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

February 2, 2024

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

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

Happy reading!

Removal of Executor for Conflict of Interest

January 26, 2024

An executor may be removed if their position as personal representative of the estate is in conflict with their personal interests.  A court can order the removal of an executor pursuant to the Wills, Estates and Succession Act, the Trustee Act, or the court’s inherent jurisdiction.

A will maker is entitled to choose their executor, and this choice is entitled to deference.  A court should only interfere with the will maker’s choice of executor if there is clear and cogent evidence that the executor’s acts or omissions are of such a nature to endanger the administration of the estate.  The primary consideration is the welfare of the beneficiaries collectively.

There are certain categories of misconduct that may warrant removal: endangerment of trust property, want of honesty, want of property capacity to execute duties, and want of reasonable fidelity.

An executor may also be removed if they are in a conflict of interest, as this this may represent a want of fidelity.  An executor is a fiduciary and has a duty to protect the best interests of all of the beneficiaries.  If this duty is in conflict with their personal interests (for example, their interests as a beneficiary or a creditor of the estate) then this may warrant their removal.  Even a “perceived” conflict of interest may warrant removal.

This must be balanced against s. 151 of the Wills, Estates and Succession Act, which gives certain persons the right to seek leave to commence proceedings on behalf of the estate, often in circumstances where the personal representative is in a conflict of interest with respect to a potential claim and is unlikely to commence proceedings (i.e. to pursue a claim against their personal interests).

The B.C. Supreme Court recently considered this issue in Thomson (Re) 2023 BCSC 1591.

In Thomson, the Court made clear that they were not deciding issues relating to the beneficiaries not getting along and being suspicious of one another.  The Court was to determine whether the executor was in a conflict of interest such that she was unable to act in the best interests of all of the beneficiaries.  The Court held that by commencing actions against the estate, the executor could be liable to pay for costs to the estate.  This put her in a “disabling” conflict of interest.

Further, the executor’s “steadfast” position regarding debts owed by one of her siblings to the estate showed that she could not be neutral in order to act in the best interests of all beneficiaries.  For example, she refused to consider whether this sibling owed rent to the estate, and by refusing to even look into that issue, she endangered the administration of the estate to the detriment of the beneficiaries.

The executor argued that if other beneficiaries wanted to pursue her sibling for rent, they could apply for standing under s. 151 to pursue the claim on behalf of the estate.  The Court held that s. 151 did not absolve the executor of her conflict of interest.

The executor was removed, and as a result of the beneficiaries’ inability to cooperate and continuing mistrust (they were siblings), an independent trust company was appointed.

This decision is a reminder of the importance of an executor remaining neutral and even-handed,.  An executor cannot simply point to s. 151 and the ability of a beneficiary to apply for standing to take the actions that the executor should be taking.

B.C. Case Comment – Revoking a Grant of Probate:

January 19, 2024

A party may file a notice of dispute before a grant is obtained, if they dispute the validity of a will or the authority of another person to apply for a grant in relation to that will.  The filing of a notice of dispute prevents the court registry from issuing a grant (of probate or administration) until the dispute has been determined.

However, if a notice of dispute is not filed in time and the grant is issued, this does not necessarily end the matter – a person may seek an order revoking the grant.

In Narsaiya Estate (Re) 2023 BCSC 1350, the deceased made two wills, one in January 2021 and one in July 2021.  The distribution under the two wills was essentially the same, dividing the estate equally between the deceased’s six children.  The difference between the two wills was the person(s) appointed as executor.  The January will named five of the children as executors.  The July will named only one of the children as executor (Dorothy).

The four other children named as executors under the January Will (i.e. not Dorothy) filed notices of dispute, alleging that Dorothy was unfit to act as executor because she was in a conflict of interest, was hostile to the parties, and was too busy.  They did not contest the validity of the July will.

Next, the four children applied for a grant of probate of the January Will (despite the existence of the July Will).  As part of that application, they needed to confirm that there was no testamentary document that was dated later than the January Will (which was not the case, since the July Will Existed).

The four children obtained a grant of probate under the January Will.  Dorothy applied seeking orders revoking and nullifying the grant of probate of the January Will.

The Court confirmed that it has the jurisdiction to revoke grants of probate.  Courts have jurisdiction to revoke grants of probate where evidence discloses that the grant ought not to have been issued.  There are numerous grounds on which probate can be revoked, including:

  1. where subsequent wills have been discovered;
  2. where it has been found that the will is otherwise invalid;
  3. where it has been determined that the testator is not, in fact, dead;
  4. where it is shown that the executor is under a legal disability (minority or mental infirmity); and
  5. where probate has been obtained by fraud.

The Court in Narsaiya revoked the grant under the January Will.  Although the July Will was not “subsequently” discovered in the usual sense, there was a later will and its existence was not meaningfully brought to the registrar’s attention prior to the issuance of the grant.  The grant was also made, at a minimum, based on “inaccurate suggestions.”

B.C. Case Comment Update: Does the Doctrine of Unconscionable Procurement Apply in B.C.?

January 12, 2024

I previously wrote about the B.C. Supreme Court decision of Sandwell v. Sayers 2022 BCSC 605. In that case, a father (unsuccessfully) tried to take back the transfer of his property into joint ownership with right of survivorship. My post on that decision can be found here.

The father (unsuccessfully) appealed the result, and the B.C. Court of Appeal recently delivered reasons for judgment at Sandwell v. Sayers 2023 BCCA 147.

In Sandwell, the plaintiff father had two children, a son and the defendant daughter.  In December 2020, the father transferred an interest in his home in Kelowna to his daughter, making them joint tenants.  He later brought legal proceedings to get the property back into his sole name.

The father tried to argue that the doctrine of unconscionable procurement applied. The doctrine of unconscionable procurement provides that where there is a transfer of significant benefit that the recipient actively caused to occur, there must be proof of the donor’s full comprehension and understanding of the effects of the transfer for it to be upheld.

The B.C. Supreme Court had “real doubt” about the place of the doctrine of unconscionable procurement in British Columbia law. If it did exist and had any place in B.C., it did not assist the father in this case. The B.C. Supreme Court also refused to set aside the transfer on the basis of unjust enrichment.

The father’s appeal was dismissed.

The B.C. Court of Appeal held that the judge in the court below correctly found that if there is evidence that the transferor intended to make a gift, this rebuts the presumption of resulting trust and any presumption of undue influence that might arise from the facts. Here, there was evidence to rebut the presumption. This included a deed of gift signed by the plaintiff father, as well as a further solemn declaration setting out an intention to gift. The Court also relied upon the evidence of the notary who prepared and witnessed the documents, and gave advice.

The presumption of resulting trust is simply a tool to assist the court in determining a donor’s intention where the evidence is unavailable, lacking or ambiguous. However, it is a presumption that can be displaced by the evidence that the transferor intended the transfer to be a gift.

With respect to the application of unconscionable procurement in B.C., the Court of Appeal held that the case at hand does not require this issue to be decided. The Court did observe that if the doctrine was found to exist, it could upend certainty for the recipients of intended gifts, including charities whose employees cultivate relationships in order to encourage donations. The parameters of such a doctrine would have to be carefully considered, including whether it should be limited to donors who become unconscionably financially vulnerably by the gift at the time it is made. However, the present case was not the best case to determine the existence of the doctrine (especially when the plaintiff/appellant had not established the factual basis for the application of the doctrine).

As a result, we can expect to continue to see claims which include allegations of unconscionable procurement, and there will likely be further direction from the court on (1) whether such a claim is available in B.C., and (2) if so, the parameters of such a claim.  In the meantime, this case serves as an important reminder that you cannot take back a gift that you have made.

 

B.C. Case Comment: Deceased’s Son ordered to Vacate Estate Property

January 5, 2024

We are often consulted when someone is residing in property owned by a deceased person, but is not the beneficiary of that property under the deceased person’s will.  Frequently, this will be a family member (often a child, living at their parent’s property).  The executor wants them to leave the property, and they refuse to do so.  They may make a claim to the property or an interest in the property, or they may claim a life interest entitling them to remain in the property.  They may challenge the will or seek to vary the will such that they will receive an interest in the property.  If someone makes such a claim, can they be forced to vacate the property before that claim is determined?

In Chen v. Zaleschuk 2023 BCSC 1976, the petitioner was the spouse of the deceased.  The respondent was the son of the deceased.  The respondent lived in the rental suite on the bottom floor of the petitioner and the deceased’s home (which was registered in the name of the deceased).  The deceased’s will provided that the petitioner becomes the sole owner of the property.  The petitioner sought the removal of the respondent from the property, and the respondent refused to leave.

First, the respondent challenged the validity of the deceased’s will.  He argued lack of testamentary capacity, and failure of the will to carry out the deceased’s intentions because of an omission, or misunderstanding of or failure to carry out the deceased’s instructions.  The respondent argued that the will should be interpreted in a manner that provided him with the ability to reside in the property for his lifetime (a “life interest”).

The Court held that the respondent did not have a life estate in the property.

Next, the respondent filed a notice of civil claim seeking (1) a variation of the deceased’s will in his favor, and (2) a declaration that the respondent holds an interest in the property in constructive trust for his benefit.  The respondent filed a response, and this action was ongoing.

In the meantime, the petitioner gave notice to vacate the property to the respondent.  The respondent filed a notice of dispute with the Residential Tenancy Branch.  The Residential Tenancy Branch concluded that it did not have jurisdiction because the matter was linked to a Supreme Court action.

The petitioner took the position that in light of the court’s determination that the respondent did not have a life interest in the earlier proceeding, the respondent had no legal right to live in the property and he was a trespasser.

The respondent argued that the new action seeks to vary the will to give effect to an agreement that he had with the deceased and provide for the alleged life estate.  In the meantime, he alleged that he should be entitled to stay at the property.  He argued that he was not trespassing given his claim to a life estate, and he also argued that he improved and contributed to the property and this entitled him to occupy the suite without paying rent until the property is sold.

The Court held that the claims had not been proven.  At this stage, they were mere allegations, and such claims do not entitle the respondent to remain in the property.  Any interest he may establish in the property was protected by the certificate of pending litigation filed in the civil claim.  The respondent had previously be found not to have a life estate in the property.  The Court also did accept the respondent’s claims that he had not other residence, and that leaving the property would cause hardship and disruption.

The Court concluded that the respondent has no right to possession of the property, and that the petitioner as executor was entitled to deal with estate assets: “simply commencing the Civil Claim does not establish such a right.”  The Court ordered that the respondent vacate the property within 30 days.

As a result, it cannot be assumed that if a tenant residing in estate property commences an action against the estate which includes a claim to that property, they get to stay in that property until the claim is determined.

The petitioner also sought an order that the respondent pay market rent for the property.  The Court adjourned this issue to be determined after the claims advanced in the respondent’s civil claim are resolved or dismissed.

B.C. Case Comment: Lost or Misplaced Will – Presumption of Revocation Rebutted

July 25, 2023

A will-maker can revoke a will.  There are a number of ways to do so, and there is also a presumption that a will-maker revoked their will if the will was last in the will-maker’s possession and cannot be located.  If the presumption is rebutted by evidence to the contrary, a copy of the will may be submitted for probate instead of the missing original.

First, the ways to revoke a will (other than an electronic will) are set out at section 55(1) of the Wills, Estates and Succession Act [“WESA”]:

  1. By another will made by the will-maker made in accordance with WESA;
  2. By a written declaration of the will-maker that revokes all or part of a will made in accordance with WESA;
  3. By the will-maker, or a person in the presence of the will-maker and by the will-maker’s direction, burning, tearing or destroying all or part of the will in some manner with the intention of revoking all or part of it; or
  4. By any other act of the will-maker, or another person in the presence of the will-maker and by the will-maker’s direction, if the court determines under s. 58 that (a) the consequence of the act of the will-maker or the other person is apparent on the face of the will; and (b) the act was done with the intent of the will-maker to revoke the will in whole or in part.

#3 above has two elements:

  1. The will must be physically burned, torn or destroyed; and
  2. The will-maker must have intended to revoke by that destruction.

In addition to taking one of the active steps above to revoke a will, there is a common law presumption of revocation that may apply in certain circumstances, which has been described as follows:

If a Will last known to be in custody of testator is not found at his death, the presumption is that the testator destroyed it with the intention of revoking it (“animo revocandi”). However, that presumption may be rebutted by evidence, written or oral, of the facts. The strength of the presumption will depend on the character of the custody which the testator had over the Will.

Proof that the will-maker was last in possession and the Will cannot be located leads to the presumed facts of destruction and intention.  The presumption is based upon an assumption that people their important documents safe, and so if an important document like a Will is missing it is more likely than not that the testator intentionally destroyed it.

However, the presumption can be rebutted by evidence.  For example, it could be shown that the will was lost or misplaced.

This issue was recently considered by the B.C. Supreme Court in Galloway Estate (Re) 2023 BCSC 1204.

In Galloway, the deceased made a Will.  He was given the original Will and his law firm retained a copy.  The deceased had no children and no spouse at the time of his death.  Both his parents were deceased and he had one sister.  If there was no will and his estate passed on an intestacy, it would go to his sister.  The Will left his estate to his mother’s god-daughter (who was also named as executor).

The god-daughter argued that the Will was valid (so that she would receive the entire estate).  The sister relied upon the common law presumption of revocation, and argued that the deceased revoked the Will and died intestate (so that she would receive the entire estate).

The god-daughter performed a diligent search of all reasonable places, and no Will was located.

The Court observed that all relevant facts in a case must be considered, and they referred to the following non-exhaustive list of factors from another B.C. Supreme Court case:

  • whether the terms of the will are reasonable;
  • whether the deceased continued to have good relationships with the beneficiaries under the will up to the date of death;
  • whether personal effects of the deceased were destroyed prior to the search for the will being carried out;
  • the nature and character of the deceased in terms of taking care of their personal effects;
  • whether there were any dispositions of property that support or contradict the terms of the will;
  • statements made by the testator confirming or contradicting the terms of distribution set out in the will;
  • whether the deceased was of the character to store valuable papers and whether the deceased had a safe place to store papers;
  • whether there is evidence that the deceased understood the consequences of not having a will, and the effect of an intestacy; and
  • whether the deceased made statements indicating the deceased had a will.

The Court in Galloway held that the presumption of revocation was rebutted.  It was more likely than not that the Will was lost or misplaced by the Deceased, or accidently disposed of by the specialty trauma cleaning company that cleaned the deceased’s property to make it safe to access after death (the deceased having been discovered approximately six weeks after his death).

The Court considered the various facts, but a key factor was that the family had been in previous litigation, in which the deceased was “against” his sister.  If the deceased died without a will, this would give his sister the very property that the litigation was conducted to reclaim.  If he died intestate, then his sister would be relieved of her obligation to pay special costs in that prior litigation, but the deceased had been actively pursuing payment of the cost awards by his sister at his death.

The Court pronounced the force and validity of the Will in solemn form, and ordered that a copy of the Will be admitted to probate.

This case illustrates the complications that may arise if the original will cannot be located.  Of course this would have been avoided if the deceased had kept his original in a safe place, and had advised someone of the location of the original will.

B.C. Case Comment: Court Varies Will that Makes Equal Provision for Will-maker’s Children

March 30, 2023

You cannot assume that if you leave your estate to your children in equal shares, then the court cannot or will not vary it.  Making equal provision for your children in your will does not mean that the will is immune from a successful wills variation action.  There may be good reason to make greater provision for one child over the other(s), and the child who claims they ought to have received more may successfully bring an action to vary your will to receive a larger share of the estate than their siblings.

This was the case in the recent B.C. Supreme Court decision of Rawlins v. Rawlins 2023 BCSC 466.  In Rawlins, the deceased had three sons.  Her will provided that if she survived her husband (which she did), her estate was to be divided equally between her three sons.  The estate was worth approximately $2.5M.

The plaintiff (one of the sons) brought an action to vary his mother’s will, so that he received a larger share of the estate than his brothers.

In B.C., a spouse or child of a will-maker may bring an action to vary a will if it does not make just and adequate provision for them.  When deciding a wills variation claim, the court must consider (1) whether the will properly accounts for the legal duties owed to the spouse and children during the will-maker’s lifetime, and (2) the moral duties toward the will-maker’s spouse and children.

Legal obligations include spousal support and spousal property rights, child support obligations, and, in some cases, unjust enrichment claims.  Moral obligations are society’s reasonable expectations of what a judicious spouse or parent would do in the circumstances, with regard to contemporary community standards.  The court has a wide discretion to vary a will to make proper provision, and it is a fact specific inquiry.

In Rawlins, the plaintiff argued that he had a legal claim based on unjust enrichment, and a greater moral claim.  He relied on the following grounds in support of his position that he should receive a greater share of his mother’s estate: (1) his role in contributing to and maintaining the deceased’s home; (2) his role in looking after both of his parents in their final years, and (3) his expectation of receiving the home and certain investments upon the passing of his parents, based on statements allegedly made by his parents.

With respect to legal obligations, the plaintiff argued that the deceased’s estate was unjustly enriched by (1) the care that he provided to his parents in their final years, and (2) his alleged contributions to their home.

With respect to the home, the Court held that the plaintiff failed to show that his alleged contributions to the property involved any appreciable material benefit to the estate or materially increased the value of the property.  The plaintiff paid nothing towards the acquisition of the property, or the maintenance of the property (including property taxes or insurance).  The labour that he provided was merely to (1) assist his father with renovations, or (2) provide routine upkeep.  “The most that can be said is that [the plaintiff] contributed toward the Maintenace of the property where he lived, rent free.”

However, the care that the plaintiff provided for his parents did provide a material benefit to the estate.  The plaintiff was the primary caregiver for both of his parents during their final years, and cases have recognized that services by an adult for their parent have a legally recognizable value.  If the plaintiff had not been available to provide care, his parents would have paid for these services, which would have come out of what ultimately became estate funds.  The Court held that the deceased’s estate had a legal duty toward the plaintiff, in the form of an unjust enrichment claim, based upon the care provided.

With respect to moral obligations, the plaintiff’s contributions to the property were minimal, and were not a factor in his favor.  The care that he provided for his parents formed the basis of a legal obligation (the unjust enrichment discussed above), and so the Court did not consider this factor as a separate, independent basis for a moral claim by the plaintiff.  Finally, the Court did not find a moral claim based upon the plaintiff’s alleged expectation that he would inherit a greater share based upon statements made by his parents.  The Court held that his “expectation” of inheriting certain assets was “largely the product of [the plaintiff’s] subjectively-held beliefs and sense of entitlement.”  There was no independent reliable evidence that the plaintiff was given any reason to expect that he would receive a greater share of the estate.

The defendant brothers also pointed out that the plaintiff continued to live in his parents’ house, rent free, after their deaths, and so since his mother died in 2018, the estate has paid the plaintiff’s housing costs.

The Court weighed all of the circumstances, and concluded that apart from the unjust enrichment claim, the plaintiff failed to establish that his mother’s will did not make adequate provision for him.  The Court varied the will to provide that the plaintiff would receive a gift of $115,000, less two thirds of all property taxes paid or payable by the estate for the property from 2018 to 2022.  The rest of the estate was to be divided equally as between the three sons, as provided for in the will.

This case serves as a reminder that just because you provide equally for your children in your will, there may still be a successful wills variation claim.  It is also noteworthy that this relatively modest variation was only obtained after the time and expense to the parties of an eleven-day trial.

Admitting to Probate a Document that does not meet the Formal Requirements of a Will – New B.C. Case

February 10, 2023

In B.C., there are formal requirements for making a will.  These include requirements that the will be in writing, signed at the end by the will-maker in the presence of two or more witnesses who are present at the same time, and signed by two or more of the witnesses in the presence of the will-maker (see s. 37 of the Wills, Estates and Succession Act (“WESA”).

However, the court may make an order a document be fully effective as though it was the will or part of the will of the deceased person even though it does not comply with WESA, if the court is satisfied that the document represents the testamentary intentions of the deceased person (see s. 58 of WESA).

I have previously posted about s. 58 cases here.

The B.C. Supreme Court recently set out a succinct summary of the principles to be considered on a s. 58 application in Re: Clarke Estate 2023 BCSC 103:

[39]       From the foregoing authorities, I derive the following principles:

a)  The onus in this matter is on the petitioner to prove, on a balance of probabilities, that:

i)  the document is authentic; and

ii) the document embodies the fixed and final, as opposed to irrevocable, testamentary intentions of the deceased.

b)  The factors to take into account in determining whether the document contains the testamentary intentions of the deceased include:

i)  the presence of the deceased’s signature,

ii)  the deceased’s handwriting,

iii)  witness signatures,

iv)  revocation of previous wills,

v)  funeral arrangements,

vi)  specific bequests,

vii)  the title of the documentation,

viii)  such other factors as may be relevant given the context, and

c)  the material time for determining the testamentary intentions can vary depending on the circumstances, but in many if not most cases the material time is when the document was prepared and executed.

In Clarke, the Court was presented with two documents:

  1. A document that was prepared by a lawyer or notary and dated December 22, 1994, which was properly witnessed.  This document left the residue of the deceased’s estate to the deceased’s stepdaughter; and
  2. A document that was handwritten and had only one witness, dated April 25, 2013.  This document left the residue to the deceased’s brother.

The Court concluded that the handwritten will represented the fixed and final testamentary intentions of the deceased and that it was fully effective as the will of the deceased.

The types of documents that parties seek to have declared to be effective as wills vary, as does the extent to which these documents have the characteristics you would expect to find in a “proper” will.

The handwritten document at issue in Clarke had had many of the characteristics of a will although it did not meet all formal requirements. The document was in the deceased’s handwriting, it described itself three times as the last will and testament of the deceased, and it revoked all former wills.  It was also signed by the deceased and signed by one witness.  In the circumstances, the Court was prepared to order that the handwritten document was fully effective as the will of the deceased.

It should be noted that both parties were entitled to their full costs and expenses to be paid from the estate.

What I’m Reading: Interesting Estate Litigation Articles for January 2023

February 3, 2023

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

  1. The British Columbia Law Institute published Undue Influence Recognition and Prevention, A Guide for Legal Practitioners:  https://www.bcli.org/publication/undue-influence-recognition-and-prevention-a-guide-for-legal-practitioners/
  2. Darien Murray at Hull & Hull LLP (Ontario) writes about a recent Ontario decision on whether a solicitor owes a duty of care to third party beneficiaries: https://hullandhull.com/Knowledge/2023/01/hall-v-bennett-estate-disappointed-beneficiaries/.
  3. Chris Cook at de Vries Litigation LLP (Ontario) discusses mirror wills and mutual wills: https://devrieslitigation.com/mirror-and-mutual-wills/?v=m
  4. David Morgan Smith at Hull & Hull LLP discusses the duty of an estate trustee to make prudent investments: https://hullandhull.com/Knowledge/2023/01/exercising-discretion-the-duty-of-an-estate-trustee-to-prudently-invest/
  5. Onyx Law (Vancouver) writes about the duty of an executor to communicate with beneficiaries: https://onyxlaw.ca/executor-not-communicating-with-beneficiaries/
  6. Estate Litigation in the News: CBC News recently published an article on a challenge to a handwritten will leaving a condo to a church: https://www.cbc.ca/news/canada/hamilton/common-law-church-condo-court-1.6725883
  7. Estate Litigation and Celebrities:  Priscilla Presley is contesting the validity of Lisa Maria Presley’s will: https://www.bbc.com/news/world-us-canada-64461305

Happy reading!

B.C. Case Comment: Attorney Transfers Donor’s Assets into Trust which Mirrors Donor’s Will

January 31, 2023

A person acting under a power of attorney (the “attorney”) cannot make or change a will for the adult for whom the person is acting (the “donor”).  However, in certain circumstances, the attorney may settle a trust which mirrors the terms of the donor’s will, and then transfer the donor’s assets into the trust.  This may be done to avoid probate fees which would be payable if the assets formed part of the donor’s estate.  There may also be other advantages in administering and distributing the assets through a trust instead of an estate.

There is a further advantage, whether it is intended or unintended:  if the assets form part of the estate, then they are available for a wills variation claim.  If the assets are settled into a trust then they are not available for a wills variation claim.

A disappointed beneficiary attempted to set aside such an arrangement in the recent B.C. Supreme Court decision of Kramer v. Kramer 2023 BCSC 116.

In Kramer, Clara died leaving two children, Karen and Leanne.  Karen and Leanne were the executors of her estate, and the beneficiaries of the estate.  However, Karen was not happy with what she was to receive under the terms of Clara’s will and codicil.

Leanne held a power of attorney over Clara’s affairs.  Clara died in 2017.  In 2015, Leanne used the power of attorney to authorize the creation of an alter ego trust, transferring the majority of Clara’s assets into the trust, and appointing herself and two solicitors as trustees.  The distribution of the trust assets was to precisely mirror the terms of the will and codicil.  Karen learned of the trust after the Clara’s death.

Karen sought a variation of the deceased’s will.  However, most of the assets of the deceased were transferred during her lifetime into the Trust.  This meant that Karen must first succeed in obtaining a declaration that the trust was void, and an order transferring the assets back into the estate.  Karen brought an action to vary the will, and for an order that the disposition of property to the trust was a fraudulent conveyance, and an order that the property put into the trust is part of Clara’s estate.

The Fraudulent Conveyance Act provides that a disposition of property, if made to delay, hinder or defraud creditors and others of their just and lawful remedies, is void and of no effect against a person whose rights and obligations are or might be disturbed, hindered, delayed or defrauded.

The issue to be determined in Kramer was whether the disposition of property to the trust constituted a fraudulent conveyance.  The defendants argued that the Karen had no standing under the Fraudulent Conveyance Act, because she was not a creditor and had no rights or obligations that had been disturbed, hindered, delayed or defrauded.

A wills variation claim does not create standing as a creditor or other within the meaning of the Fraudulent Conveyance Act.  Karen accepted this, but argued that she was a creditor as a result of a loan that she made to the deceased.  Karen argued that the trust was created to avoid paying her money that was owed to her.

The Court held that Karen was a creditor of Clara in 1998 when Karen loaned money to Clara.  However, it appeared that this amount was repaid in 2012, before the trust was settled in 2015.  At the time the Trust was entered into, Karen had not provided any proof she was owed more than the monies she received in 2012, and after that she never demanded further payment for the loan or took any steps to collect any balance owing.    The Court held that Karen had been repaid, and so she was not a creditor of the deceased at the time of the transfer of assets into the trust.  Since she was not a creditor, she did not have standing under the Fraudulent Conveyance Act.

In the alternative, the Court also found there was no fraudulent intention in creating the trust.  The party claiming a fraudulent conveyance must establish that the person making the transfer of assets did so with the intent to put their assets out of the reach of creditors.  The Court in Kramer held that the trust was created for honest purposes.  It was recommended by the deceased’s tax lawyer and prepared with the assistance of counsel.  At no time during the planning and settlement of the trust did anyone discuss an outstanding debt owing to Karen.  The stated purpose of the trust (which was accepted by the Court) was to facilitate estate planning by avoiding substantial probate fees and to affect an efficient and non-confrontational administration of Clara’s estate.  Again, the distribution of the trust assets was to precisely mirror the terms of the Will and Codicil.

However, the Court declined to rule on the validity of the trust or any suggestion that Leanne acted outside her powers under the power of attorney, because that issue was not raised in the pleadings and before the Court.  Karen may seek to argue that Leanne settling the trust was outside her powers as attorney.  However, there is authority to support the position that an attorney can settle a trust on behalf of a donor when the terms of the trust mirror the terms of the donor’s will (see Easingwood v. Cockroft 2011 BCSC 1154, aff’d at 2013 BCCA 182).