A reminder that you should have wills, even if (you believe that) all your assets are jointly held and of the principles applicable to the removal of an estate trustee.
The Ontario Superior Court of Justice recently ruled on a case involving parental estates and disputing brothers.
The couple at the centre of the case were happily married and had three sons.
In 1998, the couple signed “complementary spousal wills.” They named each other as their primary estate trustee and appointed their sons as alternate trustees in the event their spouse has died.
They also named each other as their primary beneficiaries and the sons as equal beneficiaries following their spouse’s death.
Perhaps knowing their sons all too well, they inserted a clause in their wills, stipulating that in the event of a dispute, the majority would rule.
The husband passed way in 2002. The wife did not apply for a Certificate of Appointment of Estate Trustee with a Will, on the belief that her husband did not have any other assets, real or personal property, in his own name. To her knowledge, they had owned everything jointly.
When the wife passed away in 2013, the three sons jointly retained a lawyer to administer their mother’s estate. They soon discovered their father had solely owned a parcel of real property that had not been dealt with at his death. The boys then applied to jointly administer their father’s estate.
The father’s property was soon sold by the third son. The net sale proceeds of more than $116,000 were kept in a trust account, on the youngest son’s condition that the lawyer not release any of the funds without his consent.
Due to the sale of the property, a T3 Trust Tax Return needed to be filed, with the taxes payable on the sale estimated at $8,000, and the remainder distributed to the mother’s estate.
The estate also owed a significant tax bill because of large investment accounts and the deemed disposition of her assets upon her passing. The Canada Revenue Agency (CRA) issued the estate a demand for payment of more than $67,000.
Unfortunately, the brothers were in a dispute over whether the taxes owing on their parents’ estate should be paid. The youngest son refused to consent to the payment, and the lawyer retained by the three brothers refused to release the funds to pay the debt, even though the other two brothers consented to the payment. The lawyer refused to acknowledge the “majority rules” clause in the wills.
The elder brothers retained new legal counsel and brought a motion to remove the youngest brother as an estate trustee on their parents’ estates and to distribute the assets of the estate to pay off its debts, as interest and penalties on the CRA debts were accruing.
Justice John Fregeau found:
“[The third brother’s] failure to consent to the payment of the CRA debts of his parents’ estates defies common sense. Leaving the debts unpaid while funds available to pay them languish in [the lawyer’s] trust account is resulting in increased interest and penalties for both estates, further diminishing their value.”
The judge ordered that the sale proceeds held in trust be released to the father’s estate, the outstanding tax returns filed, and taxes paid.
On the issue of removing the youngest son as an estate trustee, the court considered several principles, including:
- the welfare and interests of the beneficiaries
- protecting the assets of the trust
- potential risks to the future administration of the estate
- that actual misconduct by a trustee is not required for removal
The court approved the motion to remove the brother, finding, “Judging from [the brother’s] complete lack of cooperation over the past three years, it is reasonable to infer that he will continue to be uncooperative and hinder and delay the completion of the administration of these estates, contrary to the interests of all beneficiaries.”
Fregeau furthered ordered the youngest brother to pay costs on a partial indemnity basis, amounting in $12,000, noting that his brothers had no option but to seek a court order to pay the CRA debts, and wind up the estates, given that his behaviour was “contrary to the best interests of the estates and in breach of his fiduciary duty as an estate trustee.”
We can take away a few lessons from this case.
Even if you believe all your assets are jointly held, it makes sense to apply for a Certificate of Appointment of Estate Trustee with a Will to be certain there are no outstanding assets not jointly owned.
A “majority rules” clause in a will is applicable and should be respected in Ontario.
And pay your estate tax bills as soon as possible!