The Final Hurdle: Passing of Accounts and Determining the Executor’s Fee

Once contentious estate claims have been determined, such as challenges to the validity of a will or wills variation claims, there is one final hurdle for the executor: the passing of accounts and determination of the executor’s fee.

The B.C. Trustee Act provides that a personal representative is entitled to remuneration to a maximum of five percent of the gross aggregate value, including capital and income, of all of the estate at the date of the passing.  An executor is also entitled to a fee for annual care and management of the estate which must not exceed 0.4% of the average market value of the estate assets.

In determining the fee payable, the court will consider the magnitude of the trust or estate, the care and responsibility involved, the time occupied in administering the trust or estate, the skill and ability displayed, and finally, the success achieved in the result. The fee is to be determined based upon the reasonable value of the services rendered, subject to the five percent cap.

If the beneficiaries do not consent to the form of accounts and the fee sought by the executor, then the executor must seek the approval of the court.

If there have been contentious court proceedings relating to an estate, there may be lingering resentment or continued conflict when the matter proceeds to the final passing of accounts. This gives the parties one last thing to fight about.

This was the case in the recent decision of In the Matter of the Estate of Nehar Singh Litt, deceased 2020 BCSC 1921. In Litt, the executor was one of six beneficiaries, all of whom are siblings. The deceased had left each of his four daughters $150,000. The residue of the estate (the total estate was valued at $9 million) was left to his two sons. The daughters brought a wills variation claim, and the court divided the estate 60% in favor of the daughters, and 40% in favor of the sons. I previously wrote on this decision in a post found here. The judgment in the wills variation matter can be found here.

The executor sought to pass his accounts, and he sought total remuneration of $654,449.34 for both parents’ estates.  The court observed that there was “considerable animus” between the executor and his siblings, and so it was not surprising that the executor was not able to obtain the consent of the beneficiaries to the fee that he sought and a hearing was required.  The court heard evidence and reviewed each factor over a three day hearing. Although the executor displayed skill and ability in handling the estate, and achieved success overall in maximizing the estate’s assets and income over a period of three years, the court held that the remuneration sought was excessive, and reduced the executor’s fee to $400,000.

Case Comment: The Importance of Putting Agreements with Family Members in Writing

Contracts between family members are enforceable if the parties intended to create legal relations, just like any other contract. The problem is that communications in the family context are often no more than statements of intent or wishes, which do not rise to the level of a binding agreement. Arrangements between family members are often more casual, and may not be reduced to writing. The “agreement” may also be more akin to a gratuitous promise, where only one party is truly receiving a benefit form the “deal”. All of this creates problems when it comes time to try to enforce an alleged agreement with a family member.

The B.C. Supreme Court case of Siemens v. Munroe, 2020 BCSC 1862 is a recent example of this. In Siemens, a 31 year old son alleged that his mother breached an agreement that he would receive an interest in property registered in his mother’s name. The mother had approached her son and proposed that she move into a suite in her residence, and allow her son and his family to move into the main floor of the house. The mother would keep the equity she had built up in the property, and the mother and son would share the costs of the mortgage and utilities. Subject to the mother’s equity, the son would become a 50% owner in the residence.

The agreement was never reduced to writing.

The parties proceeded with the agreement. The son and his family moved in, and the son paid his share of the mortgage payments and utilities. However, there were difficulties adding the son’s name to title. The son became frustrated, and the relationship between mother and son deteriorated. The son sent a series of “unfortunate and hurtful” text messages to his mother.

First, the Court considered whether there was a binding agreement between the parties and concluded that there was no such agreement.   A promise that was made because of the familial relation of the parties, or out of “natural love and affection” cannot form the basis of a contract. There must be actual consideration exchanged between the parties. While both the son and the mother suggested they were entering into the arrangement to assist the other, the Court observed that the son really benefited more from the arrangement. His family got a larger home, for less than the cost of their smaller condominium, and they were able to rent and later sell their condominium.  There was also not sufficient certainty on all of the terms of the agreement to create a binding contract.

However, the son was entitled to a 50% interest in the property (after deducting the mother’s prior equity), on the basis of unjust enrichment. The mother was enriched through the son’s contribution to the mortgage payments.

The mother consistently (including at trial) acknowledged that subject to her equity she still considered her son to have a 50% interest in the property. Her statement that she was morally bound by the arrangements did not create a contract between the parties. However, it was an important factor when considering an equitable claim in unjust enrichment, where the court will look at the parties’ reasonable expectations.

A theme throughout the judgment was the emotional toll that this has taken on the relationship between the mother and son. The judge notes at the beginning of her reasons that the case cried out for a creative solution that the parties could unfortunately not reach. She deliberately refrained from repeating the text messages sent by the son to her mother in her reasons, “as doing so would serve no useful purpose.”

It can be awkward to insist that that arrangements with your own family members be reduced to writing, and we have an tendency to avoid uncomfortable discussions. This case is a good reminder that the failure to have those conversations up front may result in greater discomfort (and a lawsuit) down the road.

Case Update: Removal of Reproductive Material from a Deceased Person

I previously discussed a case in which the petitioner wife applied for an order that her deceased husband’s sperm be removed from his body to be used for reproductive purposes by his wife. The application was dismissed.  The wife was not entitled to receive her deceased husband’s sperm for reproductive purposes because he had not provided his written consent during his lifetime. The post can be found here.

The petitioner appealed the decision and the B.C. Court of Appeal recently released their reasons for judgment dismissing the appeal at L.T. v. D.T. Estate 2020 BCCA 328. The Court of Appeal accepted that the deceased husband would have consented to the use of his reproductive material after his death if he had considered the issue during his lifetime. However, he did not provide this consent during his lifetime, and the prohibition on the removal of a person’s reproductive material without consent is criminal in nature. The legislation is clear: without the deceased person’s consent, the reproductive material cannot be used.

The Court dismissed the appeal with regret, acknowledging the painful and tragic circumstances confronting the wife. The Court granted a stay of the order for 60 days to permit the parties to consider their position on an appeal to the Supreme Court of Canada.

Bernard and Honey Sherman Estates: Supreme Court of Canada Hears Arguments on Whether to Allow Public Access to Court Files for High Profile Estates

Court records, including documents filed in probate and estate proceedings, are open to the public. Access to the court, including access by the media, is a fundamental principle which is guaranteed by the Charter.  However, court filings in estate matters inevitably touch upon private and sensitive matters.  This raises the competing interests of balancing privacy and safety interests with the principle that the courts are open to the public.  In British Columbia, the open courts principle is paramount and will usually outweigh the right to privacy in estate matters.

In B.C., an application for a grant of probate must include the will, which means that once an application for probate has been filed, anyone can access and read the filed will. An application for a grant of probate or administration (if there is no will) must also include a list of all of the assets and liabilities of the estate. As a result, anyone can access the court file to determine the identity of estate beneficiaries and the assets of the estate, and determine, by inference, what each beneficiary stands to receive.

The same openness principle exists in contentious estate litigation proceedings. Estate litigation, which is often between family members, relating to determination of the validity of the will, issues of testamentary capacity or undue influence, and variation of wills can be highly contentious and highly emotional. This frequently results in the airing of personal and private matters in the courts, which means they become public.

Sealing orders limiting access to court records are available but rarely granted, as they are an exception to the open courts principle. A party seeking a sealing order has a heavy onus to show (1) the order is necessary to prevent a serious risk to an important interest which cannot be protected by an alternative method, and (2) the salutary effects of the confidentiality order outweigh its deleterious effects.

Last week, the Supreme Court of Canada heard submissions on whether the media ought to have access to the court files relating to the estates of Bernard and Honey Sherman, who held substantial wealth at the time of their high profile murders.  Their murders remain unsolved.  The hearings were widely reported in the media (https://www.cbc.ca/news/canada/toronto/barry-honey-sherman-court-estate-1.5752296).

The Sherman case was highly publicized, and the victims held considerable wealth at the time of their deaths (they were billionaires). Does this mean that they entitled to a greater degree of privacy than the average deceased person and their estate? The estate argued that in these circumstances the risk went beyond the typical privacy concerns, focusing on (1) the risk of publicity in this particular case, and (2) the fact that the murders remained unsolved.

In the Sherman proceedings, an Ontario Superior Court judge made orders without notice sealing certain court files relating to the Sherman Estates. The next month, the Toronto Star Newspaper and one of its reporters brought an application to terminate or vary the sealing orders. The judge dismissed the motion and upheld the sealing orders.

The Toronto Star appealed the order to the Ontario Court of Appeal. The trustees of the estate argued that (1) there is a need to protect the privacy and dignity of the victims of violent crime and their loved ones, and (2) there was a reasonable apprehension of risk to those who have an interest in receiving or administering the assets of the deceased.  The Court of Appeal allowed the appeal and set aside the sealing orders on two main grounds.

First, privacy concerns cannot, without more, justify an order sealing material that would normally be available to the public. This makes sense. Most will-makers, executors and beneficiaries would prefer that estate matters remain private, but that is not consistent with Canada’s open court principles.

Second, the Court of Appeal did not accept that because the identity and the motives of the murderers was unknown, it follows that the trustees and beneficiaries were also at risk. This was found to be speculation , and did not provide a basis for a sealing order.

The Supreme Court of Canada has now heard the arguments on appeal, and they have reserved judgment and will release their decision at a later date. Stay tuned.

B.C. Court Upholds Contract Requiring One Party to Leave Estate to Other Parties

What if you enter into an agreement with someone, for example to provide them with services, based on a promise from that person that they will leave something to you in their will, but then you find out that the person has made a new will which makes no provision for you?  Is the agreement enforceable, and do you have to wait until after the person’s death to take steps to enforce your rights?

This issue arose in the recent case of  Munro v. James 2020 BCSC 1348. In Munro, the parties were acquaintances in the equestrian community. Ms. James (one of the defendants) owned a large farm property which included ponies. In 2007, the parties entered into an agreement whereby the plaintiffs would move onto Ms. James’ farm, build a home there, and look after Ms. James’ ponies for the remainder of her life.  In exchange, the plaintiffs were to inherit Ms. James’ estate when she died.  The agreement was put in writing.

In 2017, Ms. James made a new will that left her entire estate to another acquaintance, instead of the plaintiffs.  In 2018, Ms. James sought to terminate the agreement on the bases that the plaintiffs breached their obligations.  The plaintiffs sued.

The judge did not accept that the plaintiffs had breached the agreement in any of the numerous ways alleged by Ms. James.   The agreement remained in force and Ms. James was not entitled to terminate it. The plaintiffs were able to sue for “anticipatory breach”, where a party repudiates their contractual obligation before it falls due.  In other words, the plaintiffs did not have to wait until Ms. James’ death before they brought an action.  By changing her will to exclude the plaintiffs, she rejected the obligations of the contract and the plaintiffs were entitled to sue immediately.

The next issue was the remedy. The plaintiffs (as the non-defaulting party) had the right to elect as to whether to treat the contract as continuing (and they may seek specific performance – requiring Ms. James to fulfill her obligations under the agreement) or as ended (and sue for damages).

In this case, the plaintiffs did not accept the repudiation and wanted the contract to continue.  The Court had to figure out the appropriate remedy for the unusual circumstance where Ms. James failed to fulfill a term that upon her death, the plaintiffs would inherit her estate but Ms. James was still alive.

The Court ordered that the entire residue of Ms. James’ estate on her death, after payment of taxes and reasonable funeral and testamentary expenses, is payable to the plaintiffs. Further, Ms. James was not to dispose of or encumber the farm property without the consent of the plaintiffs or a court order. The plaintiffs were no longer obligated to perform services on the farm property pursuant to the agreement.

The Munro case is a good reminder that you should think carefully before entering into an agreement with a term requiring you to make a will to benefit another person.  As long as the other elements of a contract are present (i.e. offer, acceptance, consideration, etc…), this type of agreement is enforceable in B.C., and you may be put in the unpleasant situation of losing any testamentary autonomy to decide what will happen to your estate.  Further, the party expecting to benefit from such an agreement does not have to wait until your death before commencing an action, if the beneficiary becomes aware that you no longer intend to abide by the terms of the agreement.

Separation revokes a testamentary gift to a spouse, unless there is good evidence of a contrary intention

Subject to a contrary intention appearing in your will, a gift to your spouse made in your will is automatically revoked upon a separation (Section 56(2) of the Wills, Estates and Succession Act S.B.C. 2009, c. 13 (“WESA“)).

If you still wish to benefit your ex-spouse in your will (it does happen!), then you should update your will post-separation to make clear that you intend to make a gift to them despite the separation.

But what if you are named as a beneficiary in your ex-spouse’s will that was made prior to your separation? What if your ex-spouse wasn’t aware that a separation revokes a gift to a spouse, your spouse mistakenly believed that the gift to you in their will was still valid, and you have evidence that your spouse wanted to continue to benefit you upon their death despite your separation?

A will, or a part of a will can be revived under s. 57 of WESA. This may be done by an order under s. 58 of WESA, which allows the court to order that a record or document be fully effective as though it had made as the will or part of the will of a deceased person or order the revival of a will of the deceased person. I have previously written about s. 58 here. In effect, this section allows a document that does not meet the technical requirements of a will to be fully effective as if it was the deceased’s will. It also may allow a part of a will that has been revoked to be revived and be included as part of the will.

This is what happened in the recent case of Jacobson Estate (Re) 2020 BCSC 1280. The deceased made a will in 2014 which provided that her common law spouse was to receive the residue of her estate. In 2017 she separated from her spouse. She never made a new will.  The issue was whether her ex-spouse was entitled to the residue of the deceased’s estate.

The evidence before the B.C. Supreme Court was that the deceased spoke with her lawyer, and was adamant that her spouse was to still receive her estate as per her will, despite the fact that they separated. The deceased was not aware of s. 56(2) of WESA and the fact that her separation revoked the gift in her will to her spouse. The court held that had she been aware of this, she would have prepared a new will or codicil to ensure the gifts to her spouse were effective.

The deceased repeatedly and unequivocally stated to her lawyer and a friend that she wanted her estate to go to her spouse despite her separation. The court held that the will, including the gifts to the spouse constituted a “document”, which could be given effect as the will of the Deceased, even though parts of it had been technically revoked by the separation. The deceased believed the gifts to her spouse were still valid, and it was her testamentary intention to make those gifts. As a result, the entire will, including the clauses which gifted to her spouse, was admitted to probate.

It is important to consider the effect of a separation on the validity of the terms of your will (including your choice of executor) and take the necessary steps to update your estate plan as your circumstances change. In Jacobson, the judge observed that “it is hard to imagine how the deceased’s testamentary intention could be established more clearly than it is on the evidence before me,” and the court was able to recognize and uphold the deceased’s intentions.  This evidence may not always be available, and you may unintentionally disinherit someone that you intended to benefit under your will.

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.