Saturday, April 16, 2011

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.

1 comment:

Lynne Butler said...

Thanks for sharing this, as the clause in question is also used extensively here in Alberta.