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.

B.C. Courts may Remove an Executor to Protect the Welfare of the Beneficiaries

The court may pass over a person entitled to become the personal representative if the court considers that the person should not be granted probate or administration. This was discussed in a previous post which can be found here.

However, the more common complaint that we hear from our clients is one of frustration with the personal representative after the personal representative has obtained a grant and has started to administer the estate. They want the personal representative to be removed and replaced.

We’ve heard a range of complaints about an executor’s conduct. The concerned party may allege fiscally irresponsible or even criminal conduct by the executor that puts the estate property at risk. Often, however, the concerns may not be as serious on their face. A beneficiary is concerned that the executor is favoring other beneficiaries and not treating all beneficiaries with an even hand. A beneficiary doesn’t agree with certain decisions made or steps taken by the executor, such as a listing price for real estate owned by the estate, or the decision not to pursue legal claim to recover assets on behalf of the estate, when the outcome of the litigation is uncertain. A beneficiary isn’t happy with how long it is taking to wind up the estate. A beneficiary simply doesn’t get along with the executor, and doesn’t want to have to deal with this person until the estate is wound up. At what point will the court agree to step in and remove the executor?

The court has the jurisdiction to remove and replace a personal representative after the grant of probate or administration has been obtained and the personal representative has started to administer the estate. The grounds for removing and replacing a personal representative are the same as the grounds for passing over a personal representative. Any person having an interest in an estate may make the application to remove the personal representative.

Section 158(3) of the Wills, Estates and Succession Act sets out some of the grounds for removing an executor or administrator, including the personal representative’s refusal to act, incapability, conviction of an offence involving dishonesty, or bankruptcy. It also provides that a personal representative may be removed if that person is “unable to make the decisions necessary to discharge the office of personal representative, not responsive, or otherwise willing or unable or unreasonably refuses to carry out the duties of a personal representative to an extent that the conduct of the personal representative hampers the efficient administration of the estate.”

To succeed in removing and replacing a personal representative on the basis of misconduct, the applicant must convince the court that the executor acted in a manner that endangered the estate, or acted dishonestly, without reasonable fidelity or without the reasonable capacity to execute the duties of the office. The fundamental consideration is the welfare of the beneficiaries.

The court will not disturb the deceased’s choice of executor lightly. The existence of friction between the personal representative and one or more beneficiaries is usually not enough, on its own, to justify removal of the personal representatives. If a beneficiary doesn’t get along with the personal representative, or doesn’t agree with a step taken by the personal representative, or doesn’t believe the personal representative is acting quickly enough, this will likely not be enough to justify the removal of the personal representative. There must be some risk to the estate which will arise if the personal representative is not removed.

There may be other consequences for lesser conduct that does not reach a level that justifies removal of the executor, such as (1) a reduction in the executor’s fee that is ultimately approved by the court, or (2) refusal by the court to approve payment from the estate for unnecessary expenses claimed by the executor.

We have also been consulted where there is disagreement or hostility as between the co-executors themselves, and as a result estate administration grinds to a halt or is otherwise hampered. In such a case, the Court may remove one or more of them to ensure proper and timely administration of the estate.

Committees in BC – Orders Requiring Unwilling Adults Examined to Determine Capacity

In British Columbia, the Patients Property Act allows a person to apply to Court for a declaratory Order that another adult person is incapable of managing his or her affairs. Such incapacity may be due to mental infirmity arising from disease, age or otherwise, or disorder or disability of mind arising from the use of drugs. To succeed, the applicant must submit to the Court affidavits from two medical practitioners providing opinions that the person who is the subject of the application is incapable of managing his or her affairs.

If the Court is satisfied by the two affidavits and any other evidence, the applicant or someone else will be appointed “committee” to make decisions on behalf of the person, now referred to as the “patient”, concerning his or her financial and estate affairs or person or both. Also, a person   who has been subject to examination at a Provincial mental health facility or psychiatric unit may become a “patient” if the Director signs a Certificate of Incapability. For example, in Johnston Estate v. Johnston, 2019 BCSC 2149, the patient was willingly examined at a psychiatric unit and the Public Guardian and Trustee was appointed committee of his financial and legal affairs. When a committee is appointed, powers of attorney and representation agreements previously signed by the patient are suspended.

What If the Person Does Not Co-operate?

For many years it was accepted that the Patients Property Act did not give the Court jurisdiction to order a medical examination before two medical affidavits had been produced. In other words, if the proposed patient would not co-operate and agree to be examined, the applicant was out of luck. Then in 2012 the door was opened to ordering an adult person to attend for medical examinations for the purposes of the Patients Property Act in appropriate circumstances.

In Temoin v Martin, 2011 BCSC 1727, the Court addressed a situation where the elderly businessman who was the subject of the application refused to be examined by two medical practitioners and the applicant, his daughter, was unable to obtain the necessary affidavits. The daughter argued that there was an inadvertent gap in the legislative scheme, namely that there was no statutory means by which a court could compel an individual to undergo the necessary medical assessments to determine capacity. She relied on Supreme Court of Canada judgements saying the Court had inherent discretionary jurisdiction, which was not derived from a statute, to make orders to protect the interests of children and vulnerable adults.

The judge agreed that if there was prima facie proof of incompetence and a compelling need for protection the inherent jurisdiction would extend to ordering a person to attend for medical examination, but Temoin was not such a case. The Court of Appeal agreed: 2012 BCCA 250, pointing out that the starting point for such an application was the presumption of capacity of the person to be protected, the importance of the Charter values of liberty, autonomy, and equality, while emphasizing that the inherent jurisdiction must be used cautiously and only for the benefit of the person to be protected, and not for anyone else. The daughter’s motive of trying to gather evidence with which to attack her father’s recent estate planning was a relevant consideration when assessing her evidence. In cases of this kind, the applicant must present evidence establishing a serious question to be tried, both as to the capacity of the individual and his or her need for protection.

After Temoin, applications were made to compel unwilling adults to undergo mental capacity testing but none were successful until 2017 when the case of Singh (Re) became the first successful Temoin application: 2017 BCSC 984. In the Singh case, unlike in Temoin, the judge was satisfied that a medical opinion from the family doctor and evidence of questionable financial dealings raised serious questions as to both mental capacity and the need for protection, so the order was made.

So far, there have been no other reports of successful Temoin applications. Thus, while the door has opened to ordering an adult person to attend for medical examinations for the purposes of the Patients Property Act, it is not wide open. Nevertheless, Singh demonstrates that such orders are available if the applicant is able to present the right kind of evidence, even over the objections of the person to be protected and anyone else who opposes. Hopefully, this will provide helpful guidance for families struggling to deal with uncooperative or alienated loved ones who refuse the medical examinations needed so orders to protect them can be obtained.

Estate Plans and Fraudulent Conveyances

What is a Fraudulent Conveyance?

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

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

Does the FCA Apply in the Context of Estate Matters?

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

Creditors and Others

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

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

FCA Claim Made to Replenish the Estate

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

Intention and the Badges of Fraud

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

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

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

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

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