Wednesday, August 06, 2014

Changes to Canadian Charitable Donation Tax Credits for Charitable Gifts on Death

In the 2014 Budget, the Federal Government has proposed changes to the treatment of charitable gifts in wills or beneficiary designations. Essentially, if you include a gift to a charity in your will, under the new tax law, the gift will  be considered to have been made from your estate after your death, rather than immediately before your death. Your executor will then be permitted to allocate the tax credits among the year in which the executor pays or transfers the gift to the charity, an earlier taxation year for the estate, and the last two years of your life.

In many cases, the tax credits may be best applied to the terminal return to offset capital gains arising from the deemed disposition of property at death and other taxes, as may be done under the current rules, but in some cases the changes will provide welcome tax relief if there are significant tax liabilities for an estate after death.

The catch is that the funds or other property must be transferred to the charity within 36 months of death for the tax credits to be available in the last two years of the deceased's life.

The new rules will come into effect in 2016.

Here is the relevant excerpt from 2014 Federal Budget:

Estate Donations 
Donations made by an individual to a registered Canadian charity or other qualified donee are eligible for a Charitable Donations Tax Credit (CDTC). Subject to certain limits, a CDTC in respect of the eligible amount of the donation may be applied against the individual’s income tax otherwise payable. The eligible amount is generally the fair market value of the donated property at the time that the donation is made (subject to any reduction required under the income tax rules). The individual may claim a CDTC for the year in which the donation is made or for any of the five following years. 
Where an individual makes a donation by will, the donation is treated for income tax purposes as having been made by the individual immediately before the individual’s death. Similar provisions apply where an individual designates, under a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA) or life insurance policy, a qualified donee as the recipient upon the individual’s death of the proceeds of the plan or policy. Under these circumstances, the CDTC available may be applied against only the individual’s income tax otherwise payable.

On the other hand, a CDTC available in respect of a donation made by an individual’s estate may be applied against only the estate’s income tax otherwise payable. 
Budget 2014 proposes to provide more flexibility in the tax treatment of charitable donations made in the context of a death that occurs after 2015. Donations made by will and designation donations will no longer be deemed to be made by an individual immediately before the individual’s death. Instead, these donations will be deemed to have been made by the estate, at the time at which the property that is the subject of the donation is transferred to a qualified donee. 
In addition, the trustee of the individual’s estate will have the flexibility to allocate the available donation among any of: the taxation year of the estate in which the donation is made; an earlier taxation year of the estate; or the last two taxation years of the individual. The current limits that apply in determining the total donations that are creditable in a year will continue to apply. A qualifying donation will be a donation effected by a transfer, within the first 36 months after the individual’s death, of property to a qualified donee. In the case of a transfer from an RRSP, RRIF, TFSA or insurer, the existing rules for determining eligible property for designation donations will apply. In any other case, the donated property will be required to have been acquired by the estate on and as a consequence of the death (or to have been substituted for such property). 
An estate will continue to be able to claim a CDTC in respect of other donations in the year in which the donation is made or in any of the five following years.  
This measure will apply to the 2016 and subsequent taxation years. 

Monday, August 04, 2014

Should Professional Trustees be Held to a Higher Standard?

In view of the complexity and time that may be required to administer an estate or act as trustee of a trust, it sometimes makes good sense to appoint a professional trustee to act as executor of a will or as a trustee in a trust (for simplicity I will refer to executors, administrators of estates and trustees of trusts as “trustees” although there are some technical differences in their roles). Trust companies are in the business of acting as trustees, have systems in place for doing so, employ experienced personnel, and hold themselves out as experts. They of course charge for their work. Some lawyers and other professionals also act as trustees as part of their business.

British Columbia law currently does not make a distinction between the standard of care owed by a family member acting as a trustee, perhaps acting gratuitously, and that of a trust company, perhaps charging over a hundred thousand dollars for its services, to the beneficiaries of the trust if it is alleged that the trustee has been negligent in the trustee’s handling of the trust assets resulting in a loss.

As I wrote in  previous post, the Supreme Court of Canada said in Fales v. CanadaPermanent Trust Co., [1977] 2 S.C.R. 302, that “[t]raditionally, the standard of care and diligence required of a trustee in administering a trust is that of a man of ordinary prudence in managing his own affairs (Learoyd v. Whiteley[2], at p. 733;Underhill's Law of Trusts and Trustees, 12th ed., art. 49; Restatement of the Law on Trusts, 2nd ed., para. 174) and traditionally the standard has applied equally to professional [sic] and non-profes­sional trustees.”

It should be noted that section 96 of the Trustee Act does allow the court to relieve a trustee from personal liability for a breach of trust if the trustee “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach,” and as happened in Fales, the court may use this provision to relieve a family member or other trustee who is not a professional trustee from liability while holding the professional trustee responsible to pay for any breach of the duty of care. In Fales, the Supreme Court of Canada relieved the will-maker’s widow from liability, while holding the professional co-trustee liable for loss occurring as a result of the trustees failing to sell the shares of a company within a reasonable time.

But the effect of section 96, while allowing the court to relieve a non-professional cotrustee of liability, does not raise the standard of the professional trustee to any higher level than the "man of ordinary prudence."

The will-maker, or settlor of a trust, appointing both a family member and a professional trustee to act as co-trustees can also relax the standard of care for a non-professional trustee in a will or trust, while holding the professional trustee to the standard of “a man of ordinary prudence,” but I suspect this is rarely done.

One of the recommendations the Uniform Law Conference of Canada, in its Uniform Trustee Act which may form the basis of new legislation in British Columbia to replace the current Trustee Act, is to hold professional trustees to a higher standard of care.

Section 26 of the Uniform Trustee Act says:
Duty of care
26 (1) In the administration of a trust, a trustee must act in good faith and in accordance with the following:
 (a) the terms of the trust;
 (b) the best interests of the objects of the trust;
 (c) this Act.
(2) Subject to section 31, in the performance of a duty or the exercise of a power, whether the duty or power arises by operation of law or the trust instrument, a trustee must exercise the care, diligence and skill that a person of ordinary prudence would exercise in dealing with the property of another person.
(3) Despite subsection (2) but subject to section 31, if, because of a trustee’s profession, occupation or business, the trustee possesses or ought to possess a particular degree of care, diligence and skill that is relevant to the administration of the trust and is greater than that which a person of ordinary prudence would exercise in dealing with the property of another person, the trustee must exercise that greater degree of care, diligence and skill in the administration of the trust.

The commentary to section 26(3) is as follows:

Subsection (3) constitutes a change from the present law, which applies the same standard of care to all trustees, regardless of the degree of skill or knowledge they have or profess to have. Professional trustees managing trusts for a fee are common today. Professional trustees hold themselves out to the public as having particular skills to carry out estate and trust administration for remuneration. Subsection (3) requires these trustees, subject to the provision of this Act respecting the standard of care regarding the investment of trust property, to be held to a standard of care corresponding to the degree of knowledge or skills they bring, or ought to bring, to the task of trusteeship. The same criterion applies to trustees of commercial and business trusts. The duty to exercise special skills and knowledge under subsection (3) applies to trustees who have or should have them, regardless of whether they hold themselves out to the public as having them.

Similarly, with respect to the standard of care of a trustee in making investments, section 31 of the Uniform Trustee Act provides:

Standard of care
31 (1) In investing trust property, a trustee must exercise the care, diligence and skill that a prudent investor would exercise in making investments.
(2) Despite subsection (1), if, because of a trustee’s profession, occupation or business, the trustee possesses or ought to possess a particular degree of care, diligence and skill that is relevant to the investment of trust property and is greater than that which a prudent investor would exercise in making investments, the trustee must exercise that greater degree of care, diligence and skill in investing trust property.

Saturday, July 19, 2014

Trustees' Duty to Diversify Investments

The British Columbia Court of Appeal removed a trustee for lending all of the trust funds in one trust to a related trust, finding that the investment was an improvident one. In reaching its decision in Miles v.Vince, 2014 BCCA 289, the Court of Appeal found that it is implicit in a trustee’s duty to exercise the care, skill, diligence and judgement of a prudent investor that the trustee diversify investments held in a trust.

William Vince settled two trusts, one of which he named the William Vince Family Trust, and the other, the Vince Insurance Trust. He settled the family trust in 2006 while he was healthy, and he transferred the shares of three companies, each of which owned real estate on Main Street in Vancouver. He settled the insurance trust after he was diagnosed with cancer, and that trust received the proceeds of his life insurance policy of over $2 million following his death in June 2008.

The terms of the family trust gave the trustee the discretion to make income and capital payments to Mr. Vince’s three children. The terms of the insurance trusts also gave the trustee discretion to make income and capital payments, but both his widow, Cynthia Miles, and his three children were the beneficiaries of the insurance trust. Both trusts provided that on a division date, 80 years after the creation of the trust or such earlier date as the trustee decides, the capital would be divided among the three children.

Mr. Vince’s sister, Marilynn Vince, became the trustee of both trusts.

 Ms. Vince as trustee of the family trust endeavoured to carry out her brother’s vision to develop the Main Street properties. She commissioned a report to determine the best way to maximize the best use of the properties, incorporated a non-profit housing society, and arranged financing from B.C. Housing of $5,550,000 to purchase another property and develop the Main Street properties.

She also lent funds from the insurance trust to the family trust to help finance the development. The initial loan was for $1,170,000, but there were further loans, and with accrued interest, the amount owing from the family trust to the insurance trust was $2,135,485 as at December 31, 2012.

The main security for the loan from the insurance trust consisted of second mortgages in the Main Street properties. But under the terms of the mortgages, the insurance trust could only enforce them if B.C. Housing, which held first mortgages consented, or if B.C. Housing commenced foreclosure. Furthermore, the Provincial Rental Housing Authority had an option to purchase the properties, and if it exercised the option, the Insurance Trust would have to deliver a discharge of its mortgage without requiring payment.

From 2008 to 2012, the trustee made payments to Ms. Miles and paid expenses for her and the children from the Insurance Trust, but then stopped.

Ms. Miles applied to the Supreme Court of British Columbia to remove Ms. Vince as trustee of the insurance trust, but her application was dismissed.

She appealed to the Court of Appeal.

Madam Justice Levine for the Court of Appeal wrote the reasons for judgment removing Ms. Vince. In doing so, she considered the different purposes of the two trusts. When he settled the family trust, Mr. Vince intended to create social housing and develop the Main Street properties. But he settled the insurance trust at a time when he was ill with cancer, and he intended the insurance trust to provide for his widow and children following his death.

She held that by putting all of insurance trust assets into an illiquid real estate development, she endangered the insurance trust assets, and Ms. Vince did not meet the standard of a prudent investor.

Although the Trustee Act does not expressly require a trustee to diversify the trust assets, Madam Justice Levine adopted Professor Donovan Waters’ analysis of the prudent investor standard set out in the Trustee Act in Waters’ Law of Trusts in Canada, 4th ed., as follows:

[61]         Professor Waters notes (at 1008) that in 1997 the Uniform Law Conference of Canada promulgated the Uniform Trustee Investment Act, 1997, which imposed an obligation for trustees to diversify investments and provided a list of factors which a trustee may consider in making investment decisions.
 [62]         He describes the “prudent investor” standard as used in the B.C. Trustee Act, (at 1018):

The reference to the “prudent investor” is intended to bring into the picture the requirements of modern portfolio theory, which teaches that one must first decide what is the level of appropriate level of risk, and then seek to maximize the return within that constraint.
 [63]         He points out that diversification is implicit in the prudent investor standard, based on modern portfolio theory (at 1019-1020):

It is true that in some jurisdictions, particularly those retaining the prudent man standard, there is room for argument as to whether the trustee has the duty to diversify. The new prudent investor standard, based on modern portfolio theory, leaves less room for argument; diversity is inherent in modern portfolio theory. Even so, the circumstances of a trust might be inconsistent with diversification. For example, if a trustee expected to hold property only for a few weeks, it might not be prudent to expose the assets to the volatility which inheres in equity investments.
 [64]         Unlike other jurisdictions in Canada, B.C.’s Trustee Act does not expressly impose a duty on trustees to diversify investments in accordance with modern portfolio theory (see The Trustee Act, 2009. S.S. 2009, c. T-23.01 s. 26; Trustee Act, R.S.O. 1990, c. T. 23 s. 27(6); Trustee Act, R.S.N.S. 1989, c. 479 s. 3B; Trustee Act, R.S.P.E.I. 1988, c. T-8 s. 3.1).
[65]         As Professor Waters suggests, however, the “prudent investor” standard implicitly brings modern portfolio theory into play, and thus requires the trustee to assess the level of appropriate risk and whether diversification is required.

Madam Justice Levine also found that in making the loan, Ms. Vince put herself as in a conflict of interest as trustee for both trusts. The loan was now in default, but if Ms. Vince as trustee of the insurance trust demanded payment of the loan, it would put the development in jeopardy.

Furthermore, Ms. Vince as trustee had a duty to maintain an even hand between income and capital beneficiaries. The real estate development had potential for significant profit for the capital beneficiaries, but was not generating income for the income beneficiaries.

The Court has both an inherit jurisdiction and power under section 31 of the Trustee Act to remove and replace a trustee. Madam Justice Levine considered previous decisions in which the courts have exercised their discretion to do so if the trustee has failed to protect the beneficiaries’ interests or jeopardized the trust assets.

Madam Justice Levine summarized her reasons for removing Ms. Vince as follows:

[87]         In this case, the respondent, in her capacity as the trustee of the Insurance Trust, failed to protect the interests of all of the beneficiaries of that trust. By investing all of the trust property in the Loan, she put the trust property at risk, put herself in a conflict of interest, and failed to act with an even hand among the beneficiaries. Her continuation as trustee jeopardizes the proper and efficient administration of the trust. 

Saturday, July 12, 2014

Davies Estate -- Evidence that Notice of Application of Estate Grant Given At Least 21 Days Before Submission Filed

One of the changes in procedure in the new probate rules is that when you apply for an estate grant in British Columbia, you now have to give notice to beneficiaries and those who would be entitled to a share of the estate if the deceased had died without a will at least 21 days notice before filing for the estate grant, unless the court orders otherwise.

The requirements are set out in Rule 25-2. Rule 25-4(2) provides that the registrar must not issue an estate grant unless notice has been given in accordance with Rule 25-2.

You may prove delivery by swearing and filing an affidavit in Form P9. Interestingly, the form does not say when the notice was delivered.

The delivery requirements are considered in a recent decision of Master Caldwell in Davies Estate, 2014.

In that case the affidavit of notice was sworn four days before the application, and Master Caldwell refused to issue a grant. The applicant argued that because the deceased died before March 31, 2014, when the new Rules and the Wills, Estates and Succession Act came into effect, the old Estate Administration Act notice provisions applied, and the applicant did not need to give the 21 days advance notice.

Master Caldwell rejected the submission that the new rules did not apply. (As an aside, I note that although the new rules are in effect for all applications made on or after March 31, 2014, most of the substantive provisions of the Wills, Estates and Succession Act will only apply if the deceased died on or after March 31, and the substantive provisions of the Estate Administration Act, such as the distributions if the deceased died intestate, will still apply if the deceased died before that date.)

In order to assist the bar and others applying for estate grants, Master Caldwell issued reasons in which he discussed evidence that the 21 days have passed before the application for an estate grant is made as follows:

[11]         Form P9 is the form which provides the registrar with evidence as to who received notice of the application and of what that notice consisted. Nowhere in the standard Form P9 is there specific reference to when notice was delivered, however, that does not reduce the duty on the registrar to be satisfied that proper 21 day notice has been provided.

 [12]         The absence of express evidence of the date of delivery is not fatal in itself. The Form P9 may well be silent in its body as to the date of delivery but may have been sworn 21 or more days before the application was submitted. In such case, as long as the list of enumerated persons correctly identifies the persons entitled to notice, the registrar may properly infer adequate notice and process the application for the estate grant. In situations where that Form P9 is sworn less than 21 days before the filing of the application the inference is not available and sufficient evidence as to the date of delivery must be provided in order that the registrar may be satisfied as to observance of and compliance with Rule 25-2. Where such evidence satisfies the registrar that proper 21 day notice was given before the application was filed, the matter may be processed based on the original application date; where the evidence fails to establish that 21 day notice was given before the application was filed the original application cannot be remediated and must be resubmitted following a proper 21 day notice period, established by proper evidence.

Accordingly, it is best to swear the affidavit as soon as the delivery is made so that it is clear to the registrar that the applicant has complied with the 21 day notice requirement. If the affidavit is sworn later, consider adding in the date the delivery was made.                                                                                                        

Saturday, July 05, 2014

Eckford v. Vanderwood

A lot can happen between the time of the death of a spouse or parent and a trial of a wills variation claim. What happens if the court finds that the deceased’s made an adequate provision for his spouse at the time of death, but there is a change in the circumstances of the surviving spouse making a claim in British Columbia to vary the will before the trial is heard?

This issue has been considered a few times by British Columbia courts under the Wills Variation Act, and the same principles will likely apply to the new legislation, Division 6, of Part 4, of the Wills, Estates and Succession Act). The most recent decision considering this issue is the Court of Appeal decision in Eckford v. Vanderwood, 2014 BCCA 261.

Johan Gerard Van Der Woude was Kathryn Eckford’s common-law spouse. They had lived together for about four years when he died on September 4, 2010. In his will, which he had made in September 2005, he left 40 percent of his estate to each of his two children, and 20 percent to his mother.

Mr. Van Der Woude and Ms. Eckford had owned a house together as joint tenants. The house had been owned by Mr. Van Der Woude, and Ms. Eckford bought a half interest in it for $150,000. Because they held it in a joint tenancy, on his death Ms. Eckford became the sole owner by right of survivorship. The house was then assessed at $360,000 but sold for $328,000 with Ms. Eckford ultimate receiving just under $310,000 after commissions and other expenses.

The gross value of Mr. Van Der Woude’s other assets, which formed his estate to be distributed under his will, was about $400,000.

Ms. Eckford made a claim under the Wills Variation Act to vary her late common-law husband’s will. Pursuant to section 2 of the Wills Variation Act (now section 60 of the Wills, Estates and Succession Act), if the court finds that the will did not make “adequate provision” for her then the court may vary the will to make such provision for her as the court thinks “adequate, just and equitable in the circumstances.”

Before Mr. Van Der Woude’s death, Ms. Eckford had been employed as a secretary with the Kamloops School District. Although she had some health problems, they had not affected her ability to work.

Following Mr. Van Der Woude’s death, Ms. Eckford left work in June 2011 because of a lung infection and because of various medical problems is unable to work. Her income has been reduced to about $980 per month.

When this case when to trial, her assets were worth a little over $500,000. Mr. Van Der Woude’s daughter was 28 and a student, while his son was 37 and a self employed furniture mover with a modest income. Neither of the children had significant assets. The other beneficiary of the will, Mr. Van Der Woude’s mother, did not have sufficient income to meet her needs, and the deceased had been giving her $200 per month.

Mr. Justice Butler, in the Supreme Court of British Columbia, dismissed Ms. Eckford’s claim, finding that when taking into account the fact that she received the house by right of survivorship, Mr. Van Der Woude had made adequate provision for her. The Supreme Court decision is reported here.

She appealed.

One of the grounds of appeal was that the trial judge had not taken into account her decline in health, and her resulting change in financial circumstances.

In a previous decision, Landy v. Landy Estate, 1991 Canlii 564, the British Columbia Court of Appeal held that the court should look at the circumstances of the person making a claim as they were at the time of death when considering whether the deceased made adequate provision for the claimant. When determining if adequate provision has been made, the court may only consider changes in circumstances after the date of death if they were reasonably foreseeable when the deceased died. On the other hand, if the court finds that adequate provision has not been made, then the court may consider the claimant’s circumstances, as well as those of the other beneficiaries, at the date of trial, taking into account changes since death, when deciding what provision is “adequate, just and equitable.”

In this case, the Court of Appeal agreed with the trial judge that Ms. Eckford’s change in her health and financial circumstances were not reasonably foreseeable with her common-law spouse died. Mr. Justice Goepel wrote at paragraph 61,

[61]         I agree with the trial judge’s finding. While the Testator was aware that Ms. Eckford suffered from hypertension, asthma and diabetes, those conditions were not impairing her ability to work and function. In their years together they travelled widely without incident. At the time of the Testator’s death Ms. Eckford was working full-time. There was nothing in the evidence which suggested that the Testator should have reasonably foreseen the rapid decline in Ms. Eckford’s health within a short time of his death. I find that it was not reasonably foreseeable at the date of the Testator’s death that Ms. Eckford’s health would decline. The trial judge was correct in the first stage of the analysis, in not taking into account Ms. Eckford’s medical disabilities in determining whether the Testator had made adequate provision for Ms. Eckford. I would not accede to the first ground of appeal.

The Court of Appeal also agreed with the trial judge’s assessment that Mr. Van Der Woude had made adequate provision for Ms. Eckford through the operation of the joint tenancy of their home. In effect, she received more than either of his children, the added value to her interest in the home on his death, exceeding the share of his estate each would receive under his will. Their common law relationship was relatively short, and her claim was weighed against the competing moral claims of his children, and those of his mother.

In the result, Ms. Eckford was unsuccessful in persuading either the Supreme Court of British Columbia or the Court of Appeal to vary Mr. Van Der Woude’s will.

Sunday, June 29, 2014

Uniform Trustee Act Provisions for Removal of Trustee

As I wrote before, the British Columbia Ministry of Justice is seeking comments on the Uniform Law Conference of Canada, Uniform TrusteeAct, which may form the basis of new legislation to replace the current Trustee Act.

One of the changes to the legislation if adopted would be more elaborate provisions on removing trustees.

Currently, there are two provisions in the Trustee Act that apply to the removal of trustees, section 30, which is limited to court appointed trustees and receivers, and section 31, which says:

Power of court to appoint new trustees
 31  If it is expedient to appoint a new trustee and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, it is lawful for the court to make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.

There are common law principles that the courts have developed in deciding whether to remove a trustee, but the legislation itself does not provide any criteria.

In contrast the Uniform Trustee Act sets out certain conditions that disqualify a person to act as trustee or that make the person unfit. For example, an undischarged bankrupt is not qualified. An example of a person who may be removed as unfit is a trustee who consistently fails to respond to communications from a beneficiary.

As with the current Trustee Act, a person with an interest in the trust could apply to court to remove a trustee. But the Uniform Trustee Act also has a provision that would allow a majority of trustees to remove a trustee if there are three or more trustees. In that case, the person removed as a trustee may apply to court for reinstatement.

The relevant provisions are sections 14 through 17, and 78:

Person not qualified to hold office of trustee
 14 A person ceases to be qualified to hold the office of trustee if any of the following
apply to the person:
 (a) the person is an incapacitated person;
 (b) the person has been convicted of an offence involving dishonest  conduct  under
 (i) an enactment, or
 (ii) a law of Canada or another province of Canada;
 (c) the person is an undischarged bankrupt;
 (d) the person is a corporation that is in liquidation.
 Removal of unfit trustee
 15 (1) A person is not fit to hold the office of trustee if

 (a) the person
 (i) fails to demonstrate the care, diligence and skill that a person of
ordinary prudence would exercise in dealing with the property of another person,
 (ii) consistently fails to respond to communications from a beneficiary or another trustee, or
 (iii) is otherwise unwilling or unable, or unreasonably refuses, to act
cooperatively with other trustees, and
 (b) the person’s conduct is detrimental to the efficient or proper
administration of the trust.
 (2) Subsection (3) applies if there are 3 or more trustees.
 (3) If the fitness of a trustee to hold office is questioned, a majority of the other trustees may remove the trustee from office by a written resolution setting out the reasons for the removal if the majority determines that the trustee is not fit to hold office.
 (4) A resolution under subsection (3) is effective,
 (a) if the trustee that is the subject of the resolution does not request a meeting
under subsection (5), 15 days after a copy of the resolution is delivered to that trustee, or
 (b) if the trustee that is the subject of the resolution requests a meeting under
subsection (5), at the conclusion of the meeting, unless the resolution is rescinded.
 (5) Within the 15-day period after a copy of the resolution is delivered to the trustee that is the subject of the resolution, that trustee, by delivering a written request to another trustee, may request a meeting with the other trustees to respond to the reasons set out in the resolution.
(6) A meeting requested under subsection (5) must take place as soon as practicable.
(7) After the trustee responds to the reasons set out in the resolution, the other trustees may rescind the resolution.
 Power of court to remove trustee
16 (1) The court may remove a person from the office of trustee if
 (a) the person is not fit under section 15 to hold the office of trustee and there
are fewer than 3 trustees, or
 (b) the court is of the opinion that
 (i) the removal of the person under section 15 or under a power
conferred by a trust instrument would be inexpedient, difficult or
impracticable, and
 (ii) the removal of the person is in the best interests of the objects of the
 (2) If the court considers a reduction in the number of trustees to be in the best
interests of the objects of a trust, the court may
 (a) reduce the number of trustees, and
 (b) to give effect to the decision under paragraph (a), remove a person as
 (3) The court may remove a trustee appointed by the court under section 9.
 (4) Despite any other provision of this Act or a power conferred by a trust instrument, a trustee who is designated as a judicial trustee by the court under section 9 (2) (b) may be removed only under subsection (3) of this section.
 Power of court to reinstate trustee
17 (1) A person removed as trustee, except a person removed under section 16 or 78,
may make an application to the court for an order under subsection (3) of this section,
 (a) in the case of a person removed as trustee under section 15, within 60 days
after the date the resolution becomes effective, or
 (b) in any other case, within 60 days after the earlier of
 (i) the date of the appointment of a substitute trustee under section 6  (1), and
 (ii) the date that the removal as trustee comes to the attention of the
person removed.
 (2) On an application under subsection (1), the court may make an order under
subsection (3) if
 (a) the court is satisfied that the person was removed as trustee based on a
mistake of fact or law, and
 (b) the court considers making the order to be in the best interests of the objects of the trust.
 (3) Subject to subsection (2), the court may
 (a) reinstate the person as trustee on a specified date,
 (b) declare that the person did not cease to hold the office of trustee during the
period following the purported removal, or
 (c) dismiss the application.
 (4) If the court makes an order under subsection (3), the court may also give directions or make a declaration as to the person’s status as trustee or the liability of
 (a) a substitute trustee appointed under section 6 (1),
 (b) a person who is the subject of the order under subsection (2), or
 (c) any other person who was a trustee after the person making the application
was removed as trustee.
Non-performance by trustee

78 If, on application by a beneficiary, the court is satisfied that a trustee has refused or
failed to
 (a) perform a duty imposed on the trustee, or
 (b) consider in good faith the exercise of a power conferred on the trustee, the court may
 (c) order the trustee to
 (i) perform the duty, or
 (ii) consider in good faith the exercise of the power and satisfy the court that the trustee has given due consideration to the exercise of   the power, or
 (d) remove the trustee.

Sunday, June 22, 2014

Presumption in an Application to Probate a Copy of a Will if the Missing Original was Last in the Possession of a Will-Maker Who Lost Capacity

The general rule is that an executor must have the original will in order to obtain a grant of probate in British Columbia, but it is possible to probate a copy or obtain a grant of probate based on other evidence of the will if the original goes missing. But as I have written before, if the will was last in the possession of the will-maker, there is a presumption that the will-maker destroyed the original will in order to revoke. The presumption may be rebutted with evidence that the will-maker would not have intended to revoke the will.

What happens if the missing original will was last in the possession of the will-maker, but the will-maker’s mental functioning declined to the point where she was no longer capable of making or revoking a will?

Mr. Justice Jenkins considered this issue in the recent case of Polischuk Estate v. Perry, 2014 BCSC 1089.

Nettie Polischuk signed her will on August 31, 2004. She outlived her husband, and had no children. She appointed her lawyer, Steven Wong, as her executor and left most of her estate to her sister. Because she appointed Mr. Wong as executor and left a portion of her estate to him in lieu of executor fees, he referred her to another lawyer for independent advice and to witness the will.

She was later diagnosed with Alzheimer’s decease in 2010 and on February 27, 2010, she was declared incapable of managing her affairs, and the Public Guardian Trustee of British Columbia took over her finances.

After her death on December 20, 2012, her executor was unable to find her original will.

Mr. Wong brought a petition to ask the Supreme Court of British Columbia to probate an unsigned copy of the will he drafter for her in 2004. Three of Ms. Polischuk’s nephews, who were not beneficiaries of the 2004 will, but who would receive a share of her estate if she died without a will,

Mr. Justice Jenkins found that the copy of the will reflected the terms of the will that Ms. Polischuk signed.

There was some evidence that she had contemplated making a change to her will to appoint a friend as an alternate executor, but no evidence that she wanted to change the beneficiaries of her will or revoke it.

Mr. Justice Jenkins noted the presumption that if a missing will was last in the possession of the will-maker, the she destroyed it to revoke it. But he held that there is a different presumption if the will-maker lost capacity to revoke a will. He wrote:

[63]         In this case, the evidence shows that Nettie was mentally stable on August 31, 2004, but as of February 9, 2010, she was declared to be mentally unable to manage her financial and legal affairs due to Alzheimer’s disease. We do not know at what exact point between these two dates Nettie became unable to manage her affairs due to her cognitive impairment.
 [64]         In Re Broome, [1961] M.J. No. 51 (C.A.), 29 D.L.R. (2d) 631 at p. 633 [Re Broome], Freedman, J.A. said:

It seems to me that fundamentally this case turns on the question of onus of proof. No one saw the testator destroy his will. In fact it may never have been destroyed. It has simply not been found after very extensive searches therefor. In such circumstances - leaving aside for the moment the question of insanity - there is a prima facie presumption that the testator destroyed the will animo revocandi . Such presumption, however, may be rebutted by evidence, which, however, must be clear and satisfactory: 34 Hals. 2nd ed., p. 87. The intervention of insanity after execution of the will, however, creates a different situation. That an insane person lacks the legal capacity to revoke his will is unquestionable. If Reuben Broome destroyed his will while insane such destruction would not constitute revocation of the will. On that both counsel agree. But since there is no evidence as to when he destroyed his will - assuming he did so - there is a sharp divergence between counsel as to what presumptions apply and to who must bear the burden of proof.
[Emphasis added.]
 [65]         And continuing at p. 634, Freedman, J.A said :
The rule places on the party alleging revocation the burden of showing that the destruction occurred while the testator was of sound mind.
 [66]         The preceding law establishes that the burden of proof is, in most circumstances, on the party asserting that the will was in fact lost and not destroyed. Re Broome, however, notes that the burden of proof shifts in the circumstance where a person becomes mentally incapable/unstable. When that situation arises, the evidentiary burden shifts to the party alleging that the testator destroyed the will to prove that the destruction occurred while the testator had capacity.

Mr. Justice Jenkins held that the nephews opposing the petition to probate the copy had not met the burden on them of proving that Ms. Polischuk had destroyed the will in order to revoke it.

He also found that it was unlikely that she would have revoked it. The terms were reasonable. She did not place the will in her safety deposit box, and it could have gone missing in her house. She had a long history of getting Mr. Wong’s advice, and it is unlikely she would have revoked it without going to a lawyer. There was evidence that she understood the effects of dying without a will, and she wanted to avoid that. She did not dispose of property in a manner inconsistent with the will. She told a witness in 2010 that she had a will (although by then her functioning was impaired). There was some evidence that a will was sent to the Public Guardian and Trustee’s office, although no will was found.

Accordingly, Mr. Justice Jenkins granted probate of the unsigned copy of the will