Fraudulent Investment Schemes

The Royal Canadian Mounted Police website describes a number of scams, including fraudulent investment schemes. The RCMP refer to one scam as the "Prime Bank Instrument Investment Scheme," the common features of which include:

Persons promoting these schemes lead prospective investors to believe they are being invited to participate in an otherwise secret trading regime. Investors might be required to sign non-disclosure and non-circumvention agreements which prevent them from disclosing to any persons the identity of the parties involved in the investment programs and the terms of the transactions.

One or some of the following items characterize the schemes:

(1) Often, some part of the schemes would be transacted through a country regarded as a secrecy haven. This "offshore secrecy" feature conceivably enables investors to avoid paying any taxes on proposed investment returns.
(2) The scams are characterized by promises made to investors of above-average returns or guarantees of unrealistic rates of return, within a short period of time (e.g. 20% return per month), completely risk free.
(3) Legal-looking documents that often use technical language in an attempt to confuse investors into believing their investments are worthwhile. They may make reference to trading programs like “forfeiting program”, “high yield cash trading program”, and “high yield investment program” (HYIP).
(4) Little or no information is provided to the investors about the specifics of the prospective trading programs utilized (example: how investors’ returns are generated).
(5) Monetary rewards provided to investors already involved in the schemes to encourage them to induce others to invest. Many individuals brought into these schemes are relatives or friends of the initial investors and, as such, are less skeptical of the investments because they trust the family members/friends who made the referrals.

Unfortunately, by the time those taken in by such schemes consult with their lawyers, it is usually too late: the money is long gone, and there is little realistic prospect that the victim will get any of it back.

Liabilities and British Columbia Probate Fees

In my October 22, 2005 post, “British Columbia Probate Fees," I wrote that the amount of probate fees payable is based on the value of the deceased’s estate. I discussed the basic structure this tax in my earlier post, but did not discuss whether liabilities are deducted from assets in calculating the amount of probate fees. In other words, are probate fees payable on the gross value of the estate assets, without deduction for liabilities, or on the net estate, after the deceased’s debts and other liabilities are deducted from the value of the estate?

For example, let’s assume that Albert dies leaving an estate consisting of a $100,000 bank account, no other assets, and no liabilities. Bob dies leaving an estate consisting of a $500,000 bank account, no other assets, and owes Carl $400,000. Bob has not given Carl any security for the $400,000 debt. We also assume that Albert and Bob were resident in British Columbia when they died and their executors have to apply to probate the wills in order for the banks to release the funds to the executors. Are the probate fees payable on Albert’s estate, and Bob’s estate the same? Principles of fairness may require that the amount of probate fees payable would be the same--but not British Columbia’s Ministry of Finance.

Section 1 of the Probate Fee Act, SBC 1999, c. 4, says that the

"value of the estate" means the gross value, as deposed to in a Statement of Assets, Liabilities and Distribution exhibited to the affidavit leading to a grant or to a resealing, as the case may be, of
(a) the real and tangible personal property of the deceased situated in British Columbia, and
(b) if the deceased was ordinarily resident in British Columbia immediately before the date of death, the intangible personal property of the deceased, wherever situated,
that passes to the personal representative at the date of death.

However, the British Columbia Supreme Court registries allow mortgages registered against the title to land to be deducted from the value of the land when the land and the land’s value are disclosed on the assets section of the Statement of Assets, Liabilities and Distribution. (The statement should show the gross value of the land, the amount owing on the mortgage, and the net value as at the date of death.) Similarly, liabilities that are secured against personal property may be deducted from the value of such assets on the Statement of Assets, Liabilities and Distribution. In practice the “gross value” of an asset that is encumbered by a financial charge means the net value of the asset after deducting the amount owing on that financial charge.

On the other hand, no relief is available for unsecured debts.

Let us add Donald to our example. He dies owning a house in British Columbia worth $500,000 with a mortgage registered against the house. He owes $300,000 under the mortgage, and has no other assets or liabilities.

Accordingly, the net values (after deducting liabilities from assets)of Albert’s estate and Bob’s estate are each $100,000, and the net value of Donald’s estate is $200,000. In addition to the $208 filing fee, Albert’s estate has to pay $1000, Bob’s estate has to pay $6600, and Donald’s estate has to pay $2400 in probate fees. Therefore, Bob’s estate, which is really worth only half of Donald’s estate, has to pay two to three times as much in probate fees to the provincial government.

Does this seem like a fair method of taxation to anyone?

Spousal Trusts: Balancing the Interests of Your Spouse and Children

If you are married or living in a marriage like relationship and have children from a previous marriage, you may find it a challenge to make provisions in your estate plan for both your spouse and children. You will likely want to make sure that your spouse's needs are looked after if you die before first, but that eventually your children will also inherit some of your wealth.

One method of balancing the interests of your spouse and children is by setting up a trust in your will. You can provide in your will that some or all of your assets will be held by someone you appoint as a trustee for your spouse’s benefit during his or her lifetime. On your spouse’s death, the trustee would then distribute the remaining trust assets to your children. The trustee would be given legal title and control of your assets on your death under your will, but would be required to deal with the assets in accordance with the directions you have set out in your will.

You can set out the terms of the trust in your will according to the needs of your spouse and children. For example, you might provide that all of the income from any investments held by your trustee will go to your spouse. You may also set a minimum amount for your trustee to pay your spouse monthly in case the investments do not generate enough income to adequately provide for your spouse. The minimum payments could be adjusted annually in accordance with the cost of living index.

It is usually a good idea to give your trustee the power to give your spouse additional funds out of the trust assets as your trustee considers appropriate to meet any needs that may arise in the future.

If your spouse has other income, there may be some tax advantages to setting up a spousal trust in your will, rather than leaving the assets to your spouse outright. The trust is treated as a separate taxpayer, and the trustee may elect to pay the taxes on the income earned on the trust assets. Because income tax rates are graduated so that many taxpayers have to pay a higher portion of their income to Canada Revenue Agency if their income increases, the amount of tax paid by the trustee on the investment income if it is taxed in the trust may be lower than if the same amount of investment income were taxed in your spouse’s hands.

It should be noted that different tax rules apply if you set up trust that takes effect before your death.

Canadian Bar Association Submits Brief on Protecting RRSPs from Creditor Remedies

The Canadian Bar Association British Columbia Branch has submitted a brief to the Minster of Finance advocating legislation exempting Registered Retirement Savings Plans from creditor remedies. The brief has a summary of arguments in favour of exempting Registered Retirement Savings Plans at page 9 as follows:

There are many practical reasons to enact the Registered Plan (Retirement Income) Exemption Act. First, Canadian law encourages retirement savings and the Registered Plan (Retirement Income) Exemption Act promotes and protects this worthy policy goal. Second, the data on retirement savings show that Registered Plans are essential for a healthy and adequate standard of living for British Columbians in retirement. Third, the data show that Registered Plans need to be protected from creditors to maintain this healthy and adequate standard of living. Fourth, the current law inflicts an unfairness on holders of Registered Plans and simple justice requires this unfairness to end now. Fifth, self-employed British Columbians need the protection from enforcement against Registered Plans. Sixth, the Registered Plan (Retirement Income) Exemption Act would yield many benefits, including injecting needed certainty into the law, harmonizing British Columbia law with federal law and encouraging growth in the British Columbia economy. In all, the benefits by enacting the Registered Plan (Retirement Income) Exemption Act would make British Columbia a leader across Canada.

Currently, British Columbia law affords creditor protection for Registered Pension Plans, and some life insurance products, while other Registered Plans are not afforded similar protection during the lifetime of the owner.

The brief is available here.

List of Canadian Registered Charities

If you are considering leaving a gift to a charity in your will, or for that matter, making a gift to a charity while you are alive, you may want to make sure that the charity is able to issue a tax receipt. A charitable tax receipt will allow you, or your executor on your behalf in the case of a gift in your will, to claim a charitable tax credit, thereby reducing your income tax. Canada Revenue Agency has a listing of registered charities, which you can search to find out if an organization is a registered charity in Canada. The site is here.

British Columbia Probate

"Probate" means to prove the will.

In British Columbia, a person appointed in a will to administer the deceased’s estate, called the "executor", may apply to the Supreme Court of British Columbia to probate the will. In most cases this is an uncontested court process. The executor mails a copy of the will, together with a notice that he or she is applying for probate, to the beneficiaries of the will and to the deceased’s nearest relatives. The executor must also prepare an inventory of the estates assets and liabilities. A copy of the notice that was sent to the beneficiaries, the inventory, a certificate of wills notice search, and the original will, together with affidavits from the executor are then filed with the court in support of an application for probate. The Court may then issue a document called "Letters Probate" to the executor.

The executor must also pay filing fees and probate fees. (See my previous post on British Columbia Probate Fees.)

In some instances, someone will challenge the validity of the will, in which event the validity of the will may have to be determined after a trial.

By granting Letters Probate, the Court confirms that the will is valid, and that the executor has authority to deal with the estate assets. Without probate, other people or institutions may refuse to recognize the executor’s authority over the estate assets. For example, if the deceased was the sole registered owner of real estate, the Land Title Office will require a court certified copy of the Letters Probate before allowing the executor to transfer the real estate into the executor’s name. The executor cannot sell the real estate or distribute it to the beneficiaries of the will without transferring the real estate into the executor’s name.

On the other hand, the executor's authority comes from the will, and in some cases an executor is able to administer the estate without applying for probate. Some financial institutions will allow an executor to deal with the deceased's accounts without requiring probate, especially where the estate and accounts are small, and the beneficiaries are the deceased's spouse or children. In these cases the financial institutions will usually require a declaration and indemnity agreement from the executor and all of the beneficiaries, as well as a certified copy of the will. However, even with small accounts, a financial institution is entitled to insist on receiving a copy of Letters Probate before releasing any funds to the executor.

Reducing Your Children's Canadian Income Taxes with Trusts

[The Federal Government in its 2014 Budget announced changes to tax law that will with some limited exceptions treat testamentary trusts similarly to other trusts, with income earned and retained in the trust taxed at the top marginal rate, instead of graduated rates beginning in 2016. Accordingly, the article below will no longer be accurate. There may still, however, be some tax-planning opportunities available using trusts, but these are more limited than when this article was written.]

There can be significant long term Canadian income tax savings for your children and their families if you create discretionary trusts for each of your children and their families in your will, instead of leaving them their inheritances outright.

A trust involves having one or more persons, called trustees, hold the assets for the benefit of others, called the beneficiaries. You can appoint one or more trustees to hold the assets for the life of your child. The trust would have several beneficiaries, including your child. You might include your child’s spouse, children and grandchildren. You can give the trustee control over when to make distributions from the trust of income or capital to any of the beneficiaries. The trustee could distribute to one or more beneficiaries to the exclusion of the others at the trustee’s discretion. If you have more than one child, you can set up a separate trust for each child, and that child’s family.

There are a couple of ways that this can save taxes for your children.

Canadian income tax law treat a testamentary trust, which includes a trust created by a will, as a separate taxpayer from the beneficiaries. Trustees must pay income taxes from the trust on income earned the trust’s investments, unless the trustees pay the income to the beneficiaries, and claim a deduction for the income paid or payable to the beneficiaries. If the trustees claim a deduction for the income paid or payable to the beneficiaries, then the beneficiaries are required to report the income, and pay income tax on the income deducted by the trustees. (See Canada Revenue Agency's Interpretation Bulletin "IT-342R Trusts - Income Payable to Beneficiaries" for a more detailed and technical description.)

Testamentary trusts are taxed at graduated marginal rates of tax. In other words, the rate of tax is relatively low for the first $33,000 earned by the trust in a year, and the rate then increases at various higher levels of income.

Where the trust’s rate of income tax is lower than a beneficiary’s marginal rate of income tax, the trustees can save taxes by claiming the income in the trust and paying the tax at the trust’s rate of tax. On the other hand, if some of the beneficiaries have little or no income, the trustees can distribute some of the income to those beneficiaries, who may have to pay little or no tax.

Lets take a simple example. Supposing you leave your daughter $400,000 out right in your will. She is a resident of British Columbia. She invests the money and in a year, she receives interest income of $16,000 on the $400,000 investment. Her other income is employment income of $60,000 per year. Therefore, her total income is $76,000. According to the Ernst & Young tax calculator for 2005, her combined Canadian and British Columbian income taxes would be about $19,000. (No doubt, it would be a little different depending on her specific circumstances, and what credits and deductions are available to her, but these numbers should be fair for comparison purposes.)

If, on the other hand, you leave the $400,000 in a British Columbia resident trust created in your will, and the trustees invest it at the same return, earning $16,000 investment income, the total income tax will be less. Your daughter would pay income tax of about $13,700 (using the Ernst & Young tax calculator.) The trust would pay income taxes at a tax rate of about 22.05%, or about $3, 500. The amount of tax paid by your daughter and the trustees combined would be about $17,200 instead of about $19,000 if your daughter invested the income and paid all of the taxes. The tax saving in that year would then be about $1,800. Over a long period of time the tax savings would be significant.

If your daughter had children in college with little or no income, the trustees could distribute the income to your daughter’s low income children, and the tax savings to your daughter’s family would be greater. This is because your children can claim personal tax credits that are not available to the trust.

Email Subscriptions to Rule of Law

I have added a FeedBlitz email subscription feature on my sidebar, below my Archives, and above the Disclaimer link. You can get updates to this blog by email if you subscribe by entering your email in the box. FeedBlitz will then send an email to you asking you to confirm your registration by clicking a link.

Reverse Mortgages

Reverse mortgages are promoted as a means for seniors to use the equity in their homes to finance their needs and lifestyles.

Like a conventional mortgage, a reverse mortgage is a loan secured by a mortgage against the borrower’s home. Unlike a conventional mortgage, the borrower is generally not required to repay the loan until the borrower sells the home, or until the borrower’s death. The principal and interest on the loan becomes due when the home is sold, or within a specified period after the borrower’s death.

Often, reverse mortgages will provide that the borrower’s liability to the lender for the principal and interest is limited to the value of the home. This means that the borrower or the borrower’s estate will not have to make up any shortfall if the amount owing on the loan exceeds the value of the home when the home is sold, or when the borrower dies.

There are both advantages and disadvantages of reverse mortgages. A reverse mortgage does offer people who are house rich and cash poor a way to stay in their homes, while maintaining their lifestyles.

The main disadvantage of a reverse mortgage is that, because interest rates on a reverse mortgage tend to be higher than on a conventional first mortgage, interest is compounded, and the borrower is not required to make monthly payments of interest and principal, the amount that the borrower or the borrower’s estate will have to eventually repay will increase substantially over a long period of time. For example, if you borrow $50,000 at 7 % per year interest, and do not make any payments, the amount owing on the loan will double to $100,000 within ten years, and double again to $200,000 within another ten years. (The interest rates on reverse mortgages usually fluctuate, moving up and down over time, which makes it difficult to calculate the amount the borrower will ultimately have to pay.)

The increase in the amount owing on a reverse mortgage can create a hardship for the borrower if the borrower later decides to sell the home to move into a smaller place. If under the terms of the reverse mortgage, the loan becomes due when the house is sold, and if the amount owing has grown substantially there may not be enough equity in the home left to buy another, even if less expensive, home.

Before deciding whether to enter into a reverse mortgage agreement, one should carefully consider the potential costs of the loan in the future if the home is sold, get legal advice on the terms and the reverse mortgage, and get financial advice on alternatives. For example, in British Columbia, seniors may be able to defer property taxes on their homes under the Land Tax Deferment Act, RSBC 1996, c. 249.

The Canadian Centre for Elder Law Studies has published a “Consultation Paper on Reverse Mortgages” which provides more information on reverse mortgages and a discussion on ideas for law reform on this topic. The Consultation Paper can be found here.

Canadian Retirement Income Calculator

I found a retirement income calculator on the Government of Canada, Service Canada website. According to the site,

The Government of Canada has developed this calculator to help you plan for retirement. The calculator takes you step by step through an estimate of the ongoing income you may receive throughout your retirement from:

Old Age Security (OAS);
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP);
employer pension(s);
Registered Retirement Savings Plans (RRSPs); and
other sources of ongoing income.

....

It will take you approximately 30 minutes to use the calculator. To get the most out of your session, please make sure that you have as many of the following up-to-date records as possible, including:

CPP Statement of Contributions or QPP Statement of Participation;
financial information about your employer pension (if applicable);
recent RRSP statement(s) (if applicable); and
statements for other savings that will provide ongoing monthly retirement income (annuities, foreign pensions; survivor pensions, etc.).

The calculator is here.

Capacity to Make a Will

The Basic Criteria

The basic legal criteria that British Columbia courts use to determine if someone who makes a will (the “testator”) has the mental capacity to make a will were set out about one hundred and thirty years ago in Banks v. Goodfellow (1870), L.R. 5 Q.B. 549. To paraphrase the criteria set out in Banks, in more modern--if less eloquent--language, the testator:

1. must understand the nature and effect of making a will;
2. must understand the extent of his or her assets;
3. must know close family and friends so that the testator can consider their claims to his or her bounty ; and
4. must not be under any insane delusions that affect what the testator decides to do in his or her will.

Some General Observations

I will write about some of the cases on testamentary capacity in future posts, but for now, I have a few general observations about the tests for mental capacity that I will make here.

There are many people who suffer mental disabilities or whose capacity is diminished who can make a valid will. For example, people in the early stages of Alzheimer’s disease will have memory problems, but may still know their family, and their assets sufficiently well to make a will. On the other hand, if the Alzheimer’s has caused the sufferer’s memory to deteriorate to the point where he does not recognize one of his own children, he will not be able to make a valid will.

Not all insane delusions will affect the testator’s legal capacity to make a will. For example, someone who believes that the government of Prince Edward Island is persecuting her may still have the capacity to make a will. On the other hand, if she believes that her daughter is trying to kill her—assuming that she is suffering from a delusion and the daughter is not in fact trying to kill her—she will not meet the criteria for capacity.

How is capacity established?

In most cases, the lawyer taking will instructions will gather the evidence required to establish capacity simply by asking the testator questions about his or her family, assets and liabilities, discussing the testator’s estate planning options, and making notes. In the vast majority of cases there is no question that the testator has capacity, and the will is unlikely to be challenged.

In other cases, a lawyer may have to take further steps before he or she may be satisfied that the testator has capacity. The lawyer may need to get his or her client’s permission to speak to the client’s physician, or arrange for the client to see a physician or psychologist for a capacity evaluation.

In some cases, the lawyer will conclude that his or her client does not have capacity to make a will, in which case the lawyer should decline to draft the will.

The Sermon

A lawyer has a responsibility to ask sufficient questions to establish that his or her client has the capacity to make a will. This means taking the necessary time to ask those questions. The lawyer who drafts the will may be called upon to testify about the testator’s capacity in court if the will is challenged. (For a case where a lawyer failed to make adequate inquiries to determine the testator’s capacity, see Peters (Estate of) v. Ewert, 2002 BCSC 1540.)

A lawyer who cuts corners to produce a cheap will by failing to thoroughly canvass his or her client’s circumstances, and explain the client’s options, is doing the client a disservice. Similarly, someone who goes to a lawyer for a will, but is not willing to pay a lawyer a reasonable fee for a proper professional job is doing his or her heirs a disservice.

Rememberance Day: We Will Not Forget Them

My son Justin wrote this poem last year:

We Will Not Forget Them

Remembrance Day comes once a year,
A memorial where we can remember …

The men and women that gave their lives for peace
Our thought for the dead stay quietly in our minds
As they lay under the poppies

We will not forget them

At ceremonies across our nation
We honour our veterans
We will not forget the important lessons we learned

We will not forget them

The silence ends two minutes past
The eleventh hour
When our leaders signed a treaty for a peaceful world

They are not forgotten

Lord, we have one thing to say,
Let the countries of our world understand
What a wreath means.

Choosing an Executor

You may appoint someone in your will to look after your affairs on your death. The person you appoint is called your “executor.”

Your executor’s duties on your death include:

a. Arranging your funeral and disposal of your remains;
b. Paying your debts;
c. Filing income tax returns and paying any taxes owing up to your date of death, and filing returns and paying taxes after your death if your estate earns income after your death;
d. Applying for a clearance certificate from Canada Customs and Revenue Agency before distributing your estate;
e. Insuring and protecting your assets;
f. Subject to any directions in your will, selling your assets;
g. Investing any funds in your estate until they are distributed;
h. Identifying and locating the beneficiaries;
i. Distributing your estate to the beneficiaries in accordance with your will;
j. Preparing accounts for the beneficiaries.

The executor is expected to carry out his or her duties diligently. In many estates the executor should be able to substantially complete the administration of an estate in a year. This is called the “executor’s year.” However, in some estates it may take longer than a year. Factors that may lengthen the administration include legal disputes over the estate, assets that are difficult to sell, active businesses that need to be sold or liquidated, and disputed claims by creditors

If you create long term trusts in your will, and appoint your executor as a trustee, he or she will have continuing duties as trustee after the executor’s year. In some cases this may be a lifetime obligation. You might create trusts in your will for tax planning purposes, for infant, disabled or spendthrift beneficiaries, or for beneficiaries whom you want to enjoy property in succession.

You should choose someone who is reliable, well organized, trustworthy, and capable of handling money as an executor. Your options may include relatives, friends, and professional trustees such as trust companies. You may appoint two or more executors to act together. For example, in a large complex estate, you might appoint a trust company to act together with a relative. However, before appointing two or more executors to act together, you should be confident that the executors would work well together.

The person you choose as executor may decide not to act as executor, and can renounce his or her appointment. If he or she does decide to act as executor, then the appointment is effective immediately on your death. However, the executor may need to have his or her appointment confirmed by a court grant of letters probate of your will before your executor can deal with your assets.

It is a good idea to name alternate executors, in case your first choice dies before you, or is unable or unwilling to act as your executor.

Registering Your Representation Agreement

You may register your Representation Agreement in British Columbia through the Nidus eRegistry, which is operated by the Representation Agreement Resource Centre, a non profit Society.

According to the Nidus website here,

The Nidus eRegistry is designed to facilitate communication.

When people make their personal life plans using Enduring Powers of Attorney and Representation Agreements, their final question is – whom do I tell? Who should get a copy? We don’t always know who will need to know or when. The Registry offers a simple and secure way to record and store your information in a way that can be accessed quickly.

You will register contact information about yourself, your document (where the original is located) and those you’ve named in your document. You can also register a copy of your document.

For more information about Representation Agreements, see my post "Could a case like Terri Schiavo's happen in British Columbia?"

Dependent Relative Revocation

"When a revocation does not revoke."

I have trouble wrapping my mind around the words “dependent relative revocation.” I prefer to think of it as a “conditional revocation,” but I am not sure this simplifies matters a great deal.

This doctrine applies where the court finds that the maker of a will (or the “testator”) has done something to revoke his or her will—such as destroying the will--but that the testator intended that the will would be revoked only under certain conditions. In most cases this doctrine has been applied where the testator has revoked a previous will in order to make a new will, but the testator does not in fact complete the new will, or the new will is invalid. If the court finds that the testator’s intention to revoke the first will were dependent on the making of a valid new will, and the testator did not make a valid new will, the court may ignore the revocation, and give effect to the first will.

The Supreme Court of British Columbia considered the doctrine of dependent relative revocation earlier this week in Jung, Re Estate of Horace Lee, 2005 BCSC 1537.

Mr. Hubert Lee made a homemade will in 1977, appointing his brother Horace Lee as executor, leaving his estate to Horace.

In 1985, Hubert made a second homemade will in which he revoked his earlier wills (called a “revocation clause”), and he appointed Horace and his sister Estelle Jung as co-executors. The following was written on the first page of the 1985 will:

“My shares of Lee Bros. Holding Co. My property of 817 North Park St., Victoria, B.C. and 35% of cash & bonds to my brother Horace. 35% to my sister Estelle of cash & bonds. 35% divided evenly for my sisters Elsie, Edythe, Effie and my brothers Harold & Henry of cash & bonds.”

The case involved a dispute over whether Hubert wrote the above quoted words after Hubert and his two witnesses signed the will. As I have written in an earlier post, British Columbia has strict technical requirements for wills. If there is an alteration to a will after the will is signed, the testator and the two witnesses must sign “ in the margin or in some other part of the will opposite or near to the alteration, or…at the end of or opposite to a memorandum referring to the alteration and written in some part of the will.”

Although the facts were in dispute, Mr. Justice Burnyeat found that Hubert had written those words setting out how his estate was to be distributed after Hubert and the witnesses had signed the will. The alternations were not signed in accordance with the requirements of the Wills Act, RSBC 1996, c. 489.

In the words of Burnyeat J.,

In the circumstances but with considerable regret, I am satisfied that I am precluded from implementing the clear intention of Horace in view of the relevant statutory provisions and decided cases relating to the effect that the Court can give to alterations that are added after a will has been executed when the alterations are not properly witnessed.

Having found that the most important part of Hubert’s will—the part saying who gets what—was not valid, Mr. Justice Burnyeat then had to decide the effect of the revocation clause in the 1985 will. Keep in mind that Burnyeat J. found that the 1985 will was valid; only the part Hubert added after he and the witnessed signed the will was invalid. If the rest of the 1985 will were valid, then arguably the revocation clause was valid. If the revocation clause were valid then Hubert would have revoked the 1977 will, without providing how his assets would be distributed, in which case the estate would go to those of Hubert’s brothers and sisters who survived him, and to the children of those siblings who died before Hubert under the rules for dividing an intestate estate.

However, Burnyeat J. relied on the doctrine of dependent relative revocation, or conditional revocation, in holding that the revocation clause did not revoke the 1977 will. He canvassed a number of Canadian cases in which the courts applied this doctrine as follows:

(a) where the first will is destroyed but the subsequent will cannot be found: Re Hennessey’s Will; Canada Permanent Trust Company v. Holloway et al (1984), 46 Nfld.& P.E.I.R. 91 (Nfld. S.C.); and Re Keating Estate, [1981] N.S.J. No. (Q.L.) 112 (N.S. Ct. Probate);
(b) where the first will was said to have been cancelled but the second will could not be found: Irish v. Dwyer (1986), 23 E.T.R. 1 (Nfld. S.C.); Pigeon Estate v. Major, [1930] 2 D.L.R. 532 (S.C.C.); Re Teale (1923), 54 O.L.R. 130 (O.S.C.- H.C.D.); and Downey Estate v. Foster, [1991] O.J. (Q.L.) No. 3475 (Ont. C.J.-G.D.);
(c) where a second will was executed but the testatrix was found not to have had testamentary capacity: Sheen v. Sheen, [2005] 6 W.W.R. 627 (Man. C.A.);
(d) where a second will was found not to be valid because the attesting witnesses were not present when the document was signed or because one of the witnesses was the beneficiary: Valantine v. Whitehead (1990), 37 E.T.R. 353 (B.C.S.C.); and Re Tuckett (1907), 9 O.W.R. 979 (Surrogate Court);
(e) where a subsequent codicil was executed under the mistaken belief that one of the persons who would receive a residual bequest in the will had died: Sorensen Estate v. Hawley (1981), 10 E.T.R. 282 (B.C.S.C.); and
(f) where a portion of a will was cut out but never replaced: Re Service, [1964] 1 O.R. 197 (Ont. C. Ct.); and Re Anderson [1933] 1 D.L.R. 581 (Ont. C.A.).

In the case before him Burnyeat J. found,

…that the intention of Hubert when adding the revocation found in the 1985 Will was clear — he wanted to revoke the 1977 Will and substitute the bequests that he added to the 1985 Will after it had been executed. Accordingly, I hold that the revocatory clause in the 1985 Will was conditional, the condition being that the bequests which were set out would be valid. The best effort I could make to give effect to at least some of the intentions of Hubert is to order that the 1985 Will be admitted to Probate with the 1977 Will, but with the revocatory clause in the 1985 Will kept from Probate.

In the result, Hubert's estate went to the beneficiary of his 1977 will, his brother Horace. Because the 1977 will had already been probated and the estate substantially administered, the court found that granting probate of the 1985 will would be pointless.

[Since I wrote this post, the British Columbia Court of Appeal allowed the Plaintiffs' appeal, and ordered a new trial. The reasons for judgment consider evidentiary issues, and do not consider Mr. Justice Burnyeat's analysis of the doctrine of dependent relative revocation. I have written a post on the Court of Appeal decision here, and the decision is reported at 2006 BCCA 549.]

[After a new trial, reported here, Mr. Justice Silverman found that the portion of the will containing the gifts to the other siblings was in the will when Henry Lee and the witnesses signed the will. I have now written about the decision here. The doctrine of dependant relative revocation did not need to be considered.]

Canadian Provincial Responses to Elder Abuse Chart

The Canadian Centre for Elder Law Studies has published a chart comparing legislative responses to elder abuse in the Canadian provinces. It is available here.

Unjust Enrichment: Claims by Stepchildren

The law of unjust enrichment is a vital, flexible and evolving branch of Canadian common law. It allows the courts to remedy injustices for which other, older branches of law do not apply.

The basic principles of an unjust enrichment claim are as follows:

1. The person making the claim must have benefited or enriched the defendant;
2. The person making the claim must have suffered a corresponding deprivation;
3. There is no juristic reason for the enrichment.

In my October 30 post, I wrote about Schnogl v. Blazicevic, 2004 BCSC 1335, a case in which the Supreme Court of British Columbia awarded the plaintiff, who was a tenant and friend of the deceased, a 90 percent interest in the deceased’s house by imposing a constructive trust on the house. The court found that the plaintiff had provided extensive services to the deceased and the deceased’s spouse in the legitimate expectation that the plaintiff would be left the house in the deceased’s will.

Today I am writing about my favorite unjust enrichment case, Moyes v. Ollerich Estate, 2005 BCCA 518.

Joan Moyes was Marjorie Ollerich’s stepdaughter. Mrs. Ollerich had married Joan’s father when Joan Moyes was 18 years old. Over the years, they developed a close bond, and a mother and daughter relationship. When Joan Moyes father Andrew Ollerich died in 1966, he left his assets to Mrs. Ollerich.

As Marjorie Ollerich got older, her health deteriorated, and Joan Moyes provided a great deal of comfort and care to her. Although Joan Moyes lived a few hours away from Kelowna, where Marjorie Ollerich lived, Mrs. Moyes spent days and weeks at a time, away from home, caring for Mrs. Ollerich. After Mrs. Ollerich went to live in nursing homes, Mrs. Moyes continued to visit her and assist her.

Mrs. Ollerich had told Mrs. Moyes on two occasions that she would be leaving a significant share of her estate to Mrs. Moyes.

However, Mrs. Ollerich’s last will left Mrs. Moyes $25,000 out of an estate of about $700,000. There were a number of other specific financial gifts, and the residue was left to Mrs. Ollerich’s brother.

After Mrs. Ollerich died, Mrs. Moyes brought a claim against her estate on the basis of unjust enrichment. The case was heard as a summary trial, on affidavit evidence.

Madam Justice Beames, of the Supreme Court of British Columbia, awarded Mrs. Moyes $125,000 plus interest in addition to the $25,000 bequest.

In reaching her decision, Beames J. cited another case brought by a stepdaughter who advanced a claim to a larger share of her stepparent’s estate: Clarkson v. McCrossen (1995), 3 B.C.L.R. (3d) 80 (B.C.C.A).

Clarkson is a significant case because the British Columbia Court of Appeal held that the in determining the amount of a monetary award for unjust enrichment, the court may consider the supportive relationship between the plaintiff and her stepparent. Mr. Justice Hinds in Clarkson said:

In the particular circumstances of this case, where a stepdaughter had been treated for a period in excess of 40 years - almost her entire life - as a natural daughter by her stepfather, where a close relationship existed between them and each became somewhat dependent on the other and where there was a reasonable expectation, I am of the view that the supportive relationships between the respondent and her stepfather, above described, are compensable. The value of them, to a moderate degree, should be included in the determination of the value received approach to the monetary award.

In his concurring judgment in Clarkson, Chief Justice McEachern wrote:

This leads me to conclude that, in principle, no distinction should be drawn between services rendered under a reasonable expectation of fair treatment between a stepdaughter, as in this case, and a wife or common-law partner. The enrichment must be viewed appropriately in the context in which it is created. Many years of loving care and companionship furnished by a devoted stepdaughter, for example, where there is a reasonably based expectation of tangible benefit, should not always be equated to the per diem cost of employed homemakers at minimum wages.

The defendants in the Moyes case appealed to the British Columbia Court of Appeal, both on the finding of unjust enrichment, and second on the amount of the award. The Court of Appeal found that the first ground was “misconceived,” finding that the Chambers judge properly considered Mrs. Moyes evidence of Mrs. Ollerich's statements to her that she would leave a significant share of her estate to Mrs. Moyes in the context of the surrounding circumstances.

With respect to the amount of the award, the defendants argued that the nature and extent of the services that Mrs. Moyes rendered were not as extensive as the plaintiff in Clarkson, and, therefore, the amount of the award should be lower.

The plaintiff argued before the Court of Appeal that the nature and extent of the services was one of several factors, and not the only factor, that the court could consider. The court could also consider the nature of the relationship between the parties, the plaintiff’s sacrifices, the reciprocal benefits the plaintiff received from the deceased, and the size of the estate.

The Court of Appeal upheld the amount of the award. Madam Justice Prowse, for the court, said in respect of Clarkson,

While it may be fair to say that the nature and extent of the services provided by the stepdaughter in Clarkson was greater than that here, that case does not purport to set an upper limit. It was simply a case in which this Court determined that it was inappropriate to interfere with the quantum of the award.

Prowse J.A. also said, “[I]t is clear from the authorities that trial judges have considerable discretion in that regard to take into account the specific circumstances before them.”

I intend to discuss the differences between the remedies of constructive trust and monetary awards in a future post. But, for now, I think that both Clarkson and Moyes are significant cases in the evolution of unjust enrichment in that they tend to narrow the gap between cases in which the court chooses the remedy of constructive trust, and gives the plaintiff an interest in property that may have a substantial value, and monetary awards that were traditionally quite modest.

I would like to thank Joan Moyes for her decision a couple of years ago to retain me. It was an honor to represent her in both the Supreme Court of British Columbia, and in the Court of Appeal.