Archive for June, 2011

June 28, 2011

Lessons in Life Insurance

An important part of estate planning is insurance, primarily life insurance.  Aside from general life insurance, consideration should be given to insuring ongoing obligations, primarily mortgage debt.

Unfortunately, the matter of insuring mortgage debt often only arises when the mortgage documentation is to be signed and little consideration is given to it by the mortgagor in advance.  Whether life insurance of a mortgage is worthwhile will depend on individual circumstances and the amount of insurance a person may already carry.  However, the issue should be addressed prior to meeting with the lender so that the pros and cons have been explored and a decision made.  The failure to do so can have significant impact as was noted in the Saskatchewan Court of Queen’s Bench case of Bautz v.  Advantage Credit Union.  In that case, the Court considered whether life insurance had in fact been applied for by the mortgagor when the mortgage was taken.  Of course, this only became an issue because a co-mortgagor subsequently died.  While the surviving spouse gave evidence that her husband had applied for life insurance on the mortgage and claimed that the credit union had failed to process the application, her action failed.  The lack of documentation in the spouse’s possession, combined with there being no application for life insurance in the credit union’s file (there was an application for disability insurance), lead the Court to the conclusion that no such application had been made.

The somewhat obvious lesson is that insuring debt obligations should be given thorough consideration and, as with all estate planning documentation, the application and/or contract of insurance should be safely retained.

June 27, 2011

When can a person with an indirect interest in an estate bring an application for the interpretation of a will?

The issue of when an estate without and administrator can be represented solely for the purpose of litigation is often a thorny one.  In the recent Ontario Superior Court of Justice case of Sloan v.  Fox Estate, the Court considered the provisions of Rule 10.02 of the Ontario Rules of Civil Procedure dealing with the appointment of a person to represent an estate for the purpose of bringing an application to interpret the provisions of the will of another deceased (ie. not the will for which the proposed applicant was a beneficiary).  The proposed applicant did not have a direct interest in the will at issue but did have an indirect interest as the beneficiary of an estate which in turn was a beneficiary of the will to be interpreted.  The Court noted the cautionary approach of courts to appointing a person to carry on specific litigation without the burden of administering all aspects of an estate, but concluded in this instance that the appointment was appropriate.  The primary factors in swaying the Court were the fact that the estate of which the proposed applicant was a beneficiary was insolvent and therefore unlikely to attract an administrator; and the acknowledgment of the proposed applicant that she could face personal liability for costs.  Also persuasive was the fact that the matter at issue was strictly the interpretation of a will and not a matter where facts were in dispute, a factor relied on by other courts to deny the appointment of a litigation administrator.  The Court did note that as the proposed applicant is a potential creditor of the insolvent estate as well as a beneficiary, she could not ultimately be appointed estate administrator.  If successful on the interpretation application, an executor would have to be appointed to receive any funds that might be payable from the will subject to interpretation to the insolvent estate.

June 23, 2011

When are Estate Litigation Costs also Administration Expenses?

As a general matter, the expenses of estate administration form a first charge on an estate before the claim of creditors, dependants or beneficiaries.  When though, does this charge include litigation expenses?  That was the issue in the recent Ontario Superior Court of Justice case of Kazarian v. Fraser.  In that case, the estate administrator of an intestate estate was required to retain counsel to locate offshore assets of the deceased which he and his common law spouse had hidden from the deceased’s former spouse.  Thereafter, proceedings were brought by the estate to determine the status of certain assets and to determine the contested dependant’s relief claim of the common law spouse.  She was impecunious so the estate had no realistic means of recovering any costs against her if successful.  After a review of the law, the Court found that, in these circumstances, the legal fees incurred in locating assets and in litigation involving the common law spouse form expenses of administration and are payable first out of the estate.  In these circumstances, the payment of these expenses left the estate without further assets.