Estate Plans and Fraudulent Conveyances

What is a Fraudulent Conveyance?

For more than four centuries there have been restrictions on the ability to dispose of property to delay, hinder or defraud creditors and others of their just and lawful remedies. This began in 1571 in England with the Statute of Elizabeth and they are now encapsulated in the Fraudulent Conveyance Act, RSBC 1996, c. 163 (the “FCA”) in British Columbia and across Canada in similar legislation. All such dispositions or transfers by any method are void against any person or the person’s assignee or personal representative whose rights are adversely affected by the transaction. An exception exists for transfers of property for valuable consideration and without knowledge of the collusion or fraud of the transferor.

The absence of lying or deceit does not absolve a defendant from a claim of fraudulent      conveyance. The only intent necessary to void transactions under the modern FCA is the intent to put assets out of the reach of creditors and potential creditors. No further dishonest or morally blameworthy intent is required.

Does the FCA Apply in the Context of Estate Matters?

Transactions commonly carried out for estate planning purposes, such as gifts and the settling of trusts and transfers of property into joint tenancy may be caught by the FCA. For example, an estate plan whereby real property was transferred into joint tenancy and a trust was created to   hold other assets was cancelled because it had been made for an improper purpose: Antrobus v Antrobus, 2009 BCSC 1341. Similarly, a terminally sick wife’s transfer of her property into joint tenancy with her husband to avoid the claims of her creditors was a fraudulent conveyance: Vancouver Coastal Health Authority v. Moscipan, 2019 BCCA 17.

Creditors and Others

The term “creditors and others” includes present creditors, future creditors and those who might become creditors of a debtor. A plaintiff seeking an order reversing a transfer does not need to show that he or she was a creditor of the transferor at the time of the transaction. It is sufficient if the possible claim was within the contemplation of the transferor: Abakhan & Associates Inc. v. Braydon Investments Ltd, 2008 BCSC 1547; aff’d 2009 BCCA 521.

However, for the purposes of the FCA, a possible claim does not include a claim against the estate of the transferor pursuant to the Wills Estates and Succession Act, SBC 2009, c. 13, (“WESA”). Such will variation claims do not satisfy the test because they do not arise until after the death of the transferor. To be able to use the FCA to successfully attack a transfer, a spouse or child of the transferor must have had a legal or equitable claim against the transferor during his or her lifetime, and the claim must not be trivial: Mawdsley v Meshen, 2010 BCSC 1099; 2012 BCCA 91.For example, in Antrobus the plaintiff had an unjust enrichment claim against her parents while they were alive based on her long-time services to them and their promises that she would receive their estate.

FCA Claim Made to Replenish the Estate

If a spouse or child establishes that a transfer by his or her spouse or parent was a fraudulent conveyance, the asset may be available to satisfy a wills variation claim against the transferor’s estate pursuant to WESA. In effect, the estate will be replenished with the asset which had been fraudulently conveyed away. However, to repeat, this only applies when the FCA claim has the essential foundation of a legal or equitable claim against the transferor existing during his or her lifetime.

Intention and the Badges of Fraud

The crux of a fraudulent conveyance claim is often the intention of the transferor when making the transaction. Estate planning transactions, including settling trusts and transferring assets to the trustee, transferring assets into joint tenancy or into a corporation as part of an estate freeze, and other gifting, are recognized as legitimate transactions unless the court concludes that the transfer was intended to deprive a creditor or other of a just and lawful remedy. Intention is a state of mind and a question of fact to be determined in each case. In circumstances where the impugned transaction was not made for valuable consideration, a presumption of fraud arises, but the presumption may be rebutted by evidence that the transferor did not act in furtherance of an improper purpose.

The so-called badges of fraud are often referred to by the court when deciding whether to draw an inference of fraudulent intent within the meaning of the FCA. The indicia considered may include the state of the transferor’s financial affairs at the time of the transfer, the relationship between the transferor and the transferee, the effect of the transfer on the over-all assets of the transferor, evidence of haste in making the disposition, the timing of the transfer relative to knowledge of a claim against him or her, whether the transferee gave any valuable consideration for the transfer, the transferor remaining in possession and having use of the asset following the transaction, and secrecy in making the transfer.

Evidence that the transferor did not act in furtherance of an improper purpose may include lack of debts or obligations to the claimant or others, a remaining estate sufficient to satisfy any possible claim, an oral or written agreement that the transferor and his or her spouse would keep their assets separate and be able to deal with their assets free from claims by the other, an oral or written agreement that their respective estates would be left to their respective children from prior relationships, knowledge of any such agreement by others, providing for a subsequent spouse or child, other legitimate estate planning purposes such as avoiding future wills variation claims and probate fees and other taxes, and the lack of evidence of a fraudulent intent as opposed to speculation.

Will a Concurrent Valid Purpose Cure the Taint of an Improper Purpose?

The short answer is “No”.  There will often be more than one reason for an estate plan. Sometimes estate plans are created to hide improper purposes. The FCA simply says that if made to delay, hinder or defraud, a disposition is void. The authorities clearly establish that dispositions or transfers made in part to insulate an asset from the grasp of a creditor will not be excused by a concurrent lawful purpose, even when the transferor acted on professional advice.

COVID-19: B.C. court closures and estate litigation

On March 30, 2020, the B.C. Supreme Court posted an updated notice regarding suspension of court operations. A copy of the notice can be found here.

Effective March 19, 2020 and until further notice, regular operations of the Supreme Court of British Columbia at all of its locations have been suspended. All civil and family matters scheduled for hearing between March 19, 2020 and May 1, 2020 have been adjourned, unless the court otherwise directs. Courthouses are still open, but all persons are strongly discouraged from attending at the courthouse unless absolutely necessary or ordered by the court. In person registry services have been suspended.

It remains the case that limitation periods have been suspended, as discussed in a previous post found here.

The court will now hear only essential and urgent matters. The notice outlines the procedure to request a hearing of an essential or urgent matter. Certain listed matters are presumed to be “essential” or “urgent”, and the court has discretion to hear other matters not listed (or decline to hear a matter presumed to be essential or urgent). A judge will decide whether a matter is essential or urgent and is to be heard.

Some elder law and estate litigation matters may fall within certain of the “essential” or “urgent” categories, which include:

  1. Refusal of treatment and end of life matters;
  2. Emergency adult guardianship and committeeship orders, including under the Adult Guardianship Act and Patients Property Act. A substitute decision maker may need to be appointed to manage the financial and personal affairs of an incapacitated person on an urgent basis; and
  3. Urgent injunction applications or preservation orders. While these are relatively rare in the estate litigation context, as an example there may be a real likelihood that a personal representative or other person intends to cause irreparable harm by disposing of or destroying estate assets.

In certain circumstances, a beneficiary may seek the urgent removal of an executor, to protect the welfare of the beneficiaries. However, there must be a strong case for urgency if the matter is to be set for hearing at this time.

Most estate litigation matters will not be considered urgent or essential, and so any court hearings will have to wait until the court resumes regular operations.  In the meantime, parties can take other steps in the litigation, such as filing and serving pleadings, exchanging documents, and conducting examinations for discovery, so that legal proceedings continue to move forward and are ready to go to a hearing when the courts reopen to all matters. Parties are also still free to negotiate or mediate (including by video) to attempt to resolve matters.

These circumstances are quickly changing (and the state of emergency will eventually be cancelled), and so any affected party should regularly check the B.C. Supreme Court website.

COVID-19: B.C. Suspends Time Limits for Commencing Legal Proceedings

On March 26, 2020, the Minister of Public Safety and Solicitor General took the exceptional step of suspending limitation periods to commence court proceedings in British Columbia. Ministerial Order no. M086 can be found here.

The Order was made in response to the COVID-19 pandemic and the declaration of a state of emergency throughout the Province of British Columbia on March 18, 2020.  This has affected access to the courts.  Supreme Court registries are not currently providing in-person registry services (which includes the filing of pleadings) while the Court’s regular operations are suspended. Electronic filing is still available, as are other means which do not require in-person interaction with the registry (the B.C. Supreme Court announcement can be found here).

The Order provides that every mandatory limitation period and any other mandatory time period that is established in an enactment or law of British Columbia within which a civil or family action, proceeding, claim or appeal must be commenced in the Provincial Court, Supreme Court or Court of Appeal is suspended.  The Order applies from the date of the Order (not from the March 18, 2020 declaration of a state of emergency) until the declaration of emergency (or any extension) expires or is cancelled.

This is an extraordinary measure.  Limitation periods provide for a deadline for bringing a claim.  Failure to commence a claim within the limitation period will usually result in dismissal of the claim as statute-barred.  Limitation periods are intended to encourage the timely pursuit of claims, and reduce prejudice to the administration of justice.  If a plaintiff is allowed to delay the commencement of a claim, the defendant may be put in the unfair position of having to disprove a claim when key evidence and witnesses have been lost due to the passage of time.

Persons with potential claims should be aware of the Order.  They now have more time to bring claims, and should not be concerned if they are unable to file pleadings during the state of emergency due to court closures.

Executors should also consider the effect of the Order on estate administration matters, most notably distribution of estate assets to beneficiaries.  The Wills, Estates and Succession Act [SBC 2009] Chapter 13 provides that the personal representative of a deceased person must not distribute the estate of the deceased person within 210 days following the date of the grant of probate or administration, absent a court order or the consent of the beneficiaries.  This is so that potential claimants can bring claims before estate assets have been distributed, some of which must brought within 180 days of the issuance of the grant (most notably wills variation claims).  Executors should obtain advice before distributing assets even after 210 days, if the 180 day deadlines have been suspended.

These circumstances are quickly changing (and the state of emergency will eventually be cancelled, ending the suspension), and so any affected party, or party seeking to rely upon the suspension to delay filing a claim, should regularly check the websites of the B.C. Courts and the B.C. Attorney General.

Passing over the Executor: What BC Law Says About Executor or Administrator Conflicts of Interest

What if you are a beneficiary under a will, and you have concerns about the person named as executor in that will? Maybe you believe the named executor is in a conflict of interest or may not treat the beneficiaries with an even hand (especially if the will allows for the exercise of some discretion by the executor). Maybe you suspect that the named executor will engage in impropriety or misconduct once they obtain a grant of probate. Maybe you simply do not get along with the named executor. At what point is it appropriate to ask that the court pass over a person as executor or administrator of an estate?

The Wills, Estates and Succession Act, S.B.C. 2009, Chapter 13 [“WESA”] allows for a person having an interest in an estate to apply to remove or pass over a personal representative. To “pass over” means to grant probate or administration to a person who has less priority than another person to become a personal representative. This means passing over a named executor where there is a will, or passing over the person entitled to become administrator if there is an intestacy (no will).

The court may pass over a person entitled to become the personal representative if the court considers that the person should not be granted probate or administration. Section 158 of WESA includes a non-exhaustive list of circumstances that the court may consider. Some of them are clear, such as if the person refuses to accept the position, or is incapable of managing his or her own affairs, or has been convicted of an offence involving dishonesty.

Subsection 158(3)(f) is more general, and allows the court to consider whether the person is (1) unable to make the decisions necessary to discharge the office of personal representative, (2) not responsive, or (3) otherwise unwilling or unable to or unreasonably refuses to carry out the duties of a personal representative, to an extent that the conduct of the personal representative hampers the efficient administration of the estate.

The court will consider the following principles when deciding whether to pass over an executor named in a will:

  1. Recognize that the testator’s choice of estate trustee should not be lightly disregarded. A deceased’s right to nominate his executors is not to be lightly interfered with;
  2. Require clear evidence of necessity;
  3. Focus on the main consideration of the welfare of the beneficiaries; and
  4. Require proof that the executor’s acts or omissions are of such a nature as to endanger the administration of the estate.

In the recent case of Gawdun v. Lord 2020 BCSC 266, the court considered an application to pass over the person named as executor of the deceased’s will. The deceased and the proposed executor (“Ms. Lord”) were in a common law relationship at the date of death. The applicants were the deceased’s children from a previous marriage.

The plaintiffs argued that Ms. Lord should be passed over for the following reasons:

  1. The plaintiffs doubted that Ms. Lord would maintain an even hand between her own children and the plaintiffs, all of whom were residuary beneficiaries;
  2. The plaintiffs alleged that Ms. Lord had continually demonstrated hostility and animosity towards them and the deceased’s sister (who was named as co-executor);
  3. The plaintiffs alleged that Ms. Lord was involved in the deceased’s estate planning in 2010 and 2011, which resulted in the execution of the will providing the majority of the estate to Ms. Lord and her children, which conduct was at issue in an underlying wills variation application;
  4. The plaintiffs alleged that Ms. Lord offered to pay the deceased’s sister $50,000 from the estate during the course of the action which the plaintiffs found suspicious;
  5. Foreclosure proceedings had been initiated to recover funds owing to the estate, which was being funded entirely by the plaintiffs, and Ms. Lord had refused to assist in collecting the debt owing; and
  6. The plaintiffs alleged Ms. Lord entered into a share exchange agreement as attorney for the deceased. The terms of the share exchange agreement were alleged to have conferred an improper benefit on Ms. Lord.

The court dismissed the application, concluding that passing over Ms. Lord was not justified. There was no evidence demonstrating misconduct by Ms. Lord that was capable of supporting a decision to pass her over. Even if the court accepted there was misconduct as alleged, it is past misconduct and was not done in her capacity as executor.

If may be difficult to convince a judge that a person will endanger the welfare of the beneficiaries or commit misconduct as executor or administrator before they have even been appointed. If you have concerns about the person who is entitled to be personal representative, but don’t believe that you can succeed with an application to pass over, you may also bring an application remove and replace a personal representative if those concerns become a reality. This will be discussed in an upcoming post.

You are permitted to arrange your affairs to avoid wills variation claims

Under the Wills, Estates and Succession Act [SBC 2009] Chapter 13, a spouse or child of a deceased person may bring an action to vary that deceased person’s will, if the will does not make adequate provision for the proper maintenance and support of the spouse or child. This is often a source of frustration for a will-maker, who seeks to have testamentary autonomy and final decision-making power over how their assets will be distributed after their death.

However, wills variation claims only relate to assets that form part of the deceased’s estate. If assets pass outside of the deceased’s estate, then they are not available to be re-distributed as part of a wills variation action. Assets can pass outside of an estate in a variety of ways, including joint registration of property (so that the asset passes to the surviving joint owner), designation of direct beneficiaries, or settling assets into a trust. If there are no assets held in an estate, then there is no benefit to a disappointed beneficiary in varying a will. In response to this situation, beneficiaries have attempted to challenge steps taken to avoid wills variation claims.

In British Columbia, the Fraudulent Conveyance Act [RSBC 1996] Chapter 163 provides that a disposition of property is void and of no effect if made to delay, hinder, or defraud creditors and others of their just and lawful remedies. In other words, you cannot take steps to hide assets and avoid claims.  However, B.C. courts have repeatedly held that a person may arrange their affairs to avoid possible wills variation claims. A wills variation claim, which arises upon the death of the will-maker, does not qualify a claimant as a “creditor or other” within the meaning of the Fraudulent Conveyance Act.

In 2006, the British Columbia Law Institute proposed that an anti-avoidance provision be added to the legislation, which would provide that a transaction conferring a benefit on a second person would be voidable against an eligible claimant if it was made by the deceased for the purpose of defeating rights under the dependents relief legislation.

The legislature declined to act on the recommendation. The legislature has not seen fit to pass legislation or amend existing legislation to prevent the avoidance of wills variation claims. Will-makers are still permitted to arrange their affairs to avoid possible wills variation claims, most commonly by stripping their estate of any assets.

A disappointed beneficiary of a stripped estate may still have a remedy. For example, there may a claim that certain assets which appear to pass outside of the estate should actually be considered part of the estate and available for a wills variation claim.

Executors and Trustees May Seek Advice From the Court

Executors and trustees may be hesitant or indecisive when administering estates and trusts, especially when the will or trust deed gives them some discretion in carrying out their duties or when they are concerned about balancing the interests of competing beneficiaries – keeping everyone happy.

The Trustee Act permits a trustee, executor or administrator to apply “for the opinion, advice or direction of the court on a question respecting the management or administration of the trust property or the assets of a will-maker or intestate.”  The court also has the inherent jurisdiction to supervise trusts, to protect the welfare of the beneficiaries.

It may be tempting for an executor or trustee to seek court approval for any decision or exercise of discretion.  It would be comforting to have a judge give his or her blessing to a proposed course of action.  However, it is not the court’s job to consider and approve every decision of an executor or trustee.  When is it appropriate to involve the court in decisions that should be made by executors and trustees?

Prior court decisions suggested that section 86 of the Trustee Act allowed an executor or trustee to seek the advice, opinion or directions of the court on a legal question, and then act on that advice.  The section was not intended for the court give advice, for example, in a situation where there was a conflict between interested parties, such as competing beneficiaries.

However, the Court went beyond merely advising on legal questions in Toigo Estate (Re) 2018 BCSC 936.  In Toigo, the deceased created a spousal trust which provided that the net income of his estate would be paid to his wife during her lifetime.  The will also permitted the trustees to encroach on the capital of the estate in favour of his wife, in the trustees’ uncontrolled discretion.  The residue of the estate was to be divided between the deceased’s children and grandchildren after his wife’s death, but in a manner which would provide that that there would not be an equal distribution amongst the grandchildren.

The wife asked the trustees for a significant encroachment into the capital (tens of millions of dollars), in order the engage in her own estate planning, which would provide for a more equal distribution of the deceased’s estate amongst the grandchildren.

The trustees were clearly permitted to make the encroachment (and had uncontrolled discretion to do so).  However, they still wanted the court’s “opinion, advice or direction” as to whether they should proceed.

The court held that it had the jurisdiction to approve the encroachment under s. 86 of the Act or the inherent jurisdiction of the court to supervise trusts, and they approved the encroachment.  The court held that because of the magnitude of the encroachment, the court could provide advice on this “momentous decision”.

In making the decision, the court asked the following questions:

  1. Does the trustee have the power under the trust instrument and the relevant law to make the “momentous decision”?
  2. Has the trustee formed the opinion to do so in good faith and is it desirable and proper to do so?
  3. Is the opinion formed by the trustee one that a reasonable trustee in its position, properly instructed, could have arrived at?
  4. Is the Court certain that the decision has not been vitiated by any actual or potential conflicts of interest?

Executors and trustees should consider whether they ought to apply to the court for a stamp of approval when taking drastic or “momentous” action in relation to the administration of estates or trusts.  There are other options to protect executors and trustees, such as requiring that all beneficiaries sign release and consent documents before taking the proposed course of action.  However, this may not always be practical or possible, especially if some beneficiaries refuse to sign such a document.

Beneficiary Holds Estate in Trust for a Third Party

Where a deceased person leaves a will, a disappointed party may seek to vary the will, or argue that the will is invalid on a number of grounds.  If a deceased dies without a will, the disappointed party has fewer remedies.  If there is no will, the estate passes on an intestacy, and the Wills, Estates and Succession Act sets out who will receive the estate.  There is no discretion for the court to stray from what is provided for in the Act.

In limited cases, this may not be in the end of the matter.  Bergler v. Odenthal 2019 BCSC 1882 was such a case.  In Bergler, the deceased died after the rapid onset of pancreatic cancer.  She did not have any children.  Her common law spouse, Mr. Odenthal, survived her.   She did not make a will.  As a result, her entire estate passed to Mr. Odenthal on an intestacy.

However, she gave Mr. Odenthal specific instructions about her estate.  She told him that she wanted her assets to be given to her niece.  All instructions were verbal – there was nothing in writing.  The issue was whether a trust was created by the deceased, wherein Mr. Odenthal held her assets solely for the benefit of the niece.

It is risky for a testator to deliberately forego preparing a will, and instead trust that the person who receives the estate under an intestacy will distribute assets in accordance with their instructions, especially when there is nothing in writing to confirm these instructions.  There may be no witnesses and/or the person who received the instructions may deny ever receiving such instructions.

Mr. Odenthal refused to transfer the assets to the niece after the deceased’s death.

Fortunately for the niece, the deceased made statements in the presence of third parties about her wishes, and Mr. Odenthal had a conversation with the niece and a third person (a second niece) about these wishes.  He also made certain admissions during his examination for discovery and at trial that these were the deceased’s wishes.

A secret trust arises where a person gives property to another (the “donee”), communicating to that person an intention that the property be dealt with in a specific way upon the happening of an event, and the donee accepts the obligation. The essential elements are the intention of the donor, a communication of the intention to the donee and acceptance of the obligation by the donee.  The court in Bergler held that the requirements of a secret trust were satisfied, and ordered judgment against Mr. Odenthal for the value of the assets that formed the deceased’s estate.

A Testator Cannot Override a Beneficiary’s Statutory Right to Vary a Will

A spouse or child of a deceased person may apply to vary the will of that deceased person, if they do not believe that it made adequate provision for them.  This is obviously frustrating to testators who wish to have the autonomy to distribute their estate as they see fit.

To discourage wills variation claims, testators have attempted to include clauses to discourage wills variation claims or threaten consequences for bringing such claims.  These provisions have been held to be contrary to public policy and void.

For example, in Bellinger v. Nuytten Estate 2003 BCSC 563, the deceased included a clause in her will which provided that if any of the beneficiaries contested the terms of the will, then that beneficiary shall forfeit any legacy they may be otherwise entitled to receive.  The clause was void since it was against public policy to allow a testator to override a beneficiary’s statutory claim (to vary a will) by a provision in her will.

In Ketcham v. Walton 2012 BCSC 175, the deceased left a will that disinherited his adult independent children and instead left his estate to several friends and charities.  The will instructed the executor to take an active role in defending the will if any of the children brought a wills variation claim. The will stated that the executor was authorized to deplete the estate, if necessary, to defendant against the wills variation action, taking as many appeals as necessary to ensure that the deceased’s intentions are carried out.

The court held that while this clause does not obviously prevent a beneficiary from an inheritance if they bring a wills variation claim, that possibility existed.  As a result, the clause was void as contrary to public policy, as it purported to deny the deceased’s children their recourse to the courts.  It was, in effect, the same as what the deceased tried to do in the Bellinger case.

The clause in Ketcham also offended the rule that the executor must remain neutral in wills variation proceedings.  An executor cannot choose sides and take an active role in a wills variation claim.

The courts will not permit a testator to override a spouse or child’s statutory right to apply to vary a will, and any attempt to do so will likely be held to be void.  If you are a testator seeking to avoid wills variation claims, there are other steps which ought to be taken instead.  If you are an executor, you should not take an active role in wills variation litigation.  If you are a disappointed beneficiary, you should not be dissuaded from pursuing your rights by such a clause.

Who Can Dispute the Validity or Provisions of a Will?

A will may be attacked on the basis that the will-maker had lacked the necessary mental capacity to make the will or the will was the result of fraud, coercion or undue influence from someone else.

Such claims may be made by anyone who would benefit from an earlier will if the contested will is set aside or by someone who would, according to Part 3 of the Will, Estates and Succession Act, [SBC 2009] Ch. 13 (“WESA”), benefit if the deceased had died without a valid will at all.

In addition, s. 60 of the WESA gives the spouse and children of a will-maker the right to claim a variation of the will if it does not make adequate, just and equitable provision for him or her. A will variation claim must be commenced within 180 days of the executor named in the will obtaining a grant of probate of the will.

A dispute as to the validity of a will may be started by filing a caveat to prevent the executor obtaining a grant of probate without first proving the validity of the will in solemn form to the satisfaction of the court. If the court is satisfied as to its validity the will may still be subject to a will variation claim.

In an action for proof of a will in solemn form, the court must be satisfied that it was signed in compliance with the statutory formalities (in writing, signed at the end by the will-maker in the presence of at least 2 witnesses who also signed), and the will-maker knew and approved of the contents of the will when signing and he or she had the necessary mental capacity to make a will at the time.

Although the need for strict compliance with statutory formalities has been relaxed by s. 58 of the WESA, the   need to prove that the will-maker knew and approved the contents of the will or other testamentary document or record and he or she had the necessary mental capacity when making the will remains firmly entrenched in the law.

Will-Making Capacity

The test for will-making capacity is not too onerous. Sufficient mental capacity may exist despite cognitive deterioration. The will-maker may have sufficient mental capacity even when his or her ability to manage other matters is impaired or compromised. Having a less than perfect memory is not sufficient to take away will-making capacity unless it is so great as to leave the person without a mind capable of making a valid will. The law recognizes that cognitive deterioration may still allow for short periods of lucidity when will –making capacity is present.

In order to make a valid will, the will-maker must have a “baseline level of mental acuity” or a “disposing mind and memory” which is sufficient to understand the nature and effect of making a will. This includes an understanding as to whether there are persons who would expect to benefit from the will-maker’s estate and the extent of the property of which he or she is disposing. The assessment as to whether the will-maker had possessed the needed mental capacity is a highly individualized question of fact to be determined in all the circumstances. A will-maker cannot be found not to have will-making capacity simply because the will leaves his or her estate in a manner that some people might think unkind.

The person trying to prove the validity of a will may be assisted by a presumption as to the validity of the will. If the will was signed according to the statutory formalities after it was read over by or to a will-maker who appeared to understand the meaning of the will, it may be presumed that the will-maker possessed will-making capacity and knew and approved of the contents of the will when making it.

What if there are Suspicious Circumstances?

The presumption of validity may be rebutted by evidence of well-grounded suspicious circumstances concerning the preparation of the will or tending to call into question the mental capacity of the will-maker at the time or tending to show that the free will of the will-maker had been overborne by acts of coercion or fraud or undue influence.

The standard of proof for establishing suspicious circumstances is a balance of probabilities (more than a 50% chance), which is the standard of proof that applies in civil (non-criminal) litigation.

In order to rebut the presumption of validity, persons attacking the will must demonstrate that there is some evidence which, if accepted, would tend to negate knowledge and approval or will-making capacity. It is important to remember that mere suspicion that something improper may have happened is not sufficient to rebut the presumption of validity; the evidence must raise a specific and focused suspicion. The absence of such evidence will be fatal to a suspicious circumstances argument.

Suspicious circumstances have been found in a wide range of situations which are not necessarily sinister in nature. There is no checklist of circumstantial factors that will invariably fit the classification. Commonly occurring themes include situations where a beneficiary is instrumental in the preparation of the will (especially where the beneficiary stands in a fiduciary position to the will-maker), or where the will favours someone who the will-maker had not previously provided for and does not fall within the class of persons that will-makers usually remember in their wills, namely next of kin.

The validity of a will does not stand or fall on the presence or absence of suspicious circumstances. If suspicious circumstances are established, the presumption of validity fails and the legal burden of proof reverts to the person trying to prove the will to establish the knowledge and approval of the will-maker as well as his or her will-making capacity if the suspicious circumstances had reflected on that capacity.

Wills Variation Claims in BC

Your last will and testament may represent your true intentions with respect to the administration and distribution of your estate.  You likely gave careful thought to what is fair and reasonable.  However, most people in British Columbia are aware that having a will is not necessarily the end of the matter.  After death, your spouse or children may apply to vary your will in certain circumstances.

These circumstances are set out in section 60 of the B.C. Wills, Variation and Succession Act.  That section provides as follows:

…if a will-maker dies leaving a will that does not, in the court’s opinion, make adequate provision for the proper maintenance and support of the will-maker’s spouse or children, the court may, in a proceeding by or on behalf of the spouse or children, order that the provision that it thinks adequate, just and equitable in the circumstances be made out of the will-maker’s estate for the spouse or children.

This section has resulted in many disputes, lawsuits and reported court decisions.  Every case has a unique set of facts, and raises a unique issues.  Even a will which may on its face appear fair may result in a (successful) variation claim.  A deceased parent, with no surviving spouse, who leaves their estate in equal shares to their children may seem fair.  But what if one child stepped up and took care of the parent for many years?  What if one child received a large gift before the parent died?

Some Common Issues that Inevitably Arise in Wills Variation Cases

Some issues which the court must consider in a wills variation case (there are many more) include:

  • What is “adequate provision for the proper maintenance of the will-maker’s spouse or children”? This is assessed in the context of legal norms and moral norms, and what a judicious person would do in the circumstances, by reference to contemporary community standards.  If this sounds vague and non-specific, this is because the concept of “adequate provision” is a flexible one, which turns on the particular circumstances of the case.  There is not necessarily a clear answer, and what is adequate may change over time as the views of society change, or may even vary from judge to judge.
  • Did the deceased leave evidence of his or her reasons for making certain gifts or not making adequate provision for his or her spouse or children? If so, the court may accept evidence of the reasons (but it doesn’t have to), and can decide how much weight to give this evidence in light of all the circumstances.
  • If there is to be a variation, what is adequate, just and equitable? This is as flexible as the idea of whether the will-maker made “adequate provision” in the first place.
  • To what degree should the court consider gifts made by the will-maker during his or her lifetime?
  • Did the will-maker take steps to arrange his or her affairs to attempt to avoid a wills variation claim, for example by putting assets in a trust or in joint ownership with right of survivorship? If so, was this effective or should the estate plan be unwound so that assets are returned to the estate?
  • What if the person named as executor is also a beneficiary and wants to vary the will?
  • What if the person named as executor is also a beneficiary and is happy with the will and wants to defend against a wills variation claim brought by an unhappy beneficiary?
  • Only a spouse or child of the deceased can apply to vary the will. Sometimes the parties cannot even agree that the applicant was the “spouse” of the deceased.

All of this is complicated by the fact that the parties to the litigation are family, and emotions run high.

The courts have broad discretion to vary wills.  The province had the opportunity to get rid of or put limits on this discretion when the Wills Variation Act was replaced with the Wills, Estates and Succession Act in March 2014.  They chose not to do so, and so you need to be aware of the possibility of a wills variation claim, whether you are a will-maker, an executor, an unhappy (or happy) beneficiary or a spouse or child of a deceased person.