those who are inheriting money and are not sure what to do with it, the Globe and Mail’s recent article, “Overcoming the Stress of Investing an Inheritance”, provides useful advice.  The suggestions offered include:

  1. Put the money in a dedicated account to reduce the urge to just spend it – there’s nothing wrong with a “splurge” like a vacation, or some home improvements – but be careful not to inadvertently “fritter away” the money;

  2. Use the money to reduce debts (especially those that carry higher rates of interest than is likely to be earned by investing the inheritance);

  3. Where appropriate, consider making a contribution to RRSPs or TFSAs – while the long term benefits of doing so are obvious, the tax benefits to contributing (particularly to RRSPs) can provide (near) instant gratification; and

  4. If the money is going to be invested, consider hiring an investment adviser and/or a financial planner – and make sure to research the options available, as different advisers will have different fee structures.

For an idea of the options available, these two case studies provide real life examples of how two beneficiaries are using their inheritance. 

Happy Thanksgiving!

Collaborative Law and Estate Disputes

An article in the latest edition of Canadian Lawyer magazine explores the question of why collaborative law has not caught on for estate disputes. 

For the uninitiated, collaborative law is a form of dispute resolution which is popular in family law matters.  The objective is to resolve disputes without invoking the court process.   The parties and their counsel all sign an agreement that they will not go to court and attempts are made to resolve the dispute through discussions, information-sharing, and mediation. 

The process is consensual, and the parties are permitted to withdraw from it at any time; however, if they do decide to litigate the dispute, the counsel involved in the collaborative process cannot continue to represent them.  The website for Collaborative Family Lawyers of Canada provides useful information on the approach. 

There have been initiatives to integrate collaborative law into the estates and trusts field but, so far, success has been limited.  A large stumbling block is the notion that if the collaborative process fails (and litigation ensues) the parties will need to retain new counsel. 

From a practical level, this is problematic because the estates and trusts bar is pretty small – this, combined with the fact that estates disputes often have numerous parties, would create complications if counsel were disqualified from a file. 

Another problem relates to situations where there are minor or mentally incapable beneficiaries, thus requiring the involvement of the Office of The Children’s Lawyer (“OCL”) or the Office of the Public Guardian and Trustee (“PGT”).  Both government agencies only have the authority to act once a legal proceeding has been commenced, which obviously creates problems if the premise of the collaborative approach is to avoid litigation.  Additionally, the potential disqualification of counsel if the approach is unsuccessful again becomes a problem – the OCL and the PGT are the only ones with the authority to represent minors and incapable persons, respectively.  

Recently, the Collaborative Estates Law Working Group was formed in Ontario, with the objective of elevating knowledge and understanding of the concept amongst lawyers and the public.   It will be interesting to see whether the collaborative approach starts to gain a stronger foothold – if it is to become more popular, it would seem the model will need to be adjusted to account for the unique challenges posed by estates and trusts disputes.  

Keeping Your Estate Administration-Ready

I frequently stress to my clients the importance of keeping their affairs in order. While this means keeping an up-to-date will there is much more to it than that.

The National Post recently ran a helpful article  on keeping your estate “administration ready” in case of your death. Here are the tips that I liked best:

1. Ensure your executors are up to the task

Selecting trustworthy executors is important, but there’s more to the choice than trustworthiness. Administering an estate can be complicated, time consuming, and stressful, particularly when the estate is complex. It is important that the executors have the knowledge and time necessary to administer the estate.

2. Notify the executors that they’ve been named and advise them of the contents of the will

I have seen numerous occasions where the first time an executor learns of his appointment is after the death of the testator. This can cause big problems – especially if the executor renounces the appointment and no alternate has been named.

Explaining the terms of your will to your named executors is also a good idea – it will be easier for them to communicate with the beneficiaries and determine how to make any necessary discretionary decisions.

3. Brief the main adult beneficiaries about the terms of your will

Estate litigation can occur when a beneficiary is unpleasantly surprised by the terms of a will. Being upfront with the beneficiaries during your life can help to stave off the shock and hurt feelings that can lead to infighting and litigation after your death.

4. Keep financial records in order

I always recommend that clients create (and keep updated) a list of assets, such as bank accounts and investments, and where those assets are located. Copies of insurance policies, other beneficiary designations, recent tax returns, and important financial records should also be kept in one place.

This will help to avoid the administration of your estate being delayed as executors search for assets or, even worse, certain assets never being recovered.

While it’s never possible to guarantee a smooth estate administration, the above suggestions will certainly make your executors’ lives easier.

Setting Aside an Unopposed Judgment Passing Accounts

The Superior Court of Justice’s recent decision in Re Estate of Assunta Marino provides guidance on what test the court should apply when setting aside an unopposed judgment passing accounts. 

By way of background, an executor had filed an application to pass accounts.  Rule 74.18 of the Rules of Civil Procedure provides that any notices of objection to accounts must be filed at least 20 days prior to the return date of the application; otherwise the executor is entitled to obtain unopposed judgment. 

One of the beneficiaries retained counsel to review the accounts but the 20 day deadline was missed and an unopposed judgment was issued.  The beneficiary brought a motion to set aside the judgment and obtain leave to file a notice of objection to the accounts. 

Brown J. found that, in the circumstances, the test to be used in determining whether the judgment passing accounts should be set aside was the same as the test used when determining whether default judgment should be set aside on an action when it is obtained by a defendant’s failure to file a notice of defense. 

Specifically, the questions that Brown J. determined that the court should consider were:

  1. Was the motion brought without delay?
  2. Were the circumstances giving rise to the default adequately explained?
  3. Did the beneficiary have an arguable case – could he demonstrate he had arguable objections to the executor’s accounts?
  4. Did the interests of justice favour setting aside the judgment?

Applying the above principles, Brown J. determined that setting aside the judgment was warranted although he found it was a “close call”.  He found that the moving party was prudent in bringing the motion in a timely manner.  With respect to the circumstances, the beneficiary’s counsel had explained that it was through the counsel’s inadvertence that the notice of objection was not filed, rather than the beneficiary not intending to file one – and Brown J. found this explanation adequate. 

He also found that the beneficiary had arguable objections given the accounts indicated unusual expenditures had been made by the executor.  As to the interests of justice, while Brown J wasn’t impressed that the deadline had been missed and believed that there should be protection for litigants, such as the executor, who follow appropriate court procedure, he also found that as the beneficiary had raised arguable objections, they should be considered. 

Proving a Lost Will in Court

Sometimes, on an individual’s death, his or her original last will and testament cannot be located – it might be that only a copy can be found, but sometimes it appears that the will has vanished altogether. 

In situations where a will can be traced to the possession of the individual who made the will (“the testator”) and cannot be found on the testator’s death, there is a legal presumption that the testator destroyed it with the intent of revoking it.  In a situation where a prospective beneficiary believes that the will was never revoked, but has simply gone missing, he or she can bring a court application to prove the will. 

In Ontario, rule 75.02 of the Rules of Civil Procedure sets out the process to be followed when proving a will.  In situations where all of those with a financial interest in the estate consent to the will being proven, the process is easy – an affidavit is filed along with the application and no court appearance is necessary.  The Superior Court of Justice’s decision in Re O’Reilly addresses the form of order that should be included with the application. 

In situations where those with a financial interest do not unanimously agree to the will being proven (this often occurs where different beneficiaries have differing interests depending on whether the will is valid), the process is more arduous – and a court proceeding will occur.

The Ontario Court of Appeal’s decision in Sorkos v. Cowderoy, is helpful in explaining the legal test involved in determining whether a lost will can be proven in contested matters.  The party wishing to prove a will must:

  1. Establish due execution of the will;
  2. Trace possession of the will to the testator’s date of death (and subsequently, if the will was lost after death);
  3. Rebut the presumption that the testator destroyed the will with the intention of revoking it; and
  4. Prove the contents of the lost will.

Mere speculation that a will existed is simply not enough.  Practically speaking, the witnesses of the will should be located so due execution can be established.  Additionally, someone with specific knowledge of the contents of the will (such as the lawyer who drafted it and preferably not the individual seeking to prove the will) should be located.

Duties of an Estate Trustee: Administering an Estate within the 'Executor's Year'

A question I frequently get asked by clients is “how long should the administration of an estate take?” – often, beneficiaries, wanting to receive their inheritance, take to wondering, “what’s taking so long?” 

There exists at common law a “rule of thumb”, which provides that the executors of an estate have twelve months from the deceased’s death to call in the assets of the estate, pay debts and liabilities, and distribute the assets remaining to the beneficiaries in accordance with the provisions of the deceased’s will.  The rule exists as a reminder to executors that they can't unduly delay the adminitration of an estate - while also allowing them time to focus on the task at hand without worrying about having to make distributions to beneficiaries. 

If this is not accomplished within a year, the beneficiaries then have the right to demand interest on their gifts and can call upon the executors to explain why the administration of the estate is not complete. The Supreme Court of Prince Edward Island’s decision in Currie v. Currie & Ors provides a useful discussion of the rule. 

The rule isn’t completely inflexible - there are certainly circumstances where the administration of an estate will take longer than a year, such as when there is litigation involving the estate or the assets prove difficult to realize.  In addition, there are often clauses in a will which give the executors wide latitude in determining how and when to realize assets – and these can be relied on by executors who have been prudent in their actions when explaining why the administration of the estate is ongoing after a year.

In situations where it appears that, though no fault of the executors, the administration of the estate will continue past the one-year mark, I always encourage to executors to, where practicable, make an interim distribution to the beneficiaries – I find that beneficiaries who have received something are more inclined to be patient waiting for the rest of their inheritance. 

In addition, it is very important for executors to communicate with beneficiaries about the status of the administration of an estate.  I have seen numerous situations where executors, figuring that since they’re the ones in charge, believe that they have no obligation to provide explanations regarding their administration of the estate and beneficiaries, who would otherwise have shown patience, become suspicious of the executors when the administration of the estate becomes prolonged and the beneficiaries have no idea why.     

Another Billionaire Dies, Avoids U.S. Estate Tax

American broadcasting mogul and noted philanthropist John Kluge died a couple of weeks ago at age 96, leaving behind an estate worth approximately $7 billion.  

It’s not clear how his estate was to be divided on his death – and given the popularity of trusts amongst the wealthy (which, amongst other things, can keep the distribution of assets shielded from public view) we might never know. 

One thing we do know, however, is that his estate will avoid U.S. estate tax (at least for now – but more on that in a minute). 

While the estate planners down south probably can’t open a business section without reading about 2010 estate tax issues, I’ll briefly fill in those in the audience who aren’t familiar with the topic.

In the United States, the government imposes an estate tax.  Basically, when someone dies with assets valued over a fixed exclusion amount, a specified tax rate is applied to the value of their taxable estate (i.e. their gross estate, minus certain allowable deductions) – as you can probably guess, the specifics are more complicated than that, but you get the picture. 

From 2001 to 2009 the maximum tax rate declined from 55% to 45%, while the exclusion amount increased from $675k to $3.5 million.  However, for 2010, the US Congress let the estate tax lapse – meaning that this year there is no federal tax payable.  The exemption is for one year only – in 2011 the tax returns with a rate back at the 2001 level of 55% and an exclusion amount set at $1 million.

Above I noted that estate tax was being avoided “at least for now” – that’s because there has been a lot of talk that Congress may enact a law imposing a tax rate for 2010 and make it retroactive to the beginning of the year.    

Kluge isn’t the only billionaire whose estate will be able to avoid the tax: Texas oil tycoon Dan L. Duncan died in March leaving an estate worth approximately $9 billion and New York Yankees owner George Steinbrenner died in July leaving behind approximately $1.1 billion. 

I guess we’ll have to wait and see if, in the last 3 ½ months of the year, the estates of any other billionaires manage to dodge the estate tax – not to be morbid but David Rockefeller Sr. (son of oil baron John D.) is 95.

Coming Soon - Estate Disputes Hit the Boob Tube

It was bound to happen. Really, it was only a matter of time.

A reality show about estate litigation is currently in the works. 

I happened upon this frightening piece of news while reading the Wealth Law Blog (which is published by an Oregon-based law firm).   

In mid-July, the production company responsible for “LA Ink” and “Storm Chasers” sent out a casting call for residents in the New York Tri-State area.  The production notice reads in part:

Are YOU and YOUR RELATIVES arguing over a loved one’s Will? Do you need help resolving family conflicts and evaluating the worth of objects in the Estate?

Was your loved one’s Will vague– who should get what -- and you and your relatives can’t agree, we want to hear from you!!!

Billing the show as a “life-changing new series”, the production company promises to settle the participants’ “estate nightmare” as well as to financially compensate them. 

The casting call doesn’t indicate exactly how they intend to resolve the estate disputes – will the program have a touchy-feely Oprah-esque sentiment to it, or will things be resolved Judge Judy-style?  

I’m curious to know what type of estate disputes will be featured.  A secret I’ll share with you is that a lot of estate litigation isn’t all that exciting – I doubt that disputes over trustee compensation or the appropriate interpretation of administrative clauses in wills would make for particularly fascinating viewing. 

So, would I tune into a show like that?  On the one hand, the idea is about as appealing for me as I imagine that sitting around watching COPS would be for your average police officer.  On the other hand, I can already feel the morbid curiosity getting the better of me. 

Can an Executor be Removed with No Replacement Appointed? Court of Appeal Says "Sometimes"

I recently came across the Ontario Court of Appeal’s decision in Gonder v. Gonder Estate, from March of this year.  In it, the court considers a very interesting issue: does the court have the discretion to remove a trustee without appointing a replacement and, if so, when should that discretion be exercised? 

By way of background, an individual ("the testatrix") left a will naming her sister and brother-in-law as her executors.  After the testatrix’s death, her brother commenced a claim against her estate. 

The executors later brought a motion under s. 37 of the Trustee Act seeking their removal on the basis of, amongst other things, financial stress, ill health, and other personal circumstances.  They did not seek the appointment of a replacement executor.  The testatrix’s brother opposed the motion, arguing that in the absence of a successor trustee, the current executors were “stuck with the job.” 

The motions judge ordered that the executors be removed and held that requiring them to continue acting would cause substantial hardship on them.  He further decided that s. 37 of the Trustee Act did not require the court to appoint a successor when removing an executor and found that an individual could not be compelled to act as a trustee.   

The testatrix’s brother appealed, arguing that the motions judge erred in removing the executors, leaving the estate with no personal representative. 

The Court of Appeal allowed the appeal.  It found that the motions judge was correct that the court does have the discretion to remove a trustee without appointing a successor.  However, this was to occur only in the rarest of circumstances.  It also found that when leaving an estate “trustee-less”, the court had the obligation to ensure “the proper administration of the estate in the best interest of the beneficiaries”.  That is, an alternate mode of administration must be implemented such that the estate assets will be maintained and the beneficiaries’ interests will be protected.

The court went on to conclude that while the circumstances were such that the removal of the executors was warranted, the motions judge erred in failing to ensure that the proper administration of the estate could proceed.  It ordered the Superior Court to reconsider the executors’ removal and, if they were to be removed, to ensure the estate and its beneficiaries would be protected. 

Helpful Tips for Avoiding Negligence Claims for Estates and Trusts Lawyers

I came across an interesting article in the September edition of “Risky Business”, the magazine published by LawPro, the liability insurer for lawyers in Ontario.  The article details the various “malpractice hazards” which arise in various practice areas. 

In the area of wills & estates, the types of claims lawyers face appear increasingly influenced by the demographics of the population.  Specifically, with the aging population, LawPRO sees an increased risk of claims arising because of issues related to a client’s capacity.  In addition, the number of elderly individuals with large estates just increases the incentive that families will have to fight and the potential that those disputes will entangle the lawyer who did the estate planning.  

LawPRO makes the following suggestions of ways to reduce the risk of a claim:

a)    Be on the lookout for signs of undue influence.  In situations where the client is making drastic changes to his or her will, explore who is benefitting from the changes and what has motivated the client to make them;

b)    Make sure to meet with the client alone to ensure that the client understands the legal implications of what he or she is instructing you to do and is making decisions freely;

c)    Clarify who you are acting for and taking instructions from so as to ensure there is no conflict of interest.  This is particularly important when your initial contact is not with the client but rather with a family member of the client; and

d)    Make sure to satisfy yourself about your client’s mental capacity and, just as importantly, make sure to document what enquiries you made in case your client’s capacity is later challenged.

When litigation over an estate occurs, the reasons are frequently unrelated to the lawyer who did the estate planning.  However, angry beneficiaries don’t always feel that way.  It is always a good idea for a lawyer doing estate planning to ensure that he or she will be protected in the future if issues involving the will or the client’s capacity arise.   

Death of a TFSA Holder - How to Avoid the Taxes

The Globe and Mail has posted a great video about how to pass on your Tax Free Savings Account [“TFSA”] on death without triggering taxes. 

Depending on the intended beneficiary, there are two main ways to pass on your TFSA.  The first is by naming a successor account holder.  A successor account holder can be either your spouse or your common law partner.  Where a successor has been named, the effect is that when you die, he or she will be able to simply “take over” your TFSA – meaning the successor will be able to contribute to, administer, and withdraw from the account.  The transfer should be seamless and no taxes will be payable. 

The other option is to name a beneficiary on the account.  Possible designated beneficiaries include a spouse, former spouse, common law partner, child, or a “qualified donee” (such as a registered charity).  In this case, while a tax free transfer will still be available, there will be time limitations dictating by when the transfer must have been made.  Additionally, if the TFSA earns income subsequent to the account holder’s death (and prior to the account being transferred to the beneficiary), then that income will be taxed in the hands of the beneficiary.

An important distinction between naming a successor account holder and a designated beneficiary relates to what can be done with the proceeds of the account once they’ve been received.  When a successor holder is named, the TFSA will continue to exist, with the income earned sheltered from tax.  The successor’s contribution room for his or her own TFSA will remain unaffected.  When a designated beneficiary is named, that beneficiary will be able to withdraw any amounts up to the fair market value of the TFSA at the original account holder’s death on a tax-free basis.  However, the beneficiary will only be able to protect future growth in the TFSA from tax by contributing it to his or her own TFSA (and this will be subject to available room). 

If you are interested in learning more about the implications of the death of a TFSA holder, the website for the Canada Revenue Agency has useful information.

Decisions, Decisions - Should You Make a Will or Avoid Tempting Fate?

If you ask any estate planning lawyer whether you should have a will, the answer will be a resounding “Yes!”.  However, Dorothy Lipovenko, a writer for the Montreal Gazette, might not agree.

In her recent article, “Why Tempt Fate By Making a Will?”, Ms. Lipovenko explains why she doesn’t have one (and, from what I can glean, doesn’t plan on making one).  Apparently, a major part of Ms. Lipovenko’s reluctance stems from superstition – the worry that making a will will somehow hasten her own demise.  Additionally, she figures that having named her husband the beneficiary on her RRSPs, further planning isn’t really necessary – especially since, although she’s accumulated “stuff” over her lifetime, asset-wise she’s hardy the “Queen of England”, as she puts it. 

The mentality expressed in the article isn’t an uncommon one.  In my practice, I often encounter clients who are very reluctant to do a will.  Frequent excuses include that they’re too busy, they can’t decide how to distribute their assets, they don’t have enough worldly goods to make a will worthwhile, and so on – although, I’ve noticed a consistent underlying theme is that people just don’t like thinking about dying.

Nevertheless, having a will is important.  If your assets are limited and your intended distribution is simple, then you certainly don’t need anything complex.  But turning your attention to how you want your estate divided and who you want to administer it is still important.  If for nothing else, having a will makes your estate much easier to administer because it will name the executor who will have the authority to act.  Dying without a will, and without having named an executor, can lead to a costly and arduous estate administration – and result in professional fees being incurred that could have otherwise been avoided. 

The New York Times recently published a helpful primer on the benefits of having a will, “Estate Planning Step 1: Recognize You Are Going to Die”, which is worth a read.

Guardianship of Minors: Planning for Your Children's Future

A common concern that people have when planning their estates is what will happen to any minor children they have on their death.  As a result, people who do have minor children when making a will have the option of naming a guardian to take custody of their children on their death. The authority to appoint a guardian and the process that must be followed is set out in s. 61 of the Children’s Law Reform Act. 

It is possible to appoint more than one guardian or to name alternate guardians in the event the one appointed can’t act.  In situations where a couple (such as the testator’s sister and brother-in-law) are named, it is suggested that the will provide they must be together at the testator’s death and, if they are not, who should take custody (to avoid a situation where a couple who was married at the time the will was completed have divorced at the testator’s death). 

While naming a guardian is a good option, it is important for the testator to understand the limitations of such an appointment.  First, an appointment of a guardian will only be effective if, at the time the appointment takes effect, the individual who made it was the only one entitled to custody of the minor – so, if two parents are entitled to custody of a minor and one passes away, the surviving parent will be entitled to custody, not the guardian named in the deceased parent’s will. 

Second, an appointment made by will is only temporary in nature and will be effective for ninety days after the testator’s death.  Before the 90 days expired, the intended guardian must bring a court application seeking to be permanently appointed.  Ultimately, then, it will be up to the court to determine who will be awarded final custody of any minor children – and the court’s concern will be over what is in the best interests of the children, not what the will says.  In situations where appointing the guardian named in a will seems in keeping with the children’s best interests, the court will certainly give importance to the terms of the will – however, again, it is important for anyone making a will to understand that the will won’t necessarily be determinative.    

Estate Planning in the Face of an Ill Client - What are a Lawyer's Obligations?

A fear shared by many estate planners is a situation where a client making a will ("a testator") dies before the will being drafted has been executed.  

That was the situation in the recent decision of McCullough v. Riffert

In McCullough v. Riffert, the testator visited a lawyer to have a will prepared, leaving everything to his niece.  Unfortunately, the testator died of illness ten days later and before the will had been executed. As such, his estate was distributed on an intestacy.  The niece proceeded to bring a claim against the lawyer for negligence, alleging that the lawyer ought to have recognized the seriousness of the testator’s illness and been faster in preparing the will and attending to its execution.     

The court found that while “best practices” would have involved the lawyer preparing a will on the day of the client meeting or recommending that the testator do a holograph will, in the circumstances, requiring the lawyer to have done so would be imposing too high a burden. 

Some of the factors the court looked at in determining whether the lawyer had met the requisite standard of care were as follows:

  • The testator had taken no previous steps to complete a will;
  • The lawyer was never advised that the testator was terminally ill – indeed, it does not appear the testator knew and after his death his niece expressed surprise he had died;
  • The urgency of the situation was not expressed to the lawyer – during the meeting the testator had mentioned that he was planning on visiting relatives in Texas a few months later and, as such, the lawyer had no reason to believe death was imminent; and
  • After the initial meeting, the testator never contacted the lawyer to enquire about the status of the will. 

Ultimately, the court found that in the circumstances the lawyer had met the standard of care required to her and was not negligent.  However, this case does serve as a useful reminder of how important it is to prepare a will quickly when a testator is elderly or presents as ill.  There are certainly circumstances where failing to do so can result in a finding of negligence.