The recent decision in Re Collett Estate, 2009 BCSC 1800, illustrates how important it is for executors and trustees to carefully scrutinize the will, their powers, and to act prudently when making distributions or loans out of an estate.
After John Allan Collett died on February 9, 1992, the Supreme Court of British Columbia varied his will under the Wills Variation Act. The will, as varied required his executors and trustees to hold the residue of his estate in trust for his wife during her lifetime. The trustees had discretion to give capital to his wife during her lifetime. The wills variation order further provided that on Mrs. Collett’s death the remainder would be divided into two, with half going to those of their two children who were alive on Mrs. Collett’s death, and half going to those of their five grandchildren who were alive on Mrs. Collett’s death. If a child died before Mrs. Collett, his or her share would go to his or her issue “per stirpes.” Similarly, if a grandchild died before Mrs. Collett, the share that would have gone to that grandchild if he or she were living would go to the deceased’s grandchild’s issue “per stirpes.”
During Mrs. Collett’s lifetime, the trustees made distributions and loans to the children and grandchildren. The will, as varied, did not give authority to the trustees to make distributions or loans to anyone other than Mrs. Collett during her lifetime. But Mrs. Collett did not complain. Moreover, she was one of the trustees.
One of the loans the trustees made was a loan of $60,000 to one of the grandchildren, Michael Collett. He agreed that the loan plus interest at 7% per annum would be deducted from his share of his grandfather’s estate. His portion was anticipated to be in excess of $150,000.
Tragically, Michael Collett died before his grandmother. She left surviving him a daughter (actually she was en ventre sa mere when he died).
When Mrs. Collett died, Michael Collett’s daughter was entitled under the will as varied to a portion of the estate. The trustees sought to deduct the amount owing on Michael Collett’s loan from his daughter’s portion. The Public Guardian and Trustee of British Columbia, on behalf of Michael Collett’s daughter objected.
Mr. Justice Gaul held that Michael Collett’s daughter was entitled to her full portion of the estate, without any setoff for the loan made to her father. The will, as varied by the court, made her a beneficiary in her own right of her great-grandfather’s estate (because her father had died before Mrs. Collett, while she survived Mrs. Collett). She was not claiming through her father’s estate.
The trustees had breached their duties of care, and acted without authority when making the loan. They anticipated that Michael Collett would be entitled to a portion of the estate. But because he did not outlive Mrs. Collett, he never became entitled to a portion of the estate. The only recourse for repayment of the loan the trustees would have is against Michael Collett’s estate (which had greater liabilities than assets).
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