What is the Residue of an Estate?

The largest gifts in wills are usually gifts of residue. The will might say to divide the residue among the will maker’s children. The beneficiaries of the residue are called residual beneficiaries.

The residue of the estate is what is left after payment of debts, funeral expenses, executors fees, taxes, legal and other expenses incurred in the administration of the estate, and after any gifts of specific assets or specific sums of cash.

If you are a residual beneficiary of an estate, you do not have an interest in any specific assets of the estate. Rather you have the right to enforce the executor’s obligation to administer the estate.

The nature of the residual beneficiary’s interests is set out in a recent decision of Mr. Justice Voith in Deutschmann v. Fallis, 2010 BCSC 952, as follows:

[35] The legal consequence of this conclusion [that the beneficiary’s interest was in the residue] are expressed in Curlett Estate (Re), [1996] 3 W.W.R. 545, 11 E.T.R. (2d) 18 (Alta. S.C.), where the court, at paragraph 8, said:

8 A residual beneficiary has no beneficial interest in residual property in the Estate except to items which were specifically devised or bequeathed to him or her (and then the interest exists only in relation to those specific items): Megarry and Wade, The Law of Real Property, 5th ed., (London: Stevens & Sons Limited, 1984), at pp. 559-565. The interest of a residual beneficiary in the Testator’s unadministered Estate is limited to “a right to enforce the proper carrying-out of the functions and duties of administration by the executor”: Commissioner of Stamp Duties (Queensland) v. Livingston, [1965] A.C. 694 (P.C.). This principle has been repeated by the Supreme Court of Canada in Minister of National Revenue v. Bickle, [1966] S.C.R. 479 at 484-5: “It is not disputed that until the trusts under a will have been performed, a residuary beneficiary cannot put his hands on a specific piece of property and claim ownership with all the consequences of ownership.”

[36] In Minister of National Revenue v. Bickle, [1966] S.C.R. 479, Judson J., for the majority, said at 484-5:

I do not agree with these submissions. This will gives the charity the residue of the estate charged with the burden of the payment of the duty. It is not disputed that until the trusts under a will have been performed, a residuary beneficiary cannot put his hands on a specific piece of property and claim ownership with all the consequences of ownership. This is all that the cases of Sudelay v. Attorney-General, [1897] A.C. 11, 75 L.T. 398, and Barnardo v. Commissioners for Special Purposes of the Income Tax Acts, [1921] 2 A.C. 1, 125 L.T. 250, decide.

Chinn v. Hanrieder

[Since writing this post, the decision in this case was varied by the B.C. Court of Appeal which held that a secret trust did not arise, but upheld the trial judge's finding that there was an enforceable agreement between the Ms. Hanrieder and Mr. Hanrieder's chidlren. See my post on the Court of Appeal decision here]

Hugo Hanrieder wanted to leave some mineral rights in Saskatchewan to his two children, Bette Chinn and Dennis Hanrieder, who were the children from his first marriage.

He also wanted to his interest in his house, Registered Retirement Savings Plans and life insurance, and personal effects to go to his wife, Ingrid Hanrieder. He wanted his other assets to be held in trust for the benefit of his wife, and two children. This was his second marriage.

In April, 1989, Hugo Hanrieder instructed his lawyer to draft a will reflecting his intentions.

But, as his lawyer discovered, Hugo Hanrieder did not then have the legal right to leave his interest in the mineral rights to his children. Those mineral rights were held by him as a trustee of a trust settled by his mother in 1973 for the benefit of him and his siblings. The terms of the trust provided that on his death, his interest in the mineral rights would go to his spouse. He would need to get all of the beneficiaries of the trust to agree to change the trust agreement in order to obtain the right leave the mineral rights to his children, something that would be costly and inconvenient.

After he found out that he could not leave the mineral rights to his children, he told each of them in his wife’s presence of his intention that they, his children, would receive the mineral rights on his death. According to Dennis Hanrieder, when his father told him about what he wanted to do with the mineral rights, Ingrid Hanrieder said “I have no interest in them. I have money of my own.” Bette Chinn said that after her father told her of his intentions concerning the mineral rights, she asked Ingrid Hanrieder if that was okay. Ingrid Hanrieder said it was.

When Hugo Hanrieder and Ingrid Hanrieder bought a condominium in 1993, and instructed the lawyer handing the purchase to register the condominium in both of their names as joint tenants.

After Hugo Hanrieder’s death on December 8, 1997, Ingrid Hanrieder found out that their condominium had been registered in their names as tenants in common rather than as joint tenants. As a surviving joint tenant, Ingrid Hanrieder would have been entitled to transfer the title of the house into her sole name. But if the house were held as tenants in common, Hugo Hanrieder’s interest would fall into his estate to be dealt with under his will, in which case the children would have an interest in the house.

In May, 1998, Ingrid Hanrieder’s lawyer asked Hugo Hanrieder’s children to release any interest they might have in the house to allow it to go into Ingrid Hanrieder’s sold name. They agreed, but asked in return, for Ingrid Hanrieder to transfer her interest in the mineral rights to them. She agreed.

Until then, the mineral rights generated very little income.

After agreeing to transfer the mineral rights, Ingrid Hanrieder received a letter from Chevron Canada Resources advising that the mineral rights were now producing. Chevron advised that they would be paying back royalties of $43,500.

Ingrid Hanrieder refused to transfer the mineral rights to the children, and denied that she ever agreed to do so.

The children sued, alleging that Ingrid Hanrieder held the mineral rights in a secret trust for them, and that she had breached her agreement to transfer the rights to them.

What is a secret trust?

Much of the case law on secret trusts arise out of wills. The testator of the will provides a gift in the will to person A, intending that she hold it or give it to person B. On the face of the will, person A is entitled to the gift. There is no mention of person B in the will. Therefore, the trust is said to be a “secret trust.”

To succeed, the children would have to prove that their father intended for Ingrid Hanrieder to give the mineral rights to his children, that he communicated his intentions to her, and that she accepted the obligation to give the mineral rights to his children.

In Chinn v. Hanrieder, 2009 BCSC 635, Madam Justice Loo held that Hugo Hanrieder created a secret trust for the benefit of his children. She also held that Ingrid Hanrieder had made and broke her agreement with the children to transfer the mineral rights in exchange for their giving up any interest in the house.

Ingrid Hanrieder was required to pay the children damages for the royalties she and a company she incorporated received from the mineral rights, which amounted to at least $225,958.

Is A Gun Collection “Household Furnishings?”

This is one of the issues raised in Zeitler v. Zeitler Estate, 2009 BCSC 500.

Alfons Zeitler died without a Will on April 26, 2007, leaving a common law spouse, Dina Zeitler, three children, and a complex mess of an estate (see a previous post on another court decision involving his estate here).

He owned a gun collection that he stored in his house. Dina Zeitler’s evidence was that

about a quarter of the residence gun collection was on display in the residence at any one time, while the remainder was stored in two large security vaults located in the residence. She stated that she and Alfons enjoyed the residence gun collection, rotating them for display, cleaning and polishing them, and showing them to guests. According to Dina, she and Alfons discussed the “make,” model and history of each rifle and upon occasion, would sit and visit while cleaning the guns. She said that Alfons taught her how to polish the guns although he did most of it himself.

On the other hand, one of Alfons Zeitler’s children gave quite different evidence:

According to Gregory, Dina disliked guns, and except on a few occasions when she came out into the yard with air rifles, she wanted nothing to do with them. He said that the guns in the display cases at the residence were never shot and rarely moved, and further, that the collection was not rotated, as Dina stated. Gregory also deposed that he never saw Dina clean, polish, or display any interest in the residence gun collection.

In British Columbia, the Section 96 of Estate Administration Act provides that when a spouse dies without a will leaving descendants the surviving spouse is entitled to the spousal home for her life, and the “household furnishings.” (The surviving spouse is also entitled to the first $65,000 and a share of the residue of the estate.) The definition of spouse includes common law spouses.

The term “household furnishings” is defined as “chattels associated with the enjoyment by the spouses of the spousal home.”

Madam Justice Arnold-Bailey rejected Dina Zeiler’s argument that the gun collection fell within the definition of “household furnishings.” The Judge looked at whether the “predominant characteristic” of the gun collection was as personal effects, or as something used or enjoyed by the spouses of the spousal home. In this case she found that the guns were in the nature of personal effects owned by Alfonse Zeitler.

Although this decision deals with a gun collection, Madam Justice Arnold Bailey’s reasoning set out below will provide a useful guide in future cases dealing with other chattels:

[ 34] To accept the submission of Dina’s counsel, any items of value owned by Alfons that he brought into the spousal home that the two of them enjoyed, even in a
transitory way, would constitute household furnishings. In my mind, to accept that submission would undermine the notion of a spouse’s personal property or the personal effects of one spouse vis-à-vis the other, and the notion of “household furnishings.” If one were to accept the logic of the proposition urged by Dina’s counsel, one might imagine that if Alfons had an antique missile collection, or an antique car collection stored in the garages of the spousal home or kept in a heated show room, such items could and would become household furnishings, just as long as both spouses enjoyed the same, even occasionally.

[35] In my view, the definition of household furnishings as “chattels usually associated with the enjoyment by the spouses of the spousal home” precludes such chattels that have as their predominant characteristic “personal effects” or “personal chattels” and are without a household use or a recognizable connection to the use, enjoyment or proper functioning of the spousal home.

[36] For example, an art collection belonging to one spouse and stored in crates in the basement of the spousal home, likely constitutes part of that spouse’s personal effects, but if all or the majority of the art collected was hung throughout the spousal home, then the same could legitimately be recognized as part of its “household urnishings.”

[37] In the present case, I am sceptical about Dina’s evidence about what she and Alfons used to do together in relation to the residence gun collection. I find that Dina’s claim that the guns were regularly rotated stretches common sense, and in that regard, I accept Gregory’s evidence to the contrary. However, even if I were to accept that evidence, I find that only one quarter of the collection was “on display” in the show cases at any one time.

[38] I find that the residence gun collection fulfilled no identified purpose or function associated with “the enjoyment by the spouses of the spousal home.” The enjoyment of the residential gun collection by Alfons, and to a lesser extent, Dina, was predominantly related to the gun collection itself, and not to their enjoyment of the spousal home. I do not regard the fact that a portion of it was on display in the spousal home as sufficient to make the entire residence gun collection “usually associated with the enjoyment by the spouses of the spousal home.”

[39] By definition, gun collections, like stamp collections, jewellery collections, art collections and the like, are, in the context of s. 96 of the EAA, the personal property of the person who collected them and to whom they belong, unless that predominant characteristic is overcome by their enjoyment by the spouses of the spousal home.

[40] The guns in the residence gun collection belonged to and were registered in Alfons’ name alone. I find that the fact that they were stored and maintained there with some involvement by Dina, with a portion of them on display, does not make them “household furnishings” within the definition contained in s. 96(1) of the EAA.

Accordingly, the gun collection will not go to Dina Zeitler.

I Don't Like the Term "Ethical Will"

But don't get me wrong.

I think that leaving a personal testament or statement of values, beliefs and advice to family is a wonderful idea, with a long, venerable tradition. I refer you to some good posts on this topic by Andrew Ewalt, entitled "Preserve Your Legacy of Values," and by Clark Allison, entitled "Ethical Wills - Passing On Your True Legacy," as well as an American Bar Association article by Scott E. Friedman and Dr. Alan G. Weinstein, entitled "Reintroducing The Ethical Will: Expanding the Lawyer’s Toolbox."

My beef is with the terminology. I think of the term "will" narrowly as a document in which you can appoint executors and trustees, guardians for your minor children, and provide how you want your assets distributed. Those are the main, if not exclusive, purposes of a will. Your will is a formal legal document, which in my view should be drafted by a lawyer who practices estate planning law. In British Columbia, there are strict technical requirements for making a valid will.

An "ethical will" is quite different. It is not intended as a legally binding document. It is not a formal document. Probably, a lawyer is the last person in the world whom you would want to draft your personal statement of values, beliefs and advice.

What would a lawyer drawn ethical will look like? Consider this:

"This is the last ethical will and testament of me, Stanley Rule, of
Kelowna, British Columbia.

1. I revoke all of my prior ethical wills and ethical codicils.
2. I appoint my wife, Michele Rule, my ethical trustee, but if she is
unable or unwilling to act or continue to act, I appoint ....
3. I give all of my ethics to my trustee on the following
trusts...."

I am not sure how I would draft the equivalent of the clause in which the trustee is authorized to pay my debts. Do I require my ethical trustee to set aside a sufficient amount of my good qualities to offset my bad ones? I suppose my biggest fear is that I will then end up with an insolvent ethical estate, with nothing to pass on to my family.

Kidding aside, I find the term "ethical will" confusing. It is not a substitute for a will. It is not any more ethical than a will. It is a different thing from a will, with a different function. I don't find the term to be self-explanatory.

Someday, when I am older and wiser, I hope to prepare a document setting out my beliefs and values for my family. But, I won't call it an "ethical will." I will probably just call it "a letter to my family." I might give it to my family before my death.

What is a Trust?

Which answer is correct? A trust is

A. a bunch of archaic, incoherent and incomprehensible rules made up a very long time ago by sadistic English judges with funny names for the purpose of torturing law students and lawyers;

B. a method used by tax evaders, arms dealers, drug dealers and other bad guys (and gals) to hide money on small islands; or

C. a relationship in which one or more persons (called "trustees") hold title to property, and manage the property, for the benefit of others (called "beneficiaries").

The answer that is closest to the correct answer is C, but at one time I thought it was answer A.

Answer C might be too simple, but it is a start.

Mr. Albert Settlor wishes to help his mentally disabled adult nephew Paul. Mr. Settlor knows that Paul may outlive him, and wishes to make sure his nephew's needs are met now and in the future. Albert Settlor wants to commit $300,000 for Paul, but Paul is unable to manage money. Mr. Settlor must separate management of the money from the enjoyment of the money. Mr. Settlor transfers the funds to Ms. Ann Trustee, to invest and use for Paul's benefit during his lifetime, with whatever is left going to Paul's children on his death.

In this example the relationship involves three parties: Mr. Albert Settlor (who coincidently is called the "settlor" of the trust), Ms. Ann Trustee (too obvious), and Paul and his children (the "beneficiaries"). Ms Trustee's powers and duties may be set out in a document, which may be referred to as a "trust deed" or "trust agreement."

Instead of transferring the funds to Ann to act as trustee, Mr. Settlor could have declared himself as trustee of the trust for the benefit of Paul.

Although the functions of settlor, trustee and beneficiary are distinct, it is possible for the same person to fill more than one role. For example, you can be both a trustee, and one of several beneficiaries of a trust.

For most of the trusts that I deal with the beneficiaries are people or charitable organizations. But, you can also set up a trust in British Columbia for the benefit of charitable purposes. Unless your purpose is charitable, or falls within a limited group of exceptions, a trust for a purpose will not be valid in British Columbia.

Although trust law is a product of history, and does have technical rules and complexity, I think that the essence of a trust--the separation between title and management on the one hand, and enjoyment of property on the other--is elegantly simple.

I may joke about bad guys using trusts to hide money, but in my experience people set up trusts to further worthy goals, such as looking after their families.

What do "Testator," "Testate," and "Intestate" Mean?

A "testator" is someone who has made a will. If you have made your will, you are the testator of your will.

If you are a woman, you may call yourself the "testatrix," but I prefer to use the term "testator" for either a man or a woman. The reason I like to just say "testator" is not so much a matter of political correctness, as one of pronunciation. I find it easier to say "testator" than "testatrix." Try saying each one three times quickly.

When someone (whether man or woman) dies having made a valid will, he or she has died "testate." If he or she did not have a valid will in effect at death, he or she died "intestate." "Testate" means with a valid will, and "intestate" means without a valid will.

What if the deceased had a valid will that disposed of part of his or her assets, but not everything? Supposing the testator's will left his house to his children, but the did not deal with his other assets. This is called a "partial intestacy."

Don't Say "Children Per Stirpes"

I have written previously about how I use the words "per stirpes" in a will or trust, as a method of distribution among issue (children, grandchildren, great grandchildren etc.). I find that a gift to "children per stirpes" or to a named person "per stirpes"is confusing. It can lead to problems in interpreting the document, and expensive court applications. (You can read my previous post explaining the meaning of the term "per stirpes," and in which I give some examples here.)

Recently, while doing some research on how Canadian courts have interpreted the phrase "children per stirpes," I came across a decision of Mr. Justice Cullity of the Ontario Superior Court of Justice in Lau v. Mak, 2004 CanLII 6673, in which he deplores the misuse of the terms. In his decision, he explains the meaning of the words "per stirpes" as follows:

It is hardly necessary to say that the words are not part of everyday linguistic usage. They are essentially words selected by lawyers engaged in drafting wills and they have a long-established, elaborate and precise meaning that is unlikely - to say the least - to be familiar, or apparent, to clients with no legal background. They refer essentially to the manner in which property is to be distributed between, or among, beneficiaries described in a will. They are not themselves descriptive of the beneficiaries. As contrasted with a per capita distribution, a distribution per stirpes effects a division of property in accordance with stirpes or stocks of descent. In ordinary language, a division in equal shares per stirpes will allocate one share to each family of beneficiaries while, under a per capita distribution, all beneficiaries will share equally.

Later in his judgment, Mr. Justice Cullity says,

If the words "per stirpes" are to be given their traditional, and technical, meaning, it is obviously essential that more than one stirps, or family, be represented in the description of the beneficiaries in the will. It is, I believe, for this reason that a gift to children of the testator, or of some other person, in equal shares per stirpes is, as White J. suggested in Re Fraser Estate (1986) 23 E.T.R. 57 (Ont. H.C.), at page 75, a contradiction in terms if the word "children" is to be given its natural - and its primary legal - meaning. Such gifts surface with regrettable frequency from time to time in Canada and their construction has given rise to difficulty.

Mr. Justice Cullity then cites decisions in which the courts have departed from the technical meaning of the phrase "per stirpes" and found them to be descriptive of the beneficiaries. He says that the courts have been reluctant to attribute ignorance or confusion about the concept to the professionals who have drafted the wills considered in those cases. But, Justice Cullity does not share that reluctance:

References to gifts per stirpes are, as I have indicated, essentially lawyers’ expressions and, unless constrained by authority, I would be inclined to interpret them in the light of their traditional meaning and ignore them if, so construed, the will is not intelligible without attributing an unusual meaning to the other words of the Will. I would do this not simply on the basis of the principle that technical terms are generally to be given their technical meaning but, also, because the term "per stirpes" is an essential and peculiarly valuable part of a drafter’s arsenal. Until such time as the proponents of plain-language drafting can find a simple substitute that will embrace all of the features of a stirpital decision that have been painstakingly elucidated in the past, the court should, I believe, be reluctant to accept, and impliedly approve, distortion of the concept. To do so would be to encourage sloppy drafting and to introduce uncertainty into a process in which certainty is always a principal objective. It is of the utmost importance to testators that their solicitors should be able to rely on the established meaning of legal terms. If it appears that the drafter has employed such terms in a different sense, I would, in the absence of a clear indication of the intended meaning, prefer to hold that the words were inserted by inadvertence or, by virtue of the drafter’s misunderstanding of the concept of a stirpital gift, and that no intelligible meaning should be attributed to them – rather than to speculate about the nature, and extent, of the misconception and then to speculate further as to what the drafter’s resulting intention may have been.

It may be that the words "per stirpes" are used differently in other jurisdictions, but in Canada, or at least in British Columbia and Ontario, don't say "children per stirpes."

Locus Poenitentiae

The recent Supreme Court of British Columbia decision in Tribe v. Soiseth, 2006 BCSC 652, contains an in-depth analysis of the affect of evidence of an illegal scheme is admissible to rebut a presumption that when a parent contributes funds to a child to purchase property in the child’s name the parent intends to make a gift to the child. This presumption of gift is called the presumption of advancement, and I have previously written about it here. [Since I wrote this post, the law on the presumption of advancement has changed. See this post for more information.]

The presumption of advancement is an exception to the presumption that when one person buys property in another’s name, the one who has title to the property is holding the property as a trustee for the benefit of the person who paid the purchase price. This is called the presumption of resulting trust, and I have written about it here.

Tribe v. Soiseth is a matrimonial case, but deals with trust law issues.

Ms. Tribe’s parents paid about $216,000 to purchase a condominium that was purchased in Ms. Tribe’s name. The rest of the purchase price was financed by a mortgage to a financial institution for $250,000, which was signed by Ms. Tribe and co-signed as covenantors by her parents. Ms. Tribe also granted her parents a second mortgage for the funds they had advanced to pay for the condominium. The second mortgage was without interest, payable on demand. She also gave her parents an option to buy the condominium for $10.

Ms. Tribe and her husband moved into the condominium, and made the mortgage and strata fee payments. Ms. Tribe’s parents paid the property taxes.

Unfortunately, Ms. Tribe’s marriage broke down about a year and a half later. Her husband, Mr. Soiseth, acknowledged the mortgage to Ms. Tribe’s parents, but argued that the equity belonged to Ms. Tribe, and was a family asset subject to division under the Family Relations Act. The condominium had increased in value significantly, and was appraised at between $825,000 to $850,000.

Ms. Tribe and her father testified that they always intended that the equity in the condominium belonged to the parents. They bought the condominium as an investment, but on the advice of an accountant, arranged with their daughter that she take the title in her own name so that if they sold it in the future at a profit, Ms. Tribe could claim the principal residence exemption from taxes under the Income Tax Act, Canada. Mr. Justice Sigurdson accepted their evidence.

Mr. Soiseth argued that Ms. Tribe and her parents were relying on evidence of a scheme to defraud Canada Revenue Agency to rebut the presumption of advancement. He further argued that evidence of an illegal scheme was not admissible for this purpose. Without evidence of the scheme, the presumption of advancement between parent and child applies, and he could claim an interest in the condominium on the breakdown of their marriage.

Mr. Justice Sigurdson analyzed two lines of authority in Canada, both stemming from an old decision of the Supreme Court of Canada in Scheuerman v. Scheuerman (1916) 52 S.C.R. 625. In Scheuerman, the husband transferred property into his wife’s name in order to avoid his creditors. When the husband sought to get the property back, the majority of the court refused on the grounds that to rebut the presumption of advancement, the husband had to rely on evidence of an illegal scheme. The majority stated that he could not recover even if the husband did not in fact avoid his creditors; it was sufficient if he transferred the property with the intent to avoid his creditors. The minority concurring and dissenting judges in Scheuerman said that intent was not enough; the husband would be prevented from recovering the property only if he did avoid creditors by transferring the property into his wife’s name.

Subsequent decisions, including Krys v. Krys (1928), [1929] S.C.R. 153, and the minority concurring judgment in Goodfriend v. Goodfriend (1971),[1972] S.C.R. 640, have cast doubt on whether the majority decision in Scheuerman remains good law, but have not expressly reversed the older authority.

Mr. Justice Sigurdson also considered English and Australian cases.

Mr. Justice Sigurdson held that because the condominium had not sold, and Ms. Tribe had not claimed a principal residence capital gains exemption, Ms. Tribe’s parents had not actually defrauded Canada Revenue Agency. Accordingly, it was not too late for Ms. Tribe’s father “to repent from the scheme and give evidence of his true intention in registering the property in his daughter’s name in order to rebut the presumption of advancement and recover the property.” In latin, this is called locus poenitentiae, which means place of repentance.

Mr. Justice Sigurdson also found that there was ample evidence for him to find that Ms. Tribe and her father rebutted the presumption of advancement without relying on the evidence of the illegal scheme. He said at paragraphs 84 and 85:

[82] In both Scheuerman and Tinsley v. Milligan, the courts found that it is only if the claimant’s confession of the illegal scheme is his sole or central means to contradict that presumption that he must fail.

[83] In the case at bar, I think that there is ample credible evidence, beyond the evidence of the illegal scheme, that persuades me that the intention of the parties to the transaction was that the beneficial ownership would remain in the parents. As I noted above, this case is unusual in that the presumption of advancement usually arises in cases where the parties are adverse or one party has died. Here, Mr. Tribe and, more significantly, his daughter, to whose benefit the presumption operates, have both testified that it was their mutual intention, at the time the property was purchased, that the parents would have the beneficial interest. I recognize that it may be convenient for the plaintiff and her father to take the position that they are taking now, given the divorce proceedings, but I have considered that in assessing their evidence, which I found to be credible.

[84] As well, I think that the documents drawn up at the time, the mortgage and, in particular, the option to purchase, both of which were registered, show an intention on the part of the parties that the true value of the land would be for the benefit of the parents. The effect of the documents signed by the daughter was to give the parents the means to ensure that that intention could be realized. These are not new or secret documents. The parents had full control of the property and these documents were registered on the closing of the transaction. The parents could have put legal title in their names at that time if they wished.

With respect, I have some difficulty with Mr. Justice Sigurdson’s reasoning in so far as the second mortgage is concerned. Arguably, the mortgage is evidence that Ms. Tribe’s parents lent her funds to enable her to buy herself a condominium, and is inconsistent with the notion that they were advancing funds as purchasers for themselves. If I am right, the relationship between Ms. Tribe and her parents is one of a debtor and creditors; rather than of a trustee and beneficiaries.

I suggest that apart from the evidence of the scheme to avoid income taxes, the evidence that Mr. Justice Sigurdson refers to in his reasons for judgment is at least as consistent with the notion that Ms. Tribe’s parents were endeavoring to assist her to get into a rising real estate market for her benefit, while protecting their advance of funds with the second mortgage and the option to purchase against such a contingency as a breakdown of their daughter’s marriage as with the notion that Ms. Tribe’s parents were buying the condominium as an investment for themselves.

What Does the Phrase "Per Stirpes" Mean?

Literally, the words “per stirpes” mean by roots or by stocks. These words are used in wills and trusts, but can be confusing.

I sometimes use "per stirpes" to describe a method of distribution among issue (in other words children, grandchildren, great grandchildren etc.) For example, I might direct my trustee to give what is left of my estate after paying my debts and funeral expenses to “those of my issue who survive me per stirpes.” When I write this, I mean that my estate will be divided equally among my children, but if a child has died before me, that child’s share will be divided equally among those of his or her children (my grandchildren) who are alive at my death. If both a child and one of that child’s children die before me (“my deceased grandchild”), then those of my great grandchildren who are the children of my deceased grandchild will share the portion that would have gone to their parent.

Say I have three children: Fred, John and Mary. Fred has four children: Jean, Frank, Sue and Paul. Jean has two children: Mike and Ray. If I leave my estate to my issue per stirpes, and Fred and Jean die before me, then John and Mary will each receive one third. If Fred had survived me, he would have received one third, but because he did not, his children will take his one third by representation. Frank, Sue and Paul will each get one twelfth (one quarter of one third.) If she had lived longer than me, Jean would have also received one twelfth. Because Jean has died, her one twelfth is divided equally between Mike and Ray, who each get one twenty-fourth. (I sure hope my math is right.)

If something is given to “issue per stirpes,” then if a person in one generation has died before the relevant time, members of the next generation take their deceased parent's share by representation.

This method of distribution can be contrasted with a “per capita” distribution. If I give my estate to “those of my issue alive at my death equally per capita,” then all of my children, grandchildren, and great grandchildren etc. who are alive at my death would receive an equal share. If I leave three children, six grandchildren, and four great grandchildren and no great great grandchildren alive at my death, each one would then receive one thirteenth of my estate.

I have sometimes seen wills that leave gifts to “my children per stirpes.” I am not sure what this means. I suspect that the drafter may mean the same thing as “to my issue per stirpes,” but it doesn’t really say that. If the drafter only wants the one-generation of children to inherit, then “per stirpes,” is meaningless. On the other hand, if the drafter means that if a child dies before the gift will take effect, then “children” must be given an extended meaning to include other generations.

Worst, I once dealt with a will in which the residue of an estate was left to one specific beneficiary “per stirpes.” The beneficiary had died before the testator. I represented the executor, who asked the court to interpret the will (which had been drafted by someone who was not a lawyer.) The court found that the testator intended for the named beneficiary’s children to take her share. The case is Royal trust Corp. of Canada v. Aitken, 1998 CanLII 4767 (BC S.C.). I think that this was the right result, but the court application would not have been necessary if the will had been properly drafted.

Because the words “per stirpes” can be misunderstood, some lawyers avoid them. I do use them occasionally, but my practice is to include a clear definition of the words “per stirpes” in the will or trust deed whenever I use them.

Some Latin: Donatio Mortis Causa

The Latin phrase “donatio mortis causa” refers to a gift made by a person in his or her lifetime in contemplation of death with the intention that the gift does not became fully effective until he or she dies. For this concept to apply, the person making a gift must deliver it to the beneficiary, must do so in contemplation of death, and the gift is made in circumstances where it is apparent that it goes back to the person making the gift if he or she recovers.

The concept of donatio mortis causa is derived from Roman law, but is a part of our British Columbia common law. It is the kind of thing a lawyer learns in law school, and then stores it in the back of his or her mind as an interesting tidbit of information with little practical use. It is not a good estate planning technique. But every once in a while these old Latin phrases crop up in a modern case.

Kathryn Cripps died in Vancouver on December 9, 1998. She did not have any close relatives when she died. Nor had she made a will. She did have two close friends, Sally and Arthur Costiniuk, who had known her for over thirty years, and had assisted her with personal and household chores.

About a month before she died, Ms. Cripps gave Mr. and Mrs. Costiniuk the keys to her safety deposit boxes, and told them that if she ever needed them back, she would ask for them.

The day before she died, Ms. Cripps told the Costiniuk in the presence of witnesses that she wanted them to have everything. A lawyer was called to make a will, but when he arrived, Ms. Cripps was unconsciousness.

At the time of her death, Ms. Cripps’ safety deposit boxes held some personal papers, five BCRIC shares, stamps with a face value of about $2300, a Registered Retirement Savings Plan ("RRSP") receipt, and a State of Title Certificate to her house.

Mr. Justice Brooke of the Supreme Court of British Columbia found that Ms. Cripps intended to leave everything to Mr. and Mrs. Costiniuk, and that with delivery of the keys to the safety deposit box, she had made a gift donatio mortis causa of the contents of the safety deposit boxes. Accordingly, they were entitled to keep the contents of the safety deposit box including the stamps and the personal papers.

The Costiniuks’ victory was a small one. They were not entitled to the RRSPs referred to in the receipt. Nor were they entitled to Ms. Cripps’ home. Although Ms. Cripps had given them keys to her house several years before her death, she gave Mr. and Mrs. Costiniuk the keys so they could assist her. By giving them the keys the house, she did not give them possession of her house. Nor did delivery of the keys to the safety deposit box with the State of Title Certificate to the house satisfy the requirement that possession of the gift be delivered to the beneficiary.

Mr. and Mrs. Costiniuk appealed the judge’s decision that they were not entitled to Ms. Cripps’ home, but the British Columbia Court of Appeal agreed with the Mr. Justice Brooke’s decision that they were not.

You can read Mr. Justice Brooke's decision in Costinuik v. Official Administrator, 2000 BCSC 1372, here, and the Court of Appeal decision in Costiniuk v. Cripps Estate, 2002 BCCA 125, 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.

Can you prevent a lawsuit over your Will by inserting a clause saying that anyone who sues is disinherited?

In Terrorem Clauses:
Despite its name, an in terrorem clause does not refer to clauses in Wills drawn for terrorists. Rather it is a clause that is intended as a mere threat to a beneficiary. For example, supposing you are concerned that someone will challenge your Will in court. Can you put a clause in your Will that says that anyone who starts a lawsuit about your Will forfeits his or her inheritance? Would such a clause stand up in court?

There are two reasons why a court in British Columbia is not likely to enforce a clause providing that anyone who challenges a Will forfeits his or her inheritance. First, the courts have not upheld clauses that are idle threats, intended to coerce a beneficiary. Secondly, in some cases our courts have said that these clauses offend public policy.

It is possible to avoid the first objection that a clause providing that a beneficiary who challenges the Will forfeits his inheritance is an idle threat. If the Will goes on to provide that the gift that would have gone to a beneficiary who challenges the Will, shall go to some other person if the beneficiary sues, then arguably the clause is not an idle threat.

However, even if the clause is drawn with a gift over to another person if the beneficiary challenges the Will, the clause may offend public policy.

The Supreme Court of British Columbia has refused to enforce a clause providing that a beneficiary forfeits his inheritance in cases where a child or spouse of the deceased has applied to court for a greater share of the deceased’s estate under the Wills Variation Act, RSBC 1996 Chapter 490. The Wills Variation Act allows a spouse or child to apply to court to vary a will on the grounds that the deceased did not make adequate provision for the child or spouse. In Bellinger v. Fayers, 2003 BCSC 563, (2003) 13 B.C.L.R. (4th) 348, the court said that it was a matter of public policy that support and maintenance be provided for spouses and children, and it would be against public policy to allow someone to circumvent that policy by putting in a clause providing for forfeiture of a gift if a Wills Variation Act claim is made.

The court in Bellinger did not rule out the possibility that a court could enforce a clause providing for forfeiture of a gift if the beneficiary challenges the Will on some grounds other than the Wills Variation Act (and there is a gift over to another person). For example, a beneficiary might challenge the Will on the basis that the deceased was mentally incompetent when he made the Will.

However, putting a clause in a Will providing for forfeiture of a gift if a beneficiary challenges the Will is probably not an effective strategy for reducing the risk of a lawsuit. It is quite proper to bring disputes about Wills to court for determination, and our courts may be reluctant to enforce clauses in Wills that are intended to prevent someone with a claim from having his or her day in court.

In British Columbia, the court usually requires an unsuccessful party to pay costs to the successful party. Although costs generally represent only a portion of each party’s actual legal costs, the prospect of having to pay the other party’s costs does discourage claims that are without merit.

If the prospect of having to pay the other party’s costs if a claim is unsuccessful does not discourage a lawsuit, a clause providing in a Will providing for forfeiture of a gift is not likely to be any more effective in avoiding a lawsuit by a beneficiary who feels aggrieved.