Executor Fees May Not Reflect Time Opposing a Wills Variation Act Claim

Master McCallum’s decision in Re Estate Hautakoski, 2009 BCSC 868, reflects two important points for executors. First, if a spouse or child brings an application in British Columbia under the Wills Variation Act to vary the will, the executor ought not to take an active role in opposing the claim. Secondly, although section 88 of the Trustee Act in British Columbia provides for a ceiling on executor’s fees of 5 percent of the estate capital and income, as well as an annual care and management fee of up to 0.4 percent of the average value of the estate assets, the executor’s entitlement is often found to be less than the ceiling. The law allows a reasonable amount, which is not necessarily the maximum.

The executor of Veikko Tapani Hautakoski’s will was his lawyer. Mr. Hautakoski disinherited his son, Harry Hautakoski, leaving his estate in a trust for his granddaughter. Harry Hautakoski brought a claim to vary the will under the Wills Variation Act on the basis that adequate provision had not been made for him. Veikko Hautakoski’s granddaughter did not oppose the Wills Variation Act claim.

The executor did oppose Harry Hautakoski’s claim. She wanted Veikko Hautakoski’s wishes as set out in the will carried out.

The Wills Variation Act claim was ultimately settled by an agreement and consent order that Harry Hautakoski would receive one-third of the estate, with one-third given to the granddaughter at the age of 25, and the rest held in trust for her.

The executor asked the beneficiaries to approve her accounts. She sought 5 percent of the capital and income of the $1.1 million estate, as well as an annual care and management fee. She estimated that she spent 150 hours on the file, much of which related to opposing the Wills Variation Act claim.

The beneficiaries did not approve of the amount of the fees, and took issue with the role she took in opposing the Wills Variation Act claim.

After quoting from the decision of Mr. Justice Bouck in Quirico v. Pepper (Estate) that the executor’s role is to remain neutral in a Wills Variation Act claim, Master McCallum wrote:

This executor went well beyond that role because she was concerned that the testator’s wishes would not be followed. There is no doubt that ought not to have been her concern. She was required to maintain an even hand as between the beneficiaries and take no position on the merits of the claim. If this executor had followed that course, the time spent by her would undoubtedly have been reduced.

Master McCallum found that in other respects, the executor handled the estate competently, but that it would not be appropriate to award the maximum amounts in the Trustee Act. He wrote:

[17] The beneficiaries took no issue otherwise with the executor’s discharge of her duties. This was an estate involving over $1,000,000 in assets. There was a reasonable level of care and responsibility required of the executor who displayed an acceptable level of skill in dealing with the assets. The estate was competently managed and the executor should be fairly compensated for her work. There is no evidence as to the time required to administer the estate as distinct from the WVA
claim.

[18] The executor’s claim includes a capital fee of the maximum allowable 5% of the gross value of the estate. Given that the estate is not fully distributed and that there is a trust remaining for the testator’s granddaughter, the maximum fee cannot be allowed. In the other circumstances of the estate, the maximum fee would also
not be appropriate. Taking into account all the criteria to be considered, a proper fee on capital for this estate would be 2% of the gross value of the estate. I calculate that fee at $22,370.38 (2% x $1,118,511.90).

Master McCallum did allow 5 percent of the income, and a care and management fee of 0.3 percent annually.

Doucette v. McInnes Reversed by the Court of Appeal

Joint accounts between parents and children in British Columbia provide lots of work for estate litigation lawyers, and lots of fodder for my blog. A recent case in point is the British Columbia Court of Appeal decision in Doucette v. McInnes, 2009 BCCA 393.

When she died in Victoria, B.C. on April 29, 2004, Mildred Lucy Doucette left surviving her four adult children: Diane McInnes, Louie Doucette, Joslin Clarke and Wayne Doucette. She owned her own home, which was worth about $240,000 at her death, but later increased in value to about $420,000, and a bank account of about $21,000. She also held joint accounts with her daughter Diane McInnes with about $230,000; a joint account with Louie Doucette, worth about $44,000; and a joint account with Joslin Clarke with $150,000.

When Mildred Doucette had made her will in October, 2000, she was estranged from Wayne Doucette and Joslin Clarke. She appointed Diane McInnes and Louie Doucette as executors. She left $5,000 to each of Wayne Doucette and Joslin Clarke. She left her house to Louie Doucette, and the residue to Diane McInnes. She later reconciled with Joslin Clarke, but not with Wayne Doucette.

Mildred Doucette also had a Registered Retirement Income Fund with $55,000. She designated Diane McInnes as the beneficiary.

Wayne Doucette brought a claim under the Wills Variation Act to vary his mother’s will on the grounds that she had not made adequate provision for him. There were two main issues at trial. First, were the surviving joint account holders entitled to the funds, or did they hold them as trustees for their mother’s estate? Second, did Mildred Doucette make adequate provision for Wayne Doucette, or should the will be varied?

When a parent contributes the funds to a joint account with an adult child in British Columbia, the law presumes that the parent did not intend a gift, but that the child holds his or her interest in trust for the parent or the parent’s estate. But this presumption may be rebutted by evidence that the parent intended a gift, in which case on the parent’s death, the child may keep the funds in the account.

An interesting fact in this case is that for most of these accounts Mildred Doucette did not tell her children that she opened the joint accounts with them. She got them to sign account cards without telling them what they were signing. She did not provide the bank with the children’s addresses for the accounts, and all statements went only to her.

Mildred Doucette treated one joint account differently. Diane McInnes knew she was on a joint chequing account with her mother to assist her, and she acknowledged that she held the chequing account for her mother’s estate.

Diane McInnes also found out about the joint account with her sister Joslin Clarke, when she went with her mother to the bank when her mother was sick with cancer, a few weeks before she died. Mildred Doucette wanted to take $50,000 out of the joint investment with Joslin Clarke, and put it into an account for Louie Doucette. Mildred Doucette said that she wanted to transfer the funds to assist Louie Doucette for the time he took off from his business to be with her. Because the investment with Joslin Clarke was not redeemable, she was unable to move the funds.

At trial Mr. Justice Metzger applied the presumption of resulting trust, and held that all of the joint accounts belonged to the estate. He found that there was insufficient evidence that Mildred Doucette intended to make gifts of the funds in the joint account. His decision is reported at 2007 BCSC 1021.

The trial judge varied the will to provide 35% of the estate (including the joint accounts) to Louie Doucette, 25% to each of Diane McInnes and Joslin Clarke, and 15% to Wayne Doucette. In varying the will in favour of Wayne Doucette and Joslin Clarke, he found that Mildred Doucette had not met her moral obligations to them. The estrangement was to a large extent her fault.

On appeal, the British Columbia Court of Appeal changed the decision to allow each child to keep the funds held jointly with that child. A key factor in the decision was the fact that Mildred Doucette kept the joint accounts secret from the children. That being the case, Madam Justice Ryan in the Court of Appeal reasoned, Mildred Doucette did not open the joint accounts (other than the chequing account) for the purpose of allowing her children to assist her with her investments. If they did not know about them, they could not assist her. This contrasts with other cases, where parents open joint accounts with children for convenience so that the children can do the banking, rather than for the purpose of making gifts to their children.

Madam Justice Ryan also considered the evidence that Mildred Doucette tried to take $50,000 out of one account for Louie Doucette, in order to make a gift to him. This was an indication that when Mildred put funds into a joint account with a child, she intended to benefit the child.

After deciding that the joint accounts (other than the chequing account) were not estate assets, the Court of Appeal varied the will to provide Louie Doucette with 70% of the estate (consisting primarily of the house and $23,000) and Wayne Doucette with 30%. In arriving at these amounts, the Court of Appeal took into consideration the amounts each child received from the joint accounts and from the Registered Retirement Income Fund. Although Diane McInnes and Joslin Clarke will not benefit from the assets in the estate, they will keep the funds in the joint accounts each held with her mother.

Wills, Estates and Succession Act Reintroduced in the B.C. Legislative Assembly

The Wills, Estates and Succession Act has passed first reading in the British Columbia Legislative Assembly.

This legislation was introduced last year, but did not get through all three readings before the session ended. It has been reintroduced as Bill 4.

If it passes and is brought into force, this legislation will significantly reform British Columbia's succession laws.

Joint Tenancy Dilemma: Martinson v. Anniko

Here’s a dilemma. You own your house with your husband as joint tenants so that on the death of either of you, the survivor will become the sole owner of the house. Although your husband intends for you to receive the house by right of survivorship if you outlive him, he has made a will leaving his estate mainly to his other relatives. This is your second marriage. You have children from your first marriage. Ultimately, you would like to leave something to your children. But your main asset is your interest in the house. If your husband outlives you, he will ultimately leave the house mainly to his relatives and not to your children.

In British Columbia you could sever the joint tenancy by transferring a half-interest in the house to yourself. Then if you go first, you could provide for your children in your will (perhaps with a provision allowing your husband to live in it during his lifetime.) But, if he dies first, you will only have your half-interest in the house.

In the case of your husband dying first, you would be better off leaving the house in a joint tenancy. But if you die first, your children will not receive anything out of the house. Do you sever or not?

With a well thought out, and coordinated plan, nobody should face this dilemma. But people do.

This appears to be what happened in a recent British Columbia Supreme Court decision, Martinson v. Anniko, 2009 BCSC 1104.

Asta Martinson and Hans Martinson married in 1985. Both were 67 years old. They signed a marriage agreement before the marriage, which as amended provided that neither would make any claim to the other’s estate, including any claims under the Wills Variation Act.

Hans Martinson used his assets to buy a home for them in Victoria, which was registered in both of their names as joint tenants. He also put some investments into joint accounts with her.

In his last will dated July 8, 2005, Hans Martinson, left $50,000 to one of Mrs. Martinson’s grandchildren, and the rest of his estate to his nephew and the nephew’s family. His will recites as his reasons for not leaving Mrs. Martinson anything that he had the house in joint tenancy with her, as well as $205,000 investments registered in joint accounts. He also said in his will that he had recently given her a gift of $70,000.

Asta Martinson knew he was making a will that excluded her children. She was concerned that if she died before her husband, her children would not receive much of an inheritance from her. She severed the joint tenancy.

Hans Martinson died before his Asta Martinson. Because she severed the joint tenancy, she only had a half-interest in the house, for which she received $334,000 in 2009.

After he husband’s death, Mrs. Martinson made an application to court to vary her husband’s will under the Wills Variation Act.

When the case went to trial, in addition to the proceeds from the sale of her half-interest in the house, she had $63,000 in a Manulife account, and Registered Income Funds of $33,000. She had spent some of her capital on caregivers and living expenses, but had also given funds to her children.

Mrs. Martinson was 91, and in poor health. She had cared for her husband during his illness, and he was a difficult patient.

Hans Martinson’s estate was worth $476,000.

Mr. Justice Truscott declined to vary Mr. Martinson’s will. Although Mrs. Martinson’s marriage agreement did not bar the court from varying the will, it was taken into consideration in assessing Hans Martinson’s legal and moral obligations to his wife. Mr. Justice Truscott found that the gifts made by Hans Martinson to his wife, as set out in the will, satisfied Mr. Martinson’s obligations. He had rational and valid reasons for making the will he did.

Although the full interest in the house did not go to Mrs. Martinson, as her husband had contemplated in the will, that was caused by Mrs. Martinson’s decision to sever the joint tenancy.

Kelowna Estate Planning Society Battle of the Lawyers

Tomorrow night I get to be involved in a "Battle of the Lawyers" presentation before the Kelowna Estate Plannings Society. Geoff White, Peter MacPherson, and I will be doing a mock hearing dealing with the issue of who is entitled to funds held jointly between a parent, who dies, and one of the parent's children.

The issue is one that arising frequently in estate disputes in British Columbia, but the facts in our presentation will be a little unusual. A certain fictional crime boss moves his family from New Jersey to Kelowna, British Columbia. He opens a storage jointly with his son, and puts five bags of money, totalling $2.5 million, into the facility. He and his wife die in a suspicious accident. His son claims the funds. His daughter sues, claiming that the funds belong to her father's estate, to be divided equally between her and her brother as beneficiaries of the estate.

Who is entitled to the funds? I don't know yet. That will be for our jury of Estate Planning Society members to decide.

Wayne L. Morse United States Courthouse, Eugene, Oregon

I took these photographs while I was passing through Eugene, Oregon, last month. This courthouse was completed three years ago, and was named after former U.S. Senator Wayne Morse. The courthouse was designed by architect Thom Mayne. I found an interesting article on the design by Clifford A. Pearson in Architectural Record here.