Passing Over an Executor: Re Thomasson Estate

In British Columbia, you may choose in your will whom you wish to be your personal representative, or executor, on your death. If the person you choose is able and willing to act, the Supreme Court of British Columbia will usually grant probate of your will to your chosen executor.

But there are circumstances where on application of a beneficiary, the court may pass over an executor.

This occurred in the recent decision In Re Thomasson Estate, 2011 BCSC 481.

Agnes Thomasson and Herbert Thomasson had four children. In their wills, they appointed two of them, Brian Thomasson and Alexander Thomasson, as their executors, and left their estate to three of their children. They had previously transferred shares in their family business to Alexander Thomasson, and he was not left anything in his parents wills.

In addition to transferring shares in the family business, Agnes and Herbert Thomasson transferred some land to Alexander Thomasson. Brian Thomasson wanted to make an inquiry into the transfer of the land, and he applied to pass over Alexander Thomasson. Brian Thomasson argued that Alexander Thomasson would have a conflict of interest if the court granted probate to Alexander Thomasson.

Madam Justice Gerow agreed with Brian Thomasson’s submissions and ordered that Alexander Thomasson be passed over, but reserved his right to be added in the future after any enquiries into the transfer of land to him were completed. She wrote at paragraphs 27 through 29:

[27]         In this case, Alex is not a beneficiary under either of his parents’ wills, and his only interest in the estates is as an executor. The other named executor wants to make enquiries into the transfer of the Property to Alex in order to determine what, if any, interest the estates have in the Property, and what, if any, obligations Alex and his wife have to the estates as a result of the transfer.

[28]         The application is not to remove Alex as an executor but simply to pass over him so that an enquiry can be undertaken of the transfer of the Property to him and his wife by the deceased in 2006, and a determination can be made if any further actions need be taken in regards to the Property.

[29]         In the circumstances of this case, it is my opinion that there is a perceived conflict of interest between Alex in his role as an executor and his interest in his personal capacity. If an action is instituted by the executors as a result of the transfer of the Property, it would be against Alex. In my opinion, Alex, in his capacity as executor, cannot attack the transfer of the Property to himself while at the same time maintaining, in his personal capacity, that the transfer of the Property was proper. By making such a finding I am not prejudging the case. I am simply of the view that, in the circumstances of this case, if an action is commenced as a result of the enquiries into the transfer, Alex cannot conscientiously act as a plaintiff in his capacity as an executor in a case where he will be the defendant.

Executor's Discretion to Decide When to Sell Land

How long may an executor wait to sell land and distribute the proceeds to the beneficiaries?

The Supreme Court of British Columbia considered this question in the recent case of Hriczu v. Mackay Estate, 2011 BCSC 454.

In her will, Mary Mackay left her estate to be divided equally among her son and four grandchildren. She died on April 30, 2000.

Mary Mackay owned 17.5 acres of land in Revelstoke, British Columbia. This was the main asset in the estate. The land’s estimated value was $118,000 when Mary Mackay died, but the current assessed value $1,143,600.

The executor, Mary MacKay’s son, and father of the other beneficiaries, has held the land in the estate. Initially, all of the beneficiaries agreed to hold it, and there were discussions about subdividing the land.

Now, one of the beneficiaries, Leanne Hriczu, wants the land to be sold so that she may receive her inheritance. She brought an application to court to have the land sold, and to have her father removed as executor.

The will contained a clause providing the executors with the following authority:

(a) To use their discretion in the realization of my estate, with power to my Trustee to sell, call in and convert into money any part of my estate not consisting of money at such time or times, in such manner and upon such terms, and either for cash or credit or for part cash and part credit, as my said Trustee may in their uncontrolled discretion decide upon, or to postpone such conversion of my estate or any part or parts thereof for such length of time as they may think best, and I hereby declare that my Trustee may retain any portion of my estate in the form in which it may be at my death, (notwithstanding that it may not be in the form of an investment in which Trustees are authorized to invest trust funds, and whether or not there is a liability attached to any such portion of my estate) for such length of time as my said Trustee may in their discretion deem advisable, and my Trustee shall not be held responsible for any loss that may happen to my estate by reason of so doing.

Clauses similar to this one are fairly common in professionally drawn wills in British Columbia.

Madam Justice Beames held that this clause gave the executor a broad discretion to determine the timing of the sale of the property. She found that he was acting in good faith, and intended to sell the land and distribute the estate. She wrote:

[16] I accept that those principles apply here. The Executor has been given a broad discretion to postpone converting (or selling) the land in question. That discretion must be exercised “honestly, reasonably, intelligently and in good faith”. It cannot be exercised in such a way as to give the executor a personal benefit or put him in a conflict of interest. It must also not be exercised in such a way as to defeat the purpose of the testator, which was to make a gift to each and every one of her five beneficiaries. In other words, the executor is not entitled to refuse to convert, or to postpone conversion indefinitely.

[17] The evidence in this case satisfies me that the executor is intending to convert the estate and distribute in accordance with the Will, when he feels it is advantageous to do so. The issue of sale, or subdivision and sale, has been the subject of various discussions amongst the beneficiaries in the almost eleven years since the death of Mary Mackey. So long as he has a bona fide intention to perform his obligation to convert and distribute, the exercise of his discretion should not be interfered with by this court.

Madam Justice Beames dismissed Leanne Hriczu’s application to order the land sold and to remove the executor. The court did order the executor to provide accounts of his handling of the estate to Leanne Hriczu within 30 days.

This case illustrates the court’s deference to executors in the administration of estates when the will gives the executors broad powers. But as noted, an executor’s discretion is not unlimited. He or she must act “honestly, reasonably, intelligently and in good faith.”

It is significant that the executor had been holding the land initially with the agreement of all of the beneficiaries. I suspect that the outcome may very well have been different if the executor had held the land for over 10 years against the wishes of all of the other beneficiaries.

Free Wills

The other day, a friend and colleague casually suggested to me that the market wants free wills.

I suspect that there are a large number of consumers in British Columbia who are not willing to pay very much to have their will prepared for them. Some don’t make a will. Others choose to try to write it themselves, perhaps using a form-will kit, or using an online service. Still others seek out quotes from lawyers and notaries public, and select the one with the lowest quote.

Historically, legal fees for drawing wills in British Columbia were lower than the fees charged by lawyers for most other types of legal work. When I started practicing law 22 years ago, another lawyer explained to me that lawyers charged little for a will in the expectation that someday after the client’s death, the lawyer would get to handle the more lucrative legal work for the client’s executor in applying for probate, for which lawyers were handsomely paid. This is not practice I endorse. For one thing, charging little for a will undervalues the importance of good estate planning. Fortunately, that practice has changed, and if lawyers are charging more for wills, fees for probate work have come down over the years. At least that’s my perception.

I like the fact that people have choices, including very inexpensive options for planning their estates. Competition is healthy. Our economy is built on it.

So why should you pay to see a lawyer who specializes in estate planning to make a will, when it is going to cost more than some of the alternatives? Do you really need a lawyer?

You might expect me to tell you about all of the things that can go wrong if you don’t use a lawyer. Well, I could give you anecdotes about things that have gone wrong in other cases. I have written about court decisions involving people who have drawn their own wills or trusts, including my posts entitled “The costs of not having a lawyer prepare your will,” and “ Do-it-yourself trust: Canada v. Rudolf.” On the other hand, that does not mean things will go wrong for you (or actually your heirs, because you won’t be around to find out). It is also true that lawyer-drawn wills are not infallible. I do think that there is a much greater risk of problems when someone who is not legally trained tries to write their own will, including using a kit or an online service, than if they see a lawyer. But to me that is a secondary consideration.

The main question is, does a lawyer, and in particular, one who specializes in wills, estates and trusts, add value over the alternatives? Is that value worth the additional expense?

What an estate-planning lawyer does is distill a vast amount of legal knowledge and practical experience and apply that knowledge and experience to his or her client’s particular circumstances. The estate-planning lawyer is first-and-foremost an adviser.

There are things you can learn about law on your own. There are good books out there, as well as articles, and now legal blogs. But estate-planning law is humongous. No book, article, or blog post is going to tell you everything that might be relevant to your will and estate planning. Not even a 1000 page text book. Browse through my blog, and see the number of issues I have written about, and I have barely scratched the surface. I learn new things about wills, estates and trusts all of the time, even after over 20 years of practice, much of it specializing in this field.

But book-knowledge is just a part of the equation. How does the law apply to you and your own unique circumstances?

To me, the most important meeting I have with an estate-planning client is the first meeting, when I get to know my new client. Who are your family? What are your financial circumstances? What are your estate planning goals? I ask a lot of very personal questions because I need to in order to apply that large body of law to my client’s circumstances.

It’s not just about what goes in the will. Many people have assets that go to their heirs outside of their will. For example, you can hold property with another in a joint tenancy such that title of the whole property passes to the survivor on the death of one joint owner. Or you can designate beneficiaries of your life insurance policy or Registered Retirement Savings Plans. Your beneficiary designations and how you hold property needs to be carefully coordinated with your will if you are going to have a coherent estate plan and minimize the risk of disputes.

When you meet with an estate-planning lawyer, you will also likely have questions. The questions will be based on your own unique circumstances. Here are some that sometimes come up:

1. I am getting remarried, and I have children from my first marriage. I want to make sure that my new husband is provided for if I die before him, but I also want my children to eventually have an inheritance. How can I accomplish that?
2. One of my children has a disability, cannot handle money well, and receives British Columbia disability benefits. How do I provide for him after my death, without him losing the money I leave him, or losing his disability benefits?
3. I am estranged from one of my children and want to disinherit her. I have heard that she can challenge my will. What options do I have?
4. I am concerned that my daughter’s marriage may break down, and I want to protect any inheritance she gets from me from any claims her spouse may make if it does. How can I protect her?
5. I have heard that British Columbia has high probate fees? How can I save probate fees?
6. Someone told me that it is a good idea to put my house into a joint tenancy with one of my children. Is it?
7. I have three children, one of whom is working in the family business. I would like to leave the business to her. How can I accomplish that?

What if your circumstances are really simple? You and your spouse have been married to each other for 40 years, have two grown, healthy children with stable marriages, and you and your spouse want to leave everything to each other, and then equally to your children. Will a simple will do? Perhaps. But there may be estate-planning opportunities you will miss if you don’t get good advice. For example, it may be possible to reduce the tax burden of the survivor of you and your spouse, or of each of your children, through the use of trusts in your wills. In some cases the potential tax savings to your heirs will be thousands of dollars each year for the rest of their lives following your death. I doubt that you will be able to accomplish those tax savings for your heirs using a will-kit.

Does an estate-planning lawyer add value over the alternatives? Is that value worth the additional expense?

British Columbia Law Day

During April, the Canadian Bar Association, B.C. Branch is co-presenting law day events in various cities in British Columbia. According to thehe Canadian Bar Association, B.C. Branch website:

The Law Day 2011 theme is Access to Justice: The Changing Face of Law. Law Day events provide the public with the opportunity to learn about the law, the legal profession and some of the legal institutions that form the cornerstones of our Canadian democracy. Law Week events in British Columbia will include Dial-A-Lawyer, mock trials, a public speaking contest for students, free law classes, citizenship ceremonies, courthouse tours, a free public forum and a fun run in Vancouver.

Law Day events will be held in communities throughout British Columbia in April. In British Columbia, Law Week is a collaborative project organized through the partnership of the BC Branch of the Canadian Bar Association, the Continuing Legal Education Society of British Columbia, the Law Foundation of British Columbia, the Law Society of British Columbia and the Vancouver Bar Association.

The dates and events are as follows:

Vernon: Saturday, April 16th. Events include: Mock trial , RCMP, Specialized Victims, legal aid, sheriffs, tours of the court house and cells, and a composition competition for elementary and high schools.

Cranbrook: Wednesday, April 27th. Events include: Mock Trial will be held at the Key City Theatre at 7:00pm. The theatre is donated through the generosity of our Key City Theatre Society.

Kamloops: Wednesday, April 6th. Events include: Cell and vehicle tours by sheriffs, RCMP dogs, RCMP drug and forensic displays, Court house library tour and a Billy Miner display, Treasure hunt for kids, Community organization displays, ICBC display, and a Mock trial (based on Peter Pan).

Kelowna: Wednesday, April 13. Events include: Girl Guide arrests and a mock trial, RCMP dogs, RCMP motorcycle demonstration, Courthouse and cell tours, Poster Contest and scavenger hunt, Community displays and a BBQ.

Nanaimo: Saturday, April 9th. Events include: The Trial of Hansel and Gretel with a real judge, RCMP lecture, Police K-9 Unit Demonstrations, Panel of two judges and a Crown counsel with questions from the public, tour of the Sheriff’s Van, Resource Tables and Information, and a Wills & Estates Skit with the big bad wolf.

Victoria: April 16, 2011. Events include: Mock Trial: Harry Potter, Police k-9 Unit Demonstrations, Community Forum: Q&A on The Changing Face of Law, Tour of Sherriff’s vehicles, Tour of court cells, The Provincial Mock Trial Competition, Resource tables and Information, Passport to Justice (Treasure Hunt with various door prizes and give-a-aways) and Police Presentation on Ecstasy.

Click here for more details.

Attorney's Duties Under Amendments to the British Columbia Power of Attorney Act

When portions of the Adult Guardianship and Planning Statutes Amendment Act, 2007 come into effect on September 1, 2011, in British Columbia, the Power of Attorney Act will be transformed from a short Act of 9 sections to an Act of 42 sections. One of the additions is section 19, which will set out an attorney’s duties when acting under a power of attorney.

The Power of Attorney Act was silent on the attorney’s duties to the person who appointed the attorney. This is not to say that the attorney did not significant responsibilities before these amendments. He or she did. But we relied on the common law, which requires an attorney to act in the best interest of the person who appointed him or her.

When the new legislation comes into effect, section 19 will set out an attorney’s duties as follows:

Duties of attorney
19 (1) An attorney must
(a) act honestly and in good faith,
(b) exercise the care, diligence and skill of a reasonably prudent person,
(c) act within the authority given in the enduring power of attorney and under any enactment, and
(d) keep prescribed records and produce the prescribed records for inspection and copying at the request of the adult.

(2) When managing and making decisions about the adult's financial affairs, an attorney must act in the adult's best interests, taking into account the adult's current wishes, known beliefs and values, and any directions to the attorney set out in the enduring power of attorney.

(3) An attorney must do all of the following:
(a) to the extent reasonable, give priority when managing the adult's financial affairs to meeting the personal care and health care needs of the adult;
(b) unless the enduring power of attorney states otherwise, invest the adult's property only in accordance with the Trustee Act;
(c) to the extent reasonable, foster the independence of the adult and encourage the adult's involvement in any decision-making that affects the adult;
(d) not dispose of property that the attorney knows is subject to a specific testamentary gift in the adult's will, except if the disposition is necessary to comply with the attorney's duties;
(e) to the extent reasonable, keep the adult's personal effects at the disposal of the adult.

(4) An attorney must keep the adult's property separate from his or her own property.

(5) Unless the enduring power of attorney states otherwise, subsection (4) does not apply to property that
(a) is jointly owned by the adult and the attorney as joint tenants or otherwise, or
(b) has been substituted for, or derived from, property described in paragraph (a).

I will address a couple of these matters in this post.

Where I think some attorneys under powers of attorney who otherwise do a good job fall short is in record keeping. I have seen disputes among family members, particularly siblings, over how one of them is handling or has handled a power of attorney. One sibling may accuse another of improperly taking or spending a parent’s funds while acting as an attorney under the parent’s power of attorney. These disputes may arise during the parent’s lifetime, or after the parent’s death. If the parent is incompetent, the Public Guardian and Trustee may be asked to investigate, and the attorney will need to produce good records showing that he or she acted properly. After the parent’s death, the attorney is accountable to the executor of the parent’s will, or if he or she is also the executor, then to the beneficiaries. This will be difficult without proper records of expenditures or other financial transactions. No matter how conscientious you are when acting as an attorney under a power of attorney, you must keep good records in case anyone questions what you have done.

Subsection (4) clearly spells out that if you are acting under a power of attorney, you cannot commingle the assets belonging to the person for whom you are acting with your own. For example, if you are the attorney for your parent under a power of attorney, you must not change your parent’s accounts into joint accounts with you even if that may appear more convenient. Instead you may use your power of attorney to access your parent’s funds to use them as required for your parent’s benefit.

But subsection (5) sets out an important exception that will often apply to spouses. If, for example, you and your spouse hold title to your house as joint tenants, and have joint bank or investments accounts, you are not required to sever the joint ownership if you start using your power of attorney to act on behalf of your now incapable spouse. If you decide to sell the residence that your spouse and you own together as joint tenants, and buy another residence using the sale proceeds, you may register the new residence in both of your names as joint tenants. The new residence will be substituted property for the residence you held together as joint tenants, and subsection (5)(b) will apply.