Archive for ‘Trustees’

December 9, 2014

Mediation in Elder Law

I often focus in this blog on interesting cases dealing with points of law in estates and elder law.  However, I read an interesting article in this week’s Lawyers Weekly by Marilyn Piccini Roy dealing with the important role of mediation and the mediator in elder law.  Definitely worth a look.

Please note:  The original hyperlink used in this post was not functional.  I believe that the problem has been corrected.  My apologies.

November 26, 2014

Whose Life Insurance is it Anyway?

A trial decision from the British Columbia Supreme Court recently caught my eye because it dealt with the interesting interplay between life insurance policies and separation agreements.  In Milne Estate v. Milne, a separation agreement required a husband to maintain a life insurance policy in his name, naming the wife as beneficiary.  He later changed the beneficiary to a new common law spouse.  This is not an entirely uncommon occurrence.  The husband died before his obligations under the separation agreement ceased.

The issues in the case were as follows:

  1. Because the husband was required by the separation agreement to name the wife as beneficiary, could the new beneficiary be deemed to hold the insurance proceeds as constructive trustee for the wife?
  2.  Was the estate liable for breach of contract?
  3. If the estate was liable for breach of contract, what is the measure of damages? – the full amount payable under the policy or only such amounts as are required to meet the policy holder’s obligations under the separation agreement?

In dealing with the issue of a constructive trust, the Court cited and followed the Supreme Court of Canada decision in Soulos v. Korkontzilas.  Soulos holds that, under the umbrella of good conscience, constructive trusts are recognized as a remedy for wrongful acts such as fraud and breach of duty of loyalty, as well as to remedy unjust enrichment. However, the Court went on to state that the remedy should be used restrictively, and set out four criteria for the imposition of a constructive trust:

  1. The defendant must have been under an equitable obligation, being one recognized by courts of equity, in relation to the activities giving rise to the assets in her hands
  2. The assets held by the defendant must have resulted from a breach of her equitable obligation to the plaintiff;
  3. The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to her duties; and
  4. There must be no factors which would render imposition of a constructive trust unjust in the circumstances.

In the context of this action, the Court found that these criteria were not met.  While it found that relationships between separated spouses can (in the right circumstances) result in fiduciary obligations, once formalized in a separation agreement, the obligations are primarily contractual and equity will not apply.  That was the finding in this case and the Court was therefore unwilling to impose a constructive trust on the new beneficiary.  The new beneficiary was entitled to the insurance proceeds.

As for the issue of contract, the Court did find that the failure to maintain the life insurance policy in the name of the former spouse resulted in a breach of the separation agreement for which the estate was liable for damages.  The issue was the measure of damages – was it the full amount payable on death under the insurance policy, or only such amounts as the deceased was liable for under the separation agreement, being primarily support obligations?

After reviewing relevant Court of Appeal decisions in Ontario and British Columbia, the Court concluded that the level of damages depended on the wording of the separation agreement.  If the separation agreement stated that the life insurance policy was to act as security for the obligations of the deceased under the separation agreement, the level of damages would be determined by and limited to those obligations.  However, if the obligation to maintain an insurance policy was not stated to be security for the obligations of the deceased, the level of damages for the breach is the full amount payable under the policy.

In this case, while there were certain connections in the separation agreement between support obligations and the requirement to maintain the insurance, it was not clearly stated in the agreement that the policy was to act as security for the performance of the husband’s obligations.  Following the Ontario Court of Appeal in Turner v. DiDonato, the Court found that the obligation to maintain life insurance was a stand-alone obligation; i.e. not security for the husband’s obligations under the separation agreement.  As result, the wife’s entitlement to damages against the estate was the full amount payable upon death under the life insurance policy.

The end result is certainly interesting as the death benefit is in effectively payable twice.

October 2, 2014

Why Lawyers Draft Wills

A recent Ontario case is a good reminder of why preparing a will is best left to a competent lawyer.

In Budai v. Milton, the testator clearly wanted a no-nonsense approach to how his failing health and his estate were dealt with.  He had a will prepared by a retired financial planner, who also happened to be named as executrix of the estate.  The proposed executor was in all likelihood an excellent financial planner, but was found lacking in legal skills.

The will named one beneficiary, the applicant (defined in the will as a paid caregiver) and contained the following clauses:

6.1      Should my beneficiary, Kathy Budai challenge this Will or my choice of Executrix in any way then she will be removed from the Will and not inherit anything.

6.3      Should the estate have holdings due to my beneficiary not honouring my final wishes to pass away without any further efforts to prolong my life then the Executrix shall be in the control of distribution of the Estate.  She may give away the funds in any way she sees fit.  She may invest the balance of the Estate and use it for donations or any other purpose as long as the funds last.  There are no restrictions to what she may do with the balance of the Estate.

With respect to clause 6.1, the applicant took the position that it should be struck out as contrary to public policy on the basis of the in terrorem doctrine.  That doctrine can be invoked to strike a portion of a will where three criteria are satisfied, namely;

(a)   the legacy must be of personal property or blended personal and real property;

(b)   the condition must be either a restraint on marriage or one which forbids the donee to dispute the will; and

(c)   the “threat” must be “idle.”

The court found that these criteria had been satisfied. A bald prohibition to challenging the will “in any way” offended the doctrine.  Determining whether a threat is “idle” requires an examination of whether the threat is “imposed solely to prevent the donee from undertaking that which the condition forbids”.  Bare forfeiture of a gift is therefore considered an idle threat.

While the court found paragraph 6.3 to be valid, despite several claims of uncertainty, it did note that the ability of the executor to disburse funds in any way she sees fit to be suspicious. The proposed executor was also the drafter of the will and had the ability under that clause to disburse the estate to herself if the applicant was disinherited.  However, while the Court was willing to consider that suspicion may be a factor in determining whether a will as a whole is valid (an example would be suspicion contributing to a finding of undue influence), it was not satisfied that there was authority to hold that suspicious circumstances may be used to strike only a single provision in a will, leaving the remainder of the will valid.

May 23, 2014

Whither Walt Disney’s Fortune: I don’t think Mickey would approve

According to the Hollywood Reporter, the real-life Walt Disney World may not be the happiest place on earth.

March 24, 2014

Limitations and the Doctrine of Fraudulent Concealment

At common law, an action in negligence or for an intentional wrong is not permitted against or on behalf of a deceased person. The right to sue arises from statute, in Ontario the Trustee Act (s. 38). As a result, compliance with the Act is a must. The Act includes its own limitation period for actions, providing that an action under section 38 “shall not be brought after the expiration of two years from the death of the deceased”. Unlike the Limitations Act, 2002, there is no “discoverability” factor to be considered.  The date is fixed.
However, like most rules, there is an exception. This limitation period can be extended or “tolled” under the equitable doctrine of “fraudulent concealment”.  In other words, where a party has actively concealed wrongdoing, he or she cannot rely on the statutory limitation period to frustrate an action. In order to show fraudulent concealment though, the party asserting concealment must show:
(a) the parties are in a special relationship with one another;
(b) given be nature of this relationship, the conduct complained of amounts to an “unconscionable thing” for one to do to the other;
(c) the person conceals the right of the other (either actively, or as a result of the manner in which the act that gave rise to the right of action is performed)
This doctrine was recently considered in by the Ontario Superior Court of Justice in Rajmohan v. Solomon Family Trust. At issue was whether victims of a mortgage fraud could sue the estate of their lawyer more than two years after his death. The lawyer was not a party to the fraud but did not discover it.  The Court found that the requisite special relationship existed and that there had been concealment because the facts surrounding he lawyer’s actions only became evident after a review of his file. However, while the Court was very critical of the manner by which the lawyer handled the transaction, such actions were at best negligent and did not amount to an “unconscionable thing”.  As a result the doctrine could not be applied to toll the limitation period and the action was dismissed.
Updated:  The Court of Appeal upheld the decision of the Motions Judge
January 28, 2014

A New World in Dealing with Experts?

Estate litigation may require evidence from various types of experts; medical professionals, business valuators, forensic accountants, real estate appraisers, etc.  Below I have reproduced an article by Stephen Schwartz and Gillian Silverhart of Chaitons LLP commenting on a recent Ontario case that could have a chilling effect on how lawyers interact with experts.

EXPERT REPORTS

Stephen Schwartz
Gillian Silverhart

On January 14, 2014, Madam Justice Wilson of the Superior Court of Justice released her decision in Moore v. Getahun (“Moore”) strongly criticizing the current practice of lawyers reviewing and commenting on draft expert reports prepared for use at trial.

MOORE v. GETAHUN

Moore was a personal injury action. During the examination of an expert retained by the defendants at trial, plaintiff’s counsel reviewed the expert’s file and found notes referring to a telephone conversation between the expert and defence counsel. During the call, counsel reviewed the expert’s report and suggested changes, which were made by the expert.

The plaintiff argued that it was inappropriate for defence counsel to make suggestions to the expert concerning his report. Defence counsel took the position that experts are entitled to prepare draft reports to be shared with counsel for comment.

Madam Justice Wilson agreed with counsel for the plaintiff, admonished counsel’s common practice concerning expert reports and found as follows:

“[50] For reasons that I will more fully outline, the purpose of Rule 53.03 is to ensure the expert witness’ independence and integrity. The expert’s primary duty is to assist the court. In light of this change in the role of the expert witness, I conclude that counsel’s prior practice of reviewing draft reports should stop. Discussions or meetings between counsel and an expert to review and shape a draft expert report are no longer acceptable.

[51] If after submitting the final expert report, counsel believes that there is need for clarification or amplification, any input whatsoever from counsel should be in writing and should be disclosed to opposing counsel.

[52] I do not accept the suggestion in the 2002 Nova Scotia decision, Flinn v. McFarland, 2002 NSSC 272 (CanLII), 2002 NSSC 272, 211 N.S.R. (2d) 201, that discussions with counsel of a draft report go to merely weight. The practice of discussing draft reports with counsel is improper and undermines both the purpose of Rule 53.03 as well as the expert’s credibility and neutrality….

[520] The purpose of Rule 53.03 of the Rules of Civil Procedure is to ensure the independence and integrity of the expert witness. The expert’s primary duty is to the court. In light of this change in the role of the expert witness under the new rule, I conclude that counsel’s practice of reviewing draft reports should stop. There should be full disclosure in writing of any changes to an expert’s final report as a result of counsel’s corrections, suggestions, or clarifications, to ensure transparency in the process and to ensure that the expert witness is neutral.” [Emphasis added in bold.]

THE EXPERT’S DUTY

An expert is required to be independent and impartial. Their duty lies to the Court, he or she must not advocate for the party on whose behalf they are engaged. An expert’s duty is codified in Rule 4.1.01 of the Rules of Civil Procedure (the “Rules”).

CURRENT PRACTICE

It is common practice for experts to provide counsel with draft copies of their reports for review and comment. Counsel regularly provide the expert with input where appropriate.

In our opinion, this practice was accepted by the Court because an expert’s impartiality remained protected in at least the following ways. Firstly, the entire file of an expert called to testify at trial, including their notes, correspondence with counsel and draft reports, may be the subject of a production order (see Conceicao Farms Inc. v.
Zeneca Corp
; reversed on other grounds). Secondly, an expert can and often is cross-examined by opposing counsel on their draft reports. Thirdly, pursuant to Rule 53.03(2.1) , experts must sign an acknowledgment of their duty to be objective and non-partisan as set out in Rule 4.1.01 of the Rules.

BEST PRACTICES FOLLOWING MOORE v. GETAHUN

The comments of Justice Wilson in Moore, if followed, represent a marked departure from the current practice concerning the preparation of expert reports in Ontario. According to Justice Wilson, it is no longer appropriate for counsel to review and provide comment on draft expert reports. The current practice may result in the Court refusing to accept the report or limiting the evidentiary value or the report.
As a decision of the Superior Court of Justice, it remains open for other trial judges of co-ordinate jurisdiction to disagree with the analysis of Wilson J. and confirm the acceptability of the current practice.

In our view, for the reasons set forth above, consultation between counsel and an expert concerning the expert’s draft report does not compromise the expert’s impartiality or create a perception of bias. Moreover, such consultation is not inconsistent with the expert’s duty to the Court. Interestingly, the Court’s decision in Moore does not appear to expressly prohibit discussions between counsel and an expert prior to the report being drafted.
However, until the comments of Justice Wilson are overruled or rejected, counsel and experts should be mindful of the Court’s direction. They may consider proceeding by expanding discussions and consultation prior to the report being written. Further, any revisions requested to a draft report by counsel might be provided by correspondence and disclosed to opposing counsel. At a minimum, there should be a discussion between the expert and counsel on the level and manner of counsel’s involvement in the preparation of an expert report.

* As at January 23, 2014, counsel for the defendants was awaiting instructions as to whether appeal the decision. However, even if the decision is overturned, the Court of    Appeal may not comment on Justice Wilson’s findings on this issue.

January 13, 2014

Excellent Judicial Analysis of Tests on Passing of Accounts in Ontario

A recent Ontario Superior Court of Justice decision provides a very good analysis of the tests to be applied in passing the accounts of both an attorney under power of attorney and an estate trustee – Re Aber Estate

January 4, 2014

Beware the “Pour-over Clause”

The formal requirements for a valid will can pose problems when testators seek to incorporate by reference other documents into a will. This is especially problematic where the document intended to be incorporated is changed after the date of the will. This was the issue in a recent British Columbia case.

In Kellogg Estate v. Kellogg, the Court was dealing with what is referred to as a “pour-over” clause. The purpose of the clause was to make a gift under a will to an existing trust. A husband and wife established a family trust for estate planning purposes with their three children as the primary beneficiaries. The trust included a provision that upon the death of the survivor of the husband and wife, the primary beneficiaries were to receive equal shares in the balance; one half distributed on the surviving parent’s death and one half five years later.

The husband and wife both executed wills dated the same date as the trust. Their wills included a bequest of the residue of their respective estates to the trust, to be administered in accordance with the trust, “including any amendments thereto made before my death”. The Wills also included a clause stating that if a bequest to the trust was invalid, the residue of the respective estates were to be managed and distributed under the terms of the trust as it existed immediately prior to its determination of invalidity and incorporated the trust by reference into the will.

Subsequent to the execution of the wills, the parents amended the trust, the primary change being the removal of one child as a beneficiary.

The issue for the Court was whether, firstly, incorporation of the trust into the wills of the parents generally was valid and, secondly, whether the subsequent amendment to the trust was likewise incorporated into the wills.

The Court conducted a review of the relevant law of incorporation into a will. It concluded that incorporation of a document into a will is valid if (1) the document is in existence at the time the will is made and (2) the document is beyond doubt the document referred to. The Court found that the original trust met this test and could properly be incorporated into the parents’ wills.

As for the amendment though, because it post-dated the wills, it did not meet the test for incorporation. As a result, it could only have testamentary effect if it met the requirements of the B.C. Wills Act, in particular the requirement for two witnesses (s. 4 of the Succession Law Reform Act in Ontario). The trust amendment was not witnessed.

But what of that part of the incorporation provision in the wills stating, “including any amendments thereto made before my death”. This provision was not effective to include the amendment as a testator may not reserve the ability to make gifts upon death after the date of the will without complying with the requirements of the Wills Act.

The effect of the decision is that the residue of the estates was a valid bequest to the trust as it existed before the amendment; i.e. with all three children as beneficiaries.

This decision underlies the need to always keep in mind the formality requirements for documents intended to have testamentary effect.

July 30, 2013

A forged will and a fort?

This is an estate dispute for the ages.

http://www.thestar.com/news/world/2013/07/29/princesses_in_north_india_become_owners_of_palaces_vast_fortune_after_court_verdict.html