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.

Appeal of B.C. Wills Variation Judgment Results in Equal Treatment of Children

Just over a year ago, I wrote about the decision of the B.C. Supreme Court in Scurek v Scurek 2020 BCSC 450.  In that case, the Court considered whether a testator could discharge his moral obligation to his adult daughter by benefiting her sons instead of her. In other words, can you “skip” a generation, and leave your estate (or some part of it) to your grandchildren instead of your children?  My previous post can be found here:  https://www.bcestatelitigation.ca/wills-variation/skipping-your-children-and-leaving-your-estate-to-your-grandchildren-the-court-may-vary-your-will/

In Scurek, the deceased had two adult children, a son and a daughter. His daughter (the plaintiff) had two sons, the deceased’s grandchildren.  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 trial judge varied the will to provide as follows: ½ to the plaintiff, 2/6 to the brother, and 1/12 to each grandchild.

Last week, the B.C. Court of Appeal allowed the brother’s appeal of this decision, in Scurek v. Scurek 2021 BCCA 178.

The Court of Appeal observed that while wills variation claims by adult independent children are challenging, they had no difficulty concluding that the will did not provide adequately for the plaintiff.  Some variation was required.  However, the Court held that the trial judge should not have varied the will such that the plaintiff would receive more than her brother.  This would impinge upon the testator’s autonomy to an unnecessary degree.

Instead, each of the grandchildren was to receive a 1/12 share (as awarded by the trial judge), and then the plaintiff and her brother were to receive equal shares of the remainder (i.e. 5/12 each).  This result is consistent with a reasonable expectation that children ought to share equally in a parent’s estate.  However, it should be kept in mind that there is no requirement that children be treated equally.  A court will not necessarily vary a will to remedy unequal treatment of children.  Again, every wills variation case must be decided on its own unique set of facts.

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

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

  1. Trevor Todd at Disinherited.com discussed a recent case in which the B.C. Supreme Court varied a will to make provision for two twins who were abandoned by their father and were explicitly disinherited in his will.  The twins were awarded 70% of the residue of the estate (which was valued at approximately $880,000):  https://disinherited.com/wills-variation/wills-variation-abandoned-twins-awarded-70-estate/
  2. Janis Ko at Onyx Law wrote about elder abuse and financial predators, with reference to a recent B.C. Supreme Court decision on these issues: https://onyxlaw.ca/family-of-bc-senior-with-dementia-sues-alleged-financial-predator/
  3. James Steele at Robertson Stromberg in Saskatchewan discussed an article and case comment on the issue of liability of an executor for failing to supervise their co-executor: https://skestatelaw.ca/2021/04/07/can-someone-be-held-liable-for-the-misdeeds-of-a-co-executor/
  4. Gillian Fournie at de Vries Litigation LLP (Ontario) discussed the issue of occupational rent – whether an estate can charge rent to the occupant of an estate asset until it is sold or otherwise distributed: https://devrieslitigation.com/occupation-rent/
  5. Ian Hull at Hull & Hull LLP (in Ontario) wrote about potential liabilities that you may assume when you agree to be an executor or trustee:  https://hullandhull.com/2021/04/an-estate-trustee-executor-role-comes-with-some-liability/

Happy Reading!

Limitation Periods: When was the Claim “Discovered”?

I am often contacted when a loved one has died, and a family member has concerns about what happened to the deceased’s assets, which ought to have formed part of their estate. There may be much less than expected, or a particular asset may be missing or may no longer be in the deceased’s name. Monies may have been misappropriated using a power of attorney, or procured by undue influence. The family member may have understood that property transferred during the deceased’s lifetime was to be held in trust for certain beneficiaries, but the recipient/transferee now takes the position that the transfer was a gift and they are entitled to keep it.

Sometimes these transactions and transfers have taken place years or even decades before the deceased’s death, but they are not discovered until after the deceased’s death. Sometimes everyone is aware of the transfer itself, but only discover later that the recipient intends to argue that the property belongs to them and is not held in trust. Clients want to know whether it is too late to go back and challenge transfers if they happened many years ago.

This issue was recently considered by the B.C. Supreme Court in Maussion v. Maussion 2021 BCSC 530. Maussion involved a dispute between children with respect to their parents’ estates.  The parents died in 2012 and 2016. The plaintiff son alleged that his sister improperly received assets from the parents during their lifetimes, which were to form part of the estate. She allegedly used a power of attorney granted to her to sell property or transfer it to herself (in 2004, 2005 and 2016). The action was not commenced until January 31, 2019.

The defendant denied the claims on the basis that all transfers were gifts to her. She also applied for dismissal of the claims on the basis that they were statute-barred, i.e. that the action was commenced after the expiration of the limitation period.

The matter was governed by s. 6 of the Limitation Act, SBC 2012, c. 13, which provides that a court proceeding in respect of a claim must not be commenced more than two years after the date on which the claim is discovered. A claim is “discovered” on the first day on which the person knew or reasonably ought to have known:

  1. that injury, loss or damage had occurred;
  2. that the injury, loss or damage was caused by or contributed to by an act or omission;
  3. that the act or omission was that of the person against whom the claim is or may be made; and
  4. that, having regard to the nature of the injury, loss or damage, a court proceeding would be an appropriate means to seek to remedy the injury, loss or damage.

There are specific provisions relating to the discovery of fraud or trust claims. These claims are “discovered” only when the beneficiary becomes fully aware of certain matters. An action to recover trust property from a trustee (for example a party who holds property in resulting trust) does not begin to run until the beneficiary becomes fully aware of the fraud, fraudulent breach of trust, conversion or other act of the trustee on which the action is based.

The defendant in Maussion argued that a letter from the plaintiff’s lawyer in 2011 expressing concern about her conduct showed that the plaintiff “discovered” a potential claim by at least 2011. However, the court concluded that the 2011 letter addressed a completely different issue. Instead, a February 2017 letter from the defendant’s lawyer, in which it was stated that the transfer of certain property was a gift, was the date at which that the plaintiff should have been aware that she had a claim. As a result, the claim was commenced within the limitation period, and the application to dismiss the claim as statute-barred was dismissed.

If you become aware of concerning conduct many years after the suspicious transfer or other event occurred, you may still have a potential claim that has not expired. It will depend upon when you discovered the claim.

Case Comment: Estate Recovers Assets Misappropriated by Power of Attorney

Clients often contact us following the death of a family member, when they are surprised to discover how little is left in the deceased’s estate. While a capable independent adult is entitled to deplete their estate during their lifetime as they see fit, there may be concerns with elderly, incapable or otherwise vulnerable persons and “missing” assets. In the most egregious cases, there may be misappropriation of funds by a person in a position of trust, such as a person named in a power of attorney or committeeship order. After death, an estate can recover assets that are misappropriated from the deceased during their lifetime.

This was the case in the recent decision of the B.C. Supreme Court in Sarzynick v. Skwarchuk 2021 BCSC 443. In Sarzynick, the court considered a dispute between two siblings over the estate of their mother. In 2007, the mother and father made wills and also executed powers of attorney authorizing their son to act on their behalf. The father died first. When the mother died four years later, most of her assets had been depleted. The daughter argued that her brother had misappropriated large sums of money for his own use which belonged to his mother (and should form part of her estate).  The son denied this, but the court ultimately found that he was not a credible witness.

The court held that the son owed fiduciary duties as (1) executor of his father’s estate, and (2) his mother’s attorney. As attorney, he had an obligation to act in good faith in his mother’s best interests, to avoid personal gain from her property, and to account for all property.  The court held that he breached his fiduciary duties. He failed to keep (or disclose) financial records. This breach went to “the core” of the fiduciary relationship as attorney. He also breached his fiduciary duty of loyalty when he misappropriated funds for his own benefit.

The court went on to consider the appropriate remedies. This included a constructive trust over certain assets which properly belonged to the estate, and disgorgement of profits. Fortunately in this case many of the assets (monies) were held in trust, and so there was not the added complication of having to collect upon a judgment against an impecunious defendant who may have spent or hidden all of the assets that he took. The estate was entitled to recover over $440,000 from the son. The estate was also entitled to the appreciation in value of certain real property. Finally, the estate was entitled to special costs due to the son’s behavior during the litigation, which included a flagrant disregard for his disclosure obligations.

Unjust Enrichment: Plaintiff must Prove Efforts Actually Resulted in Benefit to Estate Property

In order to prove a claim in unjust enrichment against an estate, the onus is on the plaintiff to prove on a balance of probabilities a benefit to the estate, a corresponding deprivation to her, and the absence of a juristic reason for the benefit and deprivation. With respect to the first requirement, it cannot be assumed that just because a person incurred time and/or expense that related in some way to estate property, that this actually benefitted the property. It may be that despite the plaintiff’s efforts or expense, they did not actually enhance or maintain the value of the property. If that is the case, there is no claim in unjust enrichment.

This was the case in the recent B.C. Supreme Court decision of Benson v. Power 2021 BCSC 409. In Benson, a mother and father operated a cattle ranch over ten parcels of land near Golden, B.C. until their deaths in 2013 and 2016. The father held nine of the parcels, and the mother held one of the parcels. Both parents left their estate to their four children in equal shares. One of the children died in 2018, but left four children of his own (who as a result would each receive 1/16 of each estate).

One of the daughters, Penny Benson, obtained probate of both estates. Following her father’s death and then her mother’s death, she continued to operate the ranch has her parents had done. In doing so, the court observed that she (1) comingled her personal funds with estate funds, (2) did not act promptly to administer her parents’ estate, and (3) was in a conflict of interest as a result of her stated wish to acquire estate property. She was removed as sole executor by court order, and replaced with a person who was not a beneficiary under the wills.

Ms. Benson discussed with the new executor her desire to purchase certain estate properties. They were unable to reach an agreement, and so the new executor entered into agreements to sell the properties to his half-sister, who was also one of the grandchild beneficiaries who would receive 1/16 of the estate. This included the main ranch property with the family home where the deceased parents had lived. Ms. Benson had resided on this parcel since 1996, and moved from a manufactured home on the parcel to the family home after her parents’ deaths.

To prevent the sale of the property to the grandchild, Ms. Benson started an action alleging a 10% interest the parcel, and filed a certificate of pending litigation against title. She argued unjust enrichment: that her many hours of labour and the contribution of her personal funds have benefitted her father’s estate, particularly the parcel at issue, to her detriment. She argued that from the time her father’s health began to fail, she and her family performed all or almost all of the maintenance work on the estate properties (which she estimates amounted to hundreds of hours). She also claimed to have paid various expenses from her own funds.

As noted above, the onus is on the plaintiff to establish a benefit to the estate, a corresponding deprivation to her, and the absence of a juristic reason for the benefit and deprivation. Ms. Benson argued that her labour and money to continue operating her parents’ ranch benefited her father’s estate (including the parcel at issue), to her detriment. However, the evidence actually established that she operated the ranch at a loss. It was also impossible to say what time and money was necessary or related to the ranch operations, how much was related to Ms. Benson’s own family (including their own cattle), and how much this enhanced the value of the estate parcel (if at all). The court also alluded to (but ultimately did not have to specifically address) the fact that Ms. Benson and her family lived on the parcel rent-free.

As a result, Ms. Benson was unable to establish a benefit to the estate, and therefore was unable to prove a claim in unjust enrichment. Her claim was dismissed, and the certificate of pending litigation was cancelled.

This case is a reminder that just because you are spending time and money in relation to assets or property belonging to an estate, the court will not assume that this is actually a benefit to the estate which entitles you to claim in unjust enrichment. You must actually prove that your work or expense contributed value to the estate property.  This may also be further complicated if you are also receiving a personal benefit form your efforts or expense.

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

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

  1. WEL Partners (Toronto) provided a checklist of red flags and indicators of undue influence.  While the checklist is intended primarily for lawyers watching out for clients who may be unduly influenced, it is also of assistance generally when there may be a concern of undue influence:  https://welpartners.com/blog/2021/03/solicitors-negligence-in-estates-and-trusts-context-no-14-a-lawyers-checklist-red-flags-and-indicators-of-undue-influence/
  2. Arielle Di Iulio at Hull & Hull LLP (in Ontario) commented on a recent Ontario court decision in which an award of costs was made against estate trustees as a result of unreasonable conduct: https://hullandhull.com/2021/03/dewaele-v-roobroeck-the-costs-of-bad-conduct/
  3. Trevor Todd at Disinherited.com listed the ten considerations when assessing the strength of an adult independent child’s wills variation claim:  https://disinherited.com/wills-variation/wills-variaiton-the-ten-considerations/
  4. Janis Ko at Onyx Law wrote about a recent case which held that it was too late for a mother to change her mind and undo the gifting of her house to her daughter: https://onyxlaw.ca/too-late-for-mother-to-change-her-mind-after-gifting-house-to-daughter/
  5. Tyler Lin at de Vries Litigation LLP (Ontario) commented on two court decisions (one from Ontario, and one from British Columbia), which considered whether a suicide note constituted a valid will:  https://devrieslitigation.com/tale-two-suicide-notes/

Happy Reading!

B.C. Court Intervenes to Uphold Bequest To Charity

It is common for will-makers to make bequests to charitable organizations in their wills. But what if the charity that is named as a beneficiary no longer exists at the date of the will-maker’s death? Over time, charities may be dissolved or cease to exist, change names or structures, or otherwise be replaced by successor organizations.  If a will-maker intends to make a charitable bequest, but the charity named in the will no longer exists at their death (or no longer exists in that name or form), what happens?

This issue was recently considered by the B.C. Supreme Court.  In Galloway Estate v. British Columbia Society for the Prevention of Cruelty to Animals 2021 BCSC 413, the deceased left shares of her estate to certain charitable organizations “that are in existence as at the date of [her] death,” including “Pacific Coast Public Television Association” (“PCPTA”).

PCPTA was registered as a Canadian charity so that persons could donate to the commercial-free educational channel, KCTS 9, or PBS Channel 9. The problem was that PCPTA (the beneficiary named in the will) was dissolved in 2018, and therefore that particular entity no longer existed at the deceased’s death.  KCTS also had changed its name to Cascade Public Media (“CPM”), and CPM continued to operate KCTS 9.

The executor needed directions from the court:

  1. Does the gift to benefit PBS/KCTS 9 fail because PCPTA no longer exists; or
  2. Can the PBS gift go to CPM instead?

The court applied the “cy-pres doctrine.”  The cy-pres doctrine determines what happens when property that has been dedicated to charitable purposes cannot be applied in the manner intended by the donor. Where the purposes or objects of a charitable trust have become impossible or impracticable to accomplish, the court may intervene and alter the purposes of the trust. The courts may implement modernized or modified objects that are “as near as possible” to the original purposes. The order must depart from the intentions of the settlor only to the extent required to remove the problem.

If it is not impossible or impractical (which the courts interpret broadly) to accomplish the purpose of the charitable trust, then the court cannot intervene.

In Galloway, the court concluded that the gift would go to CPM. The deceased intended to benefit the PBS channel, and CPM was now the entity that performed that role. CPM assumed responsibility for PCPTA’s obligations.

The court distinguished another case, Re Eberwein Estate 2012 BCSC 250. In that case, the deceased made a gift to a charity called “Aid to Animals in Distress,” which she donated to during her lifetime. The charity ceased to exist prior to the deceased making her will and her death. That gift was not subject to the cy-pres document (and the gift failed) because the court was unable to determine an alternative charity to which the gift should go.

If it appears that a specific charitable bequest may fail because the named charity no longer exists, in certain circumstances the court may intervene and give effect to the will-maker’s charitable intention by modifying the will to, for example, make the bequest to a successor charity, or a nearly identical charity.

B.C. Man Fails to Update Life Insurance Beneficiary Designation From Ex-Spouse to Current Spouse

When making changes to an estate plan, people sometimes overlook their direct beneficiary designations, for example on life insurance policies, RRSPs or TFSAs. You don’t want to make changes to a will, transfer assets into joint ownership with right of survivorship, and settle assets into a trust, but neglect to update a beneficiary designation. The result may be an unwelcomed surprise to your loved ones, when a beneficiary designation that you have failed to update provides a payout that was clearly not what you intended, and which is inconsistent with the rest of your estate plan.

This was the case in a decision of the B.C. Supreme Court released this week. In Knowles v. LeBlanc 2021 BCSC 482, the Court considered competing claims over the proceeds of a life insurance policy. The dispute was between the deceased’s ex-wife, who was named as the sole beneficiary under the policy, and the deceased’s long-time spouse at his date of death (described as the “disappointed beneficiary”).

The deceased obtained the life insurance policy when he was still married to his first wife, and the records indicated that no change of beneficiary had ever been filed. He separated from his first wife in the late 1980s, and their divorce was finalized in May 1991.  He moved in with his current spouse around 1993, and they lived in an exclusive common law relationship until his death in 2019.

The deceased continued the monthly payments on the life insurance policy with automated withdrawals from a joint account which he held with his new spouse. The benefit under the policy was $100,000.  Upon the deceased’s death, his spouse received the proceeds of every other life insurance policy that he held, as well as all of his other assets (by right of survivorship).

The Court first considered the intentions of the deceased. The evidence was clear that the deceased maintained feelings of hostility toward his ex-wife. He also became estranged from the two children that he shared with her. It was also clear that he intended to change the beneficiary designation to his spouse and thought he had done so.

While his ex-wife argued that there was no evidence of an intention to change the designation, the Court did not accept this in light of the ex-wife’s complete absence from his life after the divorce, his hostility toward her, and the circumstances which showed a wish to leave all of his property to his spouse.

The Court held that a consent order which was entered in the divorce proceedings involving the deceased and his ex-wife did not operate to prevent his ex-wife from claiming the proceeds of the life insurance policy. It did not include language that the parties clearly relinquished all interest in each other’s estate.

The spouse argued that if the ex-wife was to receive the insurance proceedings then this would result in unjust enrichment. To establish unjust enrichment, the plaintiff must show (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason (such as a contract) for the enrichment.

In Knowles, the spouse suffered a deprivation, as the premiums of the policy were paid from an account that she held jointly with the deceased for many years, and she believed that the deceased had changed the beneficiary designation to her. The ex-spouse would be enriched if she received the proceedings. There was no juristic reason for the enrichment, and there was no basis in the parties’ expectations or public policy to rebut the spouse’s recovery.

The court allowed the spouse’s claim in unjust enrichment, and imposed a remedial constructive trust over the insurance proceedings. The insurance company was directed to pay the insurance proceeds to the spouse.

The court was able to “fix” the deceased’s oversight in these particular circumstances.  The spouse had good facts on her side, including good evidence of the deceased’s intention.  This may not always be the case for a “disappointed beneficiary.”  This also resulted in time, stress and uncertainty for his spouse, which would have been avoided if he had properly updated the beneficiary designation.

Covid-19: B.C. to End Suspension of Time Limits for Commencing Legal Proceedings on March 25, 2021

On March 26, 2020, the Minister of Public Safety and Solicitor General took the exceptional step of suspending limitation periods to commence court proceedings in British Columbia. A previous post about this order, and the effect of the order on estate matters, can be found here: https://www.bcestatelitigation.ca/wills-variation/covid-19-b-c-suspends-time-limits-for-commencing-legal-proceedings/

The provincial government has now announced that they are lifting the suspension, and that limitation periods will resume running on March 25, 2021 (one year after the suspension was put in place).

My colleagues Brian Cheng and Taahaa Patel, articled student discuss the end of the suspension of time limits for commencing legal proceedings in B.C. here: https://owenbird.com/the-limitation-period-suspension-ends-on-march-25-2021/

The key point is this: while the suspension was in effect, any running of a limitation period was paused. When the suspension is lifted, the limitation period will resume running.

The Law Society of British Columbia has published helpful guidelines (with examples) which can be found here: https://www.lawsociety.bc.ca/about-us/covid-19-response/guidelines-for-calculating-bc-limitation-periods/

In my previous post, I noted that executors should consider the effect of the suspension (and now the end of the suspension) on estate administration matters, most notably distribution of estate assets to beneficiaries. Beneficiaries (or other potential claimants) should similarly be aware of the lifting of the suspension, so that they do not miss a deadline to bring a claim.

The Wills, Estates and Succession Act [SBC 2009] Chapter 13 provides that the personal representative of a deceased person must not distribute the estate of the deceased person within 210 days following the date of the grant of probate or administration, absent a court order or the consent of the beneficiaries.  This is so that potential claimants can bring claims before estate assets have been distributed, some of which must brought within 180 days of the issuance of the grant (most notably wills variation claims).  I warned that executors should obtain advice before distributing assets even after 210 days, if the 180 day deadlines have been suspended. Once the suspension is lifted, the 180 day and 210 day periods will resume running (or start running, if the period would have started during the suspension).