Undue Influence may be Presumed in Certain Circumstances

The term “undue influence” often brings to mind overt acts of elder abuse, where a gift is the result of influence expressly used by the recipient (the “donee”) to obtain that gift.

However, the law recognizes a second class of transactions which may be set aside on grounds of undue influence: where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor. There are certain relationships with the potential for dominance and dependence,  and if you receive a gift in those circumstances it is presumed that it was procured by undue influence unless proved otherwise.

This second class of undue influence does not depend upon proof of reprehensible conduct. The person receiving the gift may have acted honestly and without ulterior motive. The person may honestly say that the gift was a completely unexpected and unsolicited. However, the courts will intervene as a matter of public policy to prevent the potential for influence that exists in certain relationships from being abused.

As a result, you may receive an unsolicited gift from a vulnerable person, and find that you are placed in the unfortunate position of having to rebut a presumption that you received the gift as a result of influence that you potentially could have exercised over the donor.

The court will first examine the relationship between the donor and donee. Is the nature of the relationship such that the potential for domination exists?

This presumption as it pertains to undue influence in the drafting of a Will can now be found in the Wills, Estates and Succession Act [SBC 2009] Chapter 13. The Act provides that where a person establishes that someone was in a position where the potential for dependence or domination of a will-maker was present, the party seeking to defend the Will has the onus of establishing that the person in that position did not exercise undue influence over the will.

If a relationship of dependency exists, the court will next consider the nature of the transaction. In situations where the donee does not provide consideration (i.e. gifts or bequests), it is enough to establish the existence of a dominant relationship.

Once a plaintiff shows that the relationship between the donor and donee was such that the potential for influence exists, and the transfer is gratuitous, the onus moves to the defendant to rebut the presumption of undue influence. The donee must establish on a balance of probabilities that the donor entered into the transaction of his own “full, free and informed thought”. The defendant may show no actual influence was deployed in the particular transaction (such that the presumption is rebutted), or the donor had no independent legal advice.

A gratuitous transfer from an elderly parent to an adult child does not automatically result in a presumption of undue influence. However, if a parent is vulnerable through age, illness, cognitive decline or heavy reliance on the adult child, the presumption may arise.

A presumption of undue influence may also arise in circumstances where a where a donee is intimately involved with the management of the donor’s assets. However, as discussed in a previous post found here, simply assisting a loved one will not necessarily trigger the presumption.

Bergler v. Odenthal – counsel comments featured in this month’s issue of Take Five

We were counsel in Bergler v. Odenthal 2020 BCCA 175.  I discussed this recent decision from the B.C. Court of Appeal in a post found here.

I recently provided my commentary on the case in the July 2020 edition of Take Five, a monthly publication highlighting the most interesting civil cases emerging from the B.C. Court of Appeal.  Here is an excerpt from my comments:

When a deceased person leaves a will, a disappointed beneficiary may have a variety of available claims, including challenges to the validity of the will and, of course, wills variation claims. When a deceased person dies intestate, it may seem at first blush that a disappointed beneficiary has no recourse, as the legislation sets out a non-discretionary scheme as to how the estate is to be distributed.

However, in Bergler v. Odenthal 2020 BCCA 175, there was a remedy available: the secret trust.

As the Court of Appeal notes, secret trusts are “rarely encountered today” and this will likely continue to be the case. There is considerable risk in relying upon a secret trust to carry out your testamentary intentions. The person who would otherwise receive your assets (whether by will or intestacy) will directly benefit from denying the existence of a trust after your death Or, as happened in Bergler, the trustee make seek to add a “clarification” to the terms of the trust, which would postpone his obligation to distribute the assets until his own death.

You can read my comments in their entirety in this month’s issue of Take Five, and the discussion was also featured in an article on Slaw, Canada’s online legal magazine, which can be found here.

Undue Influence, or Simply a Caring and Involved Loved One?

We are often contacted by clients who feel very strongly that a loved one, usually a parent or spouse, has been unduly influenced to make an estate plan that does not reflect their actual intentions.  For example, a person may be unduly influenced in the making of their will, a transfer of property into joint ownership, or a large gift made during the person’s lifetime. Undue influence is a serious allegation, and there is a high threshold to establish it.

Undue influence certainly does happen. Elder abuse unfortunately happens. However, some clients’ concerns of undue influence arise simply from the fact that the alleged influencer was heavily involved in the life of the person alleged to have been influenced.

Consider the example of a mother and her children. As the mother ages, she requires more assistance. Perhaps she is no longer able to drive or has other mobility issues or physical limitations. It is not unusual for one child to step up and provide more assistance than the other siblings. This sibling may live closer to her mother, or her work schedule and other obligations may offer more flexibility such that she is able to provide a greater level of assistance. This assistance may include taking her mother to doctors’ appointments, or to the bank (where some bank accounts are transferred into joint names?), or to meetings with lawyers (where some changes are made to the mother’s will?). It will certainly mean that this child will have more face time with her mother than her siblings.

When the more-involved child ends up receiving greater benefits during the mother’s lifetime, or a larger share of the estate after the mother’s death, the other siblings may look back at all the time that their sister spent with their mother, and in some cases they will speculate or assume that their sister was influencing their mother. It is not uncommon for disappointed beneficiaries to look for some explanation for perceived unequal treatment or favoritism.

Stewart v. McLean 2010 BCSC 64 is a case that I always keep in mind as an example of conduct that does not reach the level of undue influence. In that case, the Court observed as follows:

[108]   In general, the plaintiff’s allegations of undue influence are unfounded suspicions and are based on an unfair view of the relationship between Donald and their mother. At best, the plaintiff’s case is that Donald, by his presence in Victoria, his driving his mother to appointments, his working around her house, his visiting her frequently, and his receiving a benefit from his mother leads to the conclusion that he unduly influenced her.

And after observing that objectively viewed this was a loving and caring mother-son relationship in which the son did what most mothers would expect:

[110]    There is no evidence that Donald dominated the Deceased. In fact, all of the evidence is to the contrary. The evidence consistently establishes that the Deceased was competent, “sharp”, and independent until her death. Certainly when it came to financial matters, she exercised a mind of her own. While she may have depended somewhat on Donald and his family due to her physical limitations, given her financial and intellectual independence, she could have made alternate arrangements.

Other cases have made similar observations. Some people require assistance in being mobile, and a family member is a logical person to provide this assistance. There must be something more to establish undue influence.

B.C. Court of Appeal upholds existence of secret trust

If a person does not make a will (i.e. the deceased dies intestate), then the B.C. Wills, Estates and Succession Act sets out who will receive their estate. But what if the deceased person instructs the person entitled to receive their estate that the assets are actually to go to someone else? If the person entitled to receive the estate assets accepts the instructions from the deceased person, then a secret trust may be created.

In the recent case of Bergler v. Odenthal 2020 BCCA 175, the B.C. Court of Appeal upheld a trial decision which held that a secret trust existed, with the result that the person who would have received all of the deceased’s assets on an intestacy actually held the assets in trust for another person. I discussed the trial decision in a previous post found here.

Full disclosure: I was counsel for the successful plaintiff/respondent in this case at trial and on appeal.

The deceased had told her spouse (who would receive her assets on an intestacy) that she wanted her assets to go to her niece, who did not have a career or a home and was hoping to go back to school. The deceased did not have a will, and instead relied upon her spouse to do what she instructed.

On appeal, one of the key issues was timing of distribution. The niece argued that the deceased instructed her spouse that he was to deliver her assets to the niece when the spouse started a new relationship (which had happened before trial). The spouse argued that the deceased had “clarified” that the niece was to receive the assets only upon his death and not before. The trial judge did not accept that the deceased made this clarification. It also wasn’t consistent with the deceased’s wish that her niece receive her assets to get on a better financial footing and continue her education. If that was the purpose of the trust, then it would not make sense to postpone the niece’s receipt of assets until the spouse’s death, which may not happen for many years.

The Court of Appeal held that the trial judge had not erred in finding that a secret trust had been created, and that the spouse had accepted the obligations of the trust in conversations with the deceased in the last days of her life.

The spouse also took the position that if he held the deceased’s estate in trust, then the deceased’s interest in a piece of property that was registered in joint tenancy with him did not form part of her estate. When a property in British Columbia is held in joint tenancy, then upon the death of one of the joint owners their registered interest is received by the surviving joint owners by right of survivorship. As a result, the interest in jointly held property often does not form part of the deceased’s estate (for example, for the purpose of calculating probate fees).

However, the Court of Appeal confirmed that as a matter of law, the creation of the secret trust severed the joint tenancy, and the deceased’s interest in the property, even though registered in joint ownership, formed part of the trust and the beneficiary (her niece) was entitled to that interest.

As noted in my previous post which discussed the trial decision, it is very risky for a testator to make the deliberate decision to forgo preparing a will, and instead provide verbal instructions to the person that would otherwise be entitled to receive the estate on an intestacy regarding what you want done with your estate. There is a very real risk that this person may deny receiving such instructions and may deny the existence of a trust.

If you are a beneficiary (by way of intestacy or under a will) and the testator provides you with instructions regarding the assets that you will receive upon their death, exercise caution. Even silence may constitute acceptance of the trust obligation. The courts take the view that if a testator makes a request of this nature, you should be bound to say something if you intend to reject the instructions and seek to claim the assets as your own after the deceased’s death.

Ontario Court allows Deceased to Bequeath Assets held by his Company in his Will

When you are the sole shareholder of a company, for example a professional corporation or a holding company, you may fall into the habit of treating the assets held by the company as your own for all practical purposes. However, you should keep in mind that a corporation is a separate legal entity, which owns its own assets. You merely own the shares in the corporation which in turn owns those assets.

This may create confusion when it comes to your estate planning. When your corporation owns assets, can you make bequests of those assets in your will?

A 2019 decision of the Ontario Court of Appeal indicates that in some cases the answer is “yes”.

In Trezzi v. Trezzi 2019 ONCA 978, the deceased was the sole shareholder of a company. The company owned certain assets. The deceased made bequests of those assets in his will. The bequests were challenged on the basis that the deceased did not own the assets, as they were owned by the company, and he could not give what he did not own.

The Court of Appeal upheld the lower court’s decision that the deceased could bequeath the assets of his company in his will. In doing so, the court looked at the deceased’s intention, which was to distribute all of the assets of the company and wind it up. The court held that the trustees had two independent sources of authority to implement his intention to wind-up the company: general powers available under corporate law, and powers set out in the will which permitted them to convert estate assets into money.  The principle of the corporation as a separate entity did not complete the analysis of whether a testator who is the sole shareholder of a corporation can gift corporate assets.

It is still risky for will-makers in British Columbia to assume that you can deal with assets held by your corporation in your will. Trezzi was an Ontario case and so it is not binding in British Columbia. The case has not yet been considered in British Columbia, and it may not be followed. Instead, the courts in British Columbia may prefer to protect the sanctity of the corporation as a separate entity or may require very clear instructions that the executors are authorized to deal with the property held by the corporation.

Even in Trezzi, the court noted that it would have been preferable had the will been more explicit in referring to the trustees’ authority to deal with his corporation’s property.

Executor personally liable for estate taxes; beneficiaries not obligated to return estate monies to indemnify

Beneficiaries generally want to receive their shares of the estate as soon as possible. Executors may feel pressured by beneficiaries to distribute estate assets prematurely, before all of the estate liabilities have been confirmed and paid. In particular, it often takes time to determine the final tax liabilities of the deceased person and their estate, and obtain clearance certificates from the Canada Revenue Agency confirming that no further taxes are owing. As executor, you may be considering payout of estate assets prior to obtaining a clearance certificate, perhaps with a holdback which you intend to apply to any outstanding tax (or other) liabilities as they arise.

There is a risk to this. Section 159 of the Income Tax Act requires that a personal representative obtain a clearance certificate before distribution of an estate and imposes personal liability for the tax liability of the estate on a personal representative who does not do so.

In Muth Estate, 2019 ABQB 922, the executor held back funds for income tax obligations of the estate and then distributed the balance to herself and the other beneficiaries. The holdback turned out to be less than what the estate owed to CRA (calculated by the executor at approximately $24,000), and the executor sought reimbursement from the beneficiaries of their proportionate shares.  Her estimate for the amount of the holdback was based on advice from an accountant that turned out to be incorrect.

If a trustee is seeking indemnity from the beneficiaries, such an indemnity may be available when the beneficiaries instigated or requested that the payment to the beneficiaries be made. However, it follows that if the beneficiaries did not instigate or request the payout with an insufficient holdback (i.e. the trustee/executor made their own decision to payout the monies), then the beneficiaries cannot be obligated to indemnify the trustee.

In Muth Estate, the Court concluded that the other beneficiaries were under no obligation to indemnify the executor for income tax or penalties imposed as a result of her failure to obtain a clearance certificate before distributing the estate.  The executor was personally liable for the tax liability.

This should serve as warning to executors to not be pressured by beneficiaries (even if they are family!) to distribute assets before it is appropriate to do so, or without adequate holdback or security, such as indemnity agreements signed by all of the beneficiaries.

Power of attorney abuse discovered after death: what can a beneficiary do about it?

We are often contacted by beneficiaries who have become aware of actions taken by the person managing the deceased’s affairs under a power of attorney which have diminished the value of the deceased’s estate. The attorney may have transferred some of the deceased’s assets into their own name (solely or jointly with the deceased) or into the names of others.  The attorney may have spent the deceased’s monies or property for their own benefit.  This has occurred without the knowledge of the beneficiaries, and only comes to light after the deceased’s death, when the deceased’s estate is much less than expected or is missing certain assets. What options are available to a beneficiary who seeks to investigate or commence an action against the attorney of a deceased person?

There is often a further complicating factor: the attorney under suspicion may also be the person named as the executor of the estate. An executor has a duty to shepherd estate property and commence appropriate claims against any third parties in possession of estate property.  If the executor was also the attorney, this would require an executor to investigate their own conduct as attorney.  This is an obvious conflict of interest.

Even if the executor is not the attorney, the executor may still refuse to take action against the attorney. The executor may believe that the claim against the attorney has no merit, or the expense to pursue the claim is unreasonable or an unnecessary risk. What happens when a beneficiary wants a claim to be pursued against the attorney, but the executor, on behalf of the estate, refuses to pursue that claim?

In Mortimer v. Bender 2020 BCSC 483, a beneficiary sought to solve this problem by arguing that an attorney of a now-deceased person owes fiduciary duties to the beneficiaries of that deceased’s person’s estate.  As a result, it was argued that the beneficiary had standing to bring her own claim against the attorney.  The court did not agree.  An attorney is obliged to account only to the donor who gave the power of attorney while they were alive.  Once the donor is dead, the attorney is obliged to account only to the donor’s estate.  A beneficiary lacks standing to allege breach of fiduciary duty by the deceased’s attorney or seek a declaration of resulting trust in favor of the estate. The court also did not agree that there was an exception to an executor’s exclusive statutory authority to commence proceedings on behalf of an estate, when the would-be defendant is the personal representative.

As a result, a beneficiary who believes that the estate has a claim against its executor (or some other person) cannot simply bring that claim in their capacity as beneficiary.  However, there are options.  A beneficiary may seek the removal and replacement of the executor if the executor is in a position of conflict or refuses to take adequate steps to pursue proper claims to recover estate assets.  Removal and replacement of executors is considered in a separate post found here.

A beneficiary may also seek leave from the court to bring proceedings to recover property or enforce a right, duty or obligation owed to the deceased person that could be brought by the personal representative, when the personal representative fails to bring that claim, under s. 151 of the Wills, Estates and Succession Act [SBC 2009] Chapter 13.  The beneficiary must show that they have made reasonable efforts to cause the personal representative to commence the proceeding, and that they are acting in good faith, and it must appear to the court that it is necessary or expedient for the protection of the estate or the interests of the beneficiary that the proceeding to be brought.

COVID-19: Court appoints interim committee who proposes to keep mother out of care facility until health emergency subsides

While the B.C. Supreme Court is starting to hear certain limited non-urgent matters, for the most part the courts are still only hearing urgent and essential matters. We discussed what elder law and estate litigation matters might be considered “urgent” or “essential” in a previous post which can be found here.

The court recently heard such an urgent application in Cho (Re) 2020 BCSC 689, which arose as a result of COVID-19.  In Cho, the petitioner sought a declaration that his mother was incapable of managing her affairs, and an order appointing him as committee to manage his mother’s affairs and person. His sister agreed that their mother should be declared incapable, but sought an order appointing her as committee instead of her brother.  The two other siblings supported her appointment as committee.

The urgency arose because the siblings disagreed as to where their mother should reside and what arrangements should be in place for her care during the COVID-19 health emergency.  The mother had been residing in a long term care home in the Vancouver area.  In light of concerns with the mother staying in the care facility and risking exposure to COVID-19, she was removed from the care facility to reside with the respondent daughter.  The daughter’s plan was for her mother to reside with her until the end of the health emergency.  The petitioner brother disagreed with that approach, and wanted to move his mother to his residence for a two week quarantine, followed by re-evaluation, which left open the possibility that his mother could return to the care facility before the health emergency subsided.

The parties agreed that the court could make an interim order to deal with the urgent concerns, and deal with the dispute over who should be committee for the longer term at a later date.

The judge considered the merits of the competing committeeship applications, which is a fact specific inquiry where the court looks at a number of factors, including whether the appointment reflects the patient’s wishes (as expressed when they were capable), whether immediate family members are in agreement with the appointment or whether there is conflict between family members, and whether the proposed committee would be likely to consult with immediate family members for appropriate care of the patient.

After discussing each factor, the judge appointed the respondent daughter as interim committee.  One of the most significant factors in favor of the daughter’s appointment was whether the proposed committee has an appropriate plan of care and management for the patient and his or her affairs and is best able to carry it out.  In effect, the court agreed with the plan to keep the mother out of the care facility until the end of the COVID-19 health emergency, and appointed the person who advocated for this plan.

It is not unusual for siblings to have disputes over the care of their elderly and incapacitated parents, and for these disputes to end up before the courts.  It is not surprising that a COVID-19 related dispute of this type has made its way before the courts.

Skipping your Children and Leaving your Estate to your Grandchildren? The Court may vary your Will

A parent often worries about their children fighting over their estate after their death.  Parents seek ways to avoid conflicts between their children after their passing, while at the same time maintaining the testamentary autonomy to dispose of their estate as they see fit.  It may seem attractive to skip a generation, and leave your estate to your grandchildren, in the hopes of avoiding conflict between your children. There may be other reasons to benefit your grandchildren.  You may have better, less complicated relationships with them.  Grandchildren may also have greater financial need to establish themselves.

However, issues (and claims) still arise. What if one of your children has more grandchildren then the other children?  Does each grandchild get an equal amount, or does each “branch” of grandchildren divide the same amount equally?  Can you provide a greater benefit to your “favorite” grandchild?  What if one child doesn’t have any children?  What if you have already provided gifts or other benefits (for example, payment of tuition) to some of the grandchildren during your lifetime, but they others?

In B.C. there is another complication: the ability of children (and spouses) to bring wills variation claims. A spouse or child of a deceased person may bring an action to vary the deceased person’s will if it does not make adequate provision for the proper maintenance and support of the spouse or child.  A grandchild does not have standing to vary a will. They will have to be happy with what you decide to give them (subject to the will being varied to reduce their bequest as a result of a wills variation claim by someone who does have standing).

In Scurek v. Scurek 2020 BCSC 450, the Court recently considered whether a testator can discharge his moral obligation to his adult daughter by benefiting her sons at her expense. The deceased had two adult children, a son and a daughter. His daughter (the plaintiff) had two sons, the deceased’s grandchildren.  The plaintiff daughter had no significant assets, and was disabled and unemployable.

Rather than dividing his estate equally between his two children, the deceased decided to leave one half of his estate to his son, and the other half of his estate to his daughter and her two sons in equal shares.  As a result, the daughter received a 1/6 share instead of a 1/2 share.  The estate was worth approximately $1.6M. The plaintiff sought to increase her share of the estate at the expense of her brother’s share. Her position was that her sons’ shares should not be touched. Her brother argued that the will should not be varied, because it reflected a notional equal distribution to the deceased’s son and daughter, but also reflected a concern that if one half of the estate were given to the daughter, it would be wasted due to her inability to manage money, given her past history, thus leaving the grandsons with no benefit.

The judge held that the deceased could not discharge his moral obligation to his child by benefiting her children at her expense. The fact that one-third of the estate was allocated to the plaintiff’s sons “is of no material benefit to her” and her sons “are not obligated to support her, and they can be expected to prioritize their own needs”.  The deceased’s alleged concern that the plaintiff would waste her share of the estate was speculation. Even if it was established that the deceased had this concern, it was unfair and deserved little weight. The plaintiff was a hard worker, who had not been fortunate in financial matters.

As a result, the Court varied the will to provide as follows: ½ to plaintiff, 2/6 to the brother, and 1/12 to each grandchild.

Wills variation claims are fact specific. While a will-maker can certainly make provision for grandchildren, a deliberate attempt to skip over children and provide “their share” to their children (the grandchildren) may result in a variation of the will in favor of that disinherited child.

Knives Out: How Might Estate Litigation Matters Raised in the Film Have Played out in B.C.?

I recently had the opportunity to watch Knives Out, the 2019 murder-mystery film directed by Rian Johnson. This film was a delightful distraction, with a great ensemble cast and engaging plot. I highly recommend it.

It also touches on a number of estate litigation issues. Stuart Clark, a lawyer at Hull and Hull in Ontario, has authored an interesting discussion that can be found here: https://hullandhull.com/2020/01/knives-out/. I will discuss some additional issues which might have arisen had Mr. Thrombey resided in B.C.

WARNING – SPOILERS AHEAD!

Harlan Thrombey, a wealthy crime novelist, is found with his throat slit, the morning after his family attended his 85th birthday party at his mansion. As might be expected, his family is highly dysfunctional and Harlan has strained relationships with various family members, which include two adult children, a daughter-in-law (married to his deceased son) and various grandchildren. Harlan had recently threatened to cut one of his grandchildren out of his will. Everyone has a motive, and a detective (played by Daniel Craig) is hired to investigate the crime.

When the family gathers for the will reading (a typical storytelling device, but an event that I have yet to witness in real life), it is revealed that Harlan left his entire estate to his nurse, Marta.  He did not make any provision for his children, daughter-in-law, or grandchildren.

The family take various steps to secure Harlan’s fortune, including trying to convince Marta to renounce her inheritance, threatening to expose Marta’s mother as an undocumented immigrant, and threatening to implicate Marta in Harlan’s death. None of these efforts are successful. The mystery is solved, and Marta receives Harlan’s estate.

Stuart Clark’s post identifies various estate litigation issues in the film, including the issue of undue influence – the situation where someone is forced or pressured into making a will (or some other transaction) that does not reflect their wishes, but reflects the interests of the person influencing the vulnerable person.   A will procured by undue influence can be set aside as invalid.

In B.C., the Wills, Estates and Succession Act provides that where a person was in a position where the potential for dependence or domination of the will-maker was present, the party seeking to defend the will has the onus of establishing that the person in that position did not exercise undue influence. Harlan’s disinherited family members would likely argue that Marta, as Harlan’s full time nurse, was in a position of power such that the onus ought to be placed on her to prove that she did not exercise undue influence. If Marta is unable to meet this onus, then the will is invalid, and the prior will would likely be admitted to probate (assuming there are not any issues with the validity of that prior will).

If Marta is able to meet the onus and establish that the will was not procured by undue influence, that is not the end of the matter. In B.C., spouses and children can bring an action to vary a will if it does not make just and adequate provision for them. A wills variation claim would not be available to the daughter-in-law or the grandchildren. Only the two surviving adult children could make claims.

Wills variation claims are highly fact specific, and the court has discretion. In this case the relevant factors that the court would consider might include: (1) the strength of the relationships between the deceased and the various parties; (2) claims by adult independent children the most tenuous of wills variation claims; (3) Marta is not a family member; (4) the purported reasons for disinheritance of the children – whether they were valid and rational, (5) the estate is large, which favours making provision for everyone; (6) whether the deceased provided gifts or benefits to the parties during their lifetimes; and (7) the relative financial and other circumstances of the disinherited children and Marta.