British Columbia Law Institute Publishes Consultation Paper on Common-Law Tests of Capacity

On February 22, 2013, the British Columbia Law Institute published a Consultation Paper on Common-Law Tests of Capacity.

As set out in the BCLI press release:

The consultation paper examines legislative reforms to judge-made rules governing when a person is determined to have the mental capacity to carry out a transaction or enter into a relationship. It was prepared with the assistance of a ten-person, all-volunteer project committee, made up of some of the leading lights in this area of the law. 

 “We hope to hear from legal advisors and the general public on this important topic,” said committee chair Andrew MacKay, “which touches on issues that affect the daily lives of British Columbians.” 

 The consultation paper contains 31 proposals for reform on how tests of mental capacity operate when someone wants to make a will, to designate a beneficiary under an insurance policy or retirement plan, to make a gift, to nominate a committee, to enter into a contract, to retain legal counsel, to marry or enter into a spousal relationship, or to separate from a spouse.

The proposals include proposals for legislation that would allow a will to be made for a person who does not have the capacity to make a will, and for legislation setting out tests for making gifts between living persons (inter vivos gifts).

Currently, if a person does not have the mental capacity to make a will in British Columbia he or she cannot make or revoke a will. The project committee looked at other jurisdictions in which there are statutory powers to make a will on behalf of someone who is incapable, including the jurisdictions in the United Kingdom, Australia and New Zealand. In Canada, only New Brunswick has similar legislation.

The Committee’s tentative recommendations would allow a person who falls within certain categories to apply to the Supreme Court of British Columbia to make a will for the person who does not have the mental capacity to make a will. The categories are the incapacitated person’s attorney under an enduring power of attorney, representative under a representation agreement, committee, a beneficiary under a known will, a person who would receive a share of the estate on an intestacy or a person whom the incapacitated person might be expected to benefit if he or she had capacity, and the public guardian and trustee.

The person making the application to court would have to give notice to other interested persons who would have a right to participate in the court proceedings. The court would consider the wishes of the incapacitated person and what provisions he or she might have made if capacitated.

If the court approves a statutory will, the court would authorize the application to sign the will for the person on whose behalf the will is made.

In contrast to the tests for capacity to make a will, which are well established in the cases, British Columbia does not have clearly articulated tests for inter vivos gifts, with some court decisions focusing on the common law tests for capacity to make a will, and others on tests for capacity to contract.

The Common-Law Tests of Capacity Project Committee has tentatively recommended legislation setting out the criteria for capacity to make inter vivos gifts that is consistent with the tests for capacity to make a will as follows:

British Columbia should enact legislation that provides that, in order for an individual to make a valid inter vivos gift, (1) the individual must have the capacity to understand (a) the nature of making the gift, (b) the effect of making the gift on the individual’s interests, (c) the extent of the individual’s property that is affected by making the gift, and (d) the claims of potential beneficiaries under the individual’s will or intestacy, or by other means, to which the individual ought to give effect; and (2) the gift must not be the product of any insane delusion affecting the individual.

I have mentioned recommendations in respect of just a couple of areas of law canvassed in the paper, but it is well worth reading and considering all of the recommendations.

The British Columbia Law Institute is seeking responses to the consultation paper for consideration before making a final report. You are invited to respond by June 15, 2013, which you may submit,

by mail:

British Columbia Law Institute

1822 East Mall

University of British Columbia

Vancouver, BC

V6T 1Z1

Attention: Kevin Zakreski;

by fax:

(604) 822-0144; or

by email: capacity@bcli.org.

For convenience you may complete and submit a booklet, which is available here, with responses to the specific recommendations. 

B.C. Court of Appeal Holds that Hearing Fees are Constitutional

[This decision was overruled by the Supreme Court of Canada, 2014 SCC 59. See my post on that decision here.]

On Friday, February 15, 2013 the British Columbia Court of Appeal in Vilardell v. Dunham, 2013 BCCA 65, set aside Mr. Justice McEwan’sruling in the Supreme Court of British Columbia that the hearing fees charged by the Province of British Columbia to the party setting down a trial for the time spent in court are unconstitutional. The trial judge had found that the fees were an impermissible impediment to access to justice. I wrote about Mr. Justice McEwan’s decision here.

In allowing the Attorney General of British Columbia’s appeal, Mr. Justice Donald agreed that the hearing fees would be an unconstitutional impediment were it not for the Court’s power to relieve parties from the hearing fees.

The Supreme Court Family Rules and the Supreme Court Civil Rules both contain provisions allowing the court to order that no fees are payable if the court finds that a person is impoverished. Although the rules of court in effect when Vilardell went to trial were different, they had a provision allowing the court to relieve a person who was “indigent” from paying the fees. The current rule 20-5 (1) reads:

(1)  If the court, on application made in accordance with subrule (3) before or after the start of a proceeding, finds that a person receives benefits under the Employment and Assistance Act or the Employment and Assistance for Persons with Disabilities Act or is otherwise impoverished, the court may order that no fee is payable by the person to the government under Schedule 1 of Appendix C in relation to the proceeding unless the court considers that the claim or defence
(a) discloses no reasonable claim or defence, as the case may be,
(b) is scandalous, frivolous or vexatious, or
(c) is otherwise an abuse of the process of the court.
 

The Court of Appeal found that the relieving provision as drafted was too narrow. There are people who are not “indigent” or “impoverished” but for whom the hearing fees are not affordable. But the Court of Appeal held that by giving Rule 20-5 an enlarged interpretation to include persons “in need,” the Court would not have to strike down the hearing fees as unconstitutional. Mr. Justice Donald wrote at paragraph 41:

[41]         Granting an automatic exemption to recipients of employment or disability insurance suggests a more generous approach than was previously taken.  The enlarged scope of the exemption in Rule 20-5, then, should be read as saying “impoverished or in need”.  The phrase is intended to cover those who could not meet their everyday expenses if they were required to pay the fees.  Courts will continue to use their discretion to determine whether a litigant is impoverished or in need to the point that but for the hearing fees, they would be able to pursue their claim, thus qualifying for an exemption.

I don’t know if this is the final word for the courts. It may be that this decision will be appealed to the Supreme Court of Canada. But until then, the Government of British Columbia will be able to continue charge hearing fees, although the Supreme Court of British Columbia will have a broader power relieve from the payment of fees.

The Court of Appeal granted Ms. Vilardell’s application to be relieved from paying the hearing fees.

When I discussed Mr. Justice McEwan’s decision in my previous post, I wrote:

But irrespective of what the British Columbia Court of Appeal or Supreme Court of Canada may ultimately decide, his eloquent discussion of the fundamental role of our courts in civil society would be a good starting point of debate among British Columbians about how the Government of British Columbia funds not only British Columbia courts, but also other programs such as legal aid that are necessary for those who have the greatest need to get meaningful access to the courts. 

I hope that the Government of British Columbia will recognize that just because it is constitutionally permitted to charge hearing fees does not mean it is the right thing to do, or that it is good governance. It is neither.

New Family Law Act Child's Property Provisions

In British Columbia, minors (those under the age of 19) do not have full legal capacity to contract, give receipts for money or other property transferred to them, or dispose of their property. Accordingly, when a minor is entitled to receive substantial money, that money must be held for them by either the Public Guardian and Trustee of British Columbia, or a private trustee.

Well drafted wills and trusts contain clauses stating that if a minor inherits part of the estate, the executor and trustee may hold the funds until the minor attains 19, and authorize the executor or trustee to make payments for the benefit of the minor including payments to the minor’s guardian in the meantime.

But in other cases in which a minor is entitled to funds, such as the settlement of a car accident, the funds are paid to the Public Guardian and Trustee of British Columbia to manage, unless the Supreme Court of British Columbia appoints someone else, such as a parent as trustee. The Public Guardian and Trustee charges fairly high fees for managing funds for minors and others, and in the case of smaller amounts, the cost of an application to court for someone else to be appointed trustee may be disproportionately high.

The new Family Law Act, with will come in to force on March 18, 2013, has a provision, section 178, allowing a minor’s guardian to hold funds or other property for a minor if the value of the funds or property is relatively small. The funds or other property may also be delivered directly to the minor if the minor has a duty to support another person. The value is not set in the Act, but will be fixed by Regulation, and the new Regulation sets the maximum amount at $10,000, which reflects the value of the property at the time it is delivered. The guardian must deliver the funds or property and provide an accounting to the minor when he or she attains the age of 19.

Section 179 provides that the Supreme Court of British Columbia may appoint a trustee to manage funds for a minor, It says:

Appointment of trustee by Supreme Court
179  (1) Subject to subsection (2), the Supreme Court on application may appoint one or more persons as trustees over

(a) particular property to which the child is entitled, including any property derived from the property or from the disposition of the property, or

(b) all property to which the child is entitled at the time the order is made and to which the child becomes entitled while the order is in effect, except property

(i) identified in the order, or
(ii) over which a trustee already has authority.

(2) The Supreme Court may appoint a trustee only if satisfied that it is in the best interests of the child to do so, on consideration of all of the following:

(a) the apparent ability of the proposed trustee to administer the property;
(b) the merits of the proposed trustee's plan for administering the property;
(c) the views of the child, unless it would be inappropriate to consider them;
(d) the personal relationship between the proposed trustee and the child;
(e) the wishes of the child's guardians;
(f) the written comments of the Public Guardian and Trustee;
(g) the potential benefits and risks of appointing the proposed trustee to administer the property compared to other available options for administering the property;
(h) if the Supreme Court is considering making an order under subsection (1) (b), that the interests of the child are likely better served by an order made under that subsection than by an order made under subsection (1) (a).

(3) An order made under this section to appoint a trustee may do one or more of the following:

(a) require the trustee to deliver the trustee's accounts at specified intervals for the examination and approval of the court;
(b) limit the duration of the trusteeship;
(c) specify or limit the types of investment in which the trustee may invest the property;
(d) provide for compensation of the trustee including, without limitation, setting rates and specifying when the compensation may be taken;
(e) require the trustee to give security in any form the court directs;
(f) make any other order the court considers appropriate.
(4) Except as provided for in an order made under this section, the Trustee Act applies to the trustee and the trust.

You will still be able to appoint a trustee to manage a minor’s funds or other property in a will or trust document.

In other cases, the Public Guardian and Trustee will act as trustee of a minor’s funds or other property.

I like the provisions in the new Family Law Act dealing with minors’ property, but think the $10,000 ceiling for a guardian to receive property and act as a trustee for a minor without  a court order is too low. $25,000 would be a more reasonable ceiling.

New Family Law Act and Support Obligations After Death

British Columbia’s new Family Law Act, which comes into effect on March 18, 2013, provides that the court may order spousal or child support to continue after the death of the spouse or parent who is obligated to make the payments. Before making such an order under section 170 (g) the court must consider the following factors under section 171 (1):

(a) that the person receiving child support or spousal support has a significant need for support that is likely to continue past the death of the person paying child support or spousal support; 

(b) that the estate of the person paying child support or spousal support is sufficient to meet the need referred to in paragraph (a) after taking into account all claims on the estate, including those of creditors and beneficiaries; 

(c) that no other practical means exist to meet the need referred to in paragraph (a).

If the court makes an order that support continues after the death of the person whose obligation it is to pay support, and the person dies, his or her personal representative may apply to court to change, suspend or terminate the support payments. Similarly, if there is an agreement that the support will continue after death, then the personal representative may apply to set aside the agreement or for an order in place of the agreement to pay support.

On the other hand, if a support order or agreement is silent as to whether support continues after the death of the person paying support, then on the death of the person required to pay support, the person receiving support may apply to court for an order that the support continues after death. The support obligation then becomes a debt of the estate.

These provisions in section 171 provide flexibility for the court to consider the circumstances following the death of the person making support payments.

But the new legislation is not a good substitute for careful planning.

Consider a hypothetical example. Following the breakdown of his marriage, the husband agrees to pay child support to his former spouse. He remarries, and he and his second wife buy a home together which they own as joint tenants. They hold all of their savings in joint accounts. This is a fairly common way for spouses to own their assets. He dies before his children grow up and while he is paying child support to his former spouse. On his death, his interest in his house and savings pass by right-of-survivorship to his second wife, leaving little or nothing in his estate. Accordingly, there are insufficient funds in the estate to make further child support payments even if the agreement provides for support to continue after death, or if the former spouse makes an application to court for support to continue.

One effective way to plan for this possibility is for the separation agreement to provide that the husband will have a life insurance policy while obligated to pay child support. The life insurance would either be payable to his former spouse, which would provide her with funds for the children, or to a trustee, who would then make the child support payments out of the life insurance proceeds if the husband dies.

Using life insurance would then give the husband flexibility in structuring his estate plan, while ensuring that funds are available to support his children if he dies before they become self-supporting. Life insurance can be used in the same manner to fund spousal support obligations

Life insurance is particularly practical when the person making support payments is relatively young, and premiums low, but alternatives need to be considered if the premiums are high or if the person paying support is not insurable.