What is the Residue of an Estate?

The largest gifts in wills are usually gifts of residue. The will might say to divide the residue among the will maker’s children. The beneficiaries of the residue are called residual beneficiaries.

The residue of the estate is what is left after payment of debts, funeral expenses, executors fees, taxes, legal and other expenses incurred in the administration of the estate, and after any gifts of specific assets or specific sums of cash.

If you are a residual beneficiary of an estate, you do not have an interest in any specific assets of the estate. Rather you have the right to enforce the executor’s obligation to administer the estate.

The nature of the residual beneficiary’s interests is set out in a recent decision of Mr. Justice Voith in Deutschmann v. Fallis, 2010 BCSC 952, as follows:

[35] The legal consequence of this conclusion [that the beneficiary’s interest was in the residue] are expressed in Curlett Estate (Re), [1996] 3 W.W.R. 545, 11 E.T.R. (2d) 18 (Alta. S.C.), where the court, at paragraph 8, said:

8 A residual beneficiary has no beneficial interest in residual property in the Estate except to items which were specifically devised or bequeathed to him or her (and then the interest exists only in relation to those specific items): Megarry and Wade, The Law of Real Property, 5th ed., (London: Stevens & Sons Limited, 1984), at pp. 559-565. The interest of a residual beneficiary in the Testator’s unadministered Estate is limited to “a right to enforce the proper carrying-out of the functions and duties of administration by the executor”: Commissioner of Stamp Duties (Queensland) v. Livingston, [1965] A.C. 694 (P.C.). This principle has been repeated by the Supreme Court of Canada in Minister of National Revenue v. Bickle, [1966] S.C.R. 479 at 484-5: “It is not disputed that until the trusts under a will have been performed, a residuary beneficiary cannot put his hands on a specific piece of property and claim ownership with all the consequences of ownership.”

[36] In Minister of National Revenue v. Bickle, [1966] S.C.R. 479, Judson J., for the majority, said at 484-5:

I do not agree with these submissions. This will gives the charity the residue of the estate charged with the burden of the payment of the duty. It is not disputed that until the trusts under a will have been performed, a residuary beneficiary cannot put his hands on a specific piece of property and claim ownership with all the consequences of ownership. This is all that the cases of Sudelay v. Attorney-General, [1897] A.C. 11, 75 L.T. 398, and Barnardo v. Commissioners for Special Purposes of the Income Tax Acts, [1921] 2 A.C. 1, 125 L.T. 250, decide.

Hix v. Ewachniuk

In June, the British Columbia Court of Appeal upheld a trial decision that a former lawyer, Alexander Theodore Ewachniuk exercised undue influence over his mother to procure a will in which she effectively left him her estate to the exclusion of her other children. The case is Hix v. Ewachniuk, 2010 BCCA 317.

Mr. Ewachniuk drew a will for his mother, Sophia Ewachniuk, which she signed in January 2004. In the will she appointed Mr. Ewachniuk as her executor. She gave him and his two sisters each one-third of her estate on condition that Mr. Ewachniuk’s sisters transfer their shares in a family business to Mr. Ewachniuk. Otherwise, each of Mr. Ewachniuk’s sisters would receive $5000, and the rest of the estate would go to Mr. Ewachniuk. The sister’s shares were worth more than what they would receive out of the estate if they gave Mr. Ewachniuk’s their shares.

Mr. Ewachniuk’s sisters, Neeva Gayle Hix and Marry Anne Runnalls sued their brother, alleging that the will is invalid because he procured it through the exercise of undue influence. Sophia Ewachniuk’s previous will had left her estate to be divided equally among her children, without any requirement that her daughters transfer their shares in the family business to their brother.

Claims that a will is procured through undue influence in British Columbia can be difficult to prove. The burden of proof is on the person alleging undue influence (although new legislation will modify this presumption where the person benefiting was in a position to dominate the will maker; see section 52, Wills, Estates and Succession Act, which is not yet in effect as of the date of this post). There are rarely independent witnesses to the exercise of undue influence, and the person exercising such influence is not too likely to admit it.

But in Hix v. Ewachniuk, the court found sufficient circumstantial evidence of undue influence to make a finding that Mr. Ewachniuk did unduly influence his mother. Mr. Justice Lowry in the Court of Appeal wrote at paragraphs 21 and 22:

[21] The new will was drawn by Mr. Ewachniuk. By it, he stood to receive the whole of his mother’s estate while his sisters received virtually none, unless they both agreed to give to him shares worth remarkably more in value than what they would receive from the estate. Ms. Ewachniuk had become vulnerable and depen¬dent on her son for all aspects of her life. He was clearly in a position to influence her, it would certainly have served his interests to do so, and, as the judge found, he has an aggressive and domineering personality. He did not have his mother consult a solicitor as, in the circumstances, he would have known was essential. As between Mr. Ewachniuk and his sisters, only Mr. Ewachniuk knew anything about their mother changing her will. She had never asked her daughters to give up their shares in Regent, but she changed her will to require them to do just that if they were to have any share of her estate, even though there is no reason they could have been expected to exercise the “option” the will affords them in that regard.

[22] Once Mr. Ewachniuk’s evidence is put to one side, it appears to me the judge was entitled to conclude the most probable explanation for Ms. Ewachniuk changing her will to effectively leave to her son the whole of her estate is that he must have unduly influenced her to do so. It is said there is no evidence Mr. Ewachniuk ever attempted to take unfair advantage of his mother before and no evidence that she complained to her daughters or anyone else that she was being made to change her will when she did not want to do so. But then the arrangement between Ms. Ewachniuk and her son was that the change was to be kept a secret. In my view, there is little basis in the evidence on which it could be concluded that an equally plausible explanation for Ms. Ewachniuk executing the new will in January 2004 lay in her having decided, apparently without being prompted by anything happening in the later part of 2003 apart from discussions with her son, to favour him over her daughters so much that she changed her will to benefit him and deprive them to the extent to which the will provides.

Harmonized Sales Tax on New Houses

The Harmonized Sales Tax (HST) replaced the Federal Goods and Services Tax (GST), and the Provincial Sales Tax (PST) in British Columbia, on July 1, 2010.

Before the HST, when you bought a new house in B.C. the price was subject to 5% GST (less any applicable rebate), but not the 7% PST. Now the price will be subject to the 12% HST.

Fortunately, there are rebates available for the new HST, which in many cases will reduce the tax burden. Here is a description of the Provincial rebate from a "GST/HST Info Sheet" I found while surfing Canada Revenue Agency's website (yes I surf in the strangest places):

An individual who purchases new housing together
with land from a builder may be entitled to claim a
British Columbia new housing rebate in respect of
the provincial part of the HST paid by the individual
on the purchase.

The rebate will be available if the individual:
• is entitled to claim a GST/HST new housing
rebate in respect of the federal part of the HST;
or
• would be entitled to claim that rebate if the
purchase price of the housing were less than
$450,000.

The British Columbia new housing rebate is equal
to 71.43% of the 7% provincial part of the HST that
the individual paid on the purchase of the new
housing, up to a maximum rebate amount of
$26,250. The British Columbia new housing rebate
is available regardless of the purchase price provided
that the individual meets all of the other conditions
for claiming a GST/HST new housing rebate. That
is, there are no phase-out or maximum purchase
price thresholds for the British Columbia new
housing rebate.

I find it all rather complicated, but as I understand it the effect will be that on new houses up to a certain price (if my math is right $525,000), the Provincial component of the HST will be 2 percent rather than 7 percent.

Although buyers of new houses did not have to pay the PST, the builders had to pay PST on the materials they bought.

If the PST on building material worked out to be 2% of the purchase price of new houses under the old system, and if all of the savings to builders of being able to claim input tax credits on the HST they pay on materials are passed on to new home buyers, in theory the total cost to buyers of low to moderately priced new houses might not change much. Those are two big ifs. But that appears to be the theory behind the Provincial Government's "New Home Calculator," which allows you to calculate the HST on a new home if you are eligible for the rebates. You can find a link to the calculator from this page under "Helpful Link" on the right hand side of the page.

New Rules in the Supreme Court Court of British Columbia Are Now in Effect

As of yesterday, July 1, 2010, both the new Supreme Court Civil Rules and the Supreme Court Family Rules are in effect.