Kish v. Sobchak Estate: Standard of Appellate Review of Findings of Fact in Wills Variation Summary Trial

In the recent decision in Kish v. Sobchak Estate, 2016 BCCA 65, a five-judge panel of the British Columbia Court of Appeal considered how much deference the Court of Appeal is required to give a Supreme Court Judge’s finding of facts in a wills variation case decided on the basis of affidavit evidence, as opposed to a conventional trial where witnesses testify in person.  (This is my second post on this case. I reviewed the facts and the judgement in my previous post. )

An appeal is different from a trial. It is not a rehearing. Rather the appellant has to persuade the appellate court that the trial judge made an error, and that the error was of a nature such that the appellate court should interfere by either changing the decision or ordering a retrial.

The amount of deference the appellate court is required to give the trail judge’s decision may vary depending on the nature of the alleged error. It may be one of a question of law, a finding of fact, an inference of fact or it may involve the exercise of discretion. Some findings are said to be a mixed questions of law and fact.

An appellate court is not required to defer to a trial judge’s rulings on pure questions of law. If the appellate court holds that the judge has made an error of law, the appellate court will substitute its decision.

But generally greater deference is required for findings of fact. The leading case in Canada is a decision of the Supreme Court of Canada in Housen v. Nikolaisen, in which the Supreme Court of Canada reaffirmed that an appellate court may only interfere with a finding of fact if the court finds that the trial judge made a “palpable and overriding error.” Another formulation of the test is that the trial judge’s finding of facts will be upheld if there is some evidence to support it.

The reasons for this degree of deference on findings of fact were set out by Justices Iacobucci and Major in the majority judgment as follows:

15                               In our view, the numerous bases for deferring to the findings of fact of the trial judge which are discussed in the above authorities can be grouped into the following three basic principles.
 

(1)   Limiting the Number, Length and Cost of Appeals

16                               Given the scarcity of judicial resources, setting limits on the scope of judicial review is to be encouraged.  Deferring to a trial judge’s findings of fact not only serves this end, but does so on a principled basis.  Substantial resources are allocated to trial courts for the purpose of assessing facts.  To allow for wide-ranging review of the trial judge’s factual findings results in needless duplication of judicial proceedings with little, if any improvement in the result.  In addition, lengthy appeals prejudice litigants with fewer resources, and frustrate the goal of providing an efficient and effective remedy for the parties.

(2)  Promoting the Autonomy and Integrity of Trial Proceedings

17                               The presumption underlying the structure of our court system is that a trial judge is competent to decide the case before him or her, and that a just and fair outcome will result from the trial process.  Frequent and unlimited appeals would undermine this presumption and weaken public confidence in the trial process.  An appeal is the exception rather than the rule. 

 (3)   Recognizing the Expertise of the Trial Judge and His or Her Advantageous Position

18                               The trial judge is better situated to make factual findings owing to his or her extensive exposure to the evidence, the advantage of hearing testimony viva voce, and the judge’s familiarity with the case as a whole.  Because the primary role of the trial judge is to weigh and assess voluminous quantities of evidence, the expertise and insight of the trial judge in this area should be respected.

In Kish, the Court of Appeal considered the application of the requirement in Housen that an appellate court defer to a trial judge’s finding of facts to a wills variation case that was decided on the basis of affidavit evidence rather than oral testimony. Although usually three judges hear an appeal in the Court of Appeal, the Court may sit as a five-judge panel if requested in order to reconsider prior decisions.

One rationale for deferring to a trial judge’s finding of facts is that the trial judge has the advantage of seeing and hearing the witnesses, and an appellate court does not. But it is fairly common for the Supreme Court of British Columbia to hear summary trials in which the evidence is put in by affidavits, and witnesses either do not testify in the presence of the judge at all, or there is more limited oral testimony. In a previous post, I reviewed the number of summary versus conventional trials in reported decisions over a three year period and found that just under half were summary trials. In a summary trial without oral testimony, it could be argued that the trial judge does not have an advantage in making findings of fact over an appellate court which may review all of the written evidence.

The Court of Appeal also considered the case authorities dealing with the standard of review of the exercise of the trial judge’s exercise of discretion when varying a will to make the provision he or she considers “adequate, just and equitable in the circumstances.” In a Supreme Court of Canada case, Swain v. Dennison [1967] S.C.R. 7, the Court held that the British Columbia Court of Appeal may “reach its own conclusion as to the discretion properly to be exercised.” Based on the Swain decision, there appears to be a lower standard of review of an exercise of a trial judge’s discretion when varying a will than when a judge exercises discretion in other areas of law.

Madam Justice Newbury, writing for the Court of Appeal, distinguished between a finding of fact and the exercise of discretion. The judge does not exercise discretion in finding facts. The judge may have discretion in choosing a course of action once he or she has made findings of fact.

She considered whether a lower standard should be applied in making findings of fact if the trial proceeded summarily based on affidavit evidence in a wills variation case than if the trial was a conventional trial based on oral testimony.  The Court of Appeal held that the same standard for findings of fact applies in both cases: palpable and overriding error. She wrote:

[43]        Drawing all of these threads together, there are two possible approaches to the relationship between Housen on the one hand, and Swain/Price on the other in appeals from summary trial judgments under the WVA:

(a)      All “findings” of a trial judge, including those that involve the exercise of judicial discretion, are reviewable by this court without deference, except findings based on oral testimony, which are subject to the Housen standard; or

(b)      A trial judge’s exercise of discretion may be reviewed without deference, but all findings of fact (whether based on oral or affidavit evidence) are subject to theHousen standard.

[44]        In my view, the second alternative is the preferable one. It is simpler than the first and does not require this court to determine in every case whether a trial judge’s findings were based on oral or affidavit evidence or both, whether the witness was cross-examined on the point, etc. More importantly, it reflects the trend to increased deference to trial judges that has characterized civil law in Canada in the last few decades. This is not to suggest that there is no principled reason for distinguishing between oral and affidavit evidence (the reason being that the trial judge sees the witness at trial and a court of appeal does not); but Housen and its predecessors did not make that distinction in formulating the current standards of review. (Indeed the Court observed at para. 25 of Housen that there were other reasons to defer to trial judges.) Further, as we have seen, the distinction was not made in Swain itself.

[45]        I propose to address the grounds of appeal and cross-appeal, then, on the basis that while this court must defer (i.e., apply the “palpable and overriding” or “no supporting evidence” standard) to findings of fact made by the trial judge, we are not bound to defer to her exercise of discretion – i.e., we are not bound to apply the standard described in Oldman River[v.Canada (Minister of Transport) [1992] 1 S.C.R. 3] and Penner, supra.

Kish v. Sobchak Estate

I am always appreciative when a court provides me with fodder for two or three blog posts in one case. I am not suggesting that the five judges  of the British Columbia Court of Appeal in Kish v. Sobchak Estate, 2016 BCCA 65, had my blog in mind when they released their reasons for judgment, but I am thankful for the material nonetheless. The case deals with significant issues in wills variation cases, including the obligations to each other that spouses who marry later in life (each planning on leave his or her wealth to his or her descendants) have to each other, the standard of appellate review of trial decisions in wills variation cases, and the extent to which the court considers family law in determining spouses obligations to provide for each other in wills.

In this post, I will outline the facts and the decision. In the next post I write about this case, I will discuss the standard of review by the Court of Appeal of wills variation judgments made by the Supreme Court of British Columbia. In the third post on this case I will write about the Court’s comments on the relationship between family law and wills variation cases.

Marie Kish and Edward Sobchak had a romantic relationship from no later than 1991 until Mr. Sobchak died in 2013. During at least t he last five years, they lived together in Ms. Kish’s house, and the trial judge found that they were common law spouses. Mr. Sobchak also retained a separate home.

They each kept separate finances, and Ms. Kish’s will left her estate to her son and grandson. In his last will, Mr. Sobchak left most of his estate to his daughter, Kimberly Doyle.

Ms. Kish was 72 years old by the time of trial, and had severe dementia. Her main asset at the time of Mr. Sobchak’s death was her home, with an assessed value of $287,000. The home was mortgaged and about $65,000 was owing on the mortgage. Her income was approximately $19,000 per year, and the costs of her care in the care facility in which she was living were a little under $2000 per month. There was a shortfall of about $5000 per year of income to meet expenses, unless her house were sold or rented out.

The value of Mr. Sobchak’s net estate was $186,000. This amount does not include $62,000 that Mr. Sobchak either lent or gave his daughter, nor $12,000 she withdrew from his accounts. Ms. Doyle also received $250,000 as the beneficiary of her father’s Registered Retirement Income Fund.

The trial judge awarded Ms. Kish $100,000 after a summary trial. Ms. Doyle appealed, and Ms. Kish cross-appealed.

The Court of Appeal reduced the award from $100,000 to $30,000. Two factors were significant in the Court’s decision. One, in view of Ms. Kish’s circumstances, a large award would not provide much practical benefit to her. Secondly, both Mr. Sobchak and Ms. Kish began their relationship later in life, after accumulating their own assets, and both wished to provide for their children.

Madam Justice Newbury, writing for the Court, framed these issues early in the reasons for judgment as follows:

[2]            The case at bar requires us to deal with some other realities being experienced by many in the postwar generation as it passes its wealth to the next. Those realities include the greater frequency of divorces, re-marriages and ‘serial’ relationships. In this case, the testator and the plaintiff were mature adults when they met. Both had been previously married and had acquired adequate property or income to support themselves. They clearly did not wish to be treated as spouses and both hoped to benefit their adult children (by earlier relationships) on their deaths. To this end, they kept their financial affairs separate and kept up separate homes.

[3]            Another reality that confronts us in Canada as life expectancy increases is the incidence of Alzheimer’s Disease and other forms of dementia in seniors. Here, Ms. Kish, who is the surviving spouse and the plaintiff herein, has “severe” dementia and lives in an institution where, one assumes, her care is paid for by government in large part or completely. It seems doubtful that any award from the testator’s estate will be of any real benefit to her.

[4]            Obviously, these circumstances distinguish this case from the majority of WVA cases in which both spouses have contributed not only to mutual support but to the acquisition of ‘family assets’ over the years and expect that the survivor of them will continue to enjoy those assets after the death of the other. The primary question for us is how the “societal norms” of legal and moral obligations discussed in Tataryn [v. Tataryn Estate [1994] 2 S.C.R. 807] are to be applied to the more complex facts before this court.

In considered Ms. Kish’s needs, Madam Justice Newbury noted that although Ms. Kish’s income did not cover all of her expenses, the shortfall could be made up either by renting her house, or selling it and investing the proceeds. Because of Ms. Kish’s dementia, it is unlikely that a large award would be spent on her during her lifetime, and would likely just add to her estate. Madam Justice Newbury wrote:

[53]        Mr. Doyle also submits that the fact Ms. Kish is in a full-time care facility and is mentally incompetent means she is not in a position to spend sale proceeds for her own benefit. Sadly, her needs are now few and are taken care of in the institution. There is little that can be done to increase her enjoyment of life. It is hard to disagree with the suggestion, which we put to counsel during the hearing, that the trial judge’s award under the WVA will only serve the purpose of increasing Ms. Kish’s estate. As noted by Mr. Justice Finch, as he then was, in Frolek v. Frolek [1986] B.C.J. No. 1869 (S.C.):

It is not the purpose of the Wills Variation Act … to enable an applicant to build up an estate of her own, but rather to ensure that she is appropriately maintained and supported during her lifetime.

In balancing the principle of testamentary autonomy, Mr. Sobchak’s legal and moral obligations to his spouse, and his moral obligations to his daughter, the Court gave great weight to testamentary autonomy in this case reflecting what the Court considered to be the expectations of Mr. Sobchak and Ms. Kish. Madam Justice Newbury wrote:

[60]        There is no doubt that claims of adult children do not and should not overshadow a testator’s moral duty to a spouse, especially where (as in Bridger [v. Bridger Estate 2006BCCA 230] and Picketts[v. Hall (Estate) 2009 BCCA 329]) the relationship or marriage was a long-term one. Here, however, the parties met late in life after each had become self-supporting and had had children. They took particular care to keep their finances separate and consistently indicated they did not wish to be married again. From the amendments made to their wills in early 2013, it is clear both wished to benefit their own children on death to the exclusion of the surviving spouse. (Arguably, they had an understanding to this effect.) Mr. Sobchak’s estate was relatively modest (indeed, after payment of the income tax on his RRIF, it was $186,000 – unless one adds in $74,000, representing the $12,000 in cash received by his daughter and the $62,000 amount referred to in the “Lending Agreement” described earlier). Using the larger figure of $260,000, the estate exceeds the equity in Ms. Kish’s house by only $40,000; using the $186,000 figure, his estate (to which she had not contributed) was less than her main asset.

[61]        In Tataryn, the Court stated that testator autonomy is one of the two interests “protected” by the WVA. In the circumstances of this case, it seems to me that “contemporary community standards” would be more respectful of that principle than was found to be appropriate in the ‘traditional’ marriages in Bridger and Picketts. Many today would find it unfair or inappropriate to disregard the wishes of both parties that their modest estates, built up through their own individual efforts, should be their own and that their respective children should benefit exclusively therefrom. And, while it is true that government is presumably supplying Ms. Kish’s needs, most would not regard her as living on some type of subsidy or ‘handout’. Rather, she is receiving benefits from a medical system to which all Canadians contribute and from which all are entitled to receive medical care.

Conclusion

[62]        Like the trial judge, this court can do no better than exercise its discretion based on all of the relevant factors in the particular case before it. In my opinion, the factors that weigh most heavily are the relative sizes of the two estates on the one hand, and on the other, the legal support obligation to which Mr. Sobchak would have been subject if the parties had separated during his lifetime. In all the circumstances, I cannot say the trial judge erred in finding that Mr. Sobchak failed to make “adequate provision” for Ms. Kish, even though she has the equity in her home to meet her basic needs.

[63]        At the same time, I conclude that through the lens of “modern values and expectations”, the parties’ wishes remain an important consideration. The parties’ particular circumstances and their relationship weigh strongly, in my opinion, in favour of respecting testator autonomy. I would, with respect, give more weight to that principle than did the trial judge and would therefore reduce the award to Ms. Kish to $30,000.

BH v. JH

In a wills variation claim in British Columbia, the Supreme Court of British Columbia is called upon to decide whether a will has made adequate provision for a spouse or child, and if not, what provision is adequate, just and equitable in the circumstances. There are so many circumstances that vary considerably from case to case, such as the size of the estate, financial circumstances of the parties, relationships between the parties and the will-maker, the will-maker’s reasons for making the will he or she did (to name a few), it is difficult to predict the outcome of any particular case.

While there is a virtually limitless variation in the facts, the courts apply certain principles in deciding these cases. For example, when a claim is asserted by or on behalf of the will-maker’s spouse, the courts will look at what the spouse would have received under family law, if instead of the will-maker dying, there had been a breakdown of the spousal relationship. This analysis appears mandated by the Supreme Court of Canada, in Tataryn v. TatarynEstate, [1994] 2 S.C.R. 807, in which the court said that the legal obligations that the will-maker had to a spouse or child are given priority over competing moral claims in determining whether to vary a will, and the extent of any variation. This analysis does not necessarily create certainty—there are plenty of disputes about the entitlement of the parties on a breakdown of a marriage or marriage-like relationship—but does offer some measure.

But when a spouse makes a wills variation claim is the court always required to vary the will to such an extent that the spouse will receive at least as much as he or she would have received in a family law claim? Or may the court award less in some circumstances. I ask this question in light of the decision  in a recent Supreme Court of British Columbia decision, BH v. JH, 2015 BCSC 1551. In that case, the Court awarded the surviving spouse less than what the Court found she might have received on a breakdown of the marriage.

KH and DH married in 1956 (the reported decision uses initials only). They had two sons, BH and NH, and a daughter, JH. KH, the husband, bought a residential property in Langley in 1962 and built the family home on it.

Sadly, DH suffered from paranoid Schizophrenia, was hospitalized on and off from 1964 to 1975, when she moved into a group home due to her illness. Thereafter, she visited with her family, primarily to have contact with her children, but lived apart from her husband. However, neither ever started a family law claim against the other, and the children acknowledged that they never heard their father speak of getting divorced.

KH died on September 13, 2009. In his will, apart from some of his personal effects left to his sons, he left his entire estate to his daughter, JH.

The two sons applied to vary the will, and the Public Guardian and Trustee of British Columbia also asserted a claim on behalf of DH.

The estate consisted primarily of the residence in Langley, which had an assessed value at the time of his death of just under $475,000. The Court found that the net value of the estate at the date of death, taking into account a mortgage on the property, and other debts and expenses was $370,000 (the amount that was realized on the sale of the property a few years later, was higher).

At the time of KH’s death, his wife received pension income of $1200 per month, and her expenses were just under that. She had about $8000 in savings.

KH’s daughter JH had lived with him until his death. She assisted him with household chores, and her assistance increased during the last years of his life, when he was ill. She continued to live in the house, until it was sold in a foreclosure in 2012. She does not have a strong employment history, and was earning minimum wage as a casual working at the time of trial, while living in a woman’s shelter. She had no savings.

Each of the sons had careers and families, although their means are described by the Court as modest.

The Court considered KH’s legal obligations to his wife, followed by his moral obligations. With respect to the legal obligations, the Court considered what she would have received in a breakdown of the relationship as at the date of death under the Family Relations Act, which was the applicable law in 2009 (this law has since been changed and replaced by a different property division under the Family Law Act).

While KH and DH were physically separated since 1975, they remained spouses until KH’s death. The Court found that if DH had brought a Family Relations Act claim for an equal division of assets in 2009, the court would likely have reapportioned KH’s assets in his favour, taking into account the long separation, and the fact that he paid the mortgage and other expenses. The Court found that she would have received “no more than one third of the value of the Property.”

The Court found that it was unlikely that she would have received spousal support. She had made little contribution to raising the children after she was hospitalized, and KH had limited pension income when he died.

In awarding DH $60,000, the Court also considered the following:

[92]         At the time of the testator’s death, DH was 80 years old.  While her basic needs were met at the group home, it was foreseeable that with the contingencies of aging she may require more care than the group home is able to provide, and the funds to pay for that care.  Society’s reasonable expectation would be that a judicious spouse would provide some financial protection against the contingencies of his wife’s old age, to the extent that his means and the other claims upon his estate permitted.  In my view, the deceased’s moral duty was enhanced where his spouse was incapable of managing her own financial or legal affairs.

In contrast to his obligation to DH, KH had no legal obligation to his two sons. The Court found that he did have a moral obligation to make provision for them, and KH did not make adequate provision for them. But their moral claims were not as strong as their sisters in light of her “companionship for her father, her contributions through taking him on trips, sharing housekeeping expenses and caring for her father as he aged and his health declined....”  KH also had the greatest need.

The Court awarded each of the two sons $50,000.

The aspect of this decision that may prove controversial is the award of $60,000 to DH. If DH as a spouse would have been entitled to one third of the value of the family assets (I appreciate that the Court said “no more than” ), and in view of the fact that she had little or none of the family assets in her own name, should she have received at least that portion of the estate? Based on a net value of $370,000, that would have entitled her to just over $123,000. The other question that may be asked about the outcome is whether the amount should have been determined on the basis of the assessed value of the house at the date of death, without reference to the proceeds that were ultimately received on the sale of the house. The difference may reflect both that the assessed value for property tax is not always accurate, and inflation. It may be preferable for the court to award a portion instead of a fixed amount to allow for fluctuations in value of assets between the date of death, the trial and the actual distribution (see Graham v. Chalmers, 2010 BCCA 13 at paragraph 42, which I wrote about here). 

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.

Executor Who Distributed Part of an Estate Before the Six-Month's Had Elapsed Since Probate Must Repay Estate or Provide Secutity

In British Columbia, section 12 of the Wills Variation Act prohibits an executor from distributing any portion of an estate until six months from the date of probate has passed, unless the executor either has obtained the consent of all of those who are entitled to apply to vary a will under the Wills Variation Act, or has obtained a court order permitting him or her to do so.

The Wills, Estates and Succession Act contains a similar provision in section 155 (210 days from probate or later if a proceeding to vary the will is commenced).

What happens if the executor distributes before the six-month period elapses? He or she may be required to either repay the funds wrongfully distributed or post security pending resolution of any Wills Variation Act claim.

This is what occurred in a recent decision in Stevens v.Wood Estate, 2013 BCSC 2380. The executor distributed $202,000 to beneficiaries before the six month period had elapsed. One of the deceased will maker’s daughters, Lou-Ann Stevens, brought a Wills Variation Act claim. She brought an application to court to require the executor to repay the funds or post security. The executor argued that the holdback she retained of $28,000 was sufficient to satisfy any successful claim, and if not, she would pay any shortfall. Two of the beneficiaries also said they would indemnify the estate.

Madam Justice Watchuk held that the appropriate remedy was to require the executor to either repay the estate or post security. She wrote:

[29]         The purpose of s. 12(1) is to keep the estate intact to ensure that a successful plaintiff is able to recover that to which they may become entitled. A breach of this statutory provision is a serious matter.  It goes to the heart of the legislative scheme.

 [30]         Until the six-month limitation period has passed, a beneficiary’s entitlement to a share in the estate is not absolute. It is subject to variation if a successful action is brought under the WVA. Unless consents are obtained, the beneficiaries are not entitled to receive and benefit from their share of the estate until the WVA claims have been resolved or a court order has been obtained.

 [31]         Similarly the plaintiff in a WVA action is entitled to have the assets in the estate preserved pending the outcome of their claim. They should not be put in the position of having to pursue after the executor or other beneficiaries to reap the benefits of a successful action.

 [32]         Where there is a breach of the statutory provision and funds are distributed contrary to the legislation, the remedy of a claim against the executor or other beneficiaries, after the completion of the WVAaction, does not sufficiently protect the successful WVA claimant. Those parties may, by then, be without assets or have taken steps that make it difficult to locate their assets.

 [33]         It is the party who has breached the provisions of the statue who must make matters right. This application is not the forum to determine the strength or otherwise of a WVA claim. The WVA claimant is entitled to have the estate reconstituted to its state prior to the wrongful distribution.

 [34]         I find that the appropriate remedy for a breach of s. 12 of the WVA is for the party who has breached the provisions to either repay the estate or to post security in the entire amount which has been wrongfully disbursed.

 [35]         The Executrix in this matter must make matters right. She must, within 30 days of the date of these reasons, repay the estate or post security in the amount of $202,000, being the amount which she has improperly advanced to the beneficiaries. If the security is not posted within 30 days the plaintiff will be at liberty to seek further relief.

Significant Changes to the Rights of Separated Married Spouses Under the New Wills, Estates and Succession Act.

British Columbia's new Wills, Estates and Succession Act (WESA) will significantly change the succession rights of a separated married spouse when the new legislation comes into effect on March 31, 2014.

The Wills Act provided that unless a contrary intention appeared in a will, if a spouse makes a will leaving a gift to the other spouse, and after the will is made, there is a divorce, a judicial separation, or the marriage is found to be void or declared a nullity by the court, the gift to that spouse in the will is revoked. By far the most common of these occurrences is a divorce, and for convenience I will only refer to divorce.

Without a divorce, if you are just separated from your spouse, even for many years, the separation does not revoke any gifts to you in his or her will. You would each have to make new wills to disinherit each other.

Under the old law, a separated married spouse may apply to vary a will under the Wills Variation Act, even if he or she had been separated from the now deceased spouse for decades.

Under the Estate Administration Act, a separated spouse was entitled to a spousal share if his or her spouse died without a will, and they had not been separated for more than one year at the time of death.

Al of this will change shortly.

Section 56 of WESA provides that a gift in a will to someone who is or becomes a spouse is revoked if “after the will is made and before the will-maker's death the will-maker and his or her spouse cease to be spouses under section 2 (2)”

As with the Wills Act, revocation of the gift is subject to a contrary intention expressed in the will. You can say that you wish for your spouse to receive a gift, even if you later cease to be spouses.

The new Act, as amended by section 465 of Bill 16 (the Family Law Act), provides in section  2 (2) (a) that

(2) Two persons cease being spouses of each other for the purposes of this Act if,

(a) in the case of a marriage,

(i) they live separate and apart for at least 2 years with one or both of them having the intention, formed before or during that time, to live separate and apart permanently, or

(ii) an event occurs that causes an interest in family property, within the meaning of the Family Law Act to arise, or….

This begs the question: when does an event occur that causes an interest in family property to arise?

Section 81 (b) of the Family Law Act provides that “on separation, each spouse has a right to an undivided half interest in all family property….”

On the other hand, under section 83, they are not considered to have separated for the purpose of determining rights in property if they begin to live together within one year to reconcile and continue to do so for one or more periods totally at least 90 days.

What is required for a married couple to be considered to have separated?

Section 3(4) of the Family Law Act provides:

(4) For the purposes of this Act,

(a) spouses may be separated despite continuing to live in the same residence, and 

(b) the court may consider, as evidence of separation,

(i)  communication, by one spouse to the other spouse, of an intention to separate permanently, and 

(ii)  an action, taken by a spouse, that demonstrates the spouse's intention to separate permanently.

Reading the WESA and the Family Law Act together, the effect is that if spouses separate, and at least one of them demonstrates by words or action an intention to separate permanently, the separation will be sufficient to revoke a gift in a will to the separated spouse.  You don’t need a divorce.

Section 83 of the Family Law Act implies that the gift will not be revoked if the spouses reconcile and live together again within a year, and they do so for one or more periods for a total of at least 90 days. At least that is my interpretation.

But unless section 83 of the Family Law Act applies such that the spouses are not considered to have separated, a future reconciliation does not revive a revoked gift. This is because section 56 (3) of WESA says:

(3) The operation of subsection (2) is not affected by a subsequent reconciliation of the will-maker and the spouse.

So if spouses have wills in which they leave everything to each other, then separate for say two years, and then reconcile without making new wills, and one of them dies, the gift to the survivor will be revoked by the separation. This so even if they were married for 50 years, with just the one period of separation. This stands in contrast to the law before WESA, which required a divorce to revoke the gift. I expect that this change will catch many unawares.

There are other implications when someone ceases to be a spouse under WESA. He or she will no longer have any entitlement if his or her former spouse dies without a will. Nor will he or she have the right to apply to vary the will under Division 6 of WESA, which is the successor legislation to the Wills Variation Act.

I am not sure what the point is of maintaining subsection 2(2)(a)(i) of WESA which provides that married spouses cease to be spouses when “they live separate and apart for at least 2 years with one or both of them having the intention, formed before or during that time, to live separate and apart permanently.” I find it hard to wrap my head around what situations would be covered  under that subsection that are not caught by subsection 2(2)(a)(ii).

Moore v. Drummond (No. 2)

Sometimes a child or spouse alleges that a will is invalid, and also makes a claim under the Wills Variation Act. The claims are quite different. In British Columbia, the court may find that a will is validly made, signed and witnessed in accordance with the formal requirements of the Wills Act, by a person with the mental capacity to make the will and who understood and approved of the contents of the will, but still vary the will under the Wills Variation Act because the maker did not make adequate provision for her spouse or her children.

This point is illustrated by the recent case of Moore v. Drummond, 2013 BCSC 1762.

Dorothy (“Dee”) Drummond was 97 when she made her will leaving all of her wealth to her two neighbours Kenneth Moore and Clara Moore, disinheriting her son, Bruce Drummond. Her estate was relatively modest, and consisted of her house with an assessed value of $110, 700, and bank accounts of about $55,000 at her death.

In her will, she set out her reasons for making the provisions she did:

7. My reasons for providing for my neighbours, CASEY MOORE and CLARA MOORE are because they have been a lot of help to me and have become my good friends over many years. 

 8. I have not given any part of my estate to my son, Bruce Drummond, because he does not visit me and he does not need anything from me. Bruce is retired and I believe he made good money as a logger.

Bruce Drummond challenged her will on the grounds that she did not have capacity to make a will, but also brought a claim under the Wills Variation Act.

There was evidence that Ms. Drummond had diminished capacity in that near the time she made the will, her physician expressed an opinion that she was not capable of managing her affairs. But as I wrote in a previouspost, the court found that she did have the necessary capacity to make a will, and understood and approved of the contents of her will.

Mr. Drummond was more successful in his application under the Wills Variation Act claim.

Bruce Drummond was raised primarily by his grandmother and great grandmother and did not live full time with his mother until he was 12. As an adult he generally visited his mother annually, but they had a distant relationship.

Mr. Drummond was 77 at the time of trial. He was retired and living off of a modest pension. He testified that he had made average wages for a logger.

Mr. Justice Nathan Smith found that Ms. Drummond had a moral obligation to make some provision for her son, and that the reasons she gave for disinheriting were not rational and valid. Mr. Justice Smith wrote:

[19]         However one interprets the test to be applied, I am bound to find on the basis of the authorities that the reasons stated in the will were insufficient to displace the moral obligation. The statement that Bruce never visited was factually incorrect. The statement that he did not need anything from her was based on an assumption unsupported by any specific knowledge. Dee knew nothing about Bruce’s income, other than the fact he had worked as a logger, and knew nothing about his financial circumstances in retirement. Bruce testified that they never discussed these matters and I find that, given her attitude toward him, Dee was unlikely to have been interested.

 [20]         Tataryn and other case law makes clear that “society’s reasonable expectations” require a testator to consider adult independent children. Although a testator may in some circumstances reasonably exclude such a child based on the child’s financial circumstances and absence of need, the reasonable expectation is that a prudent testator would only do so on the basis of actual knowledge rather than speculation.

 [21]         For these reasons, I find that Dee’s will failed to meet her moral obligations and therefore fell short of the “adequate provision” required by s. 2(1) of the Act.

Balancing Ms. Drummond’s moral obligations to her son, with the competing principle that a will-maker should have autonomy to dispose of property in accordance with her wishes, Mr. Justice Smith awarded Bruce Drummond one-half the value of the residue of the estate, with the other half going to Mr. and Mrs. Moore.

B.C.'s New Family Law Act Is Likely to Affect Future Wills Variation Act Claims

British Columbia’s new Family Law Act will come into force tomorrow, March 18, 2013.

In addition to the far reaching implications the new legislation will have for married and those unmarried couples who meet the criteria of spouses in section 3 on the breakdown of a marriage, the Family Law Act will likely have an impact on the rights of a surviving spouse on the death of the other.

You have to look beyond the provisions of the new Act to consider its implications on the rights of a surviving spouse to the Wills Variation Act and the cases decided under that legislation.

The Wills Variation Act provides that if a deceased person had not made adequate provision in his or her will for a spouse or children, and an application is made to the Supreme Court of British Columbia, the Court may make such provision as the Court considers “adequate, just, and equitable in the circumstances.”

The Supreme Court of Canada, in Tataryn v. Tataryn Estate, [1994] 2 S.C.R. 807, set out an analytical framework for determining what provision is adequate, just and equitable, which I have written about here. Madam Justice McLachlin wrote that the courts should consider the deceased’s legal obligations just before death to his or her spouse and children. In the case of a spouse, the legal obligations include those obligations set out in provincial law governing the division of assets on the breakdown of a marriage. After considering the deceased’s legal obligations, the court then considers the deceased’s moral obligations to his or her spouse and children.

The changes in the new Family Law Act to the division of assets on the breakdown of marriage or of a marriage-like relationship will likely affect a court’s determination of the deceased’s legal obligations following the analysis in Tataryn.

There are at least a couple of fundamental changes to the division of property in the new Act. First, the division of property provision now applies to certain unmarried couples, because a “spouse” now includes a person who has lived with another person in a marriage-like relationship, and has done so for a continuous period of at least 2 years.

Secondly, under the old Family Relations Act, there was a presumption that each spouse was entitled to half of the “family assets” as defined in the legislation, although the court could reapportion assets if an equal division would have been unfair.

Under the Family Law Act, the focus is on the accumulation of wealth during the marriage (or marriage-like relationship in the case of unmarried spouses). “Family property,” is divided equally, but some categories of property, including property acquired by a spouse before the relationship began is excluded from “family property.” But the increase in the value of the excluded property since the relationship began (or since it was acquired if excluded property is acquired during the relationship) is divided equally. The spouses may agree to a different division, and the court may order an unequal division if an equal division of family property would be “significantly unfair.”

To the extent that the Family Law Act changes the legal obligations a now deceased spouse would have had on the breakdown of the relationship to a surviving spouse, this may affect the Court’s assessment of whether the provision made in the will meets the deceased’s legal obligations, and ultimately on whether the deceased made adequate provision for his or her spouse in the will.

In some cases, the legislative change may weaken the surviving spouse’s claim. For example, if the deceased acquired most of his or her wealth before the relationship, the deceased’s legal obligations may be met by a lesser provision for the surviving spouse under the new Act than under the old Family Relations Act.

On balance, I expect that the new legislation will strengthen the claims of many common law spouses (especially those who were in long-term relationships with their deceased spouses) who would not have had a claim to a division of property under the old legislation.

But it should be borne in mind that under the Wills Variation Act, the court may also consider the deceased’s moral obligations, and this may reduce the impact of changes to the family law legislation in Wills Variation Act claims. For example, in some cases, an example being Pickets v. Hall, 2009 BCCA 329 (which I wrote about here), the courts have found that a deceased common law spouse had a significant moral obligation to the surviving spouse even if the deceased had met his or her legal obligations in the will. A court may make a substantial variation on the basis of those moral obligations.

Scott-Polson v. Henley

In British Columbia, the Wills Variation Act provides that the Supreme Court of British Columbia may vary a will on application by a child if the will does not make adequate provision for that child. The court may then make such provision as it considers adequate, just and equitable in the circumstances.

Although there is no rule that a parent must treat all of his or her children the same, where there is a significant disparity in the amounts left to children, the courts consider whether the parent had rational and valid reasons for the disparate provisions. If so, the court may uphold the will, or the variation may be small. Where the court does not find rational and valid reasons, in most of the cases in which there is a significant disparity, the courts have varied the will in favour of the child who was disfavoured in the will.

The focus of the inquiry is often on the relationships between children and their parents, or on the circumstances of the children. For example, a parent might favour a child with whom the parent has a good relationship over one who has treated the parent poorly, or one child may have greater financial needs than another.

But what if the parent has children from two marriages, and most of the parent’s wealth was accumulated during the second marriage. Is it rational and valid to favour the children from the second marriage over those of the first?

This was considered in a recent decision, Scott-Polson v. Henley, 2013 BCSC 247.

Rosemary Joy Lupkoski died on May 8, 2010, leaving a net estate worth approximately $775,000 as at the date of trial. She had nine children, six of them from her first marriage, and three from her second. She was divorced from her first husband.  She and her second husband, Nicholas, accumulated their wealth during their marriage, and when he died, she received all of their combined wealth.

In her will, she left a quarter of her estate to each of her three children from her second marriage, and the other quarter to be divided equally among the six from her first marriage.

The six children from the first marriage brought a claim under the Wills Variation Act. They gave evidence, which the court accepted of difficult childhoods, and of a physically and emotionally abusive mother. With the exception of one, Wendy Scott-Polson, who was living on a disability pension, the children from the first marriage were financially successful. The children from the second marriage, who also had difficult childhoods, had greater financial needs.

Mr. Justice Sewell varied the will to provide Wendy Scott-Polson with a $100,000 cash bequest because of her greater financial needs.

But Mr. Justice Sewell rejected the plaintiffs’ contention that Rosemary Lupkoski was motivated by her hatred for their father, Ronald, in leaving less for them than for her other three children. He found that she had rational and valid reasons for favouring the children from her second marriage in that she acquired her wealth during the second marriage. Mr. Justice Sewell wrote at paragraphs 83 and 84:

[83]         I have concluded that the estate distribution set out in the Will was not motivated by spite or hatred of Ronald and his children. I conclude that the reason Rosemary gave for the distribution scheme was genuine and valid. That is, it was in fact based on distinguishing between Ronald’s and Nicholas’ children. I also accept that it was the joint efforts of Nicholas and Rosemary that was the foundation of the estate that Rosemary possessed on her death. Towner Park was purchased from funds generated from the sale of properties owned by Nicholas. Nicholas and Rosemary built the home on Towner Park using the same funds as well as Nicholas’ labour. On his death, all of Nicholas’ estate passed to Rosemary by right of survivorship. 

 [84]         I consider that the fact that the estate was largely created by Nicholas and was in no way attributable to Ronald’s efforts is a relevant circumstance that Rosemary was entitled to take into account in making the Will and that her decision to do so was therefore natural. Recognizing the greater contribution of the parent of one group of children over the parent of another was accepted as a relevant circumstance in Saugestad v. Saugestad, 2008 BCCA 38, 77 B.C.L.R. (4th) 170 at para. 38. Like the predeceased mother in Saugestad, Nicholas could reasonably have expected that his efforts would benefit his children.

In the result, the Court varied the will to provide Wendy Scott-Polson $100,000, with the residue of the estate to be distributed with 22.5% to the other five children of the first marriage, and 77.5% to the children from the second marriage.

Supreme Court of Canada Won't Hear Appeal in Mawdsley v. Meshen

The Supreme Court of Canada has dismissed the application by Dennis Mawdsley to appeal the British Columbia Court of Appeal decision in Mawdsley v. Meshen, 2012 BCCA 91.

The case is a significant one on the issue of the application of the Fraudulent Conveyance Act to gratuitious transfers of property as part of an estate plan that have the effect of depleting the transferror's estate, which reduces the assets available to satisfy a Wills Variation Act claim by a spouse or child.

In Mawdsley the Madam Justice Ballance in the Supreme Court of Britsih Columbia held that when Joan Meshen transferred a substantial portion of her wealth into a trust for the benefit of herself, her children and her brother-in-law, she did not do so to delay, hinder or defraud her common-law spouse, Dennis Mawdsley, who after her death, applied to vary her will to provide him with a greater portion of her estate. He was successful in varying the will, but the assets Ms. Meshen had transferred into a trust were not part of her estate. The Court of Appeal upheld the Supreme Court of British Columbia's decision, and held that because Mr. Mawdsley's only valid claim was a Wills Variation Act claim that arose on Ms. Meshen's death, he was not a "creditor or other," for whom the transfer could be set aside as a fraudulent conveyance under the legislation.

I have written about the Supreme Court of British Columbia decision here, and the Court of Appeal decision here.

The Supreme Court of Canada only hears a limited number of cases, generally ones that it considers to be of significant public importance or that raise a legal issue that it considers sufficiently important for the Supreme Court of Canada to decide. In civil cases, a party who wishes to appeal a decision of a provincial court of appeal must first apply for leave to appeal.

British Columbia Court of Appeal Decides Mawdsley v. Meshen

In a decision released on February 28, 2012, the British Columbia Court of Appeal held that the transfer by Joan Meshen of a substantial portion of her wealth into an alter ego trust was not a fraudulent conveyance intended to defeat the claims of her common law spouse, Dennis Mawdsley. Mawdsley v. Meshen, 2012 BCCA 91, is the first reported Court of Appeal case dealing with a challenge of a transaction under the Fraudulent Conveyance Act brought by a Wills Variation Act claimant in order to bring assets back into the estate of a deceased person so that those assets would be subject to the claimant’s Wills Variation Act claim.

In upholding Madam Justice Ballance’s decision at trial, which is reported at 2010 BCSC 1099, the Court of Appeal made two rulings that are likely to have a significant impact on estate planning. First, the Court of Appeal held that the fact that a transfer of assets may have the effect of defeating a claim does not require the court to find that the person making the transfer intended to do so. For a transaction to be a fraudulent conveyance, the transferor must have the intent to delay, hinder or defraud someone. Secondly, the Court of Appeal upheld a number of Supreme Court of British Columbia decisions that a person who does not have a claim during his or her parent or spouse’s lifetime, and whose only claim arises on the death of the parent or spouse under the Wills Variation Act, is not a “creditor or other” with standing to challenge a transfer by their parent or spouse.

Joan Meshen had considerable wealth, much of which she accumulated together with, or received from, her late second husband, who died in 1983. Her assets included real estate properties in Greater Vancouver, and shares in three companies. She had three children, Shirley Meshen and Harry Meshen from her first marriage and Michael Meshen from her second marriage.

In February, 2006, Ms. Meshen was diagnosed with cancer.

After her diagnosis, she made a new will, transferred property to her children, and transferred a $3,250,000 investment account and the shares of her three companies into an alter ego trust. The trust provided that during her lifetime she would receive all of the income from the trust assets. On her death the beneficiaries of the trust were her three children, and her second husband’s brother, Bill Meshen, who had been active in the family business. She died shortly thereafter.

Ms. Meshen made no provision for her common-law spouse of 18 years, Dennis Mawdsley, either in her will, or by a transfer of property before her death.

Mr. Mawdsley brought a Wills Variation Act claim. The Wills Variation Act provides that a spouse or child may apply to court to vary the will if the will-maker did not make adequate provision for the claimant. The court may then vary the will to make such provision as the court decides is “adequate, just and equitable in the circumstances.” The Wills Variation Act allows the court to vary the will, but does not give the court the power to vary a trust settled during the will-maker’s lifetime. Because the Wills Variation Act only applies to assets that fall into the estate, there would be little for Mr. Mawdsley to claim unless he were successful in challenging the transfers Ms. Meshen made before her death, including the tansfer of assets to the trust.

In dismissing Mr. Mawdsley's claim that the transfer of assets into the trust was a fraudulent conveyance at trial, Madam Justice Ballance found that Joan Meshen was not motivated by an intention to defeat any claim by Mr. Mawdsley in setting up the trust. Although her lawyer had told her that Mr. Mawdsley had a potential Wills Variation Act claim, Ms. Meshen dismissed the idea that her common law husband would make such a claim. She said that she and Mr. Mawdsley had an agreement that each would keep her or his property. Madam Justice Ballance found that they did have an agreement that apart from sharing some expenses, they would keep their property separate, and each was free to deal with her or his own property.

Furthermore, Mr. Mawdsley had been in on meetings with Joan Meshen’s estate-planning advisers as far back as 2000 in which she had discussions about transferring assets into a trust to benefit her children and Bill Meshen. He knew that she did not intend to leave him anything, and he did not object during her lifetime.

One of the arguments that Mr. Mawdsley made on appeal was that if the effect of the transfer was to remove assets from her estate, then as a matter of law, she must have intended to delay, hinder or defraud him. Madam Justice Newbury rejected this argument. Although the person challenging a transaction as a fraudulent conveyance only needs to show that one of the purposes of the transaction is to delay or hinder creditors, and in some cases the court may infer from the effect of the transfer that the transferor intended to delay or hinder creditors, the court may consider evidence that the transferor had no such intent. Madam Justice Newbury wrote at paragraph 71,

In some cases, of course, that intention may be inferred from the effect of the transaction, and indeed a presumption may arise in some circumstances from that effect. If there is no credible evidence to the contrary, the FCA [Fraudulent Conveyance Act] may be satisfied; but there is no rule of law that in every case, an intention to defeat creditors must be inferred from the effect of the impugned transaction

In this case, the Court of Appeal upheld the trial judge’s finding that Ms. Meshen did not intend to hinder Mr. Mawdsley.

The second-- and from an estate-planning perspective the most significant holding-- is that Mr. Mawdsley was not a “creditor or other” within the meaning of the Fraudulent Conveyance Act.

At trial, Madam Justice Ballance found that during Ms. Meshen’s lifetime, Mr. Mawdsley did not have any legal claim to her assets. Because they were not married, he had no claim under the Family Relations Act, and the court found that he had not made sufficient contributions to the family business or to Ms. Meshen to be entitled to make a claim in unjust enrichment. His only claim was a Wills Variation Act claim, which only arose on Ms. Meshen’s death. In fact he was successful in varying the will.

In a few cases brought by children challenging transfers of assets made by their parents under the Fraudulent Conveyance Act in order to have the assets brought into the estate so that they would be subject to Wills Variation Act claims, the Supreme Court of British Columbia has held that the children did not have grounds to apply under the Fraudulent Conveyance Act, a potential Wills Variation Act claim being an insufficient basis to give the child standing as a “creditor or other” to set aside the transactions. These cases include Hossay v. Newman (1998), 22 E.T.R. (2d) 150 (B.C.S.C.) and Mordo v. Nitting, 2006 BCSC 1761.

Estate planners have relied on these cases in setting up estate plans for parents concerned that their adult children will try to upset their estate plans by bringing Wills Variation Act claims. A parent can transfer assets into a trust during the parent’s lifetime to provide for the parent’s spouse, to provide more for some children than others, or to provide for charity. Because the Wills Variation Act does not apply to a trust settled during the parent’s lifetime, a disappointed adult child will not able to use the Wills Variation Act to gain assets that were transferred to the trust. This was done in Mordo by a mother who wished to leave her wealth to her daughter to the exclusion of her estranged son.

In Mawdsley v. Meshen, the Court of Appeal has now upheld these earlier Supreme Court of British Columbia decisions, including Hossay and Mordo.

Madam Justice Newbury considered the implications of Mr. Mawdsley’s argument that Ms. Meshen had a moral obligation to him pursuant to the Wills Variation Act that crystallized at her death, and on the basis of which he argued he should have standing as a “creditor or other” to challenge the transfer of assets into the trust as a fraudulent conveyance:

[90] This argument may conform to one’s moral sense in a particular case, but as has been seen, no case has gone so far as to suggest that “creditors and others” in the FCA includes a person who has no claim at the time of the transfer in question ‒ or for that matter, during the transferor’s lifetime. The implications of so interpreting the phrase would be enormous. Persons qualifying as spouses or children under the WVA would be entitled, at least prima facie, to challenge every disposition of property, whether for valuable consideration or not, made by their spouse or parent during his or her lifetime, and even to seek to prevent such dispositions by court action. The courts would find themselves assessing the consequences of various forms of transfers, including dispositions in the course of business, dispositions carried out years earlier and dispositions proposed to be carried out in the future, all in the name of protecting “moral” obligations that cannot truly be judged until the parent or spouse has lived his or her life and died leaving an estate and a will. I cannot imagine that courts should take on this role of arbiter of personal and business decisions throughout a parent or spouse’s lifetime without the Legislature’s clearly directing us to do so.

Although Mawdsley lends support for using trusts to avoid Wills Variation Act claims, it is important to note that a key to this decision was the initial finding at trial that Ms. Meshen did not have any legal obligations to Mr. Mawdsley during her lifetime. In other cases, transactions may still be set aside under the Fraudulent Conveyance Act by claimants under the Wills Variation Act if those claimants can show that the transaction was intended to defeat a legal obligation that the will-maker had to them during the will-maker’s lifetime. For example, if the person making a transfer does so with the intent to delay or hinder the legal claims of his married spouse under the Family Relations Act, or claims of a common law spouse or child in unjust enrichment, then the transfer to a trust is liable to be set aside as a fraudulent conveyance if the spouse or child had a valid legal claim.

Can an Executor Use Estate Funds to Defend a Wills Variation Act Claim if the Will Directs Him To Do So?

As I have written before, when a child or spouse applies to vary a will under the Wills Variation Act in British Columbia, an executor must remain neutral. A Wills Variation Act case is a dispute among those claiming under the Act and the beneficiaries of the will. It is not a claim against the estate entitling the executor of the will to use estate funds to defend the claim.

In a decision released on Friday, February 3, 2012, Mr. Justice Wong gave reasons for judgment in an application by an executor for directions as to whether he may defend against a Wills Variation Act claim to vary a will. The requirement that an executor remain neutral is well established, but this case, Ketcham v. Walton, 2012 BCSC 175, has an interesting twist to it: the will directed the executor to defend against any claim under the Wills Variation Act, and if necessary to deplete the estate and take appeals to defend the will.

Eric Worthy Clay disinherited his three children, leaving his estate of just under $800,000 to friends and charities. In his will, he said that his children were estranged from him, and he directed his executor, Mr. Kenneth Walton QC, to defend against any Wills Variation Act claim. After his death, his children did apply to court under the Wills Variation Act to vary the will.

One of the arguments put forward for allowing the executor to defend against the Wills Variation Act claim was that the residual beneficiaries who would receive about $277,000, and whose interests were most likely affected, had not filed a response to defend against the claim.

Despite this clause directing the executor to defend, Mr. Justice Wong held that the executor must remain neutral. He held that the principle that an executor must remain neutral overrides the direction in the will. Furthermore, the provision that the executor may deplete the estate funds is void as being against public policy because the clause may discourage the children from having their case heard in court. If the executor is entitled to deplete the entire estate on defending the claim, the children could be denied any recovery even if successful.

But-- and this is I think a development in the law-- Mr. Justice Wong did say that if the Wills Variation Act claim is not being defended by the beneficiaries, “[i]n order to assist the Court in determining the merits of the plaintiffs’ WVA claim in a balanced and non adversarial role, the Executor might then retain counsel as Amicus for the Court with respect to questioning the plaintiffs’ claim for assistance of the Court.”

As I interpret Mr. Justice Wong’s decision, an executor usually has a very limited and neutral role in a Wills Variation Act case. The persons making a claim and the beneficiaries are the main parties to the dispute. But in appropriate cases, the executor may play an active role, but in a non-adversarial manner.

Mr. Justice Wong does not flesh out the specific things an executor or his lawyer might do as a friend of the court, but I suggest that in some cases it may be appropriate for the executor to lead evidence about the will-maker’s reasons for making the provisions he or she did in the will, and perhaps to have a lawyer cross-examine witnesses.

I can conceive of Wills Variation Act cases where it would be appropriate for an executor to lead evidence of the will-maker’s intentions and to question a claim. For example, suppose a mother has two children: a daughter who functions well, and a son who has a drug addiction. The mother leaves half of her estate to her daughter. She wishes to provide for her son as well, but is concerned that if she makes an outright gift to him, he will use it for drugs, thereby harming him. The mother provides in her will that the other half is to be held by a trustee who has discretion to make payments to or for the benefit of her son during his lifetime, with any funds remaining on her son’s death paid to a charity. The trustee can then use half of the estate to benefit the son, without the son getting control of the funds to feed his addiction. The son brings a Wills Variation Act claim seeking to vary the will so that he receives one-half of the estate outright, instead of it going into a trust. The daughter does want to spend her money on legal fees to defend against her brother’s claim given that he is only seeking half of the estate. The charity is reluctant to get involved in a family dispute, or spend funds when there may be nothing left for the charity in the trust after the son’s death in any event. In circumstances such as set out in these hypothetical facts, the executor should be allowed to spend funds out of the estate to provide the court with evidence of the mother’s reasons. The son could then lead evidence as to whether he does in fact suffer from a drug addiction, and the executor’s lawyer could cross-examine the son and the son’s other witnesses so that the court has sufficient evidence to decide whether to vary the will.

But before using funds estate funds to play an active role in a Wills Variation Act case, an executor is well-advised to seek directions from the court as Mr. Walton did in Ketcham v. Walton.

Peri v. McCutcheon

This morning, the British Columbia Court of Appeal released its decision in Peri v. McCutcheon, a case in which it was asked to give an expanded interpretation of the meaning of “children” in the Wills Variation Act. The Court was asked to interpret the word "children" to allow child who was neither the biological or adopted child of a person to apply to vary his will. In British Columbia, the Wills Variation Act allows a child, including an independent adult child, to apply to court to vary his or her parent’s will if the parent has not made “adequate provision” for the child in the will. If the court finds that adequate provision has not been made, the court may order such provision for the child as the court decides is “adequate, just and equitable in the circumstances."

In the past the courts have interpreted “children” under the Wills Variation Act to be limited to either the parent’s biological children, or children that the parent has legally adopted. This means that a step-child cannot make a claim under the Wills Variation Act to vary the step-parent’s will (unless the step-parent adopted the step-child). In 1994, in a decision called Hope v. Raeder Estate, the Court of Appeal held only a biological or adopted child could apply under the Wills Variation Act. In Hope the Court held that it was not open to the Court to give the word “children” an extended meaning. The Court said that only the Legislature could extend the meaning under the Wills Variation Act to include step-children.

In Peri, the British Columbia Court of Appeal sat as a five court paned. Usually, three judges of the Court of Appeal hear an appeal from a decision of the Supreme Court of British Columbia. But a party to an appeal may request that five judges sit in order to reconsider a decision in an earlier case.

Deborah Peri was seeking to vary the will of Harbanse Doman, who made no provision in his will for her. Mr. Doman was married to Ms. Peri’s mother when Ms. Peri was born, but he was not her biological father. Ms. Peri was born in Seattle, and Mr. Doman identified himself as her father on her registration of birth, and on immigration papers allowing her to immigrate to Canada. He arranged for her to live with another family, and paid support for her. He also paid for a private school for her, paid expenses while she was in college, and paid wedding expenses for her. He met with her occasionally. However, he kept a physical and emotional distance from her, and made it clear to her that he was not her father, did not intend to be her father, and did not consider her as part of his family.

The Court of Appeal declined to give “children” an extended meaning in this case to include Ms. Peri.

But what is most intriguing about this decision is that the Court of Appeal did not rule out the possibility that the court might give the word “children” an extended meaning to include a step-child under the Wills Variation Act in a future case. The Court of Appeal did not consider the facts of this case compelling, finding that Mr. Doman’s did not stand in the position of a parent to Ms. Pari.

Madam Justice Prowse wrote:

[ 36] In the absence of a more compelling case than has been presented, I do not find it necessary to grapple with the question of whether it should be left to the Legislature to expand the scope of who may claim as a “child” or “children” of a testator under the Act, or whether social, scientific and other circumstances have changed so significantly that it is appropriate for the Court to re-interpret those words. Thus, I find no basis for interfering with the decision of the chambers judge that Ms. Peri is not a child of the Testator within the meaning of s. 2 of the Act.

The Court of Appeal left the door open—just a crack—to a step-child with more compelling circumstances showing that he or she had a parent-child-like relationship with a step-parent to persuade the Court of Appeal to give the word “children” an extended meaning under the Wills Variation Act.