Please Enjoy, 

Kimberly A. Whaley
Whaley Estate Litigation

1. Joint Accounts - Ontario: Sawdon Estate, 2012 ONSC 4042

http://canlii.ca/t/fs45v

In the Ontario case of Sawdon Estate, the deceased had seven bank accounts at various financial institutions that were jointly held, with a right of survivorship, with two of his five children. The funds in the accounts totalled just over $1 million. The father had some history and understanding of joint accounts when his wife passed away, and according to his lawyer, understood that when he transferred the bank accounts into "joint accounts with a right of survivorship" the funds would "be accessible to his two sons immediately upon his death".[1] At the same time he made the accounts joint, the deceased executed a new Will which divided his estate into five parts, for each of his five children and their issue. Should one of his children die without issue, that particular child's share would go to the charity, Watch Tower Bible and Tract Society of Canada (the "Watch Tower").

The deceased, despite understanding the "right of survivorship" of joint accounts, advised his sons that upon his death they were to divide the money in the joint accounts equally amongst their siblings. The sons agreed to and understood this request.

Subsequently the deceased revised his Will, whereby the Watch Tower would receive certain shares of his corporation "Sawdon Holdings" and the residue of his estate. Upon his death, his sons argued that the joint accounts were "gifted" to them and passed outside of his estate. The Watch Tower argued that the gift failed because the deceased did not gift the "beneficial interest" in the joint bank accounts and therefore the funds in the accounts formed part of the residue of the estate.

Justice Ricchetti applied Pecore and found that the sons successfully rebutted the presumption of resulting trust. The direct evidence showed that the deceased understood how joint accounts operated and specifically wanted the funds to pass to his children outside of his estate. His Honour also relied on the bank documents setting out that the accounts were subject to the right of survivorship, the tax treatment of the funds, and that there was no evidence of any reservation of interest by the deceased. The gift of the joint bank accounts was not a testamentary disposition as the gift was intended to be and was effective immediately upon opening of the joint bank accounts.

His Honour also went on to find that there was no intention by the deceased to retain a "beneficial" interest in the joint accounts as suggested by the Watch Tower. The beneficial interest in the joint bank accounts was transferred to all of the deceased's children. The deceased had no intention to reserve any beneficial interest for himself.

Ricchetti J., found the bank documents to be clear on their face and that the deceased's sons had control and use of the funds if they wanted. Ricchetti J., also opined that another way to approach the deceased's actions was that he made a gift of the legal and beneficial interest in the joint bank accounts to the two sons subject to them holding those monies upon receipt in trust for their siblings.  In other words, that the sons were bare trustees for their siblings, when and if they received any monies from the joint bank accounts.[2]

Appeal Decision [3]  

http://canlii.ca/t/g2zcq

The Watch Tower appealed and the Court of Appeal just recently released its decision.[4] Justice Gillese, with Justices Hoy and Strathy agreeing, upheld the trial judge's conclusion that all of the children were beneficially entitled to the funds in the bank accounts.  However, Justice Gillese, on behalf of the Court, arrived at that conclusion using a different legal analysis.

Her Honour found that when the father transferred the bank accounts into joint names with his two sons he created a trust, and legal title vested immediately upon transfer. The sons became legal owners on the understanding that they were to divide the funds in the accounts equally amongst all of the children upon their father's death. Therefore, Gillese J. held that "in legal terms, when the [b]ank [a]ccounts were opened [the father] made an immediate inter vivos gift of the beneficial right of survivorship to the [c]hildren. Thus, from the time that the [b]ank [a]ccounts were opened, those holding the legal title to the [b]ank [a]ccounts held the beneficial right of survivorship in trust for the [c]hildren in equal shares."[emphasis added][5]

Her Honour explained that this analysis differed from the trial judge's in two significant respects.

Firstly, Her Honour disagreed with the trial judge's suggestion that all of the children were beneficially entitled to the contents of the bank accounts from the time the accounts were opened. Instead, Gillese J. found that the children were entitled to the beneficial right of survivorship from the time the bank accounts were opened. There is a significant difference in these two findings, Gillese J. explained:

The question of beneficial entitlement on [the father's] death is a question of who owns the right of survivorship, whereas the question of beneficial ownership generally would encompass the period form the time that the [b]ank [a]ccounts were opened. . .[O]n the trial judge's findings of fact, [the father's] intention and instructions related only to the former, namely, beneficial entitlement upon death.[6]

Secondly, Gillese J.'s legal analysis differed from the trial judge's in that the trial judge also founded the children's entitlement on the alternative bases of gift or trust. The trial judge found that, alternatively, the father made a "gift" of the legal and beneficial interest to his two sons but they were to hold whatever funds they received from the bank accounts in trust for their siblings. Gillese J. held that "one cannot find that a gift of the beneficial right of survivorship has been made and, at the same time find that the recipient held it in trust for others. When the legal title holder of property is obliged to hold the property for the benefit of another, a trust has been created."[7] Basically, once the trial judge found that the two sons were obliged to hold the beneficial right of survivorship for all of the children in equal shares he found that a trust had been created, and therefore a gift analysis was no longer available.

Although Her Honour used a different legal analysis, Justice Gillese stated:

I hasten to reiterate that the legal analysis I offer in no way detracts from the correctness of the trial judge's conclusion that on [the father's] death, the [c]hildren became entitled to the monies in the [b]ank [a]ccounts in equal shares. In my view, that conclusion is not only correct in light of the trial judge's findings, it is inescapable.[8]

On appeal, the Watch Tower also attempted to argue that the father had created a "secret trust" when he asked his two sons to distribute the funds equally to all of his children upon his death. The Watch Tower argued that the secret trust failed for lack of certainty of objects and the funds in the bank accounts must revert back to the estate, or the beneficiaries of the secret trust are the beneficiaries of the father's Will.

Gillese J. held that as this was a new issue raised first on appeal, Her Honour "would decline to entertain it" and that "in any event, without deciding the matter, it seems to me that the secret trusts argument is doomed to fail. Even if the secret trusts doctrine could apply to a situation such as this,. . .there can be no problem with the certainty of objects requirement because, on the findings of the trial judge, the objects of the 'secret trust' are indisputably the children."[9]

Costs Summary

The Court provides some commentary on costs in estate litigation and overturned the Trial Judges costs decision. Basically the trial judge (in an unreported decision) ordered the Watch Tower to pay the Estate Trustee partial indemnity costs but refused to allow the Estate Trustee to be indemnified by the Estate for the remainder of the costs, stating that the litigation did not benefit the Estate. The Estate Trustee appealed.

The Court of Appeal granted leave to appeal and allowed the Estate Trustee's appeal, stating that governing principles make it clear that the estate trustee must be indemnified. The Court references Goodman v. Geffen[10], and public policy reasons. The Court of Appeal ordered a "blended costs order" whereby the Watch Tower paid the partial indemnity costs and the remainder of the Estate Trustees legal fees were ordered out of the Estate. The Court of Appeal also ordered the same type of blended costs order for the appeal: $30,000 in partial indemnity costs to be paid by the Watch Tower to the Estate Trustee and the remainder of his fees out of the Estate.

 http://canlii.ca/t/g2zcq

Further, in respect of the costs of the Sawdon Estate [11] the Ontario Court of Appeal confirmed the right of estate trustees to be indemnified by the estate for their properly incurred litigation costs. The Court also held that "blended" cost awards, where both an unsuccessful party and the estate cover an estate trustees legal costs, are available in estate litigation.

Facts

To fully appreciate the cost decision a review of the facts of this case is required:

A father made seven bank accounts joint with the right of survivorship with two of his five children on the understanding that upon his death the monies (over $1 million) would be divided equally amongst all children. The father also executed a Will in which he, among other things, provided for a charity to receive the residue of his estate.

After the father died, a dispute arose between the charity and the children when the estate trustee (also one of the children) sought to pass accounts. The charity claimed that upon the father's death the funds in the bank accounts formed part of the estate by way of resulting trust. The children argued that the funds passed to them outside of the estate.

Both the trial judge and the Court of Appeal sided with the children and relied on Pecore v. Pecore[12] to find that the bank accounts were not part of the estate as the children had rebutted the presumption of resulting trust.

Costs Order ONSCJ

The trial judge ordered the charity to pay the estate trustee's trial costs on a partial indemnity basis. The court refused however the estate trustee's request for an order that the estate indemnify him for the remainder of his costs. The trial judge found that the litigation was for the estate trustee's personal benefit (as he was one of the children and beneficiaries) and that the litigation was of no benefit to the estate. Therefore it was not appropriate for the estate to be responsible for the remainder of the estate trustee's legal fees.

Estate Trustee Indemnification

The Court of Appeal disagreed with the trial judge and granted the estate trustee leave to appeal the cost decision. Justice Gillese, on behalf of the Court, held that the application of the governing principles of costs in estate litigation makes it clear that the estate trustee was entitled to be indemnified for his trial costs and that the costs order against the charity did not extinguish this entitlement.

The Court referred to the Supreme Court of Canada case of Goodman v. Geffen[13], the modern approach to costs in estate litigation whereby the loser pays, and the unique public policy considerations at play: the need to give effect to valid wills that reflect the intention of competent testators and the need to ensure that estates are properly administered.

The Court went on to find that the estate trustee was obliged to determine whether the bank accounts were held by way of resulting trust for the estate and it was his fiduciary duty to participate in the proceedings and ensure that the court had the best evidence on which to determine the father's intentions. The fact that he had personal knowledge of his father's intention meant he had no choice but to take a position consistent with those intentions. The estate trustee acted reasonably throughout the proceedings and for the benefit of the estate; therefore he was entitled to be indemnified by the estate for those trial costs not recovered from the charity.

The Court also observed that as the "difficulties and problems" arising from the bank accounts "were caused by the father" it was "appropriate that he - through his estate - bear the cost of their resolution". [15]

Blended Costs Award

In order to ensure full indemnification of the estate trustee, the Court of Appeal ordered a "blended" costs order whereby the charity paid the estate trustee's partial indemnity costs and the estate paid the remainder. Gillese J. opined that "the modern approach to costs, which seeks to ensure that estates are not depleted through the costs of unnecessary litigation, supports the availability of such a blended approach".[16] The Court also found that a blended costs order was appropriate for the appeal as well and ordered the charity to pay the estate trustee his appeal costs on a partial indemnity basis and declared that he be indemnified by the estate for the balance of his costs.

This case again confirms that costs can be ordered to be paid by the unsuccessful party as well as the estate and shows that it does not have to be an either/or situation. This is also a refreshing reaffirmation on the indemnification of estate trustees for their litigation costs and should encourage estate trustees to bring proper claims to court without facing the threat of having to personally pay legal costs.

The recent article by Professor Oosterhoff, "Indemnity of Estate Trustees as Applied in Recent Cases"[17] has highlighted some recent decisions of our Ontario Superior Court which had strayed from this fundamental principle of trustee indemnification both at common law and in accordance with s.23.1 of the Trustee Act.[18]  This appeal decision accords with the long held precedent supporting full indemnification for trustees as is also supported by Professor Oosterhoff's article.

3. Lalonde v. Moore 2013 ONSC 739: Definition of "Spouse" Under the SLRA

1. Osgoode Professional Development

February 20, 2014

Advising the Elderly

Speaker: Kimberly Whaley, Spousal Claims Against the Estate and Other Claims Arising Out of Remarriage; and

Speaker: Mark Handelman on "Rasouli"

Brochure Link

2. University of Toronto, March 2014

Kimberly Whaley will be a guest lecturer at the University of Toronto

March 3, 2014, on: "Capacity! Understanding and Assessing - Yours and Theirs".

3. STEP Canada - Toronto Branch

April 17, 2014

Building Your Competencies Beyond Your Professional Skills

Speaker: TBA

http://www.step.ca/programs.asp?b=Toronto

4. OBA, Trusts and Estates Law

Dinner with Your Honourable Estate List Judges

April 22, 2014

Chair, Ameena Sultan

5. LSUC - The Six-Minute Estates Lawyer 2014

April 29, 2014 - Undue Influence

Speaker:  Kimberly Whaley

http://ecom.lsuc.on.ca/cpd/product.jsp?id=CLE14-0040701

6. STEP Canada - Toronto Branch

May 8, 2014

Estate Trustee Liability

Speaker: TBA

http://www.step.ca/programs.asp?b=Toronto

7. Senior Practitioner's Forum, Estate Planning and Litigation Forum

May 12-14, 2014

Langdon Hall, Cambridge, Ontario

Speaker, Kimberly Whaley

8. NICE Knowledge Exchange

May 21, 2014

Rethink Aging Now

Chair: Kimberly Whaley; Speaker: Mark Handelman  

http://www.nicenet.ca/ke-home

9. World Congress on Adult Guardianship 2014 

Arlington, Virginia USA

May 28, 2014 - May 30, 2014

http://www.WorldCongressGuardianship.org

June 2, 2014 - Rasouli Case and the issues arising from same

Speaker:  Kimberly Whaley

11. STEP National Conference

Toronto

June 16-17, 2014

12. Baycrest Foundation

June 17, 2014

Speaker, Kimberly Whaley 

13. 2014 CBA Legal Conference

St. John's, Newfoundland

August 15-17, 2014

14. Practice Gems: The Administration of Estates 2014

September 23, 2014

This newsletter is intended for the purposes of providing information only and is to be used only for the purposes of guidance.  This newsletter is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

Marylin Tait 

Legal Assistant

(416) 355-3255

Leigh Wallace 

Legal Assistant

(416) 355-3253

Francesca Latino

Legal Assistant