After Grammata Baxevanidis died, her executor found that she probably did not have sufficient assets in her estate to pay her debts, including over $70,000 to Canada Revenue Agency, without selling the rental property.
The executor made an application to the Supreme Court of British Columbia seeking directions. The executor asked the court to decide whether the balance of the proceeds of the sale of the rental property would go to the daughter or be divided equally between the son and the daughter, if the rental property had to be sold to pay debts. The executor also asked the court whether the daughter could pay the debts herself in order to receive the property.
In a decision released November 16, 2007, Re Baxevanidis Estate, 2007 BCSC 1657, Mr. Justice Cohen held that if the rental property were sold, the balance of the proceeds after payment of the debts would go to the daughter.
When there are insufficient funds to pay all of the debts and the gifts in the will, some of the assets must be sold to pay the creditors. To the extent that assets are sold, the gifts to the beneficiaries are said to abate. Unless a will says something different, there are rules for determining the priorities among different types of gifts.
Mr. Justice Cohen, quoting from a Saskatchewan case, Re Smith Estate, 2003 SKQB 361, set out the order in which types of gifts abate as follows:
First, residuary personalty;
Second, residuary real property;
Third, general legacies, which include pecuniary bequests from the residue;
Fourth, demonstrative legacies, that is bequests from the proceeds of a specific asset or fund not forming part of the residue; [See Re Culbertson (1967), 62 D.L.R. (2d) 134 (Sask. C.A.)]
Fifth, specific bequests of personalty;
Sixth, specific devises of real property.
In this case, the rental property falls into the sixth category: a specific gift of real property.Accordingly, it is the last to abate. To the extent that there are proceeds of sale remaining, the executor is required to pay them to the daughter.
Mr. Justice Cohen also found that the will authorized the executor to transfer the rental property to the daughter if the daughter paid the estate debts. He found authority in the will for this in an administrative clause which authorized the executor to “compromise, settle and waive any claim or claims at any time due to or due by my said Estate for such consideration and upon such terms and conditions as my Trustees may deem advisable.”