Toronto Estates and Trusts Monitor

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. 

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.   

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.

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. 

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.

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!

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. 

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.  

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. 

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.     

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. 

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.   

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.

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.