Adding Defendants

Adding Defendants

Stewart v. Stewart  2016 BCSC 1576 was a contested application for adding defendants to a court action commenced by one of four children to wind up a trust.

The application to add the remaining three children as defendants was opposed on the basis that the trustee could and would represent the interests of the other three children.

The court allowed the three defendants to be added as parties as there was a different legal position being put forward between the -plaintiff as a beneficiary and the applicants to be added as defendants as beneficiaries.

A: RULE 6-2(7)(b)

[34]         This subrule provides two alternate tests:

  • whether the person ought to have been joined as a party, or
  • whether that person’s participation in the proceeding is necessary to ensure that all matters in the proceeding may be effectually adjudicated on.

[35]         The Applicants, relying on Kitimat (District) v. Alcan Inc., 2006 BCCA 562 at para. 28, submit that if either of the circumstances referred to in paragraph 34 above arise, then the person should be added as a party.

[36]         They argue it is necessary to join the Applicants as defendants since their direct interests might be affected by the granting of the relief sought in the NOCC.

[37]         Kitimat was considered and applied in Delta Sunshine Taxi (1972) Ltd. v. Vancouver (City), 2014 BCSC 2100 at para 14:

[14]      “Ought” is a broader concept than “necessary” and includes situations in which joining the person may be more than mere convenience but less than necessity (Kitimat at para. 29). Necessary parties are those whose direct interests might be affected by the relief sought (Canadian Labour Congress v. Bhindi (1985), 1985 CanLII 384 (BC CA), 61 B.C.L.R. 85 at 94 (C.A.) (Canadian Labour Congress), Kitimat at paras. 30-32). In Kitimat, the petitioners sought to quash a decision of the province that authorized Alcan Inc. (“Alcan”) to sell hydro power that it produced for use outside of Kitimat’s aluminum industry, without adding Alcan as a party. The Court found that Alcan ought to have been joined and that Alcan was a necessary party because a binding order would limit the instruments held by Alcan, without its participation. In other words, the effect of the petition could be to limit the ability of Alcan to sell the hydro power it produced, so affecting the value of the power and the financial interests of Alcan

[38]         Their arguments include:

  • as in Kitimat, the relief sought by the plaintiff in these proceedings will affect the Applicants’ rights and interests under the Trusts. If the plaintiff is successful, there will be a direct financial impact on the Applicants in that among other relief, the plaintiff seeks orders that QPPC and its subsidiaries, ABC and its subsidiaries, the Stewart Trust, and the Martin Trusts be liquidated, dissolved or wound up and the Trustees of the Stewart Trust and Martin Trusts distribute one-quarter of the assets held by the Trusts to each of the plaintiff, and the Applicants, adjusted for any unequal distributions;
  • accordingly, if the plaintiff’s claims were successful, the operations of QPPC, ABC, and their subsidiaries would be terminated prematurely. The Stewart Trust and the Martin Trusts would also be terminated, the Trust assets distributed, and the Applicants’ rights and interests as beneficiaries under those Trusts would be eliminated;
  • the Stewart Trust and the Martin Trusts are a major source of income for the Applicants. The plaintiff has stated that the Applicants and the plaintiff have received over $34 million in equal shares from the Stewart Trust alone since its settlement. The relief sought by the plaintiff in these proceedings would terminate this ongoing income source;
  • it is no answer for the plaintiff  to say that the interests of the Applicants are not directly affected because they would be entitled to a distribution of an approximately equal share of the trust property should the relief be granted. The plaintiff has pled that the purpose of the Trusts was to allow the Deceased’s assets to grow in a consolidated and diversified manner for the benefit of the Deceased’s children and their issue.
  • this is not one of those situations where the beneficiaries’ input is necessary or helpful;
  • to the extent that any of the interests of the beneficiaries of the family trusts are affected by the claims brought in the within proceeding, their interests ought to and can be protected by the defendant trustees of the family trusts. The Applicants have not asserted any argument or defence that would be available to them as trust beneficiaries that is not available to be advanced, or has not been advanced, by the defendant Trustees of the family trusts.

[41]         I have concluded that the application should be granted. While I accept that the Applicants do not currently have a position adverse in interest to the trustees, that is not, in my view, the proper test to be applied.

S 151 WESA – Court Allows Applicant to Sue as Executor

S 151 WESA - Court Allows Applicant to Sue as Executor

Werner v. McLean 2016 BCSC 1510 granted relief under S 151 WESA that the applicant be authorized to bring court action in the name of and sue on behalf of the personal representative of the estate as executor.

The court approval was in order to litigate whether an asset was or was not an estate asset. The court found that the applicant had satisfied the required criteria under S 151 WESA.

An application in the alternative that the executor be removed and the applicant substituted as executor  was dismissed on the basis that the executor had not acted improperly.

The court stated:

[9]             On an application for removal of a trustee, the court’s focus is on the welfare of the beneficiaries of the trust estate: Letterstedt v. Broers (1884), 9 App. Cas. 371 (P.C.); Conroy v. Stokes, [1952] B.C.J. No. 111 (C.A.). Not every act of misconduct should result in removal. The question is whether the acts or omissions endanger the trust property or show a want of honesty or proper capacity to execute the duties or reasonable fidelity: Letterstedt, at 386.

Section 151 of the Wills, Estates and Succession Act provides, in relevant part, as follows:
(1)  Despite section 136 [effect of representation grant], a beneficiary or an intestate successor may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of the deceased person
(a)  to recover property or to enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or
(b)  to obtain damages for breach of a right, duty or obligation owed to the deceased person.
…
(3)  The court may grant leave under this section if
(a)  the court determines the beneficiary or intestate successor seeking leave
(i)   has made reasonable efforts to cause the personal representative to commence or defend the proceeding,
(ii)   has given notice of the application for leave to
(A)  the personal representative,
(B)  any other beneficiaries or intestate successors, and
(C)  any additional person the court directs that notice is to be given, and
(iii)   is acting in good faith, and
(b)  it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a beneficiary or an intestate successor for the proceeding to be brought or defended.
(4)  On application by a beneficiary, an intestate successor or a personal representative, the court may authorize a person to control the conduct of a proceeding under this section or may give other directions for the conduct of the proceeding.

Deceased Assets Vest In Executor

Deceased Assets Vest In Executor

A deceased person’s assets vest in his or her executor or administrator after death.

If an executor is removed or renounces the new executor/trustee then holds the assets in trust as they now vest with the new executor/trustee.

Browne v Browne Estate 2015 BCSC 28, the court  removed an executor and stated:

[22]         At common law the executor derives title from the will: Sustrik Estate v. Floyd, 2005 ABQB 880.

Section 102 of the Wills, Estates and Succession Act, S.B.C. 2009, c. 13 provides:

(2)        The estate of a deceased person vests in the person’s personal representative when the personal representative assumes or is appointed to that office.

The Duties of an Executor Under a Will

Duties of Executor

Duties of  Executor is an example of one of the many excellent publications that the Canadian bar Dial- A Lawyer library has for free public access.

I have reprinted this article from the said library as it is an excellent summary of the daunting task faced by many executors.

The Dial-A-Law library is prepared by lawyers and gives practical information on many areas of law in British Columbia. Script 178 gives information only, not legal advice. If you have a legal problem or need legal advice, you should speak to a lawyer. For the name of a lawyer to consult, call the Lawyer Referral Service at 604.687.3221 in the lower mainland or 1.800.663.1919 elsewhere in British Columbia.

This script discusses your duties as an executor under a will and what you have to do to probate an estate.

What does it mean to probate an estate?

Probate is the process of getting the court to rule that a will is legally valid. With some exceptions, the estate consists of any land, house, money, investments, personal items and other assets that the deceased owned. The person who died and made the will is called the “testator”.

What is an executor, and what does the executor do?

The executor is named in a will, in general, the executor gathers up the estate assets, pays the deceased’s debts, and divides what remains of the deceased’s estate among the beneficiaries.

How do you confirm that you were named as the executor?

You need to get the original version of the will to check this. If it’s not at the deceased testator’s home, the will may be in a safety deposit box, at the office of the lawyer who drafted the will, or it may be found by a search with the Vital Statistics Agency.

To look in the safety deposit box, phone the bank and make an appointment. Take the key, a death certificate and your own identification. If the will is there and names you as executor, the bank will let you take the will. You and a bank employee will then list the contents of the safety deposit box. You need to keep a copy of that list.

The other thing you can do is search for a wills notice at the Vital Statistics Agency. The testator or the testator’s lawyer may have registered a wills notice with Vital Statistics. This notice tells where the testator planned to keep the original will. If a wills notice was registered, you’ll be able to locate and obtain the original version of the will and confirm that you were named as the executor. For the Vital Statistics Agency office closest to you, call 250.952.2681 or check the Vital Statistics website at www.vs.gov.bc.ca.

Decide if you want to be the executor

If you haven’t yet dealt with any of the estate assets, you cannot be made to act as the executor. Acting as an executor can be very challenging, and you should only take on this responsibility knowing that the task will be time-consuming and stressful. Once you begin the process of dealing with the estate assets, you’re legally bound to complete the job, and you can only be relieved of your responsibility by a court order.

Consider hiring a lawyer

If you decide to act as the executor, consider whether to hire a lawyer to do the paperwork and advise you of your obligations. If you do, the estate pays the lawyer’s fees. Ask the lawyer how the legal fees will be calculated, whether as a percentage of the estate or on an hourly basis. But because unexpected matters often arise in estates, it may not be possible to get an exact estimate of the fees. It’s a good idea to hire a lawyer for any estate involving the distribution of assets through a will, where a grant of probate is required. For most estates, it’s also a good idea to also hire an accountant to help with the several tax returns that need to be filed, as proper filing of returns and payment of taxes is one of the executor’s responsibilities.

Your first decision as executor may be about funeral arrangements

The funeral is your responsibility, although you’ll want to consider the wishes of the deceased person and their relatives. The funeral parlor will ordinarily order you copies of the death certificate. You may take the funeral bills to the bank where the deceased kept an account. If there’s enough money in the account, the bank will give you a cheque from that account to pay the expenses.

You must also confirm that the will is the deceased’s last will

You can confirm this by checking with the Vital Statistics Agency at the office closest to you. Most lawyers send a wills notice to Vital Statistics for every will they prepare. Vital Statistics will then send you a Certificate of Wills Search. This tells you if there’s a record of the will and where the will is kept. You need this certificate when you apply to the court for probate, if you can’t find the original will, the search results may help you locate it.

Cancel charge cards and protect the estate

You should cancel ail the deceased person’s charge accounts and subscriptions. Also ensure that the estate is protected. Make sure valuables are safe and that sufficient insurance is in place. You should immediately change the locks on the apartment or house, and put any valuable things into storage. As for insurance, most insurance policies are cancelled automatically if a house is vacant for more than 30 days, so ask the insurance agent about a “vacancy permit.”

All potential beneficiaries must be notified

The Supreme Court Civil Rules and the new Wilis, Estates and Succession Act (WESA) require that all beneficiaries (as well as certain family members who would be heirs if there was no will, or who are eligible to apply to the court to change the will) must be given a written notice, plus a copy of the will. This is generally done by the estate’s lawyer.

The next step is to prepare and submit the necessary probate documents

The probate documents are submitted to court to get probate. Usually, you must get probate of the will to handle the deceased’s estate. You’ll also have to pay the probate fees as assessed by the court registry. The deceased’s bank will usually allow you to take these funds out of the deceased’s account.

Be aware that you don’t always have to apply for probate

It depends on the type of assets in the estate. Certain assets can be passed down without requiring probate. Land owned in joint tenancy with another person doesn’t require probate. If the deceased person owned land or a house in joint tenancy with another person, you only have to file an application in the Land Titles Office along with the death certificate. This will register the land in the name of the surviving joint tenant.

Also, probate isn’t required for joint bank accounts or vehicles owned jointly. Again, the death certificate is usually sufficient to transfer these to the surviving joint owner.

In addition, RRSPs and insurance policies, which typically name a beneficiary to receive the proceeds in case of the person’s death, aren’t considered part of the estate, and therefore don’t require probate. You should give the death certificate to any insurance companies and RRSP administrators that the deceased person had plans with.

They’ll want the death certificate before paying money to a beneficiary.

What about stocks and bonds?

If the estate includes securities, such as stocks and bonds, you may have to apply for probate in order to transfer them. You should check with the financial institution or transfer agent involved for each security in the estate because they’ll have different requirements.

Also deal with any pensions the deceased had

If the deceased paid into the Canada Pension Plan, immediately apply to your local CPP office to tell them of the death and obtain any death, survivor or orphan benefits. Most funeral directors can provide you with information and forms regarding CPP death benefits. You should also check with the deceased person’s employer about any benefits available there. If the deceased was receiving an old age security pension or other pensions, you also need to tell those pension offices of the death. Note that any CPP or old age security cheques for the month after the month in which the person died must be returned uncashed.

Certain income tax returns must be filed, and income tax may have to be paid

You need to file tax returns for any years for which the deceased didn’t file a return. If the estate made any income after the date of death (such as rental income or interest on.bank accounts), then tax returns will have to be filed for the estate for each year after death, until the estate is wound up or paid out. The estate must pay taxes and obtain a Clearance Certificate from Revenue Canada before the estate can be distributed to the beneficiaries. This certificate confirms that all income taxes or fees of the estate are paid. This is an important step because the tax department can potentially impose taxes that you don’t know about.

Now you can pay the estate’s debts

Depending on the circumstances, you may want to advertise for possible creditors so you can make sure all legitimate debts are paid. This is to protect yourself against creditor claims that arise after you distribute the estate. As the executor, you could be personally liable if you don’t pay the deceased’s debts, includig any taxes owed, before you distribute the estate. You should talk to a lawyer about this.

Be aware of the WiUs Variation Act

The Wills Variation Act allows any child or spouse of the deceased to apply to the court to vary or change the terms of the will. This Act has a six-month deadline (starting from the granting of probate). You should wait for six months to distribute the assets or obtain releases from each potential claimant. Remember that you are responsible if you distribute the assets to the wrong people and could be sued.

Get tax clearance

It’s wise to obtain a tax clearance certificate from the Canada Revenue Agency. This certificate confirms that all income taxes or fees of the estate are paid. This is an important step because the tax department can potentially impose taxes that you don’t know about.

Finally, you’re ready to distribute the estate to the beneficiaries

But before distributing the assets as directed in the will, you should submit a full accounting of the estate’s financial activities and obtain a release from each beneficiary. Your accounting will usually include a claim for reimbursement of expenses you’ve paid yourself. You’ll have to decide if you also want to claim a fee for acting as executor. This fee can be up to 5% of the estate and is taxable income. If you want to claim a fee, the amount you claim should be included in the accounting that you send to the beneficiaries.

Where can you find more information?

• See the booklet “Being an Executor” produced by the People’s Law School, available online through Clicklaw. -at www.clicklaw.bc.ca/resource/1022.

•     Also see the BC Ministry of Justice’s website on wills and estates at  www.ag.gov.bc.ca/courts/other/wills estates.htm. [updated April 2014]

Dial-A-Law© is a library of legal information that is available by:

•             phone, as recorded scripts, and

•             audio and text, on the CBA BC Branch website.

To access Dial-A-Law, call 604.687.4680 in the lower mainland or 1.800.565.5297 elsewhere in BC. Dial-A-Law is available online at www.dialalaw.org.

The Dial-A-Law library is prepared by lawyers and gives practical information on many areas of law in British Columbia. Dial-A-Law is funded by the Law Foundation of British Columbia and sponsored by the Canadian Bar Association, British Columbia Branch.

Executor/Trustees Fees

Executor/Trustees Fees

Zadra v Cortese 2016 BCSC 390 dealt with a passing of executor’s accounts before a registrar to determine the amount of executor/trustees fees for handling a complex estate for ten years but delegating most of the work to professionals.

The value of the estate increased from $800,000 to $4.8 million over this time due to the rise in the real estate market.

The registrar allowed fees of %3 of the gross estate, plus %3 of the estate’s income and a management fee of $12,000.

The executor had pre- taken fees of $70,000 but was not admonished for it as it was done in the belief that the executor was entitled to it.

The Court Stated:

41 Sections 88 and 89 of the Trustee Act, R.S.B.C. 1996, c. 464, provide as follows:

88 (1) A trustee under a deed, settlement or will, an executor or administrator, a guardian appointed by any court, a testamentary guardian, or any other trustee, however the trust is created, is entitled to, and it is lawful for the Supreme Court, or a registrar of that court if so directed by the court, to allow him or her a fair and reasonable allowance, not exceeding 5% on the gross aggregate value, including capital and income, of all the assets of the estate by way of remuneration for his or her care, pains and trouble and his or her time spent in and about the trusteeship, executorship, guardianship or administration of the estate and effects vested in him or her under any will or grant of administration, and in administering, disposing of and arranging and settling the same, and generally in arranging and settling the affairs of the estate as the court, or a registrar of the court if so directed by the court thinks proper.

(2) The court or a registrar of the court if so directed by the court, may make an order under subsection (1) from time to time, and the amount of remuneration must be allowed to an executor, trustee, guardian or administrator, in passing his or her accounts, in addition to any other allowances for expenses actually incurred to which the trustee, executor, guardian or administrator may by law be entitled.

(3) A person entitled to an allowance under subsection (1) may apply annually to the Supreme Court for a care and management fee and the court may allow a fee not exceeding 0.4% of the average market value of the assets.

89 The court may, on application to it for the purpose, settle or direct the registrar to settle the amount of the compensation, although the estate is not before the court in an action.

42 The administrator is entitled to remuneration for his work on the estate to a maximum of 5% of the gross aggregate value, including capital and income of all the assets of the estate at the date of passing, pursuant to s. 88(1) of the Trustee Act. The criteria to be considered in determining the amount of remuneration which should be awarded are set out in the much cited case of Toronto General Trusts Corp. v. Central Ontario Railway (1905), 6 O.W.R. 350 (Ont. H.C.) at para. 23wherein the Court states:

[23] From the American and Canadian precedents, based upon statutory provision for compensation to trustees, the following circumstances appear proper to be taken into consideration in fixing the amount of compensation:
(1) the magnitude of the trust;

(2) the care and responsibility springing therefrom;

(3) the time occupied in performing its duties;

(4) the skill and ability displayed;

(5) the success which has attended its administration.

43 It is not required that remuneration be fixed at a specific percentage of the gross value of the estate, it can be calculated as a lump sum provided it does not exceed 5%. In Turley, Re (1955), 16 W.W.R. 72 (B.C. S.C.) at para. 11 the Court stated:

[11] As to grounds 1 and 2 of this application, I think the principles to be applied are well settled. I adopt the statement of the principles as given in, I think, all the cases and found in Re Atkinson Estate [1952] OR 688, that the compensation allowed an executor is to be a fair and reasonable allowance for his care, pains and trouble and his time expended in or about the estate. Both responsibility and actual work done are matters for consideration and, while there should not be a rigid adherence to fixed percentages, they are to be used as a guide. I think that the factors I mentioned in my judgment on the previous motion are found here. It is not only the presence of continuing trusts that makes the realization and administration of estates difficult. It is submitted that the capital fee should be charged only on the amount realized, excluding those assets that go over in specie. While the fact that considerable portions of the estate are transferred in specie is a factor the registrar may consider in settling the percentage he allows, I think it would be quite inappropriate as a rule to exclude these in the computation of aggregate value. There appears to be evidence here of extensive work. It is the duty of the executor to administer the whole of the estate. His work in some things might not be compensated sufficiently by a percentage much in excess of the maximum allowed.

44 Maximum remuneration is not awarded as a matter of routine. Appropriate remuneration is a matter of what is fair and reasonable in all the circumstances. As stated by the B.C.C.A, in Kanee Estate, Re [1991 CarswellBC 654 (B.C. C.A.)] (19 September 1991), Vancouver Registry CA014168:

Maximum remuneration does not go as a matter of course and it is to be expected that there will be disputes over the quantum of remuneration. Section 90(1) does not prescribe an adversarial process. There are no plaintiffs, no defendants, no pleadings, no discoveries, no provisions for offers of settlement or payment into Court, and no other trappings of an adversarial nature, All interested parties are entitled to be heard but in the end the officers of the Court must decide what is fair and reasonable in all of the circumstances.

45 The amount of remuneration to be paid to the administrator is determined on a quantum merit basis which reflects the reasonable value of the services rendered, which is subject to a 5% maximum.

46 In this regard, evidence is required concerning the administrator’s experience in estate matters, the nature of the estate, the tasks undertaken, the time spent, unusual problems arising during the administration of the estate, the skill employed by the administrator, and the results achieved which were directly attributable to the administrator’s efforts. Documentary evidence and time records should be provided where they exist. The administrator provided this evidence over the course of days of testimony. In addition, extensive documentary evidence was provided by both the administrator and the beneficiaries. However, no time records were provided, as the administrator did not keep a record in this regard.

47 An inference may be drawn against an administrator for failure to provide time records in appropriate circumstances. See Lowe Estate, Re, 2002 BCSC 813 (B.C. S.C.) at para. 33.

48 A negative inference in this regard will be appropriate where criticisms in the administrator’s administration of the estate are found to be valid. In these circumstances, the administrator’s remuneration may be substantially reduced. See Lowe Estate, Re , supra, at paras. 27, 28, 41 and 42.

Signing a Trustee Release

Signing a Trustee Release

Anyone practicing law in wills and estates, or who has inherited monies, will be familiar with being required to sign a Trustee Release before the funds are disbursed to the beneficiaries.

In BC, it is simply the way business is conducted, and it saves a great deal of time and expense by not forcing the executor/trustee to pass accounts firstly before distributing the assets.

Thus I was somewhat surprised to read the following extract from Bronson v Hewitt 2010 BCSC 169:

The Trustee’s entitlement to demand a release does not arise for the first time in this action. The first reported case dates back to 1845. In Chadwick v. Heatley (1845) S.C. 2 Col. 137, 63 E.R. 671, the trustee sought to distribute trust funds to surviving beneficiaries. He offered a general release as a condition to the payment which the plaintiff refused to sign. The court concluded the trustee did not have the right to insist on having the release executed.

[655] In King v. Mullins (1852), 61 E.R. 469, the court held that although it was usual practice to give a release in order to discharge a trustee, a trustee paying in accordance with the letter of the trust has no right to require a release.

[656] In Brighter v. Brighter Estates, [1998] O.J. No. 3144 (Ct. J. (Gen. Div.)), the court was most critical of the executor requiring a release. The court said at para. 9:
… An executor’s duty is to carry out the instructions contained in the will … [T]he executor has no right to hold any portion of the distributable assets hostage in order to extort from a beneficiary an approval or release of the executor’s performance of duties as trustee, or the executor’s compensation or fee. It is quite proper for an executor (or trustee, to use the current expression) to accompany payment with a release which the beneficiary is requested to execute. But it is quite another matter for the trustee to require execution of the release before making payment; that is manifestly improper.

[657] In Rooney Estate v. Stewart Estate, [2007] O.J. No. 3944 (Sup. Ct. J.) the court noted at para. 39: “[t]he manner of sending the release first and the cheque later suggests the “beneficiary was held hostage for the release.”

[658] In spite of the judicial criticism, a review of British Columbia practice manuals and Continuing Legal Education (“CLE”) publications suggests that it is a common practice to seek a release prior to distribution: R.C. DiBella, Wills and Estate Planning Basics – How to Administer an Estate from Collecting the Assets to Paying Accounts, Materials prepared for CLE Seminar, Vancouver, B.C., October 2006; Gabrielle Komorowska, Guide to Wills and Estates, British Columbia ed. (Gibsons: Evin Ross Publications 1996); British Columbia Probate and Estate Administration Practice Manual, vol. 2, 2d ed. (Vancouver: CLE BC, 2007).

[659] The alternative to obtaining a release is for the trustee to pass his accounts. The passing of accounts will release a trustee from future obligations. For a trustee to request a release of future claims is not in itself objectionable. In this case, however, the proffered document seeks not only a release of future claims but also that the beneficiaries indemnify and hold harmless Howard from any claims arising subsequent to September 30, 2002. A request for an indemnity and hold harmless agreement goes well beyond the type of release referenced in the B.C. practice manuals. In addition, the Distribution Letter suggests that the beneficiaries must sign the Release before any cheque will be forthcoming.

[660] While a request for a release and indemnity in that form may be objectionable, it does not in the first instance create any loss or damage. If all of the beneficiaries had been prepared to sign the Release, matters would have been resolved. They, of course, were not.

[661] What happened subsequently is a matter of greater concern. That signing the Release was a condition of being paid became clear when only those who signed the Release were paid. Under the terms of the trust, distributions were to be made equally. That did not happen. Only those who signed the Release got paid.

[662] The submission that the trustee was entitled to pay certain beneficiaries and accumulate for others is, with respect, untenable. It is contrary to the terms of the BNT Trust Agreement. Further, it is clear that the trustee was not in this case exercising a good faith discretion in accumulating for some beneficiaries and paying others. The only reason the plaintiff beneficiaries were not paid was because they were not prepared to sign the Release, a document that the trustee was not entitled to demand.

[663] By paying certain beneficiaries and not others, Howard breached the terms of the BNT. As soon as Howard paid certain beneficiaries, he was legally obliged to pay the others, regardless of whether or not they were prepared to sign the Release. Although he may have been entitled to hold all of the funds pending a passing of accounts, what he could not do, given the terms of this trust, was to pay some beneficiaries and not others.

[664] It is a principle of equity that equity will not suffer a wrong to be done without a remedy: John McGhee, Snell’s Equity, 31st ed. (London: Sweet & Maxwell, 2005).

Executor Cannot Use Estate Funds To Defend Personally

Executor Cannot Use Estate Funds To Defend Personally

In a Wills variation claim (now section 60, WESA) an executor cannot use estate funds to defend him or herself if a beneficiary, and may  use reasonable estate  funds to defend the claim but only in the capacity of executor and not beneficiary.

In a wills variation claim the executor cannot use estate funds to defend his personal interests.

The executor may have his reasonable legal fees paid in his role as executor but should have separate counsel in most cases and the fees should be kept to a minimum–typically for advising on estate developments, liabilities and assets.

Generally, the executor is required to play a neutral role in litigation, and as a result of having to play a neutral role, the executor is generally entitled to special costs from estate.

But when the executor is also a beneficiary the costs must be separated.

If one counsel acts for the executor in both the capacity of executor and personal beneficiary, then the legal fees must be apportioned between the two separate roles, with the estate paying only for the role of executor. Wilcox v Wilcox 2002 BCCA 574.

Steernberg v. Steernberg Estate (2007), 33 E.T.R. (3d) 78, 74 B.C.L.R. (4th) 126, 40 R.F.L. (6th) 106, 2007 BCSC 953, 2007 CarswellBC 1533, Martinson J. (B.C. S.C.); additional reasons to (2006), 2006 CarswellBC 2751, 32 R.F.L. (6th) 62, 28 E.T.R. (3d) 1, 2006 BCSC 1672, [2006] B.C.J. No. 2925, D. Martinson J. (B.C.S.C.)  is one of my favourite cases, primarily for the reason in the headnote.

Prior to this case, it was not uncommon for defendants to routinely use estate funds in the hope of depriving a plaintiff of sufficient resources to continue the fight.

Steernberg levels the playing field by making each party pay for their own legal costs as the litigation proceeds, save for the executor, who must remain neutral in the litigation.

Here are the facts of Steernberg:

The Wife, husband’s son, husband’s three daughters and husband’s brother-in-law were beneficiaries under husband’s will.

The Plaintiff wife challenged husband’s will–husband’s son was the executor of the will.

An offer to settle made under R. 37 of Rules of Court, 1990 was signed by son as executor and the other four beneficiaries, but not on behalf of son in his personal capacity as beneficiary.

Legal fees for defendant’ litigation counsel of $148,250.62 and legal fees of counsel for executor of $72,895.24 were deducted before net values of estate were calculated.

Shortly after the trial ended and before reasons for judgment were issued, the estate paid defendants’ litigation counsel’s invoice of $60,700.

None of these payments were made or recorded with the wife’s consent and no funds from estate were made available to the wife before, during or after trial for her legal fees.

During the trial, the wife raised the concern that the defendants took substantial sums of money out of estate for legal fees to defend action before the trial started.

The parties agreed that the issue would be decided after the court gave its decision on whether will should be varied.

It was inappropriate to withdraw funds from estate at start of litigation, or throughout the course of litigation to fund defence of Wills Variation Act claim in the absence of a court order or unanimous agreement of beneficiaries

In a Wills Variation Act (S. 60 WESA) claim the validity of will itself was not being challenged and there was no need for the executor to “defend” will

The son was not entitled, in his neutral role as executor, to make a R. 37 offer and he did not join in the offer in his personal capacity as a beneficiary.

It was not an offer made on behalf of all persons beneficially interested in the assets of the estate and hence would not be binding on the estate.

The losing beneficiaries must pay the wife’s costs personally, not out of the estate.

It was directed that the executor pass his accounts before a registrar and that the registrar inquire into and make recommendations with respect to the net value of the estate after taking into account appropriate legal fees and income that ought to have been earned on the funds had they remained invested.

Executor Ordered to Repay Monies

Executor Ordered to Repay Monies Back to Estate

Executor Ordered to Repay Monies Back to Estate Paid Out Before Expiration of 6 Month Limitation

Stevens v. Wood Estate (Re), 2013 BCSC 2380. Until six months have passed from the issuance of probate of a will, s. 12 of the Wills Variation Act, R.S.B.C. 1996, c. 490 (the “WVA”) prohibits, absent consent or court order, the distribution of any portion of an estate to its beneficiaries.

The question for determination on this application is the appropriate remedy when such a distribution has been made.

However, the case of Etches v. Stephens (1994), 99 B.C.L.R. (2d) 171 (S.C.) [Etches] assists with determining the purpose of s. 12(1) of the WVA.  Etches deals with the precursor to what is now s. 3(1) of the WVA which requires that an action under this Act must be brought within six months from the date of the issue or resealing of probate.  The court stated that this provision must be read alongside the precursor to what is now s. 12(1) which has the same time-limited language.  When the two sections are read together, the reason for the limits become clear (see paras. 9-12, and 15):

  1. The “main aim” of the WVA is “adequate, just and equitable provision for the spouses and children of testators” when a will does not provide for this: see Tataryn v. Tataryn Estate, [1994] 2 S.C.R. 807 at 815.  As such, it must allow those falling within these groups to apply to the court to have the will varied.
  2. If those affected were allowed to apply to court for a variation without any time limit on the action, then there would be the danger that the distribution of the assets would remain uncertain for a prolonged period of time.  Thus there is a limitation period of six months on the action.
  3. On the other hand, if there was not a rule against distributing the assets before the limitation period to challenge the will was expired, then there would be the danger that a legitimate action could be started but the assets would already have been distributed.  This would deprive those affected of an effective remedy and potentially result in an injustice.
  4. Furthermore, without the restriction placed on the administrator of the estate by s. 12(1), it would be possible for that administrator to attempt to thwart a legitimate claim by the dependents under s. 2 of the Act by distributing the assets before an action is brought.

[29]         The purpose of s. 12(1) is to keep the estate intact to ensure that a successful plaintiff is able to recover that to which they may become entitled. A breach of this statutory provision is a serious matter.  It goes to the heart of the legislative scheme.

[30]         Until the six-month limitation period has passed, a beneficiary’s entitlement to a share in the estate is not absolute. It is subject to variation if a successful action is brought under the WVA. Unless consents are obtained, the beneficiaries are not entitled to receive and benefit from their share of the estate until the WVA claims have been resolved or a court order has been obtained.

[31]         Similarly the plaintiff in a WVA action is entitled to have the assets in the estate preserved pending the outcome of their claim. They should not be put in the position of having to pursue after the executor or other beneficiaries to reap the benefits of a successful action.

[32]         Where there is a breach of the statutory provision and funds are distributed contrary to the legislation, the remedy of a claim against the executor or other beneficiaries, after the completion of the WVA action, does not sufficiently protect the successful WVA claimant. Those parties may, by then, be without assets or have taken steps that make it difficult to locate their assets.

[33]         It is the party who has breached the provisions of the statue who must make matters right. This application is not the forum to determine the strength or otherwise of a WVA claim. The WVA claimant is entitled to have the estate reconstituted to its state prior to the wrongful distribution.

[34]         I find that the appropriate remedy for a breach of s. 12 of the WVA is for the party who has breached the provisions to either repay the estate or to post security in the entire amount which has been wrongfully disbursed.

[35]         The Executrix in this matter must make matters right. She must, within 30 days of the date of these reasons, repay the estate or post security in the amount of $202,000, being the amount which she has improperly advanced to the beneficiaries. If the security is not posted within 30 days the plaintiff will be at liberty to seek further relief.

Trustee Removed For Selling Assets Below Market Value and Benefiting

Trustee Removed For Selling Assets Below Market Value and Benefiting

VanKoughnett & Others v. Austin, 2006 BCSC 1856 is authority for the proposition that a trustee removed under section 30 of the Trustee Act where there is potential conflict of interest between the personal interests of the trustee, and those of the beneficiaries, particularly in this situation where the trustee sold assets at far below market value, and the trustee had benefited from her administration of the estate

The Law

The present petition seeks to replace the designated executor and trustee with the alternate named in the will of the deceased.

[20]            The application is brought, in part, under s. 30 and 31 of the Trustee Act, R.S.B.C. 1996, c. 464, and amendments, which provide:

30         A trustee or receiver appointed by any court may be removed and a trustee, trustees or receiver substituted in place of him or her, at any time on application to the court by any trust beneficiary who is not under legal disability, with the consent and approval of a majority in interest and number of the trust beneficiaries who are also not under legal disability.

31         If it is expedient to appoint a new trustee and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, it is lawful for the court to make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.

[21]            The test to be applied in an application to remove an executor on the basis of misconduct is that set out by our Court of Appeal in Conroy v. Stokes, [1952] 4 D.L.R. 124.  To succeed on this basis the evidence must show that the executor acted in a manner that endangered the estate, or that as executor he or she acted dishonestly, without proper care, or without reasonable fidelity.

[22]            Misconduct is, however, not a prerequisite to the court removing a trustee “when the continued administration of the trust with due regard for the interests of the cestui que trust has by virtue of the trustees become impossible or improbable”, Re Consielio Trusts (No. 1) (1973), 36 D.L.R. (3d) 658 at 660 (Ont. C.A.).

[23]            In Hall v. Hall (1983), 45 B.C.L.R. 154, the court granted an application for removal of an executor where the executor’s duties were in conflict with his or her personal interests, estate assets had been endangered by the executor’s conduct, and the executor had benefited at the expense of the estate.

 

The Executors Obligation To Maintain Estate Assets

The Executors Obligation To Maintain Estate Assets

 

Executors obligation cannot just idly stand by and allow estate assets to deteriorate or waste- the executor and trustee has a duty of care to mange and preserve the estate assets.

The legal test is as follows:

The traditional standard of care of an executor/trustee is “that of a man of ordinary prudence in managing his own affairs” (Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302, at para. 32). At paragraph 34, Dickson J. (as he was then) explains that:

“[e]very trustee has been expected to act as the person of ordinary prudence would act. This standard, of course, may be relaxed or modified up to a point by the terms of a will…[b]ut however wide the discretionary powers contained in the will, a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense.”

Scott on Trusts, 3rd ed. (page 1501) (“Scott”) states that “[i]n determining whether the trustee is acting within the bounds of a reasonable judgment the following circumstances may be relevant:

  • the extent of discretion intended to be conferred upon the trustee by the terms of trust;
  • the existence or non-existence, the definiteness or indefiniteness, of an external standard by which
  • the reasonableness of the trustee’s conduct can be judged;
  • the circumstances surrounding the exercise of the power;
  • the motives of the trustee in exercising or refraining from exercising the power;
  • the existence or non-existence of an interest in the trustee conflicting with that of the beneficiaries.”

Scott also states that “where a trustee is granted powers which are to be exercised at his discretion, the court traditionally will not interfere unless the trustee has not turned his mind to the exercise of his discretion or has acted unfairly or in bad faith”.

In Re: McDonald Estate, 2012 ABQB 704, the Alberta Queen’s Bench provides that if a trustee fails to meet the standard of care, he or she will “generally be held accountable and liable for any loss resulting from the breach, and must place the trust estate in the same position as it would have been in if no breach had been committed.” Similarly, if the assets of an estate have been damaged or wasted, “the beneficiary’s remedy is against the executor in the context of an action for breach of fiduciary duty or a challenge to the executor at the passing of accounts.” (at para. 85)