B.C. Case Comment: Surviving Business Partner not Entitled to Receive Partnership Property by Right of Survivorship

What happens when your business partner dies, in particular when the assets of the business are held by you and your partner jointly? Do you receive your deceased partner’s “half” of the business, or does it go to their estate?

A fundamental characteristic of joint tenancy (i.e. registering assets in joint names) is the right of survivorship. When one joint tenant dies, their interest is extinguished, and the surviving joint tenant(s) take full ownership. For example, spouses often register title to their property in joint tenancy, so that the surviving spouse will receive the entirety of the property upon the other spouse’s death. This is accepted as a permissible estate planning tool.

However, where the property at issue is partnership property, there is a presumption that there is no right of survivorship as between partners. The death of a partner in a two-person partnership dissolves the partnership, and on dissolution each partner (including the estate of the deceased’s partner) is entitled to a proportionate share of the partnership assets after payment of debts.

This issue was recently considered by the B.C. Supreme Court in Garland v. Newhouse 2021 BCSC 1291. In Garland, the deceased and the spouse of his close friend (“Ms. Newhouse”) purchased an apartment building together in 2003, with the intention of earning a profit from the rental income. They also opened an account to manage the finances associated with the apartment building. The building and the account were both registered in their joint names.

When the deceased died, Ms. Newhouse took the position that the deceased intended for her to receive the apartment building and account through right of survivorship. The deceased’s estate took the position that the deceased intended for the beneficiaries of his estate (his children) to receive his share of the business assets.

The first question for the court was whether a partnership existed between the parties. The court held that there was a partnership. The deceased and Ms. Newhouse were not spouses, they each equally contributed to the purchase of the building and shared in the expenses and the rental income, with a goal to earn profit over time. This was clearly a business partnership.

Next, the court had to determine whether the presumption of right of survivorship was rebutted. As noted above, where the property in issue is partnership property, there is no presumption of right of survivorship between partners. In essence, the right of survivorship is inconsistent with the rules regarding treatment of partnership assets upon dissolution (including the death of a partner). In order for the right of survivorship to apply to partnership assets, “there must be evidence of a contrary agreement between the parties that is sufficiently clear and compelling to overcome the presumption that beneficial interest in partnership property does not transfer through the right of survivorship.”

Ms. Newhouse was unable to provide this evidence. The court was unable to determine why the deceased and Ms. Newhouse chose to register the apartment building in joint tenancy, and there was no credible evidence that they turned their minds to the significance of registering the property in joint tenancy. The court concluded that the parties did not intend and agree that on the death of one partner, the partnership property would transfer to the surviving partner for their personal benefit.

Ms. Newhouse failed to rebut the presumption against the right of survivorship in relation to the partnership property, and as a result she held legal title of the apartment building and the bank account in trust for herself and the deceased’s estate.

It is important to keep in mind business and partnership interests when making your estate plan. Of course this dispute likely could have been avoided if there was a written agreement reflecting the terms of the arrangement between the parties.

What I’m Reading: Interesting Estate Litigation Articles for June 2021

The following is a roundup of noteworthy articles published this month on estate litigation and related issues:

  1. Stan Rule at Sabey Rule comments on a case from the Nova Scotia Court of Appeal which held that allowing independent adult children to apply to vary their parents’ wills (which you can do in British Columbia) does not offend the s. 7 of the Charter of Rights and Freedoms (overturning the lower court’s decision): http://rulelaw.blogspot.com/2021/06/nova-scotia-court-of-appeal-allows.html
  2. Suzana Popovic-Montag at Hull & Hull LLP (in Ontario) identifies the dangers of using an online will kit to write your will: https://hullandhull.com/2021/06/the-simplicity-of-online-will-kits-is-their-biggest-shortcoming/
  3. Janis Ko at Onyx Law discusses when the court may order an interim distribution to a beneficiary from an estate where there is an ongoing wills variation proceeding: https://onyxlaw.ca/can-beneficiaries-receive-interim-distribution-pending-wills-variation-claim/
  4. Kimberley A. Whaley at WEL Partners (Toronto) posts a link to a paper that she co-authored on the role of the medical expert in estate litigation, with a focus on claims of undue influence. A link to the blog post can be found here: https://welpartners.com/blog/2021/06/published-paper-susceptibility-to-undue-influence-the-role-of-the-medical-expert-in-estate-litigation/ The paper can be found here: https://journals.sagepub.com/doi/10.1177/07067437211020616
  5. Joanna Lindenberg at de Vries Litigation LLP (Ontario) considers an Ontario case where beneficiaries acted unreasonably by raising over 300 objections to a trustee’s accounts, and as a result the trustee was awarded $325,000 in costs: https://devrieslitigation.com/cost-consequences-of-conduct/

Happy reading!

B.C. Case Comment: Creditor Entitled to Shares that Deceased tried to Settle into a Trust

A creditors may make a claim against a debtor’s estate. However, a creditor is sometimes disappointed to find that the debtor’s estate is insolvent or has insufficient assets to satisfy their claim. The creditor may look at other steps taken by the deceased debtor to strip their estate of assets. While the courts have recognized alter ego trusts, transfers into joint tenancy, etc.. as valid estate planning tools, creditors still have remedies available if the deceased has taken steps to defeat the claims of their creditors.

In the recent case of Lau v. McDonald 2021 BCSC 1207, the B.C. Supreme Court was asked to determine who owned shares of 319344 B.C. Ltd. (“319344”) which were previously held by the deceased. A creditor of the deceased wanted to execute against the shares to satisfy a debt owed by the deceased.

The deceased’s spouse argued that she was entitled to receive the shares. She said that she was the beneficiary of an alter ego trust settled by the deceased, and that the shares were settled into the trust pursuant to a deed of gift. However, the deed did not on its face transfer shares in 319344 to the trust. Instead, the deed referred to the transfer of shares in Noramco Capital Corp. (“Noramco”), a subsidiary of 319344. The Deceased did not own any shares in Noramco, only in 319344.

The 319344 shares were valued at almost $1,900,000 at the deceased’s date of death.

The creditor of the estate took the position that the 319344 shares formed part of the estate (as opposed to the trust), so that she could claim against them to satisfy the debt owed to her by the deceased.

There was a good argument that the deed contained a drafting error, and the issue became whether there was some legal basis to fix the error, and whether the spouse was able to keep the shares and avoid execution against them by the creditor.

First, the spouse argued that the deed should be interpreted to include the 319344 shares. However, the deed stated that it transferred “all of the issued shares of Noramco Capital Corp. which are beneficially held by [the deceased] as of the date hereof.” The Court was not willing to interpret this to include shares in 319344 when the deed clearly only referred to Noramco.

Next, the spouse asked that the deed be rectified, to give effect to the true agreement of the parties. Where a written instrument does not accord with the true agreement between the parties, equity has the power to rectify the document so that it reflects the true agreement. The mistake is not in the transaction itself, but the way that the transaction has been expressed in writing. This is a discretionary remedy.

In Lau, the Court held that there was sufficient evidence to establish an agreement by the deceased to transfer “all of his known material assets” into the trust.   The deed clearly failed to reflect this agreement, since it left out the 319344 shares and instead purported to transfer Noramco shares that the deceased did not even own.

As a result, the court concluded that rectification was available. If the discrepancy was pointed out to the deceased at the time of the transaction, the deceased would have obviously agreed to the necessary revision. It was ultimately an error by the deceased’s professional advisor (lawyer) who drafted the documents. In the end, the court characterized this as a “simple drafting mistake in inserting the name of a subsidiary rather than the parent company.” Equity ought to step in and fix this mistake.

However, this was not the end of the matter. The creditor made other arguments. She sought to argue that the shares were not properly transferred, and that the court may not generally assist a claimant in enforcing an imperfect gift. However, the court held that the transfer of the 319344 shares was properly completed. She sought to argue that the transfer of the shares to the trust was a fraudulent conveyance under the Fraudulent Conveyance Act, intended to defeat her claims. The court held that the deceased did not have this intention, and so there was no fraudulent conveyance.

The creditor’s last argument was that the transfer was contrary to s. 96 of the Bankruptcy and Insolvency Act, which provides that a transfer at undervalue is void as against the trustee if it occurred within a specified period of time (which is set out in the section), and if the debtor was insolvent at the time of transfer or was rendered insolvent by it, or intended to defeat creditors. The Court in Lau held that the creditor established the test for s. 96.  The transfer of the shares rendered the deceased insolvent, even though he may not have intended to defeat his creditors.

Success on this one argument was enough for the creditor to be entitled to the shares.

B.C. Case Comment: Alleged Victim of Elder Abuse Not Forced to Undergo Further Mental Capacity Assessment

In B.C., a proceeding brought by a person under legal disability must be started by his or her litigation guardian. This often arises in the context of alleged elder abuse. A loved one may seek to remedy an incident of elder abuse (for example, undue influence), by bringing an action on behalf of the victim. However, what if the alleged victim of elder abuse denies the undue influence or other abuse, and does not want a claim to be brought on their behalf? This can be further complicated when the loved one bringing the claim on behalf of the victim ultimately benefits if that claim is successful (for example, by receiving part of the victim’s estate upon their death).

If the alleged victim insists that they have capacity to decide whether they want/need to bring a claim, and the loved one insists that they lack capacity, can the court order a medical assessment?

This was recently considered by the B.C. Supreme Court in Hambleton (Litigation Guardian of) v. Hambleton 2021 BCSC 1155.  In Hambleton, a daughter took the position that her mother suffered from severe dementia, and that she lacked capacity to make decisions regarding her financial affairs and was subject to undue influence by her other daughter (Alice).

The mother transferred title to her property to herself and Alice, and took out a reverse mortgage. Her daughter started an action, on behalf of her mother, seeking to challenge and set aside the transfer. The mother said she was capable of making her own decisions, and said that the transfer was consistent with the terms of her will made back in 2010 (where there was no suggestion of lack of capacity). The mother retained her own lawyer and applied to strike the action which was brought in her name by her daughter (and to remove her daughter as litigation guardian).

The Court had previously ordered that the mother attend a mental capacity examination at a time and place to be arranged by her care center, before any further steps were taken in the litigation. While there is a presumption that a person is capable, there was some medical evidence from 2015-2016, which indicated that the mother suffered a mental health event and was involuntarily committed to a facility. There was a gap in the evidence as to whether the mother was capable, which needed to be addressed with a medical assessment.

The mother did not arrange with her care facility to attend a medical assessment as ordered. Eventually, she was discharged from that facility. Instead, the mother unilaterally attended an assessment with a geriatric psychiatrist. The doctor concluded that the mother had mild cognitive impairment but was capable of personal financial decision making, and had testamentary capacity to sign legal documents.

The daughter took the position that the doctor’s assessment was inadequate, and sought an order that her mother undergo a more extensive medical capacity evaluation.

The Court was satisfied that the assessment was adequate. It is an invasion of an individual’s rights to require them to undergo a mental capacity assessment, and the court should not make such an order without sufficient evidentiary basis for doing so. In this case, the mother had obtained an assessment to address the Court’s concern about capacity, and requiring her to undergo a further mental capacity assessment would not be appropriate. It would be stretching the court’s parens patriae jurisdiction (the Court’s powers to make orders protecting persons under disability or potential disability) too far.

As a result, the mother had established that she had the requisite capacity, and she could proceed with her application to remove her daughter as litigation guardian (and presumably with her application to strike the claim that her daughter brought on her behalf).

A competent adult can deal with their assets during their lifetime as they see fit, and there is a presumption of competency. A court will only order a mental capacity assessment in extraordinary circumstances. A court will certainly not order an assessment as a matter of course when there are allegations of undue influence or elder abuse. This case also serves as a reminder that care needs to be taken to ensure someone is actually under a legal disability before a claim is brought on their behalf (especially when they are opposed to taking the action).

Bernard and Honey Sherman Estates Update: Supreme Court of Canada Releases Decision Allowing Public Access to Estate Files

This morning the Supreme Court of Canada released its decision on the sealing of the court files relating to the estates of Bernard and Honey Sherman, the wealthy victims of murders that remain unsolved, and that were widely reported in the media. I previous wrote about the case here, after the Supreme Court of Canada heard submissions on whether the media ought to have access to the court files.

The Supreme of Canada dismissed the appeal brought by the trustees of the estates. The Court held that the sealing orders should not have been issued by the lower court, and the files were open to the public. The decision of the Supreme Court of Canada can be found here: Sherman Estate v. Donovan 2021 SCC 25

There is a strong presumption in favor of open courts. Court openness is a constitutional guarantee. Public scrutiny can cause inconvenience and even embarrassment to those who feel that the court system has intruded on their private lives. However, the Court confirmed that this discomfort is not enough to overturn “the strong presumption that the public can attend hearings and that court files can be consulted and reported upon by the free press.”

The court confirmed that there may be exceptional circumstances which justify a restriction on the open court principle.  An applicant for a sealing order or similar relief must demonstrate that openness presents a serious risk to a competing interest of public importance. This is a high bar.  Next, the applicant must show that the order is necessary to prevent the risk, and that the benefits of the order restricting openness outweigh its negative effect.

The estate trustees in the Sherman case argued that the concerns for (1) privacy, and (2) public safety were important public interests that are at such serious risk that the files should be sealed.

With respect to privacy concerns, the respondents to the appeal argued that virtually every court proceeding requires some intrusion on privacy.  The Court held that proceedings in open court can lead to the dissemination of highly sensitive personal information, that could result in discomfort or embarrassment, or even an affront to dignify. In the latter case, an exception to the open court principle may be necessary.

However, the Court was not convinced that there was such a risk in these circumstances. The Court is not concerned with the mere fact of the dissemination of sensitive personal information – this happens in almost every court proceeding. The focus must be on the impact of the dissemination. The trustees failed to show how the lifting of the sealing order engages the dignity of the affected individuals. The Court observed that “the information in the court files about which the Trustees are concerned must be sufficiently sensitive in that it strikes at the biographical core of the affected individuals.” The trustees also failed to establish that there was serious risk of physical harm to the affected individuals.

The court did not accept that the matters in a probate file are quintessentially private or fundamentally administrative.  The information contained in the files did not reveal anything particularly private about the affected individuals. It was acknowledged that there was near certainty that the media would publish at least parts of the estate files. Again, the risk of inconvenience and embarrassment resulting from publication is not enough.

In the end, the estate files will show the type of information found in any probate file. They may shed light on the relationship between the deceased and the affected individuals, in that we will see who they named as beneficiaries of their estate, and who they trusted to administer their estate. The only difference between this case and any other probate application is the high profile murders and intense media interest which will result in a larger audience for what are, in the normal course, publicly available documents. In those circumstances, a sealing order was not appropriate.

Recent B.C. Case Illustrates Importance of Documenting Transactions Between Family Members

All too often, transactions between family members (loans, gifts, property transfers, etc…) are not properly documented or are not documented at all. I see this repeatedly in transactions between parents and children.  The other children (i.e. the transferees’ siblings) seek to challenge the transaction after the parents’ deaths, so that the transferred asset forms part of the parents’ estates, causing fractures within the family.

This was the case in the recent B.C. Supreme Court decision in Cadwell Estate v. Martin 2021 BCSC 1089.   The Court observed:

[1] As this case shows, when a significant financial transaction is casually entered into between parents and their adult children, tragic consequences may occur, if the terms of the transaction are not clear to the members of the family at the outset, or are not properly, legally documented

In 2004, Bill and Ruth Cadwell (the parents) paid $170,000 to their daughter and her husband (the defendants). The payment was used to assist with the purchase and construction of a new house by the defendants. The house was modified to include a suite suitable for the parents.

The house was built, and the defendants and the parents moved into the house in 2005. No agreement was put in writing. Bill Cadwell died in 2007. Ruth Cadwell lived in the suite for 12 more years until she died in 2019.

The $170,000 payment lead to “considerable friction over the years” between various family members, and eventually lead to this litigation.

The plaintiff (the executor of Ruth Cadwell’s estate) claimed that the payment was an equity investment in the property, or that a resulting trust in the property was created. In the alternative, the plaintiff claimed in unjust enrichment, or for repayment of the amount as a loan, with interest.

The defendants said that the payment was a loan, which was paid off by notional payments of rent applied against the loan over the years. In the alternative, they argued that the loan claim was statute barred because the limitation period had expired.  The defendants relied upon a loan repayment schedule document initialed by Bill Cadwell. The plaintiff argued that this document was a forgery, created for the purpose of the litigation.

The Court concluded that there was no equity investment. While Ruth may have referred to the payment as an “investment”, that was not sufficient to establish that the parents were investing the $170,000 to acquire a beneficial interest in the property. The Cadwells had some business experience. They knew they were not going to be registered on title. There was no evidence of any discussions regarding proportionate ownership shares, sharing of expenses, etc…  On the evidence, the parents did not expect to have an ownership interest in the property. Instead, they expected to remain in the suite, free of charge, for some period of time, and the parents would be able to rely upon the defendants for help as needed.

The Court concluded that the parents intended the $170,000 payment to be a loan. The next issue was whether there had been repayment. The Court concluded there was no agreement for repayment by way of notional rent.

The Court held that the repayment schedule document was a forgery: “it represents the agreement that the defendants wish they had made with the Cadwells, but did not make.” It’s existence did not make sense in the circumstances, which included a conversation that Ruth surreptitiously recorded between her and one of the defendants, in which she asked for the return of her money.  The plaintiff went so far as to call an expert in computer fonts, who testified that the font used for the repayment schedule document did not reach public use until January 2007 (the defendants claimed the document was prepared in 2004).

However, the defendants were fortunate because the Court held that the claim was statute barred. The former Limitation Act applied to the claim, and so the six-year limitation period for the demand loan began to run on the day the loan was made. It should be noted that the current Limitation Period provides for a two year limitation period, which starts on the date that a demand is made.

As a result, the defendants did not have to repay the $170,000 amount due to the passage of time, even though they attempted to rely upon a forged document at trial (although they were not awarded their costs at trial due to their conduct).

There is a lesson here.  As observed by the Court:

[11]         As I am confident that everyone involved now recognizes, it would have been quite easy to document an agreement about the payment at the outset, thereby avoiding years of conflict.

Case Comment: No Executor’s Fee for Executor who Breached Fiduciary Duty

Under the B.C. Trustee Act, an executor is entitled to remuneration for administration of an estate, unless the Will states otherwise. However, executors should not expect to receive a fee regardless of their conduct. Executor misconduct, for example breach of fiduciary duty, may disentitle the executor to any fees, despite their efforts and time spent to administer the estate.

The B.C. Supreme Court recently considered executor misconduct in the context a passing of accounts and approval of executors’ fees in Zaradic Estate (Re) 2021 BCSC 1037. In Zaradic, The sole beneficiary was a friend of the deceased. The joint executors were a husband and wife, who were also friends of the deceased.  The executors sought to pass their accounts, which included payment of an executors’ fee.

The Trustee Act provides that an executor is entitled to remuneration of up to a maximum of 5% of the gross aggregate value of the estate (including all capital and income) unless the will provides otherwise. In Zaradic, the Will allowed for the executors to claim a fee up to 10%.

The criteria for determining an appropriate fee includes:

  1. The magnitude of the trust;
  2. The care and responsibility involved;
  3. The time occupied administering the trust;
  4. The skill and ability displayed; and
  5. The success achieved in the final result.

The beneficiary argued that the executors ought to be denied any fees for administering the estate by reason of their alleged breach of trust in attempting to sell the deceased’s house to their daughter for roughly 50% of its market value. The beneficiary had to commence a legal action and obtain a certificate of pending litigation to prevent the sale of the deceased’s home. The executors had also loaned their daughter $13,000 of estate monies to ensure she had enough money to complete the sale.

The executors tried to place the blame on (1) their experience with property ownership generally, and (2) a notary who allegedly advised them to take this course of action. The property eventually sold for fair market value, but the beneficiary incurred legal costs in order to make sure that this happened.

The Will provided as follows with respect to remuneration:

. . . My trustees may claim remuneration for acting as Trustees in the amount of Ten Percent (10%) of the net value of the residue of my estate to be shared equally between them, in lieu of any Executor or Trustees Fee’s.

The executors argued that this wording meant that they were entitled to a 10% fee regardless of their conduct. The Court did not agree. The Will said that the executors may “claim” for remuneration, but the amount of the fee was not fixed and had to be approved by the court if the beneficiary did not agree.

In terms of the amount of the fee, the Court concluded that the actions of the executors in relation to the attempted sale for less than market value to their daughter were “an egregious breach of their fiduciary duty,” which disentitled them to any fee.

The executors were denied any fee for their time spent administering the estate.  While there was a measure of care and responsibility involved in handling the estate, the executors’ efforts were a “dismal failure” when it came to the skill and ability displayed and the success achieved.  In other words,  all of their time and effort spent on the estate was eclipsed by their breach of fiduciary duty.

What I’m Reading: Interesting Estate Litigation Articles for May 2021

The following is a roundup of noteworthy articles published this month on estate litigation and related issues:

  1. Sydney Osmar at Hull & Hull LLP (in Ontario) discusses a recent Ontario case estate which applied the public policy doctrine that a person who has committed murder cannot benefit from his or her crime (including from the estate of the person they have murdered): https://hullandhull.com/2021/05/the-criminal-forfeiture-rule-and-the-doctrine-of-acceleration/.  Stan Rule at Sabey Rule LLP (Kelowna) also commented upon this case: http://rulelaw.blogspot.com/2021/05/the-bank-of-nova-scotia-trust-company-v.html
  2. Debra Curcio Lister and Jordon Magico at Miller Thomson discuss the importance of obtaining competent legal advice, with reference to recent decisions of the courts in Alberta: https://www.millerthomson.com/en/blog/mt-estate-litigation-blog/why-competent-legal-advice-is-fundamental/
  3. Lauren Liang and Polly Storey at Clark Wilson discuss rectification of a will when it does not appear to accomplish the intentions of the deceased’s person: https://www.cwilson.com/rectifying-wills-under-s-59-jamt-estate/
  4. Kira Domratchev at Hull & Hull LLP (in Ontario) writes about the doctrine of righteousness, the circumstances in which a concern arises where a person who is instrumental in drafting a will also is to receive a benefit under that will: https://hullandhull.com/2021/05/the-doctrine-of-righteousness-and-its-place-in-estate-litigation/
  5. Janis Ko at Onyx Law wrote about entitlement to costs in contested committeeship proceedings under the Patients Property Act, in the context of a recent decision of the B.C. Supreme Court: https://onyxlaw.ca/punitive-special-costs-in-bc-committeeship-proceedings/

Happy reading!

Disputes Between Co-Trustees: Adding a Trustee to Break the Deadlock

I am often contacted by one co-executor or co-trustee, who is frustrated with the conduct of the other co-executor or co-trustee. The client feels strongly that they cannot continue to work with the other person. These concerns commonly arise when siblings are asked to work together to administer a trust or estate, most often when there are two co-trustees or co-executors. In those circumstances, if there is a disagreement then there is no majority, resulting in a deadlock.

The concerning conduct expressed by the client falls on a spectrum. There may be concerns about misappropriation of trust assets, which would fall at the more serious end of the spectrum. The co-trustees may simply not like each other and not enjoy working together, which would be at the less serious end of the spectrum.

Usually a client’s concerns fall somewhere in the middle. Often the co-trustees will be critical of one another. They may each have a laundry list of concerns and criticisms. When making recommendations to a client as to how to proceed, the same considerations usually arise.  Has the conduct in a given case reached the point that removal and/or replacement of a co-trustee or co-executor is necessary? Or are the disagreements so trivial that the parties are expected to resolve matters and work together without the assistance of the court? There is also the question of remedy.  Should a trustee be removed (and if so, which one), or should an additional trustee be added to break the deadlock?

The B.C. Supreme Court recently considered these issues in In The Matter of The Estate of Jean Maureen Dahle, Deceased 2021 BCSC 718. The Court considered a dispute regarding the administration of an estate and a trust. In her will, the deceased named two of her six children, Tim and Martin, as co-executors. They were also named as co-trustees of a trust established in the will for the benefit of their brother with developmental disabilities (Nickey).

Tim and Martin both brought applications to have the other removed as executor of the will and trustee of the Nickey trust.

Before judgment (but after submissions), the brothers reached an agreement that a trust company would be appointed as a third trustee of the Nickey Trust, and that a majority of the three trustees will have decision making power. This would break the deadlock between the two brothers.

However, they were unable to reach a similar agreement with respect to administration of the estate. Neither of the brothers had sole decision-making power. They were required to act unanimously.  There was a “significant sense of distrust” between the brothers, which had continued for five years (since the deceased’s death) and had delayed administration of the estate.

Each brother provided a long list of complaints about the other. The Court observed that neither brother had conducted themselves completely appropriately, and they both were critical of the other for behavior that they themselves engaged in.

Much of the animosity between the brothers came from differences of opinion regarding what was in Nickey’s best interests, including living and care arrangements.  Other complaints included dealing with real property without unanimous agreement – dealing with rental monies, handling repairs and maintenance, and entering into tenancy agreements and collecting damage deposits.   There was also a criticism of the “tone” of certain communications. The Court agreed that they were “confrontational”, but did not warrant removal. There were other examples of stubbornness and refusal to communicate property. However, the Court also observed that the brothers were capable of agreeing on matters when required to do so.

The judgment includes a helpful discussion of the law on removal and replacement of executors and trustees. A testator is entitled to choose their executors and trustees. The court should not interfere lightly with this decision. Categories for removal of an executor include (1) endangerment of trust property, (2) want of honesty, (3) want of proper capacity to execute duties, and (4) want of reasonable fidelity. The welfare of the beneficiaries is a key consideration. Unreasonable delay and failure to distribute an estate may be grounds for removal. Executors are not expected to be perfect, and not all acts of misconduct will lead to removal. Animosity among co-executors may be relevant, but will not be determinative. This may be relevant to an ability to carry out their duties effectively and efficiently.

In Dahle, the Court concluded that it was in the best interests of the beneficiaries to add a third party professional trust company as an additional executor of the estate. The Court observed that adding a third trustee, and not removing either of the other two trustees, would respect the deceased’s wish to have her two children involved in decisions relating to admisntration of her estate. This arrangement would also encourage the brothers to act reasonably, failing which the unreasonable brother will be overruled by majority.

Case Comment: A Party who Transfers Property to Avoid Creditors May Not Later Reclaim It

If you transfer property to family members or other persons to avoid your creditors, you cannot assume that you are entitled to demand the return of the property at a later date.

The B.C. Supreme Court recently considered this issue in Pattinson v. MacDonald 2021 BCSC 652.

In 1986, Ms. Pattinson transferred a 160 acre farm property to her children, the defendants. She now sought an order that the property was held by the defendants in trust for her.  She sought the return of the property, along with an accounting of rents, profits and income received by the defendants in respect of the property.  She also claimed that her children were unjustly enriched by her upkeep of the property.

Her children claimed that they owned the property as a result of the 1986 transfer. They claimed that (1) they paid consideration for the transfer, and (2) the transfer to them was a fraudulent conveyance and/or intended to avoid claims by her creditors.

Ms. Pattinson claimed that the property was transferred upon legal advice “to protect the lands from frivolous claims … and to ensure the land stayed in control of the family.” She had been named as a defendant in family law proceedings commenced against her common law spouse (by his ex-spouse).

The children asserted that the property was transferred into their names (1) under an agreement with Ms. Pattinson’s mother involving the exchange of gold wafers, and (2) to avoid various creditors. They claimed that they had knowledge of the transfer in 1986 when it was made. They did not ask for the property to be transferred into their names.  They were not asked to hold the property in trust and did not agree to hold it in trust.

Ms. Pattinson denied that gold wafers were provided in exchange for the transfer. She claimed that her mother gifted the gold wafers to her. The issue of whether consideration was paid for the transfer was relevant to the issue of whether the property was held in resulting trust. Where a transfer is made for no consideration, the onus is on the recipient (in this case the children) to prove that a gift was intended. In Pattinson, the defendants had not met the onus required to prove that consideration was paid.

However, the court held that even where no consideration is paid for the transfer, a party who transfers land to avoid creditors may not reclaim it.

It was clear that the purpose of the 1986 transfer was to avoid claims. The court held that it was likely that the children were named by their middle names on the transfer document to avoid creditors knowing that she transferred property to her children. She also failed to refer to owning property in bankruptcy proceedings.

Ms. Pattinson was successful in protecting her property from creditors, but she could not now seek the return of the property 35 years later. She also failed to show the elements of unjust enrichment, and even if she had, her claim would have been dismissed on the basis that she delayed in making her claim until 33 years after the transfer.

Transferring assets for the purpose of avoiding creditors carries significant risk. Creditors may have certain remedies against the assets despite the transfer, but there is the additional risk that transferee will refuse to return the property once the creditors are no longer a concern.