New Family Law Act and Standby Guardians

The new Family Law Act, Bill 16, has now been passed by the British Columbia Legislature, and has received Royal Assent, but as of the date of this post is not yet in effect.

If you are the guardian of a minor child, there is a provision that will, when it comes into force, allow you to appoint a standby guardian of the child in case because of illness or mental incapacity you become incapable of acting as the child’s guardian.

Section 55 provides as follows:

55 (1) A guardian facing terminal illness or permanent mental incapacity may appoint a person to become, when the conditions set out in the appointment are met, a child's guardian, in addition to the appointing guardian.

(2) An appointment under subsection (1)

(a) must be made in the prescribed form,

(i) signed at its end by the guardian, or the signature at the end must be acknowledged by the guardian as his or hers, in the presence of 2 or more witnesses present at the same time, and
(ii) signed by 2 or more of the witnesses in the presence of the guardian,

(b) must state the conditions that must be met for the appointment to take effect, and
(c) may provide that a designated person certify that a condition referred to in paragraph (b) has been met and that, if such a certification is made, it is conclusive.

(3) For the purposes of subsection (2) (a),

(a) a witness may not be a person appointed to be the child's guardian, and
(b) a reference to the signature of a guardian includes a signature made by another person in the guardian's presence and by the guardian's direction, and the signature may be either the guardian's name or the name of the person signing.

(4) In carrying out his or her parental responsibilities, a guardian appointed under this section must consult with the appointing guardian to the fullest possible extent regarding the care and upbringing of the child.

(5) Unless the appointing guardian, while capable, has revoked the appointment or the appointment provides otherwise, a guardian appointed under this section continues as the child's guardian on the death of the appointing guardian despite any other instrument made by the appointing guardian.

I am concerned about how the first part of this section is worded. Do the words “A guardian facing terminal illness or permanent mental incapacity,” mean you can only make the appointment if you have been diagnosed with an illness or for some other reason anticipate that you will become terminally ill or suffer permanent mental incapacity? I doubt that this is what the Legislature intended. You should be able to appoint a standby guardian incase you become incapacitated without there being an immediate prospect of such incapacity. You may be perfectly healthy, but want to name a standby guardian for your child incase you are incapacitated in a car accident.

This section should be amended by deleting the words “facing terminal illness or permanent mental incapacity.” They either limit the application of the section in an irrational way, or, as is more likely, they don’t add anything to the meaning of the section.

Inheritances and the New Family Law Act

On November 14, 2011, the Government of British Columbia introduced Bill 16, the Family Law Act, into the Legislative Assembly. The new Act, if passed, and brought into force, will make significant changes to family law in British Columbia. J.P. Boyd has written a nice summary of the Family Law Act for the Stream, Courthouse Libraries B.C. Blog, which you may read here.

I am going to focus a few posts on those aspects of the Family Law Act that will affect my practice areas of estate planning and administration and incapacity planning.

My clients sometimes express concerns about what will happen to property they give or leave to their children or other beneficiaries on the breakdown of a beneficiary’s marriage.

The basic structure of the Family Law Act is that when a married couple or common-law couple (which is defined in the legislation) separate, each has an undivided half interest in the “family property.” Section 84 sets out a broad and inclusive definition of family property, while section 85 excludes some categories of property. Significantly, section 85 (1) (b) excludes “gifts or inheritances to a spouse.”

Problem solved, right? It’s more complicated than that.

Section 84 (2) (g) includes in family property:

the amount by which the value of excluded property has increased since the later of the date

(i) the relationship between the spouses began, or

(ii) the excluded property was acquired.

To illustrate how I expect this will operate, suppose you give your married daughter $200,000 (or she inherits that amount on your death while she is married). She invests the funds in mutual funds. She and her husband separate. On the date of separation, the value of the mutual funds has grown to $400,000. The $200,000 she received from you is excluded, but the $200,000 of growth is divided equally between your daughter and her former husband. She is entitled to $300,000, and he, $100,000.

In this illustration, I have assumed an outright gift. I will talk about trusts in a later post.

I should note that although the basic rule in the Family Law Act will be that family property is divided equally, the court may order an unequal division if it is “significantly unfair” to order equal division. The parties may also make an agreement providing for an unequal division on the breakdown of their marriage or common law relationship.

Although excluded property is normally excluded, the court may order a division of excluded property in some circumstances. Section 96 provides:

The Supreme Court must not order a division of excluded property unless

(a) family property or family debt located outside British Columbia cannot practically be divided, or

(b) it would be significantly unfair not to divide excluded property on consideration of

(i) the duration of the relationship between the spouses, and

(ii) a spouse's direct contribution to the preservation, maintenance, improvement, operation or management of excluded property

Overall, I think the treatment of gifts and inheritances in the Family Law Act will be better than under the current legislation, which includes gifts and inheritances that are used for a “family purpose” as “family assets,” to be divided between the spouses, but then gives the court discretion to order an unequal division having regard to the fact that the property was acquired through inheritance or gift. The new Family Law Act may bring greater certainty to how gifts and inheritances are treated, but until it is passed, brought into effect, and the courts have interpreted it, we really won’t know.

Cost Award in Mawdsley v. Meshen

Last July, Madam Justice Ballance provided her decision on the issue of court costs in Mawdsley v. Meshen, 2011 BCSC 923. I previously wrote about the substantive issues in the case here. Mr. Meshen was successful in his application to vary his late common law wife, Joan Meshen’s will. But before her death, Ms. Meshen had transferred much of her wealth to a trust for herself, and then on her death for her children and her first husband’s brother. Mr. Mawdsley was not successful in challenging the trust. One of the grounds on which Mr. Mawdsley unsuccessfully attempted to challenge the trust, as well as other transactions, was that Ms. Meshen’s transfers of assets our of her name were fraudulent conveyances to defeat his claims as a “creditor or other.” The court found that he was not a creditor or other within the meaning of the Fraudulent Conveyance Act, and the transfers were not fraudulent conveyances. Accordingly, although he was successful in his Wills Variation Act claim, he received far less than what he was claiming.

 

Following her decision on the merits of the case, Madam Justice Ballance considered the issues of costs. In British Columbia, the usual rule is that the unsuccessful party has to pay court costs to the successful party or parties. These costs usually represent only a portion of the actual legal expenses the parties incur, but they can be substantial. In some cases the courts order “special costs” which provide a higher level of costs, sometimes even the full amount of the legal fees a party has incurred.

 

Mr. Mawdsley argued that as the successful party, he should recover costs from the defendants, which include Ms. Meshen’s children and the brother of her first husband. They, on the other hand, argued that he should be awarded some costs, reflecting his success on the Wills Variation Act issue, but they should also be awarded costs against him to reflect that he was not successful in challenging the trust and some of the property transfers Ms. Meshen made before she died. Their position was that costs should be apportioned.

 

The defendant beneficiaries also argued that Mr. Mawdsley should be required to pay “special costs” on the basis that he was not successful in his allegation that she fraudulently conveyed assets to the trust. He had also sought to set aside the trust on the basis that she had been unduly influenced and did not have capacity. He was not able to prove either allegation.

 

The executor of Ms. Meshen’s will and trustee of the trust she settled asked the court to order that he be fully indemnified for his legal expenses out of the estate and out of the trust.

 

Madam Justice Ballance set out in some depth the principles involved in cost awards. To summarize and paraphrase from her reasons:

 

• The usual rule is that the successful party is entitled to costs from the unsuccessful party.
• In some types of estate litigation, the courts may award costs to all parties out of the estate on the theory that the litigation was brought about by the conduct of the deceased.
• More recent decisions have applied the rule that the unsuccessful party is required to pay costs to the successful party in disputes concerning the validity of wills.
• In Wills Variation Act cases, the courts have followed the approach that the unsuccessful party pays the costs, but not in all cases.
• Executors and trustees when acting within their fiduciary capacities are entitled to be indemnified for costs they reasonably incur. They may be indemnified in disputes over the validity of wills, even where the wills are found to be invalid.
• Costs may be apportioned, but this is an exception to the usual rule that the successful party is entitled to costs. A party seeking apportionment must show that there are separate and discrete issues. There must also be a basis on which the judge can assess the time at trial attributable to the separate issues, and the result of the apportionment must be just.
• The amount awarded to the successful party is not the proper method of assessing that party’s success for apportionment.
• Special costs may be awarded against a party to discourage reprehensible conduct, including making unproven allegations of fraud or undue influence, both of which are serious allegations that can harm the reputation of a party. But the award of special costs is discretionary and the court will consider the particular circumstances.

 

Madam Justice Ballance found that it was appropriate in this case to apportion costs by awarding the Mr. Mawdsley his costs for only seven of the nine days of trial. She found that much of the evidence that related to those claims in which Mr. Mawdsley was not successful, was also relevant to his Wills Variation Act claim. But there were some discrete issues as well. She held that he should not receive his costs for the time spent at trial for testimony on the question of whether Ms. Meshen intended to put assets out of Mr. Mawdsley’s reach when she made the transfers or for the time spent on the question of whether Mr. Mawdsley had standing as a “creditor or other” to seek to have the transfers set aside under the Fraudulent Conveyance Act.

 

Madam Justice Ballance declined to award special costs against Mr. Mawdsley. She found that in making the fraudulent conveyance argument, he was not motivated by malice, nor was “it devoid of any evidentiary foundation, speculative [or] frivolous.” The allegation that a transfer was “fraudulent” for the purpose of the Fraudulent Conveyance Act does not necessarily imply immoral conduct. The Act does require proof of dishonesty or other moral blameworthy conduct for the court to set aside a transfer as a fraudulent conveyance.

 

With respect to the allegation of undue influence, Madam Justice Ballance found that it was not central to the case, but a secondary consideration.

 

Madam Justice Ballance held that the executor of the will, and trustee of the trust, is entitled to be indemnified for his legal expenses relating to those functions, to be paid in part out of the estate, and in part out of the trust.