Variation of Will by Adult Children Even When Will-Maker Had Valid and Rational Reasons

In B.C., a will-maker’s spouse or child (including an adult independent child) can bring an action to vary the will-maker’s will, if the will does not made adequate provision for them. There is no requirement that a will-maker treat their children equally in their will. However, unequal treatment is a frequent cause of wills variation litigation.

When considering wills variation claims by adult children, the Court must consider the will-maker’s moral duty owed to adult children, to be assessed using the objective standard of the objective will-maker, and keeping in mind that the moral duty may be negated where there is just cause. In other words, a will-maker may treat their children unequally (or even disinherit a child), when there are valid and rational reasons for doing so.

Some litigants sought to make the argument that if the will-maker provides reasons that are valid and rational, the Court should defer to the will-maker’s decision to treat children unequally. The argument was that if the reasons were valid and rational, then the Court cannot vary even if other factors weigh in favor of a variation.

The B.C. Court of Appeal was asked to consider this issue in Tom v. Tang 2023 BCCA 221. In Tom, the will-maker had five children. Seven days before her death, the will-maker changed her longstanding will which provided that each of her five children received an equal share of her estate. The new will provided that two of her children, who had lived with her and provided her primary care for three years, would received approximately 85% of the estate. The other three children would receive approximately 5% each. The estate was valued at approximately $2.3M. The will-maker had written a letter explaining why she intended to favor two of her children.

The three children receiving lesser amounts brought an action to vary the will. The trial judge varied the will to provide that the two children who provided primary care would each get a gift of $300,000, and then the remainder of the estate would be divided equally among the five children. This was viewed as a balance between the will-maker’s attempt to recognize the role of the two children in her care, but also meet her moral obligations to all of her children.

The issue on appeal was whether the will should have been upheld given that the will-maker had valid and rational reasons for leaving less to three of her children. Again, the argument was made that if there are valid and rational reasons, then the will cannot be varied.

The B.C. Court of Appeal made clear that this is not the law. Previous cases did not stand for the principle that a will-maker’s unequal treatment of adult children must be deferred to, without regard to the objective standard of the reasonable will-maker and current social norms, as long as the subjective reasons given for the unequal distribution are valid and rational.

A will-maker’s moral duty to adult children must be assessed from the viewpoint of a reasonable testator, and that the moral duty may be negated where there is just cause. So, the will-maker’s purported “valid and rational reasons” are only one factor, and the trial judge did not err in assessing using the objective standard.

The Court of Appeal agreed with the trial judge that the will did not make adequate provision for the three children, and agreed that the will ought to be varied. The Court of Appeal ordered that the two children who provided care would each get 30% of the estate, and the remaining three children should receive an equal share of the remaining 40% of the estate. This would provide the two care-providing children with slightly more than they would have received at trial.

While this case provides some guidance to wills variation claimants, it creates uncertainty for will-makers, as it shows that even though the will-maker may have had reasons to treat their children unequally, and these reasons are valid and rational, their will may still be varied by the court due to other factors.

B.C. Case Comment: Claiming Against Assets that Pass Outside of Estate

In B.C., a spouse or child (including an adult independent child) can bring an action to vary a will if they believe it does not make adequate provision for them. However, a wills variation claim can only seek a greater share of assets which form part of the estate. If assets pass outside of the estate, they are not available to claim against in a wills variation claim.

As a result, some will-makers take steps to deplete their estate so that there are no assets available for the purpose of a wills variation claim. This may include registering assets in joint ownership with right of survivorship, direct beneficiary designations, or inter vivos transfers (gifts during the will-maker’s lifetime).

Disappointed beneficiaries must first succeed in attacking these planning steps and “returning” the assets to the estate for the purpose of the wills variation claim. This may include claims that the assets are held in resulting trust for the estate, or claims attacking the validity of the transfers (lack of capacity, undue influence, etc…).

A recent example can be found in the B.C. Supreme Court decision in Franco v. Franco Estate 2023 BCSC 1015. In Franco, the deceased father took certain planning steps during his lifetime. He transferred property, proceeds of sale of property and monies from bank accounts to one of his children, and changed his will to leave the entirety of his estate to that child (and to name that child as executor). As a result, his other two children (the plaintiffs in the action) did not receive a share of the transferred assets, and were disinherited under the will. If the planning and transfers were upheld, it would mean that there would be very little in the estate available for a wills variation claim.

The defendant argued that her father validly gifted assets to her. There are two requirements for a legally binding gift:

1. the donor must have intended to make a gift and must have delivered the subject matter to the donee. The intention of the donor at the time of the transfer is the governing consideration.
2. The donor must have done everything necessary, according to the nature of the property, to transfer it to the donee and render the settlement legally binding on him or he

Where a parent makes a gratuitous transfer to an independent adult child (as was the case in Franco), the presumption of resulting trust applies. The transferee must prove on a balance of probabilities that the transferor intended the transfer as a gift.

The most compelling evidence is direct evidence of the transferor’s intention at the time of transfer. Post-transfer conduct may be relevant, but must be approached with caution as it may be self-serving (or show a change in intention).

The Court in Franco held that the fact that the deceased continued to deal with jointly-owned property unilaterally does not cause the gift to fail. Continuing control and use of the property by the transferor after the transfer is not necessarily inconsistent with a gift.

The Court held that documentary and affidavit evidence established an intention to gift. The evidence included transfer documents, a deed of gift document, bank account documents, and the affidavit evidence of the defendant, the deceased’s niece, and the deceased’s financial advisor.

The Court also found there was no undue influence.

As a result, the Court concluded that the gifts were valid, and the assets passed outside of the estate. The parties agreed that if the claim relating to the gifts failed, the wills variation claim would not be pursued (because there were insufficient assets in the estate to justify the action). Accordingly, the plaintiffs’ claims were dismissed.

 

What I’m Reading: Interesting Estate Litigation Articles for March 2024

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

  1. David Morgan Smith at Hull & Hull LLP (Ontario) writes about restricting testamentary autonomy on public policy grounds: https://hullandhull.com/Knowledge/2024/03/clipping-testamentary-freedom-to-protect-society/
  2. Brett Book at WEL Partners (Ontario) discusses the suspension of a lawyer for their conduct in delaying with a vulnerable older client: https://welpartners.com/blog/2024/03/lawyer-suspended-for-questionable-transaction-with-vulnerable-older-adult/
  3. Not from March, but the B.C. Law Society recently circulated a reminder that the British Columbia Law Institute has published Undue Influence Recognition and Prevention: A Guide for Legal Practitioners, which can be found here: https://www.bcli.org/publication/undue-influence-recognition-and-prevention-a-guide-for-legal-practitioners/
  4. Chigozie Enwereuzo, also at Hull & Hull LLP, discusses the doctrine of donatio mortis causa (“deathbed” gifting): https://hullandhull.com/Knowledge/2024/03/nanas-deathbed-gift-to-you-is-it-valid/
  5. Fabiana Araujo M.S. Kennedy, also at WEL Partners, writes about a B.C. case where Air Canada was held liable for negligent misrepresentation arising from a Chatbot’s statements about bereavement fares: https://welpartners.com/blog/2024/03/moffatt-v-air-canada-bereavement-fares-do-your-research/

Happy reading!

Executor Purchasing Estate Property

An executor or administrator of an estate or a trustee is in a fiduciary position, which means that they owe certain fiduciary duties to the beneficiaries, including a duty of loyalty. There is a general rule that a trustee cannot purchase trust property, which is referred to as the rule against self-dealing. This would put the trustee in an obvious conflict of interest, contrary to their duty of loyalty.

If all beneficiaries are of full capacity, they can give fully informed consent to the self-dealing. The Court also has the jurisdiction to approve self-dealing by a fiduciary.

The burden is on the trustee seeking permission to sell property to herself to establish that a sale is necessary and that no other purchaser has been forthcoming or seems likely to come forward within a reasonable time, and that his or her own offer in the circumstances is a favourable one. The cases suggest that approval by the court will only be given where it is truly in the interest of the beneficiaries.

The B.C. Supreme Court was recently asked to approve self-dealing in Dewberry Estate (Re) 2023 BCSC 1325. The applicant obtained a grant of administration of an intestate estate. She was the daughter of the deceased. The estate was to be divided equally between the applicant and her two sisters. The only remaining significant assets were a two-acre property and the manufactured home on it.

These assets were recently appraised at $284,000. The applicant sought to buy the property for $179,600.

One sister opposed the application, arguing there was no basis to reduce the purchase price below current market value. The third sister did not respond, but her position mirrored that of the sister opposing the application.

The applicant took the position that her sisters would be unjustly enriched if she was forced to pay market value for the property. However, the Court was not aware of any authority that would allow it to approve a sale of trust property to a trustee at below market value on the basis of contributions by the trustee to the preservation of the value of the property.

The Court held that it could not be said that a proposed sale at more than $100,000 below the recent estimate of market value was “clearly to the advantage of the beneficiaries.” In light of the appraisal, the applicant could not show that no other purchaser is likely to come forward.

However, the applicant was given ten days to decide whether she was interested in purchasing the property for $284,000, the appraised value, as her siblings were prepared to consent to a sale at that price.

Special Costs for Unsuccessfully Alleging Undue Influence

When a party wishes to allege undue influence, they must consider the cost consequences if this claim is unsuccessful.

A common question from parties to estate litigation (or any litigation) is whether the other side can be ordered to pay their costs. After a claim is determined on its merits, the court must decide upon the issue of costs.

The general rule is that costs follow the event, meaning that the successful party will receive costs payable by the unsuccessful party. However, in estate litigation the court may order that the costs of some or all parties be paid from the estate. The court will look at whether the litigation resulted from the conduct of the deceased (i.e. how they chose to set up their estate plan) or the conduct or motivations of a beneficiary.

In addition to who gets their costs, and who pays those costs, there is the issue of the scale of costs. In the ordinary course, costs are determined using a tariff system set out in the B.C. Supreme Court Civil Rules. However, the costs payable under this system are significantly less than a party’s actual legal fees, often a quarter or a third of the actual legal fees.

In some cases, a party can apply for “special costs”. Special costs are increased costs, which are intended to more closely resemble the reasonable fees actually charged by a lawyer to their client. Special cost awards are intended to address the conduct of a party. Special costs are awarded only in exceptional circumstances, where the conduct of the party is deserving of rebuke.

There are a number of cases in which special costs have been awarded in the face of unproven and unsubstantiated allegations of undue influence. This is because the allegation of undue influence is a serious one, impugning the character of another person. It has been compared to allegations of fraud, which also may attract an award of special costs if unfounded.

The B.C. Supreme Court recently considered this issue and the line of authority in Lambrecht v. Lambrecht Estate 2023 BCSC 1051. In Lambrecht, the Court observed that the primary considerations in previous cases were that allegations were pursued based on speculation, without foundation, and unduly prolonged the proceedings. In one case, costs were awarded where the allegations were only abandoned three days before trial.

In Lambrecht, the plaintiff advised before trial that he agreed to withdraw his claim of undue influence. Although the notice of civil claim was not amended to reflect this agreement, the court was advised of the concession at trial. The defendant argued that despite this agreement, the plaintiff continued to make assertions that the defendant acted improperly which were, in substance, allegations of undue influence, which the defendant was obliged to defend, and which the plaintiff knew had no chance of success.

The Court agreed with the plaintiff. Although the pleadings were not amended, the plaintiff advised that he would not pursue the claim of undue influence, and he maintained that position at trial. Even though the plaintiff was not successful in the claim that he did pursue (in resulting trust), that alone was not sufficient to warrant an order for special costs.

This case is an important reminder that if you are unable support allegations of undue influence which you make in your pleadings, you should carefully consider whether you want to pursue those allegations at trial. If you withdraw the allegations of undue influence far enough in advance, you can potentially avoid a special costs award that would otherwise be payable for making the unfounded allegations.

It should be noted, however, that the plaintiff was ordered to pay double costs because he failed to accept a formal offer to settle which was reasonable and ought to be accepted (triggering double costs under Rule 9-1 of the B.C. Supreme Court Civil Rules).

 

B.C. Case Comment – Claim against Estate Dismissed for Want of Prosecution

If a claimant brings an action, but then fails to move forward with pursuing it, the defendant(s) may apply to dismiss the claim for want of prosecution.

Dismissal for want of prosecution is considered a draconian remedy that should not be ordered lightly. It should be reserved for circumstances in which inexcusable delay gives rise to a substantial risk that a fair trial of the issues in dispute will no longer be possible. There is no set amount of time that a defendant must wait before making the application. There is no set amount of delay that will be inexcusable or inordinate.

The following factors are to be considered by the judge hearing an application for dismissal for an action for want of prosecution:

  1. The length of the delay and whether it was inordinate;
  2. Any reasons for the delay either offered in evidence or inferred from the evidence, including whether the delay was intentional and tactical or whether it was the product of dilatoriness, negligence, impecuniosity, illness or some other relevant cause, the ultimate consideration being whether the delay is excusable in the circumstances;
  3. Whether the delay has caused serious prejudice to the defendant in presenting a defence and, if there is such prejudice, whether it creates a substantial risk that a fair trial is not possible at the earliest date by which the action could be readied for trial after its reactivation by the plaintiff; and
  4. whether, on balance, justice requires dismissal of the action.

The fourth factor encompasses the other three and is the most important consideration.

The onus is on the party seeking dismissal to show inordinate delay for which there is no credible excuse. Once it has been established that the delay is inordinate, a presumption of prejudice arises, and the party responding to the application has the onus of rebutting the presumption by showing that the applicant has not been prejudiced in their ability to have a fair trial.

Where it can be shown that the parties would have a fair trial notwithstanding the delay and some prejudice, the interests of justice generally require that the application for dismissal be dismissed and the claim be allowed to proceed.

Dismissal for want of prosecution was recently considered by the B.C. Supreme Court in the estate litigation context (although it started as a family law claim) in Varga v. Poole Estate 2023 BCSC 122. In Varga, the plaintiff commenced an action over seven years ago by filing a notice of family claim. The plaintiff sought a division of a 17.3-acre property near Tofino, B.C. that the defendant (who was alive at the time the action was commenced) purchased many years before meeting her. The plaintiff alleged that she was the defendant’s “spouse”. The defendant denied that he was the plaintiff’s “spouse”.

The defendant died nearly three years before the application for dismissal for want of prosecution was brought, after a long battle with cancer. The defendant’s estate continued to dispute that the plaintiff and the defendant were spouses. The defendant’s daughter (the litigation representative of the defendant’s estate) applied to dismiss the claim for want of prosecution.

The parties attended a judicial case conference in early 2017. The lawyers corresponded occasionally. The defendant filed a form F-8 financial statement (as required by the rules) but the plaintiff did not. There were intermittent and inconclusive settlement discussions, which were driven by the defendant. The defendant was never examined for discovery before his death and so his testimony was permanently lost. After the defendant’s death, the parties exchanged lists of documents, and the plaintiff unilaterally set the matter for trial. However, she did so without providing disclosure concerning the value of another property, which the defendant would have a claim to if the parties were found to be spouses.

Turning to the factors for dismissal for want of prosecution, the Court held that even though there had been some activity in the case, the passage of over seven years from the filing of the notice of family claim was inordinate delay. The Court did not accept the plaintiff’s excuses for the delay (which included that the defendant was frequently out of town and lived in Thailand for a period of time, and that the defendant changed lawyers). Although good faith attempts to negotiate a settlement may excuse delay, intermittent and fruitless discussions do not advance an action toward trial.

The Court held that the prejudice in this case was obvious and serious. The plaintiff was aware that the defendant was seriously ill with cancer even before she filed her claim. If the plaintiff had pursued her claim with reasonable diligence, she would have at least examined the defendant for discovery, and his testimony would be available and a fair and balanced trial would be possible. Instead, the plaintiff gained a significant and unfair advantage by delaying. The Court also observed the weakening of witnesses’ ability to recall long-ago events, and the loss of correspondence and documents.

The Court observed that the idea that the trial should proceed almost eight years after the claim was filed is “profoundly embarrassing”, and would make a mockery of the primary objective of the B.C. Supreme Court Family Rules, which is to secure the just, speedy, inexpensive and proportionate determination of matrimonial disputes. The B.C. Supreme Court Civil Rules have a similar objective.

The Court dismissed the plaintiff’s claim for want of prosecution.

This case serves as an important reminder that if you commence an action, you deed to pursue it with reasonable diligence, or else you risk your claim being dismissed without a determination of its merits.

What I’m Reading: Interesting Estate Litigation Articles for February 2024

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

1. Tiansheng Wen at Hull & Hull LLP (Ontario) discusses Aeroplan points and estate planning: https://hullandhull.com/Knowledge/2024/02/aeroplan-points-and-estate-planning/

2. Gabriella Banhara and Oliver O’Brien at WEL Partners (Ontario) write about five notable estate and trust decisions from 2023: https://welpartners.com/blog/2024/02/five-notable-estates-trusts-decisions-of-2023/#_ftn1

3. A post by Onyx Law (Vancouver) discusses issues relating to the recovery of stolen inheritances in B.C.: https://onyxlaw.ca/recovery-of-stolen-inheritance-in-bc/

4. Ian Hull, also at Hull & Hull LLP, discusses how to retract a renunciation as executor: https://hullandhull.com/Knowledge/2024/02/retracting-a-renunciation/

5. Not from this month, but Step Canada published a useful resource for assisting persons in vulnerable situations: STEP: CSR A Guide for Assisting Persons in Vulnerable Situations (fliphtml5.com)

Happy reading!

Wills Variation Claims by Adult Independent Children

In B.C., a spouse or child of a deceased person (the “will-maker”) can bring an action to vary a will if it fails to make adequate provision for their proper maintenance and support. This includes adult independent children.

When determining whether a will-maker has made adequate provision, the Court will consider the will-maker’s legal and moral obligations. Legal obligations are owed to a spouse or dependent children and do not usually factor into the analysis of claims by adult independent children (unless the child contributed to the estate).

Moral obligations are found in society’s reasonable expectations of what a judicious person would do in the circumstances by reference to contemporary community standards. Moral obligations to adult independent children are “tenuous”, but there may be entitlement if the size of the estate justifies it.

The moral obligation may be negated where the will-maker has just cause, consisting of objectively valid and rational reasons, to disinherit the child.

Cases in B.C. have identified factors to be considered when determining the existence and strength of a will-maker’s moral duty to independent adult children:

  • relationship between the testator and claimant, including abandonment, neglect, and estrangement by one or the other;
  • size of the estate;
  • contributions by the claimant;
  • reasonably held expectations of the claimant;
  • standard of living of the will-maker and claimant;
  • gifts and benefits made by the will-maker outside the will;
  • will-maker’s reasons for disinheriting;
  • financial need and other personal circumstances, including disability, of the claimant;
  • misconduct or poor character of the claimant; and
  • competing claimants and other beneficiaries.

Every case is fact specific.

These principles were recently applied in Bautista v. Gutkowski Estatei 2023 BCSC 1485. In Bautista, the will-maker had one child, a son. The will-maker moved to Canada from the Philippines when her son was three months old. She abandoned him, and despite making a life for herself in Canada, she did not petition to have him join her. She did provide for his support by giving money to her parents, who were raising him. At times they had a close relationship, but as her son became an adult, the will-maker disapproved of the lifestyle she was being told that he was leading (although it appears she was being misled). This lead to an estrangement that was the will-maker’s choice (and her son attempted to reach out to her by email and text).

The will-maker made a will leaving 25% of her estate to her son, and 75% to her sister and her niece. The estate was valued at $881,119.

The Court considered the various factors, including the son’s modest standard of living in the Philippines. The Court varied the Will to provide that the son will receive 60% of the estate, instead of only 25%.

Life Estate vs. Licence to Occupy

Courts are occasionally asked for direction on whether a term in a will creates a life estate or a licence to occupy real property. This often results from imprecise drafting in the will, which creates ambiguity.

A life estate grants the holder the right to immediate possession of the property and to its use as the owner, subject to some restrictions to protect the rights of the person entitled to the property at the end of the life estate. Rights to use and transfer the property are restricted by the terms of the grant and the common law doctrine of waste. Ordinarily, the holder of a life estate is responsible for current expenses and routine maintenance.

A licence with respect to real property is a privilege to go on premises for a certain purpose, but does not operate to confirm on, or vest in, the licencee any title or estate in such property.

No particular words are required to create a life estate. Cases have held that to grant a “use” of property can create a life estate. However, the court must determine the testamentary intention of the deceased. The court must read the entire will, and consider it in light of the surrounding circumstances. This means that depending upon the circumstances, similar wording may create a licence or a life estate. The courts have held that since the meaning of words in wills can differ so much according to the context and circumstances in which they are used, it seldom happens that the words of one instrument are a safe guide in the construction of another.

In the recent B.C. Supreme Court decision of Swift v. Nazaroff 2023 BCSC 1602, the Deceased’s will provided that if her daughter had not obtained her real property by right of survivorship (which the Court held she did not), then the daughter was to receive all right, title and interest in the property:

for her use absolutely and forever, subject however, to the right of my son …, to occupy the premises in such circumstances and for such time as may be required when he has no other permanent residence, provided, however, that my son, …, shall be responsible for all expenses, including taxes, utilities and upkeep (maintenance) while he resides on the property.

The issue was whether this created a life estate or a licence to occupy.

The Court held that this created a life estate in the circumstances. This was consistent with the deceased’s testamentary intention to ensure that her son would always, having regard to his recognized challenges (including mental health issues requiring repeated hospitalization), have a place to reside during his lifetime. The deceased was aware of this, and would not have wanted her son to forego seeking medical assistance (including hospitalization) at risk of losing his right to occupy the property. Also, if the deceased had intended to transfer the property to her daughter free from her son’s life estate interest, she would have done so.

What I’m Reading: Interesting Estate Litigation Articles for January 2024

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

  1. Ian M. Hull at Hull & Hull LLP (Ontario) discusses why a will cannot be used to save an imperfect gift: https://hullandhull.com/Knowledge/2024/01/can-an-imperfect-inter-vivos-gift-be-saved-by-a-will/
  2. Gabriella Banhara at WEL Partners (Ontario) writes about a recent Ontario case which considers delay by the executor in selling the deceased’s home: https://welpartners.com/blog/2024/01/what-constitutes-an-unreasonable-delay-in-the-sale-of-a-deceaseds-home-by-an-estate-trustee/
  3. Estate Litigation in the News: The CBC discusses issues relating to powers of attorney: Life can change overnight. 2 families share what people should know about power of attorney | CBC Radio
  4. Jonathon Vander Zee at de Vries Litigation LLP (Ontario) discusses the law of abatement that applies when determining how to pay estate debts and liabilities: https://devrieslitigation.com/paying-the-debts-and-liabilities-of-an-estate-and-abatement/
  5. Estate Litigation in the News: The CBC also reports on a lawsuit alleging copyright infringement, commenced by the estate of George Carlin against podcasters who used an AI program to impersonate him: https://www.cbc.ca/news/canada/british-columbia/george-carlin-ai-podcast-lawsuit-1.7098925
  6. Ian M. Hull also writes about Yukon enacting legislation to allow fiduciaries (including executors) to gain access to the digital assets of a deceased or incapacitated person: https://hullandhull.com/Knowledge/2024/01/yukon-enacts-legislation-giving-fiduciaries-access-to-digital-assets/

Happy reading!