Ketcham v Walton 2012 BCSC 175 involved an application by the executor for directions pursuant to section 86 of the Trustee act for an order authorizing the executor to follow the provisions of the deceased’s last will to defend any wills variation action and gifts as vigorously as possible, even to the extent of depleting the assets of the estate in the defense and appeal of such attack on the will.
In effect the executor was asking the court for directions on how he should govern himself in the face of the disinherited three adult children’s claim for relief under the wills variation act.
The deceased left his estate to friends and charities, and disinherited his three adult children entirely.
It was a most unusual directive to his executor to fight any contests brought against his will by the children, to the extent of depleting the entire assets of the estate.
The judge in fact had no difficulty in dismissing the executors application, and restated the law that the primary duty of an executor is to preserve the assets of the
estate, pay the debts and distribute the balance of the to the beneficiaries entitled under the will, or, in accordance with any order made under wills variation act.
An executor should not take sides between the beneficiaries or use estate funds to finance litigation on their behalf under the wills variation act.
The law anticipates that the executor will remain impartial between the opposing beneficiaries.
The decision in Quirico v Pepper estate (1999) 22 BCTC 32 was followed, as was Doucette v Doucette Estate 2008 BCSC 506, at paragraph 16 where Justice
Metzger states ” The law requires an executor to remain neutral.
Life estates, also known as life interests, are a well-established part of estate planning. The owner of a life estate (“the life tenant”) has the right to occupy, use and deal with real and/or personal property for his or her lifetime. Determining the value of life estate land can be done with the help of a professional, but this post will help you get an idea for yourself.
How Life Estates Work
When the life tenant dies, the remaining interest in the property then passes to the next person entitled, historically named the “remainder man”. The interest remaining after the death of the life tenant is called the “remainder interest”. After the death of the life tenant, the remainder man enjoys full ownership of the life estate land or property.
A life interest in property has a value that can be determined by an actuarial calculation done by a professional actuary.
Calculating the Value of Life Estate Land
The purpose of this commentary is to simply give an overview of the process as well as an example. It should not be followed as any sort of professional opinion as to how to calculate such interests.
The formula consists of taking the date of birth of the life tenant as at the date of the creation of the life estate, rounded off to the nearest year, then comparing the age to an actuarial table to determine the”life tenant factor”. Then multiplying that number by the market value of the life estate land in which the subject life interest is being created to calculate the value of the life interest.
That figure in turn is subtracted from the market value of the land to calculate the value of the remainder interest (The life interest plus the remainder interest must equal the total market value of the land being transferred).
Here’s an example of calculating life estate land value:
Pam aged 77 is the sole registered owner of land valued at $185,000.
Pam decides to transfer this land to her son for $80,000, subject to a reservation of a life interest in it for herself.
Referring to actuarial tables, Pam’s life tenant factor is calculated as a female aged 77 years giving her a life tenant factor of .38603
The value of the life interest is $185,000 x .38603 = $71,415
Therefore, the value of the remainder interest is $185,000 – $71,415, = $113,585
Re Stolarchuk Estate 2011 BCSC 1681 discusses the various principles involved in the calculation of an appropriate remuneration for an executor who mismanaged the estate assets.
The deceased died in October 2004 leaving his estate consisting primarily of her house and an adjacent lot.
Her will bequeathed her estate equally to her four children, one of whom was the executrix.
The executrix attempted unsuccessfully to negotiate with her siblings to purchase the property from the estate for several years, and finally ended up selling the property through a realtor in 2009 for $250,000.
The executrix submitted an account for her remuneration at $17,000.
The court fixture remuneration at only $3000.
The registrar found that the executrix failed to realize on the estate assets and to distribute them in a timely fashion. She also acted wastefully in maintaining the phone and cable service to the house.
The court relied upon the following legal principles in assessing executors remuneration:
In Bernhard v. Wist, 2011 BCSC 101, outlined the legal principles relevant to executors remuneration:
[100] Section 88 of the Trustee Act governs executor’s remuneration. The executor is entitled to:
a) a maximum of 5 per cent of the gross aggregrate value of the estate;
b) a maximum of 5 per cent of the income earned during the administration of the estate; and
c) an annual “care and management fee” of 0.4% of the average market value of the assets.
[101] However, the percentages stipulated in s. 88 are not necessarily to be applied in every calculation of remuneration. The percentages provide a rough guide to assist in appropriate computation of the executor’s remuneration: Re Turley Estate (1955), 16 W.W.R. 72 (B.C.S.C.). In the end, the court must be satisfied that the compensation claimed “bears some reasonable relationship to the work and responsibility involved”: Re La Chance, [1955] 15 W.W.R. 141 (B.C.S.C.).
[102] Various factors are to be considered when determining the appropriate executor’s fee. Those factors include the magnitude of the estate, the care and responsibility involved, the time occupied in the administration, the skill and ability displayed and the success (or lack thereof) achieved in the administration: Re McColl Estate (1967), 65 W.W.R. 110 (B.C.S.C.). Similar, but not the same, types of considerations apply with respect to a care and management fee: Re Pedlar (1982), 34 B.C.L.R. 185 (S.C.).
[103] In terms of calculating the capital fee, the gross aggregate value of the estate is the realized value of the original assets of the estate.
Following years of consultation, an amended Power of Attorney Act came into effect on September 1, 2011, and now has “some teeth” in enduring powers of attorney.
This new Act brings important changes to the law governing enduring powers of attorney (“EPOA”) i.e. those which remain or become effective after the maker or grantor of the power of attorney becomes mentally incompetent.
The important changes, by and large apply to enduring powers of attorney and not to other powers of attorney i.e. those which lapse once the maker or grantor (known as an “adult” in the new Act) becomes mentally incompetent.
Historically, enduring powers of attorney provided great potential for the financial abuse by unscrupulous attorneys. It is thus a welcome relief to see the tightening of the rules surrounding the granting and use of these enduring powers of attorney.
In this article we will summarize, in general terms, some of the noteworthy new provisions however we will only touch on a few. It is thus crucial for legal professionals to read the Act and inform themselves.
For our purposes, the noteworthy changes dealing with enduring powers of attorney (EPOA) may be classified broadly as follows:
a) the repeal of the former s.8 which previously set out the rules for EPOAs,
b) the enactment of new Part 2 containing the new rules covering
the making of EPOAs ,
setting out the duties, powers, liability and compensation of attorneys
setting out when an EPOA becomes effective, how it may be changed, revoked, suspended or terminated and the limits on the authority of the attorney,
c) the enactment of new Part 3 covering general matters such as access to information, reporting abuse and neglect to the Public Trustee, investigations by the Public Trustee, seeking directions from the court plus other procedural and jurisdictional matters.
d) the inclusion of a new optional standard form for powers of attorney.
The Mental Capacity Required to Grant an Enduring Powers of Attorney
Much of the financial abuse seen in our own practice has involved abuse by an appointed attorney i.e. the very person previously entrusted by the victim to handle his or her affairs.
We thus view the raising of the bar in terms of the mental capacity required of a person granting a EPOA as a refreshing change. The Act sets out several criteria which must be met in order for a person to be mentally capable of granting an enduring power of attorney.
As an aside, some of the wording in the Act seems a little confusing at first blush—for example the maker of the POA is described as an “adult” and the criteria for capacity are stated in double negatives.
For example, s. 12 specifies that an adult may make an enduring power of attorney unless the adult is incapable of understanding the nature and consequences of the proposed enduring power of attorney. The adult is incapable of understanding the nature and consequences of the proposed enduring power of attorney if the adult cannot understand all of several concepts.
To restate this in positive terms, in order to be able to make a EPOA, a person (an “adult”) must be able to understand all of the following:
a) The property the adult owns and its approximate value;
b) The obligations the adult owes to his or her dependents;
c) The fact the appointed attorney will be able to do anything financial, that the adult could do if capable, subject to the conditions and restrictions set out in the EPOA, the only exception being making a new will on his or her behalf;
d) That, unless the attorney prudently manages the adult’s business and property, they may decline in value;
e) An attorney can, and may possibly misuse their authority;
f) The adult may revoke the EPOA so long as they are mentally capable; and
g) Any other prescribed matter i.e. any further matter set out in a legal enactment
s. 11 presumes an adult to be mentally capable “until the contrary is demonstrated”. The Act unfortunately provides little guidance as to what mechanism will “demonstrate” incapacity. Presumably demonstrating incapacity will involve proving the absence of understanding of one or more of the concepts delineated in s. 12.
Raising the Bar in terms of Required Mental Capacity
The new s. 12 significantly raises the bar vis-à-vis the mental capacity required to grant a valid EPOA. Previously our courts used a lesser standard in assessing the mental capacity required.
The test for mental capacity was previously set out in the decision of Egli v Egli Estate, 2005 BCCA 627. According to this decision, the mental capacity required was simply whether or not the maker (adult) understood the nature and effect of the EPOA.
There was no requirement that, at the time of granting, the adult know and understand the nature and extent of his or her property and financial affairs. Neither was there any requirement that the adult, then be capable himself or herself of performing the acts, authorized by the EPOA, for the attorney to perform.
This previously low standard has thus been substantially raised in terms of the mental capacity required to grant a EPOA. It is now in the same range as that required to make a will.
If an adult lacks capacity based on the various criteria set out in s. 12, then the enduring power of attorney will be invalid.
This new, more exacting standard will undoubtedly reduce the potential for financial abuse by attorneys.
Appointment of an Attorney
An attorney is a trustee or fiduciary in respect of the adult appointing him or her as attorney.
There are restrictions set out in s. 18 of the Act as to who may be named as an attorney. To avoid an obvious conflict of interest, caregivers, may not be appointed as attorneyunless they are the child, parent or spouse of the adult.
Other than caregivers, the adult may appoint as attorney an individual, the Public Guardian and Trustee, or a trust company licensed under the Financial Institutions Act. The adult may also appoint alternate attorneys, or appoint more than one attorney and assign the same or different areas of authority to each.
An adult may give an attorney the power to do anything which the adult may otherwise lawfully do, by agent, in relation to the adult’s financial affairs. These powers are limited to the adult’s financial affairs. By the s. 10 definition, the adult’s financial affairs includes their business and property, and the conduct of their legal affairs.
An attorney does not have power to make decisions about the adult’s personal care or health care. Such matters are instead left to be dealt with under any Representation Agreement or Advanced Directive
Duties of Attorney
The essential duties of an attorney are set out in s. 19. That section reads, in part, as follows:
“s. 19 (1) An attorney must
(a) act honestly and in good faith,
(b) exercise the care, diligence and skill of a reasonably prudent person,
(c) act within the authority given in the enduring power of attorney and under any enactment, and
(d) keep prescribed records and produce the records for inspection and copying at the request of the adult”
Notably s 19 (1) (d) creates a new statutory requirement to keep and produce financial records. These records are defined in s. 2 of the regulations. They include a current list of assets and liabilities, invoices, bank statements, and other records as required to provide a full accounting of receipts and disbursements, income and capital.
s. 19 (3) includes many other duties such as, in general terms, a duty to
a) give priority to meeting the personal care and health care needs of the adult, to the extent reasonable
b) invest only in accordance with the Trustee Act, unless the EPOA states otherwise
c) foster independence and encourage the adult’s involvement in decision-making, to the extent reasonable
d) not to dispose of property that is left as a specific gift under the adults will;
e) to keep the adult’s personal effects at their disposal, to the extent reasonable
s. 19 (4) requires the attorney to keep the adult’s property separate from his or her own unless the property is jointly owned by the adult and the attorney. In other words, the attorney must not mingle the adult’s property with his or her own.
Powers of the Attorney
An attorney may make a gift or loan, from the adult’s property if the EPOA expressly permits this or if the adult usually made gifts of that nature and will have enough left over to cover their needs and obligations. The total value of all gifts and loans in a year, however, must not be great than $5000 or 10% of the adult’s taxable income for the previous year, whichever figure is the lesser.
An attorney has no power to make or change a will for the adult. Nevertheless, an attorney may, with court approval, change a beneficiary designation such as, for example an insurance or pension benefit. Otherwise the attorney has power to rename a previous beneficiary previously named by the adult while mentally capable, in any renewal or replacement instrument. In any new instrument, the attorney may name the adult’s estate as the designated beneficiary.
New Optional Template for Enduring Power of Attorney
The province has also provided for an optional new standard form for Enduring Powers of Attorney. The new form, which is not mandatory, contains several useful provisions. It includes
a) a revocation clause;
b) a procedure for appointing of an alternate attorney and a means for providing evidence of the alternate attorney’s authority to act;
c) a specific statement of the attorney’s authority;
d) a requirement to specify whether or not the attorney is to be compensated and, if so, how compensation is to be determined;
e) a statement of the conditions precedent to the EPOA becoming effective. For e.g. it may become effective immediately on signing by both the adult and the attorney or only upon the happening of a specified event such as a medical specialist declaring the adult incompetent;
f) a specific provision for signing by the attorney as well as the adult. Each of them must sign in the presence of a witness, if the witnesses a lawyer or notary publics; otherwise, 2 witnesses are required. This provision for signing by the attorney is separate from the attorneys statutory declaration that is required if the EPA is to be filed in the land title office.
CONCLUSION
Enduring powers of attorney are a valuable tool in estate planning however there is unfortunately an associated history of financial abuse. In terms of this historical abuse there were several factors at play including
the low threshold for mental capacity to grant an EPOA,
the lack of record keeping requirements and
the lack of routine oversight of an attorney’s actions by the courts (in contrast to committeeships under the Patients Property Act)
We are optimistic that the new Act sets new standards for reducing this potential for financial abuse.
Although adults and attorneys will both require more legal advice than previously, this seems a good compromise in order both to limit the risk of financial abuse and to avoid the greater expense of committee proceedings and appointment under the Patients Property Act.
Levi- Bandel v Talesiesin Estate 2011 CarswellBC 384 is a good example of what disinherited.com perceives as an increased willingness by the courts to remove obstructive and uncooperative executors and trustees in the interests of the beneficiaries.
The deceased estate was managed by 2 co-executrixes who were also the co trustees.
The deceased made a bequest to pay $25,000 to one of the trustees for the care of the deceased’s 2 cats, with any residue of the sum going to an animal organization.
The petitioner who was a trustee but not a beneficiary, brought this application to have the co trustee removed as an estate manager, to have her pass accounts, for a declaration that she was not entitled to remuneration, as well as special costs.
All of that relief was granted by the court.
The co trustee had taken the cats to live with her, and the petitioner successfully argued that any expenses for the care of the cats had to be approved by the estate.
The court found it had jurisdiction to remove a trustee, and determined that the welfare of the beneficiaries was the major factor in possible removal.
The co trustees’ failure to act prevented the estate from being properly administered, so the co executor was removed.
It was not necessary to appoint a new trustee in place of the removed trustee.
An update to this article is that since the introduction of WESA on April 1, 2014, I anticipate that the courts will be more willing to allow copies of wills as proof of the testator’s intention to more easily admissible into probate
Often when a person dies, his or her original will cannot be found and will never be found.
Frequently years have passed between between the date the will was signed and the testator’s death.
In many circumstances a true copy of the will be accepted for probate in the place of the original will.
However, if the will was last known to be in the custody of the testator, and is not found after the death of the testator, then the presumption is that the testator destroyed the will with the intention of revoking it.
The presumption of revocation may be rebutted by evidence such as the following:
A. The character of the testator;
B. The existence of codicils;
C. Statements made to beneficiaries with respect to provisions made for them; and
D. Words and actions of the testator before and after the execution of the will.
The degree of evidence required by the Courts to rebut this presumption is not usually very high.
If the existence of a valid will is proved then the presumption of revocation is rebutted. The contents of the will must then be proved.
If there is a copy or completed draft, and the solicitor who prepared the will gives evidence as to proof of execution by the testator, there should be sufficient evidence of the contents of the will.
If there is no copy or completed draft, the evidence of the witness as to the contents of the will may be sufficient, even if that witness has an interest in the will.
Such evidence may include statements made by the testator before or after the execution of the will, evidence that the witness with the will, evidence of codicils to a will that reference to the will in written documents.
Much of the financial abuse seen by disinherited.com over the years relates to the abuse of a power of attorney by the very person entrusted to be the attorney.
After many years in the making, a new Power of Attorney Act came into effect in British Columbia on September 1, 2011.Continue reading
Many issues in estate litigation arise that pertain to the appropriate amount of compensation for executors and trustees.
The first place to start for the answer is the Trustee Act of British Columbia.
If the will or trust stipulates the amount of the executor or trustee’s compensation, then that will generally speaking be upheld by the courts.
The Courts are inclined to follow the stipulated direction of the testator in this regard.
If compensation is not stipulated in the testamentary document, then the maximum entitlement for an executor is 5% of the gross aggregate value of the estate, as compensation for their time spent, care, trouble and duties carried out.
In addition, the Trustee Act also provides for a maximum fee of .4% of the average market value of the assets on a yearly basis, for the care and management of the assets.
In the experience of disinherited.com, the overwhelming number of initial compensation disputes between the beneficiaries and the executor are resolved without access to the courts.
Most beneficiaries will often agree on a reasonable amount of compensation, as they both recognize the effort carried out by the executor,as well as they are very often in a hurry for their inheritance and do not want to further delay the distribution.
When beneficiaries cannot resolve the fee dispute, the court uses the following criteria in determining the amount of executor/trustee compensation, namely:
A. The time occupied;
B. The success achieved in the final results;
C. The amount involved in the estate;
D. The skill and ability displayed and required;
E. The care and responsibility involved
One of the feeding decisions that is often referred to is McColl Estate (1967) 65 WWR 110 BCSC where the aforesaid criteria were set out by the court
The type of criteria that the court will look at is whether on the one hand it was simply a bank account with a large amount of money, that involved very little work, or on the other hand ,a small problematic estate to the point that it was a thankless job.
In the experience of disinherited.com is not usual to be paid the maximum 5% in most estates.
The average instead being more in the range of 2 1/2 to 3%. .
It is in fact surprising that very few of the contested compensation matters actually proceed to court and there is in fact a paucity of caselaw on the topic.
In the experience of disinherited.com carrying out the duties of executor or trustee can often amount to being a fire hydrant on a street of dogs
Houston v Houston 2011 BCSC 510 is an example of an estate dispute between the husband’s children from his 1st marriage, and his surviving wife and her children, relating to the use of a power of attorney by the children of the deceased.Continue reading
