Toronto Estate Litigation Lawyer

Category: TRUST LITIGATION

  • Court Finds That Aiding an Executor in Mismanaging an Estate is Enough to Assign Liability

    Court Finds That Aiding an Executor in Mismanaging an Estate is Enough to Assign Liability

    Having a valid will in place at the time of one’s death is incredibly important. Naming a trusted individual or individuals to act as executor of the estate is just as important, as this role carries a great degree of responsibility.

    In the recent decision of Humphreys-Saude v. Pavao, a mother was named as executor of her son’s estate, however, the testator’s daughter accused the family of improperly spending money from the estate and failing to distribute it in accordance with her father’s will.

    Lottery winnings left to daughter

    The testator in this case passed away in November 2019. At the time of his death, he lived in an apartment which he rented with his elderly mother, who he appointed as the executor of his estate. The testator was survived by my mother, his sister (the “respondent”), and his daughter. The testator was described as a man with “modest means”, though he won $77,777 through an instant lottery in 2019.

    In his will, the testator left the entirety of his estate to his daughter, the primary asset of which was his bank account which had a balance of approximately $57,548 at the date of his death. However, at the time the parties went to trial, the bank account had a remaining balance of $37,249. The $20,000 which had been depleted was the subject of the dispute between the parties.

    The testator’s daughter told the court that she had discovered that she had been named the sole beneficiary of her father’s estate from someone other than the executor. However, when she sought further information about the details of the estate, she was told by the executor that she “would not disclose anything.”

    Testator’s bank account was missing money

    The daughter retained a lawyer to help her obtain information regarding her father’s estate. After weeks of negotiations, a statement for the father’s bank account was obtained, however, the statement showed that $20,000 had been withdrawn from the account after her father’s passing. At this time, the bank account was not frozen as the executor had not advised the bank that the testator had died.

    When asked where the money had gone, the testator provided a list of expenses she insisted that the estate had incurred, including a $10,000 debt to the testator. The testator also wrote a note with the accounting statement that said “The day (the testator) died the police confiscated his cell phone cash and a bag of white powder, maybe you should go to the police to get it back so you can sell it.”

    Multiple withdrawals and debit transactions after the testator’s death

    After reviewing the accounting and the note, the testator’s daughter took steps to successfully install her mother as the new estate trustee. With the new trustee in place, a subsequent review of the bank records showed that a total of $13,300 had been withdrawn over a series of 16 transactions since the testator’s death.

    Additionally, the debit card tied to the account had been used 24 times between December 2, 2019 and January 10, 2020 to make a total of $6,559.09 in purchases.

    Further, a CPP death benefit cheque of $2,500 was issued to the estate and deposited into an account owned by the executor.

    Accounting provided by executor insufficient

    The Court found that the accounting provided by the respondent and executor was insufficient and confirmed that there was no documentation which provided justification for the cash withdrawals made from the account, or the alleged $10,000 debt to the testator’s mother.

    By the time the parties went to trial, the executor had passed away, and the respondent told the court that she had nothing to do with the estate management. However, the Court found that she had routinely driven the executor to the bank and was aware that the executor was using the testator’s bank card to withdraw cash and make purchases. In response, the respondent stated that she was acting on the instruction of the executor and did not spend any of the money herself.

    Court finds testator’s sister liable for mismanaged funds

    The court found that the respondent was liable for the funds which had been spent between the testator’s death and trial. The respondent was considered a “stranger to the trust,” meaning that she had no official role in the estate, either as a beneficiary or an executor.

    There are three ways in which a stranger to a trust may be found liable for a breach of the trust. The first is a doctrine known as a “trustee de son tort” which states that “a stranger to the trust may be liable for breach of trust where the stranger takes it upon herself to act as a trustee and to possess and administer trust property if she commits a breach of trust while so acting.” The second is through “knowing assistance” in which a stranger to the trust assists someone in the mismanagement of it. Finally, a stranger to a trust may be held liable if they knowingly receive trust property improperly.

    In this case, the respondent was found to be liable for knowing assistance due to her knowledge of the trust relationship as well as a breach of that trust. The court found that the respondent and the estate of the testator’s mother were jointly and severally responsible to the applicant with each being found to be liable for an amount just over $12,000. The court found that the estate of the testator’s mother was also responsible to the applicant for further debit purchases made after the death of the testator.

    Contact Derfel Estate Law in Toronto for Advice on Estate Management

    At Derfel Estate Law, our team of estate lawyers  have experience in providing skilled advocacy for clients involved in a variety of estate and trust disputes, including Will challenges and issues related to executors or trustees. Please don’t hesitate to contact us if you think an estate to which you are a party is being mismanaged. We are conveniently located in Toronto and proudly serve clients throughout the Greater Toronto Area and Ontario. To schedule a confidential consultation, contact us online or by phone at 416-847-3580.

  • A Court Can Override Trustee Refusal To Exercise Discretion In Administering A Trust

    A Court Can Override Trustee Refusal To Exercise Discretion In Administering A Trust

    The recently issued decision of the Court of Appeal of Ontario in Walters v. Walters, 2022 ONCA 38 guides the circumstances under which a court in Ontario can intervene with a Trustee’s decision not to exercise their discretionary powers.

    Trust was to provide for “comfort and well being”

    In Walters, the Ontario Court of Appeal was asked to review a lower court’s decision to intervene in the way the Trustees were administering a discretionary trust. The trust was a testamentary trust established by Ms. Janice Walters that provided that her husband, Gerald Walters, was an income beneficiary of the trust and the trust was to provide for his “comfort and well being”, while the residue of the trust was to go to the couple’s three children (the “Trust”). All three children were named Trustees, but one child, whose position aligned with Mr. Walters, asked to be removed as a Trustee before the disagreement made it to trial. At the time of Ms. Walters’s passing, the couple lived apart, and Mr. Walters had said that if his children tried to move Ms. Walters back into the marital home that he occupied, he would file for divorce. The assets that Ms. Walters had at the time of her will were her interest in the matrimonial home, an adjacent piece of vacant land, and a small amount in personal savings.

    Testamentary trust versus inter-vivo trust

    As an aside, you should know that there are two general categories of trusts. Inter-vivos Trusts and Testamentary Trusts. Inter-vivos trusts are living trusts established when the grantor or settlor, or the person establishing the trust, is still alive. In contrast, a Testamentary Trust is a trust established by a testator in their will and only takes effect upon an individual’s death. Testamentary Trusts are not revocable after they are established, while Inter-Vivo trusts may be revocable or irrevocable depending on how they are established. The Government of Canada provides additional information on trusts on this page.

    The trial: Trustees cannot refuse to exercise discretion based on extraneous factors

    At trial, Mr. Walters sought an order compelling the two remaining Trustees to encroach on the Trust capital, a discretionary power that was expressly permitted under the terms of Ms. Walters’s will that established the Trust, to pay for his living expenses. Before bringing the matter to trial, Mr. Walters had asked the Trustees to do so, but his request was met with refusal.

    The application judge granted Mr. Walter’s request and ordered the two Trustees to make increased monthly payments to their father and make a lump sump arrears payment for the three years leading up to the trial. The application judge also ordered that the Trust cover Mr. Walter’s costs for the application.

    In so ordering, the application judge relied on her finding that the Trustees refused to exercise their discretion based on the extraneous factors, mainly their dislike and distrust of their father, Mr. Walters.

    The appeal: Courts may interfere where there is a breach of its fiduciary duty

    On appeal, the court upheld the order granting Mr. Walter’s request for monthly financial support (with a reduction to the amount of the lump payment). Still, it did so based on different reasoning than the application judge.

    The appeal court found that the Trustees’ dislike of Mr. Walters had nothing to do with their obligation to ensure his “well-being and comfort” and that, in fact, their refusal to encroach on capital to provide for his comfort and well-being was an abuse of their discretionary powers granted under the will and “legitimately attracted judicial intervention”.

    What is fiduciary duty?

    Acting as a fiduciary is, at its essence, acting for the benefit of another person. Both a company and an individual can act as a fiduciary. As confirmed by the Supreme Court of Canada in its leading decision on fiduciary duties, Professional Institute of the Public Service of Canada v. Canada (Attorney General), the fiduciary is obligated “to act in the best interest of the alleged beneficiary or beneficiaries.”

    Courts may interfere with trustee discretion if there is a breach of fiduciary duty

    The appeal court in Walters confirmed that:

    • effect must be given to the testator’s intentions as ascertained from the language of the will and surrounding circumstances and therefore, trustees must carefully examine the wording of the will or trust instrument
    • the courts may interfere with the exercise of a trustee’s discretion if extraneous matters influence the trustee’s decision

    Parties should be prepared to present verifiable evidence of their allegations

    In Walters, the Trustees believed that Mr. Walters, who less than eight years before his application had assets of over a million, was hiding assets and was not in actual financial need that would have justified encroaching on the Trust capital that was meant to support him for a potentially lengthy period of time. However, the Trustees could not produce any evidence at trial that would have supported their position. Therefore, it is essential that any allegations that a party wishes to rely on are supportable by verifiable proof; otherwise, the whole process is a waste of resources by all parties.

    Overall, the Walters decision highlights how important it is to separate personal feelings from actual obligations, especially when naming a Trustee or acting as a Trustee. Had Ms. Walters appointed a corporate Trustee to oversee the Trust or had her children put aside their feelings to fulfill their mother’s wishes, the Trust may have preserved significantly more assets for future residual distributions.

    Contact Toronto Estate Lawyers at Derfel Estate Law for Estate Administration and Trust Disputes

    At Derfel Estate Law, our experienced estate lawyers are always up to date on estate administration requirements and can assist in acting as an Estate Trustee. Contact us by phone at 416-847-3580 or reach us online to discuss your estate needs.