Beneficiary Designations of Benefit Plans Under the New Wills, Estates and Succession Act

The new Wills, Estates and Succession Act (“WESA”), which will come into force on March 31, 2014, brings much of British Columbia’s legislation related to succession under one Act. Although much of WESA deals specifically with wills and estate administration, it also has provisions related to other estate planning, including designations of beneficiaries in various benefit plans.

Part 5 of WESA covers designations of beneficiaries of benefit plans. These are defined in the legislation, and include pension plans, registered retirement savings plans, registered retirement income funds, annuities and tax free savings accounts. But significantly, Part 5 does not apply to contracts of insurance and insurance beneficiary designations that are governed by the Insurance Act. We don’t quite have one-stop shopping for our succession legislation.

Here are a few of the highlights:

1.   A participant in a benefit plan may designate a beneficiary on death, or alter or revoke a designation. It must be in writing. It cannot alter or revoke an irrevocable designation. It must be “signed by the person making it, or by another person in the presence of the person making it and by his or her direction and the signature may be in the name of the person making it or the person signing.” It should be noted that the beneficiary designation does not require the same witnessing formalities as a will.

2.   You will be able to make a beneficiary designation of a benefit plan in your will, but the designation must expressly relate to the plan. If you do make a designation in the will, you may later change the designation without having to make a new will, if the change meets the requirements set out above. It is possible to make a valid beneficiary designation of a benefit plan in a will even though the will itself is not valid as a will, for example if the will-maker signs the will, but does not have it properly witnessed.

3.   Section 82 will allow you to appoint a trustee for a beneficiary of a benefit plan. This can be quite important. For example, if you wish to provide for someone with a disability who cannot manage his or her own money, you can create a trust for that beneficiary. There was (and is until WESA comes into force) some uncertainty about whether you could designate a trustee as a beneficiary of some plans, such as RRSPs. My view was that you could, but some financial institutions disagreed, and the law will now be clearer.

4.   If the participant in a benefit plan becomes incapable of managing his own affairs, there is a provision that would allow a nominee, which includes an attorney acting under and enduring power of attorney, and a committee appointed under the Patients Property Act, to make a new designation of the same beneficiary of a plan. This would be useful if, for example, funds are moved from one Registered Retirement Savings Plan to another. The attorney or committee could designate the same beneficiary the participant had designated in the previous plan.

5.   There is also a broader provision, section 85(3) that will allow an attorney acting under an enduring power of attorney or a committee, to make a designation appointing or changing a beneficiary of a benefit plan, but only if authorized to do so by the court. Accordingly, if the participant in a plan had never designated a beneficiary of say his or her RRSP, the attorney would have to apply to court for authorization to make a designation.

Cost Award in Hsia v. Yen-Zimmerman

I wrote an earlier post about the case Hsia v. Yen-Zimmerman, in which Mr. Justice Barrow upheld the validity of Chester Hun’s will, which had been challenged by two of his grandchildren. They had alleged that it had not been signed in accordance with the formal requirements of the Wills Act, and that Mr. Hun did not have testamentary capacity. Although one of the witnesses to the will had died, and the other could not be found, Mr. Justice Barrow applied a presumption that because the will bore the signatures of Chester Hun and two witnesses, that it was valid. He also found that Mr. Hun had capacity.

Since then, Mr. Justice Barrow has given his decision on court costs, at 2013 BCSC 624.

In British Columbia, after a decision is made on the substance of a law suit, the court may make an award of costs. Usually, the unsuccessful party is required to pay the successful party costs. Usually the costs do not fully indemnify the successful party for his or her legal expense, although in some cases the courts may award special costs, which may fully indemnify the successful party.

Cost awards in estate litigation are more complex than in many other types of disputes. There are different principles at play. There are some cases where the courts have found that the law suit was necessary because of something that the deceased did or that the circumstances were such that the matter should have been brought to the court. For example, the wording of the will might not be clear, and the court is required to interpret the will. Or there may be a genuine question about whether the will-maker had capacity to make a will. Sometimes, the courts have applied the rule that the successful party is entitled to costs from the unsuccessful party, but in others the courts have awarded costs out of the estate, or in some cases have even awarded costs out of an estate to the unsuccessful parties.

The cases are difficult—I would even say impossible—to reconcile. I am skeptical of attempts to even identify trends.

In Hsia, the executor, who was successful in proving that the will was valid, sought an order that the unsuccessful grandchildren pay costs, and that she be indemnified out of the estate for the difference between those costs and her legal expenses.

The unsuccessful grandchildren argued that they should also receive costs out of the estate, or at least not be ordered to pay costs. They agreed that the executor was entitled to be indemnified out of the estate for the executor's expenses.

Relying on the principles articulated in the Court of Appeal decision in Vielbigv. Waterland Estate (1995), 6 E.T.R. (2d) 1, the grandchildren argued that the circumstances were such that the lawsuit was need to ensure that the will was valid:

[6]             The defendants argue that the law remains as expressed in Vielbig v. Waterland Estate (1995), 6 E.T.R. (2d) 1 (B.C.C.A.). In that case Hinds J.A. adopted the analysis of Master Horn in Lee v. Lee Estate (1993), 84 B.C.L.R. (2d) 341 (S.C.), where he explained the general rules and the rationale for them. The general rule is that costs follow the event. When that rule is departed from, it is usually only to the extent of ordering the parties to each bear their own costs. Ordering the successful party to pay the costs of the unsuccessful party is very rare. In estate litigation, the rule is applied somewhat differently. Master Horn explained at paras. 13-14:

[13]      In probate or administration actions or in proceedings for the construction of wills, the rule may be more frequently departed from. In such cases where the validity of a will or the capacity of the testator to make a will or the meaning of a will is in issue, it is sometimes the case that the costs of all parties are ordered to be paid out of the estate. This is upon the principle that where such an issue must be litigated to remove all doubts, then all interested parties must be joined and are entitled to be heard and should not be out of pocket if in the result the litigation does not conclude in their favour. The estate must bear the cost of settling disputes as a cost of administration... 

[14]      But the case is different where the litigation does not relate to the validity of the will or the capacity of the testator or the construction of the will. Actions brought under dependants relief legislation presume the validity of the will and the capacity of the testator and that his intentions are clear. There are not doubts to be settled. The remedies provided by such legislation are directed to the maintenance and support of the dependants of the testator and are based on public policy. The legislation does not invalidate the will, it merely permits the court to vary the provisions made by the testator. So an unsuccessful action under such legislation cannot be said to have been caused by a testator, or to be have been necessary to enable the estate to be distributed. The action does not benefit the estate.

The plaintiff, on the other hand, pointed to the decision in Woodward v. Grant, 2007 BCSC 1549, in which Madam Justice Gray emphasized the role the rule that the unsuccessful party must pay costs to the successful party play in encouraging negotiated settlements:

[8]             In Woodward v. Grant, 2007 BCSC 1549, Gray J. reviewed the law relating to costs in estate litigation, including the Court of Appeal’s decision in Vielbig v. Waterland Estate (1995), 1 B.C.L.R. (3d) 76. She concluded that the kinds of cases in which it may be appropriate to order that the estate bear the costs of all parties to the litigation are ones in which either the validity of the will or the testamentary capacity of the testator is in issue. She noted, however, that even in those situations it cannot be said that the estate is “normally” ordered to pay the costs of all parties. She wrote that more recent authorities (Kirkham v. Fox, [1993] B.C.J. No. 2518 (S.C.) and Field v. James, [1999] B.C.J. No. 1398 (S.C.)) suggest a trend towards applying the usual rule that costs follow the event, at least where the issue is the testator’s capacity. She explained the likely justification for the trend writing at paras. 16 and 17 that:

[16]      The trend towards the general rule that costs should follow the event is likely, in part, a recognition of the significant costs that can be incurred in litigation and that consideration of costs can assist in achieving settlement. Providing that an unsuccessful party can recover its costs from an estate would discourage that party from taking into account the legal costs of proceeding when considering settlement. As a result, awarding costs from the estate could encourage probate litigation and discourage settlement. It would defeat the testator's intentions to the extent that the costs reduced the size of the estate available for distribution. 

[17]      As a result, costs should follow the event unless the court orders otherwise, exercising its discretion judicially.

In declining to award any costs to the grandchildren, Mr. Justice Barrow applied the principles set out in another case, Morton v.National Trust Co. Mr. Justice Barrow wrote at paragraph 10:

In exercising that discretion, the principles set out by Gow J. in Morton v. National Trust Co., [1993] B.C.J. No. 1523 (S.C.) apply. At paras. 39 and 40 he wrote:

[39]      R. 57(9) provides that costs of and incidental to a proceeding shall follow the event unless the court otherwise orders. In probate actions that has been the rule since 1907, subject however, to these provisos:

(1)   Where the testator or the residuary legatees have been the cause of the litigation;
(2)   If the circumstances lead reasonably to an investigation in regard to the propounded document;
(3)   The overriding discretion of the court.

[40]      If proviso (1) applies then ordinarily the court will grant the unsuccessful party costs out of the estate. If proviso (2) applies then ordinarily the court will not make an order for costs against the unsuccessful party. c.f. Hodson L.J. in Cutcliffe's Estate (1959), P. 6 at p. 13.

Mr. Justice Barrow found that there was nothing in the conduct of the will-maker, Chester Hun or of the executor that gave rise to the lawsuit. With respect to their allegation that Mr. Hun did not have capacity to make a will, there were no circumstances that reasonably lead them to require an investigation.

On the other hand, Mr. Justice Barrow did not award costs against the grandchildren. They reasonably raised the issue of whether the executor could rely on the presumption that the will was valid from the appearance that it was signed in accordance with the Wills Act formalities. He wrote:

[14]         As just noted, the conclusion regarding testamentary capacity turned, in part, on whether the presumption in Vout v. Hay was applicable. That issue turned on whether the Will had been executed with the requisite formalities. Given that one of the witnesses to the Will could not be identified, and hence could not be located, and the other had passed away, it may not have been unreasonable to require investigation into the circumstances surrounding the execution of the Will. 

[15]         There are two other circumstances of note in the matter at hand. These are relevant to the exercise of the overriding discretion referred to by Gow J. and Gray J. First, I do not question the bone fides of the defendants. I accept that they are now, and were prior to the deceased’s death, perplexed by the remote and distant approach their grandfather seemed to take towards them. It was because of that behaviour that they questioned his capacity. Second, while I concluded that the presumptions applicable to proving due execution were sufficient to establish that fact, that is not a conclusion that is free from doubt.

In the result, the grandchildren will have to fully bear their own legal expenses, but are not required to pay any costs to the executor, whose legal expenses will be paid out of the estate on a special costs basis.

Small Estate Provisions of Wills, Estates and Succession Act Not Coming Into Force

As I have written previously, British Columbia’s new Wills, Estates and Succession Act will come into force on March 31, 2014. This legislation overhauls B.C.’s succession laws.

But the provisions allowing for a simplified procedure for the administration of small estates are not coming into force on March 31, 2014. Sections 108 through 120 of the Wills, Estates and Succession Act set out a simplified procedure for executors or others who wish to administer a small estate to do so after giving notice to beneficiaries and others with an interest in the estate, and then filing a declaration with the court. If the estate is under a certain value (which would be set out by Regulation), a person could act as the deceased’s personal representative on the basis of the declaration and would not be required to apply for a grant of probate or letters of administration. The idea is to provide for a simpler and less costly procedure in cases where the value of the estate may not warrant the expense and complexity of an application for probate or letters of administration.

I don’t know whether these sections will come into force at a later date, or if they will come into force at all.

Vancouver Courthouse

I took this photo from the Sheraton Wall Centre last fall of the Vancouver Courthouse on Smyth Street, which houses both the Supreme Court of British Columbia and the British Columbia Court of Appeal.

B.C. Court of Appeal Dismisses Appeal in Easingwood v. Cockroft

In a decision released today, the British Columbia Court of Appeal  in Easingwood v Cockroft, 2013 BCCA 182, dismissed Kathleen Easingwood’s appeal of the Supreme Court of British Columbia’s decision that two of her husband’s children had the authority and acted properly in exercising a power of attorney on his behalf to create a trust into which they transferred a significant portion of his wealth.

Lauren Cockroft and Hank Easingwood were acting as their father, Reginald Easingwood’s attorney under an enduring power of attorney in managing his affairs after he was diagnosed with dementia. The power of attorney required that they both act together. After Hank Easingwood was diagnosed with cancer, they were concerned that he would not survive his father, and it would be necessary for Lauren Cockroft to apply to court to be appointed a committee to manage her father’s affairs. They set up a trust under which their father’s wealth was to be used for his benefit during his lifetime, and on his death would be distributed in a manner that mirrored his will. The trust would then allow for a successor trustee to be appointed on Hank Easingwood’s death.

After her husband’s death, Mrs. Easingwood challenged the trust. She argued at trial that his children did not have the authority under the enduring power of attorney to transfer his assets into a trust, that in doing so they breached their obligations of loyalty to him by acting in their own interest, and that the transfer of assets into a trust was a fraudulent conveyance.

The significance of the trust to Mrs. Easingwood is that she is making a Wills Variation Act claim to vary her late husband’s will, but the Wills Variation Act does not give the court authority to vary dispositions of property made during the deceased’s lifetime bypassing the estate.

I have written two posts about Madam Justice Dillon’s decision in the Supreme Court of British Columbia. The first post deals with the issue of whether Hank Easingwood and Lauren Cockroft had the authority and acted in accordance with their duties as attorneys under the enduring power of attorney in creating the trust, and the second deals with the argument that the transfer of assets was a fraudulent conveyance.

In the Court of Appeal, Kathleen Easingwood did not challenge Madam Justice Dillon’s decision that the transfer of assets was not a fraudulent conveyance. The Court of Appeal focused on the issues of whether the Hank Easingwood and Ms. Cockroft had authority under the enduring power of attorney to create a trust for their father, and whether they breached their duties to him in doing so.

The Court of Appeal held that there was no prohibition at the time the trust was created against an attorney acting under an enduring power of attorney on behalf of a mentally incapacitated person from settling a trust. Although an attorney does not have the authority to make a will for an incapacitated person, this trust was not testamentary in nature. It took effect during Reginald Easingwood’s lifetime, rather than on his death.

Madam Justice Saunders, writing for the Court of Appeal, agreed with Madam Justice Dillon’s finding that the trust mirrored Reginald Easingwood’s will, and was consistent with the Easingwoods’ marriage agreement. The terms of the trust provided that if there were insufficient funds in his estate to fund the gifts to Kathleen Easingwood in his will, the trust assets would be used to top up what she would receive out of his estate. This was a key finding to the decision.

In the circumstances of the case, the Court of Appeal agreed that Hank Easingwood and Lauren Cockroft acted in the interest of their father, and were not in breach of their duty of loyalty to him. After quoting from the trial decision, Madam Justice Saunders wrote at paragraph 73:

[73]         In these passages, the judge found the trust did not diverge from Reg’s known intentions as reflected both in the will and the marriage agreement – in other words, Reg’s interests were not reduced or adversely affected and there was no conflict of interest between the attorneys and Reg. Further, the judge found the trust was created for two sound reasons: because the power of attorney could lapse if Hank predeceased Reg, thus triggering appointment of a committee, contrary to Reg’s wishes; and because it was prudent business as it accorded with estate management advice received by the attorneys. That is, the judge found that the creation of the trust was bona fide.

 In reading this decision, I think it is important to keep in mind several things:

First, the decision considered the use of an enduring power of attorney before amendments were made to the Power of Attorney Act that set out duties and restrictions on the use of enduring powers of attorney. The Court of Appeal noted that it was not considering the effect of these changes to the legislation. The transfer of assets into a trust is arguably a gift, in which case it would only be permitted now that the legislation has been changed if the enduring power of attorney expressly authorized the attorneys to make gifts of that magnitude.

Secondly, the facts of this case were unusual in that the children had a legitimate concern that Hank Easingwood would die before his father (which sadly did happen), and the terms of the enduring power of attorney were such that Lauren Cockroft would not be able to continue to act on her own as the sole surviving attorney. The Court considered this to be a good reason to settle the trust.

Thirdly, the Court found that the trust was consistent with Reginald Easingwood’s intended disposition of his assets on death as reflected in his will. If Hank Easingwood and Lauren Cockroft had created a trust that had the effect of altering their father’s estate plan to provide Kathleen Easingwood with less than what she would be entitled to under his will, it would be unlikely that the Supreme Court of British Columbia and the Court of Appeal would have found that they had acted properly. 

Sabey v. Beardsley

Dressage is sometimes referred to as horse ballet. It does appear to me that the horses are dancing. Here is a video of from the London 2012 Olympic Grand Prix Dressage I found on You Tube. It involves a high level of horse training, and a high level of skill by the dressage rider and trainer.

Jesse Sabey became interested in dressage riding at a young age. He began riding at 12. He met Kim and Dietrich Hopffgarten, prominent dressage riders and trainers, a couple of years later after seeing them at a horse show. He lived in Washington State, and they lived across the border in British Columbia. He asked them to give him dressage riding lessons, and they did. After he graduated from high school, the Hopffgartens assisted in arranging for him to get a student position in a dressage facility in Germany.

In 2001, Mr. Sabey moved to the Hopffgartens’ horse farm, Sansoucci, in Langley, B.C. He worked for them, while taking riding lessons, but also commuting to Washington State to study accounting, eventually becoming a Certified Public Accountant. He had told the Hopffgartens that he wanted to become a professional dressage rider, but Mr. Hopffgarten encouraged him in his studies to become an accountant. He moved to Washington State in 2005, but continued to return to work on the farm, usually on Saturdays. They had become very close over the years.

Although the Hopffgartens paid Mr. Sabey while he was a working student on the farm, they often paid him less than the other working students they employed. Mr. Hopffgarten told him on three occasions that the farm would someday be Mr. Sabey’s. Mrs. Hopffgarten was present on at least one of those occasions. He made further comments that were less explicit, but implied that Mr. Sabey would one day get the farm.

Mr. Hopffgarten died in 2006, and the farm became Mrs. Hopffgarten’s as the surviving joint tenant. She told Mr. Sabey that it had been their plan that if anything happened to Dietrich Hopffgarten, the farm would be Mr. Sabey’s. She asked him to come back and take it then, but because of his job and concern about immigration issues, he continued to live and work in Washington State, returning to the farm on weekends.

Mrs. Hopffgarten died in May 2011.

Both Dietrich and Kim Hopffgarten made codicils to their wills leaving Mr. Sabey the farm. Unfortunately, they made the codicils on their own, and each only had one witness to the codicil. In British Columbia, a will or codicil must be witnessed by two witnesses to be valid.

When the new Wills Estates and Succession Act comes into force on March 31, 2014, the Supreme Court of British Columbia will have the power under section 58 to give effect to a document that does not comply with the formal requirements of a will if the Court is satisfied that the document represents the maker’s testamentary intentions (as I discussed here). But this provision, not being in effect, is of no benefit to Mr. Sabey.

Although he could not give effect to the codicils, Mr. Justice Myers in Sabey v. Beardsley, 2013 BCSC 642, awarded Jesse Sabey the farm.

Mr. Sabey’s lawyers, Amy Francis and Andrea Frisby, argued on his behalf that Mr. Sabey was entitled to the farm on the basis of the legal doctrine of promissory estoppel and Mr. Justice Myers agreed.

In his reasons for judgment, at paragraph 43, Mr. Justice Myers set out the requirements for a promissory estoppel as follows:

Therefore the courts have normally looked to three main elements as a foundation for a proprietary estoppel claim:  a representation made to the claimant; reasonable reliance on the representation; and a detriment to the claimant flowing from the reliance.

He found that Mr. Sabey’s evidence of what Mr. and Mrs. Hopffgarten told him was credible, consistent with the relationship, and his credibility had not been challenged at trial. The assurances they gave him that the farm would be his were sufficiently clear to convey to him that he would someday receive the farm.

Mr. Justice Myers found that Jesse Sabey relied on the Hopffgarten’s statements to him to his detriment in choosing a career as an accountant instead of pursing a career as a professional dressage rider. With respect to the argument advanced on behalf of the beneficiary of the farm under Mrs. Hopffgarten’s will that Mr. Sabey did not suffer financially from his decision to become an accountant, Mr. Justice Myers wrote at paragraph 63:

A financial loss is certainly one type of detriment, but I do not think it is the only type or a necessary element of detriment.  Jesse gave up something he wanted, to become a professional dressage rider.  Whether he would have made more or less money doing that is beside the point.  Further, Jesse oriented his accounting career so that he would not have to travel and so he could work as close as possible (within the United States) to the farm.  I do not think it is incumbent on him to prove a resulting financial loss.  As stated above, reliance and detriment are often one and the same.

In the result, Mr. Sabey is entitled to the farm, Sansoucci.

Trial Lawyers Association of B.C. Estate Litigation Seminar

The Trial Lawyers Association of British Columbia is putting on a seminar on estate litigation on Friday, April 26, 2013 at the Hyatt Regency at Hotel, 655 Burrard St., Vancouver, British Columbia. The agenda and registration information is available here.

I will be on a discussion panel with Helen Low of Faskin Martineau DuMoulin LLP, and Kimberly-Anne Kuntz of Bull Houser & Tupper LLP. Our topic is "Avoiding the Big Pit: Practice Pitfalls in Estate Litigation."