Saturday, August 13, 2022

Can the Personal Representative of a Deceased Separated Spouse Start a Claim Against the Surviving Former Spouse?

 

In a decision released on February 25, 2022, the British Columbia Court of Appeal confirmed that the personal representative of a deceased separated married spouse may bring a family law claim against the surviving spouse if they had not divorced. The case is Weaver Estate v. Weaver 2022 BCCA 79.

Lani Jo Weaver and Albert Russell Weaver married in 1993 and separated in 2005. They did not divorce, sign any separation agreement or bring any family law proceedings against each other.

Ms. Weaver died in 2020, and in November 2020, the administrator of her estate brought a family law claim in British Columbia against Mr. Weaver seeking a division of family property including jointly owned real estate in British Columbia and in the United States. Mr. Weaver brought an application in the Supreme Court of British Columbia in which he asked to dismiss the claim on the basis that because of Ms. Weaver’s death her administrator did not have standing to bring the claim and the court did not have jurisdiction to hear it. Mr. Weaver’s application was dismissed, and he appealed to the Court of Appeal.

The Court of Appeal held that Ms. Weaver’s administrator did have standing to bring the claim on behalf of her estate. The decision is based primarily on the wording of the legislation.

The Section 81 of the Family Law Act provides that on separation each spouse is entitled to an undivided one-half interest in family property and is equally responsible for family debt. The legislation provides that the one-half interest is as a tenant in common, the implication of which is that on death the one-half interest falls into the souse’s estate and does not pass to the other joint owner by right-of-survivorship as in a joint tenancy.  The word spouse is defined in section 3 to include a former spouse.

The time limits for brining a family law claim for a division of family property are set out in section 198 and depend on whether the spouses are married or are spouses by virtue of living in a marriage-like relationship. Pursuant to section 198 (2), the claim must be filed in court

(a)in the case of spouses who were married, the date

(i)a judgment granting a divorce of the spouses is made, or

(ii)an order is made declaring the marriage of the spouses to be a nullity, or

(b)in the case of spouses who were living in a marriage-like relationship, the date the spouses separated.

(The running of the time limit may be suspended in some circumstances.)

The Supreme Court Family Law Rules contain provisions providing that claims may survive the death of a spouse and for the appointment of a litigation representative to start or continue a family law case on behalf of a deceased’s estate.

Section 150 of the Wills, Estates and Succession Act provides (with certain specified exceptions such as defamation claims) a cause of action or proceeding survives the death a person who has a claim or is a party to a proceeding.

Madam Justice DeWitt-Van Oosten, for the Court of Appeal, contrasted the Family Law Act with legislation in some of the other provinces where the relevant legislation expressly excluded claims by or against the estate of a deceased separated spouse. If the British Columbia Legislative Assembly intended to exclude claims by the personal representative of a deceased former spouse, it could have done so expressly.

Furthermore, the case law established that a surviving former spouse could bring a claim against the estate of a deceased former spouse, and it would be unfair if the personal representative of the deceased former spouse could not similarly make a claim against the surviving former spouse.

In light of the language of the legislation, this decision does not appear to me to be controversial. But there is an interesting point to consider. In view of the fact that only living spouses may divorce, is there any limitation period for a claim either made against the estate of a deceased separated married spouse, or brought on behalf of the estate of the deceased separated spouse? What if both spouses have been dead for decades?

Madam Justice DeWitt-Van Oosten commented briefly on this point:

 

[81]         The chambers judge did not address this issue. Nor did we receive full submissions on the point. For present purposes, I simply note that the modern principle of statutory interpretation, as applied to s. 198(2)(a) of the FLA and s. 150 of WESA, may support an interpretation that the administrator of an estate would have two years from the date of death of the separated and deceased spouse to commence a claim for division.

I confess that on reading the legislation, I am not sure how those sections support that interpretation. I hope that this will be considered in a future case, because in many cases an undue delay would be unfair to either the living separated spouse or to the beneficiaries of the deceased spouse. There may perhaps be other defences available particularly if the claimant’s delay caused the defendant to change their position to their detriment. From the perspective of the person making the claim, it is best not to delay.

Friday, July 01, 2022

Collins Family Trust

 In a decision released June 17, 2022, Canada (Attorney General) v. Collins Family Trust, a majority of the Supreme Court of Canada held that taxpayers could not rely on equitable recission of transactions to avoid unintended tax consequences. The decision involved two different, but similar transactions. I will refer to just one of them, the Colins Family Trust.

After receiving professional tax and legal advice, Todd Collins, the principal of a company called Rite-Way Metals Ltd. (the “operating company”) undertook some transactions in order to move assets out of the operating company and into a trust in order to protect the assets from future creditors of the operating company. Based on his advice, the was structured in a way that would not (or so they thought) trigger any tax.

It is not really necessary to understand the mechanics of the tax planning to follow the principles in this case, but I will do my best to set them out in a general way. Mr. Collins incorporated a holding company and created the Collins Family Trust. The holding company bought shares in the operating company, which it then sold to the Trust in exchange for a promissory note. The operating company then declared dividends on the shares held in the Trust, and these were used to repay the promissory note. The tax planning hinged on an attribution rule in the Income Tax Act, which attributes income earned in a trust to a person, including a company, that has contributed property to the trust in certain circumstances. The idea was that the dividends paid to the trust would be attributed to the holding company, which in turn could claim a deduction of the income as inter-corporate dividends.

This planning was consistent with Canada Revenue Agency’s own interpretation of the attribution rule, s. 75(2), at the time these transactions were carried out. The Canada Revenue Agency’s position had been that the attribution rule applied to a sale of property to a trust, as well as a gift of property to a trust. However, in another decision made after these transactions, Sommerer v. The Queen, 2011 TCC 212, 2011 D.T.C. 1162, aff’d 2012 FCA 207, [2014] 1 F.C.R. 379, the Tax Court of Canada held that the attribution rule did not apply to a sale of property, as opposed to a gift. The court held that the attribution rule only applied to the settlor of the trust.

As a result, Canada Revenue Agency reassessed the Trust’s income tax return on the basis that the income was taxed in the trust, which could not take advantage of the deduction available to the holding company.

The trustee of the Trust applied to the Supreme Court of British Columbia to rescind the transactions on the basis that they were made on a mistake of the tax law. The Supreme Court of British Columbia held that the Trust was able to rescind the transactions (2019 BCSC 1030), and the Court of Appeal agreed (2020 BCCA 196). The Attorney General of Canada appealed to the Supreme Court of Canada.

Justice Brown for the majority held that rescission was not available in these circumstances. In doing so, he applied two previous decisions in which the Supreme Court of Canada held that the taxpayers involved were not permitted to rectify documents to avoid the unexpected tax consequences of the transactions,  (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56 (S.C.C.) and Jean Coutu Group (PJC) Inc. v. Canada(Attorney General), 2016 SCC 55 (S.C.C.) (I wrote a post about Fairmont here.)

Rectification and rescission are related, but distinct, concepts. A court may rectify an agreement where the parties have reached an agreement, but in error the document does not reflect the agreement. It may also be applied to wills and trusts, if the documents to not reflect the will-maker or settlors intentions. Rescission, on the other hand, allows the court to undue the transaction if it is based on a mistake of fact or law that underpins the transaction. Rectification involves modifying documents, while rescission sets them aside.

Both rectification and rescissions are based on equitable principles. As set out by Justice Brown for the majority at paragraph 11:

Generally speaking, a court of equity may grant relief where it would be unconscionable or unfair to allow the common law to operate in favour of the party seeking enforcement of the transaction. But there is nothing unconscionable or unfair in the ordinary operation of tax statutes to transactions freely agreed upon.

The reasoning is that taxpayers are permitted to structures their affairs in a manner that reduces the tax they might otherwise have had to pay under a different structure, but conversely, if they choose to structure their affairs in a manner that results in increased taxation, it is not unfair or unconscionable to hold them to arrangements that they had freely entered into.

Justice Brown summarized the principles applicable to both rectification and rescission in the tax context as follows:

[16]                         From Fairmont Hotels and Jean Coutu, taken together, I draw the following interrelated principles relevant to deciding this appeal:

(a)      Tax consequences do not flow from contracting parties’ motivations or objectives. Rather, they flow from the freely chosen legal relationships, as established by their transactions (Jean Coutu, at para. 41; Fairmont Hotels, at para. 24).

(b)      While a taxpayer should not be denied a sought‑after fiscal objective which they should achieve on the ordinary operation of a tax statute, this proposition also cuts the other way: taxpayers should not be judicially accorded a benefit denied by that same ordinary statutory operation, based solely on what they would have done had they known better (Fairmont Hotels, at para. 23, citing Shell Canada, at para. 45; Jean Coutu, at para. 41).

(c)      The proper inquiry is no more into the “windfall” for the public treasury when a taxpayer loses a benefit than it is into the “windfall” for a taxpayer when it secures a benefit. The inquiry, rather, is into what the taxpayer agreed to do (Fairmont Hotels, at para. 24).

(d)      A court may not modify an instrument merely because a party discovered that its operation generates an adverse and unplanned tax liability (Fairmont Hotels, at para. 3; Jean Coutu, at para. 41).

In these circumstances, where the tax consequences were “a direct result of the ordinary operation of the [Income Tax] Act respecting transactions freely undertaken…,” equitable rescission is not available.

Justice Côté dissented. The tax planning was based on a widely held understanding among tax advisors, and was shared by the Canada Revenue Agency. The planning was not based on ignorance or a “misprediction.” It was not aggressive tax planning. Canada Revenue Agency exercised a discretion to reassess the Trust at the same time it was appealing the Sommerer decision arguing that attribution rule did apply. It was unfair for Canada Revenue Agency to reassess the return in these circumstances, and rescission should be available.

It will not be much consolation to the trustee and beneficiaries of the Collins Family Trust, but I prefer the dissent. 

Tuesday, June 14, 2022

Practical Guide to Elder Abuse and Neglect Law in Canada

 The Canadian Centre for 'Elder Law has an excellent website dealing with elder abuse and neglect, entitled "Practical Guide to Elder Abuse and Neglect Law in Canada." It includes sections describing abuse, best practices, laws on reserves, with summaries of the law and links to relevant legislation in all provinces as well as federal legislation.

Sunday, March 27, 2022

Avoidable Legal Expenses in Estate Disputes

 

Its easy for legal expenses in emotional estate disputes to get out of hand. Some are surprised when I tell them that legal expenses can be in the hundreds of thousands of dollars. Although I generally associate expenses in that range with cases that go through a full trial, even without a trial, disputes can result in disproportionate expense. In some cases much of the expense can be avoided by forthright, early communication among the parties.

My point is illustrated by a recent assessment of lawyers’ bills in Mulder Estate, 2022 BCSC 406. This dispute was between the daughter of the deceased will-maker and her two brothers. The daughter, Leondra Ponnusamy, was named as the executor, and all three were beneficiaries of their mother’s estate. Her brothers, Ronald Mulder and Robert Mulder, asked for records of their mother, Alma Mulder’s bank accounts predating her death. Their sister refused, taking the position that as executor she did not have provide records of transactions that occurred before death. They claimed that she failed to repay $20,000 in loans. The also claimed that $35,000 that their mother had given to her was a loan, which she had to repay, rather than a gift, as she claimed. They further alleged that she received another $150,000 from their mom, and that she owed that amount to the estate.

Ultimately the dispute was settled out of court, after she did provide records, including records showing that she did not receive $150,000 and that she repaid the $20,000. But by then, the parties had incurred combined legal bills of about $300,000 in a $1.3 million estate. The sister had two lawyers involved, and the brothers had one lawyer.  

Although the Registrar did reduce the bills to some extent (25% for one lawyer, 20% for another and 5% for the third), the main point is that most of this could have been avoided.

Registrar Nielsen disagreed with the position the executor took initially that she had no obligation to provide disclosure of records prior to her mother’s death. She had a fiduciary duty, or in other words a duty of loyalty, to beneficiaries, and the circumstances called for full disclosure. Had she done so at the outset, the dispute could have been resolved with far less expense.

Registrar Nielsen wrote:

[63]         During the course of her evidence, the executor stated that she did not want her brothers seeing the per-death financial records as Ron and his wife Tammy had meddled in Alma’s finances while she was alive, and Alma had confided in Leondra that she resented this. Disclosure of the records would essentially be an affront to her mother’s memory. It is difficult to equate this stance with the definition and duties of a fiduciary provided by Dr. Waters [from Waters’ Law of Trusts in Canada, 4th ed].

[64]         In my view this was a case that cried out for full financial disclosure at the outset when it was first requested. The executor was both executor and beneficiary, and she had a pre-death history of receiving both gifts and loans from the deceased. Her relationship with her brothers had been fractured before she became executor, and Alma had indicated to Ron that Leondra was having financial difficulties. Mistrust in these circumstances was inevitable. It was not, in the words of Dr. Waters, “in the interests of the estate, or the beneficiaries” to withhold the financial information in these circumstances, from two of the three beneficiaries. 

[65]         When the executor is also a beneficiary, the fiduciary duty is particularly high when there is a pre-death history of loans and gifts to the executor by the deceased. She had a duty to identify and collect any unpaid debts owed to the estate. She alone had exclusive access to the financial records. Ron and Rob had no right to access those records without her consent, or court order. Without disclosure of the pre-death financial records, they were completely in the dark with respect to any debts owed to the estate, real or imagined.

[66]         As the litigation progressed needlessly, select financial records were disclosed, as the executor saw fit, to prove the allegations of the beneficiaries to be incorrect, or “false”, as submitted by counsel for the executor. Once disproved, the allegations were eventually withdrawn, although not as quickly as the executor would have liked.  

The brothers could also have brought an application to court to get the disclosure to get the documents early on.

What I find remarkable is that, although none of the parties were challenging their own lawyer bills, it took 24 days of hearing time for the bills to reviewed. We don’t know how additional expense the parties incurred arguing about each other’s lawyer’s bills.

Registrar Nielsen noted:

[72]         Following 24 days of evidence and argument in the within proceeding on what should have been the relatively narrow topic of legal fees, with the benefit of hindsight, there is no doubt in my mind that early disclosure of the financial records, when first requested, would have nipped the lion’s share of the subsequent litigation in the bud. The savings to the estate in legal fees would have been considerable. It may have also preserved what was left of the sibling’s fractured, but civil personal relationship.

Sunday, January 30, 2022

Unconscionable Procurement: Pinsonneault v. Courtney

 

The doctrine of unconscionable procurement is a helpful tool in challenging gratuitous transfers if the person benefiting has been actively involved in procuring property from the transferor. When it applies, the person who receives the benefit has the burden of demonstrating that the transferor had a sufficient level of understanding of the nature and effect of the transfer for it to be upheld. To succeed in a claim of unconscionable procurement, it is not necessary to show that the transferor did not have the mental capacity to make the transfer, or that she was subject to undue influence. This doctrine is not new, but many of the cases are older, and the concept appears to be enjoying a renaissance in Canada. There is heightened awareness among lawyers, which I suspect is largely due to John Poyser’s insightful discussion of unconscionable procurement in his text, Capacity and Undue Influence (now in its second edition; I reviewed the first edition here). If there were any doubt about whether the doctrine still applies in British Columbia—and there shouldn’t have been—the recent decision in Pinsonneault v.Courtney, 2022 BCSC 120, confirms it is alive and well.

Marie Reine Denise Pinsonneault moved to British Columbia in 2010 following a breakdown of her marriage. She has six children, one of whom she believed would try to take whatever he could from her. She settled in the Kootenays, and had a small business. At the time of trial in 2020 and 2021 she was 87. She had very poor eyesight, no longer had a drivers license and was “not physically robust.” On the other hand, Mr. Justice Williams, who heard the trial, described her as a “feisty, active individual.” It is apparent from the decision that her mental functioning was fine.

She became good friends with a contractor she had hired to do some work, Terry Courtney, and also became friends with his wife, Charlene Courtney, and their daughter. Mr. Courtney was 63 at the time of trial, and he characterized their relationship as like mother and son. She disagreed with his characterization of their relationship.

She purchased a lot (“Lot 3”) with a cabin on Kootenay Lake for $150,000 in 2015.

According to Ms. Pinsonneault, in early 2017, Mr. Courtney told her that he and his wife found a way to protect Lot 3, in reference to her concerns that her family and particularly her youngest son might try to take it from her. This was through a power of attorney. He took her to a notary public, where she signed four documents, including a letter explaining that she wanted to add Mr. and Mrs. Courtney to the title of Lot 3, a “Deed of Gift” of Lot 3 to them, pursuant to which she was gifting the property to them, while she would continue to be responsible for the property expenses, a transfer to title into their names and a power of attorney. In the documents, Mr. Courtney was described as Ms. Pinsonneault’s “step-son,” which was, of course, not accurate.

Ms. Pinsonneault’s evidence of what happened at the Notary’s office is set out in the decision as follows:

[129]     The plaintiff testified that when they arrived, initially Mr. Courtney went and spoke privately with the notary, that is, not in Ms. Pinsonneault’s presence. She said that she then met privately with the notary. There were papers present, evidently already prepared. Her recollection is that the notary asked her if she had read the “paper I sign”; she replied that she “cannot read”. “The notary then asked “do you know what you are signing?” and she answered to the effect yes, that “Terry had explained it to her”. Ms. Pinsonneault said she then signed the papers that were presented to her; she paid the bill and left with Mr. Courtney. When they left the notary’s office, she said she had the papers in her hand. Mr. Courtney told her to give them to him, saying “I will put them in your file at my place”, but she refused to do so. She said she took them home and put them in her desk. She did not examine them at that time or until some considerable time later.

The notary gave evidence, but Mr. Justice Williams found that “her testimony was disappointing and inadequate. Her responses were a litany of claims that she did not remember any details or specifics of the transaction, sometimes falling back on her ‘general practice’.” Her “notes and file are of no value to her in providing clear and reliable answers.”

Ms. Pinsonneault and Mr. Courtney later had a falling out over a dispute about the removal trees from Lot 3. She testified that it was after this disagreement that she read the documents and found out that she had transferred Lot 3 to the Courtneys.

She sued to recover Lot 3.

In finding in favour of Ms. Pinsonneault, and awarding her the property back, Mr. Justice Williams applied the presumption of resulting trust, which is a presumption that applies when one person makes a gratuitous transfer to another, there is a presumption that the transferor did not intend to make a gift. If the presumption is applied, the transferee is said to hold the property transferred on a “resulting trust,” for the transferor.

The presumption of resulting trust is just that: a presumption. It may be rebutted by evidence that the transferor did intend to make a gift. The issue boils down to whether the transferor intended to make a gift when at the time of the transfer. The documents Ms. Pinsonneault signed, particularly the Deed of Gift, would on their face lend support for the view that she intended a gift when she signed the transfer. Mr. and Mrs. Courtney argued that she intended to make a gift at the time she signed the transfer, but she changed her mind later.

Mr. Justice Williams found that the Courtneys had not rebutted the presumption of resulting trust. Ms. Pinsonneault did not intend to make a gift nor did she even know she was transferring her property. He wrote:

[207]     That said, the presumption to which I make reference is rebuttable: it is open to the defendants to adduce evidence to displace the presumption. To do so, they must show on a balance of probabilities that the transferor (the plaintiff) intended to make a gift.

[208]     In the matter at hand, as I have explained in my discussion of the evidence, I find that, at the time of the transfer, there is no viable basis to believe that the plaintiff had the intention to gift title to Lot 3 to the defendants. In fact, the evidence provides a strong reason to conclude that the plaintiff did not know that by signing the documents, she had in fact transferred title.

[209]     This is not a situation where it can be argued that, when the plaintiff executed the documents, she understood the consequences of doing so.

[210]     Furthermore, I am satisfied that the plaintiff was unaware that title had been transferred until many months later and, when she realized, she immediately set up a hue and cry, expressing that. In the time that followed, she steadfastly persisted in that position.

[211]     In short, there is no evidence before this Court that can assist the defendants in rebutting the presumption of resulting trust.

Mr. Justice Williams also considered unconscionable procurement. He provides an excellent summary of the doctrine:

[187]     The doctrine of wrongful (or unconscionable) procurement is derived from the principle that where a donee obtains a benefit from a donor that in turn disadvantages that donor, the donee must prove that the donor had the “necessary level of understanding to make a transaction conscionable”: John E.S. Poyser, Capacity and Undue Influence 2nd ed (Toronto: Carswell, 2019) at 629 in Gefen v. Gaertner, 2019 ONSC 6015 at para.158. It is an equitable principle: Poyser at 628. A finding of wrongful procurement renders a transfer voidable by the court: Gefen at para. 158.

[188]     The Court in Gefen provided that the onus is on the party attacking the transaction to prove on a balance of probabilities that: (1) a significant benefit was provided; and (2) active involvement by the person obtaining the benefit of the procurement: at para. 159. Once these two elements are established, it is presumed that the donor “did not truly understand what they were doing when they made the transaction.” Gefen at para. 159.

[189]     Once the presumption is established, the transaction is voidable and the Court must determine whether it would be unconscionable to let the transaction stand. As stated in Gefen at para. 161, at this stage,

[161]    …Both parties must adduce evidence about the donor's actual understanding of what she was doing. If the evidence does not come down on either side, the attacker will have failed to meet the onus and the transaction will stand: Poyser, at p. 570.

[162]    The attacker must ensure that there is enough evidence before the court in the final weighing to allow the court to conclude, as a finding of fact, that the donor failed to have a conscionable understanding of what she was doing when completing the transaction. This issue turns on whether the donor appreciated the effect, nature, and consequence of the transaction in a manner sufficient to render it fair, just, and reasonable: Poyser, at p. 574.

[190]     The question the court must ask is whether the donor “fully appreciate[d] [the] effect, nature and, and consequence” of providing gift: Kinsella v. Pask, 28 O.L.R. 393 at 400, 12 D.L.R. 522.

Mr. Justice Williams found (at paragraph 217) that “… the doctrine of wrongful procurement is, to my mind, met by the circumstances at hand.”

Saturday, November 27, 2021

Jana Keeley Joins Sabey Rule

 



I am pleased to welcome Jana Keeley to our firm. Before joining Sabey Rule, she practiced estate and commercial litigation at a leading civil and commercial boutique firm in Kelowna. She will continue to handle estate-litigation matters, and will also be assisting clients with estate planning, estate administration and elder law.

While she has a stellar legal background, personally I am even more impressed by her previous occupation as a songwriter and musician. 

Saturday, October 16, 2021

Land Owner Transparency Reports Must Be Filed By November 30, 2021

 

Registered owners of land held in trust and corporations and partnerships that own land in British Columbia have until November 30, 2021 to file a report with the Land Owner Transparency Registry. This is a requirement under the Land Owner Transparency Act. There are draconian penalties for failing to comply. Unfortunately, I am finding that most people are unaware of the requirement, and the British Columbia Government has done a poor job explaining the legislation. But there is some information available online here.

If you are holding land in trust, you may have to file a report, but there are some exemptions, such as land held in a trust that qualifies under the Income Tax Act as an alter ego or joint spousal trust. There is also an exemption for testamentary trusts (trusts created in a will). 

If you are a trustee holding land, or if you have company or are in a partnership that owns land, please consult with your lawyer.