The Times They Are a-changin

Transcription

1 ESTATE PLANNING 2011 UPDATE PAPER 1.1 The Times They Are a-changin These materials were prepared by Gordon B. MacRae, QC and Andrea E. Frisby, both of Legacy Tax + Trust Lawyers, Vancouver, BC, for the Continuing Legal Education Society of British Columbia, November Gordon B. MacRae, QC and Andrea E. Frisby

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3 1.1.1 THE TIMES THEY ARE A-CHANGIN I. Introduction: Legislative and Case Law Update... 1 A. Part 1: WESA Top Five Changes New Provisions to Modernize and Standardize Succession Documents New Formalities of Execution Changes in Intestate Inheritance Rights Court Will Have an Increased Discretion to Correct Wills Administration of Small Estates, Insufficient Estates and Insolvent Estates Summary... 5 B. Part 2: Case Law Update Easingwood v. Cockcroft Fraudulent Conveyances and the WVA Revisited The Basics: When is a Conveyance Fraudulent? Who Are Creditors and Others? Indicia of Fraud and Braydon Post-Braydon Estate Planning Cases Involving the FCA... 9 a. Mawdsley v. Meshen, 2010 BCSC b. Easingwood v. Cockcroft Summary of FCA and WVA II. Conclusion I. Introduction: Legislative and Case Law Update This paper, janus-like in structure, has a dual purpose: first, looking forward to key practical changes that solicitors working in wills and succession may expect to encounter in their daily practice once the Wills, Estates and Succession Act ( WESA ) comes into force in late 2011 or early 2012, and second, exploring the evolution of the law relating to the Fraudulent Conveyance Act and estate planning through the most recent BC Supreme Court decision, Easingwood v. Cockroft, 2011 BCSC A. Part 1: WESA Top Five Changes On September 24, 2009, Bill 4, WESA was passed by the BC government. The legislation follows closely the recommendations of the BC Law Institute and will consolidate the suite of acts that currently govern the law of wills and succession in the province, including the Wills Act, the Wills Variation Act (the WVA ), the Estate Administration Act, Probate Recognition Act, and a portion of the Law and Equity Act, into what, we hope will prove to be, one modern and comprehensive statute. CLE has previously considered the major elements of the new WESA regime and multiple resources have been published on this topic, including: CLE 2010, Wills, Estates and Succession Act: An Overview, the narrative overview and the full text of the WESA in the 2011 edition of the Annotated Estates Practice (CLEBC, 2011), and the November 2010, CLE published WESA Transition Guide. This paper is intended to provide a quick and practical refresher of the highlights that we anticipate will immediately affect the practicing solicitor at that moment when the legislation comes into force. We recommend a review of the previously published works for a more complete overview of the pending legislative changes and how they may affect your ongoing practice in this area.

4 New Provisions to Modernize and Standardize Succession Documents The new regime introduces some simplified vocabulary and new definitions that will be important for solicitors to keep in mind when they are drafting their new precedents and explaining processes to their planning clients. The following represent some of the key changes: Will-maker: The old Latin-based and gender-specific terms of testator and testatrix will be replaced with the gender-neutral, plain language term of will-maker, which is defined as the person who makes a will (s. 1 WESA). Spouse and spousal home: Spouse is defined in s. 1 and 2 of WESA and the definition provides new clarifications on when persons cease to be spouses. To qualify as a spouse, a person must either be married or live in a marriage-like relationship for a continuous period of at least 2 years with the other spouse. Mutual intention to separate is no longer required to establish the mental element for separation, however, the grace period for inheritance for both married spouses and common law spouses after the separation has been increased from 12 months to two years. The definition of spousal home has been expanded in WESA to also include a manufactured home, as defined in the Manufactured Home Act. Intestate successor: The term intestate heir has been replaced by the more modern intestate successor (s. 1 WESA). Representation grant: Representation grant is defined in s. 1 of WESA and includes the grant of probate of a will, the grant of administration of the estate with or without will annexed, the resealed grant of probate of a will or grant of administration of the estate, an ancillary grant of probate and a small estate declaration filed with a registrar of the court under Division 2 of Part 6 of WESA, which provide simplified measures to administer small estates (i.e., estates having a value of less than $50,000). New survivorship rules: Under the current rules, if two persons die in a joint disaster, the younger person is deemed to have survived. Pursuant to s. 10 of WESA, a person who does not survive a deceased by five days will be deemed to have died before the deceased person. The survival period can be longer if provided for in an estate planning instrument. Under WESA if joint tenants die within five days of each other, then a tenancy-in-common arises and each interest is distributed as if the other joint tenants had predeceased unless there is a contrary intention expressed in the estate planning instrument (s. 5(1)). Unborn children are presumed to have been alive when the deceased person died if they are born and survive for more than five days. Property encumbered by security interest: Pursuant to s. 47 of WESA, secured debt attributable to acquisition, improvement or preservation of land or tangible property follows the gift unless otherwise specified in the will. Previously, the property would have transferred free and clear with the responsibility of paying off the debt falling to the estate and residuary beneficiaries. Therefore, unless the will specifies otherwise, everyone who inherits property which is subject to debt incurred for those purposes inherits the net value (the value left after any debts against the value of the gift are paid off). In a today s economy, this could create situations where the gift is worth less than the underlying debt. In that case, the inheritor may choose to repudiate the gift. Conflict of laws: Under the current rules, the legislation specifically provides that the manner and formalities of making a will are governed, in the case of an interest in land, by the law of the place where the land is located (the situs), and in the case of an interest in movables, by the law of the place where the testator was domiciled at the time of death. However, the legislation permits a will which is made outside of BC to be admitted to probate to deal with interests in movables, if it is formally valid where it was made and the willmaker was either domiciled in that location when it was made or that location was the will-maker s domicile of origin. Pursuant to ss. 79 and 80 of WESA, these rules relating to wills made in other jurisdictions have been greatly expanded. Section 80 provides that a will is valid as to the formal requirements for making a

5 1.1.3 will and is admissible to probate if it is made in accordance with (1) the law of the place where the will is made, (2) with the law of the will-maker domicile either at the date of the will or the date of death, (3) with the law of will-maker s ordinary residence, (4) with the law of the country of which the will-maker was a citizen, (5) with the law of BC but the will is made outside of BC, (6) with the law of the place where the will-maker s property is situated at the date the will is made or the date of death, or (7) to the extent that the will exercises a power of appointment, with the law governing the essential validity of that power. These rules will now apply equally to formally valid wills for both movables and immovables property. 2. New Formalities of Execution WESA also provides modernized execution formalities which may streamline will-making for clients and solicitors alike in ss The main features of the execution rules are as follows: Age requirements: WESA reduces the age requirement to make a will from nineteen (19) years old to sixteen (16) years old. It also removes the exception for married minors so that married and unmarried minors are treated equally. However, we note that minors are not permitted to make enduring powers of attorney, representation agreements or advance directives under the newly amended Power of Attorney Act, Representation Agreement Act, and the Health Care Consent and Admission Act wherein an adult is defined as anyone who has reached 19 years of age. Witness requirements: Section 37 of WESA sets the formal execution requirements for the signature of the will-maker to be witnessed in the presence of two or more witnesses at the same time and signed by those witnesses in the presence of the will-maker which follows the traditional execution requirements. However, WESA provides some leeway to the formalities, permitting the court to (1) cure a non-compliant execution of a will (s. 37(2)) and (2) to declare a gift to a beneficiary who or whose spouse acts as a witness to be valid (s. 40(2)). Therefore, gifts to witnesses of a will or their spouses are notionally void but an application can be made to the court to have the gift declared valid. Revocation: A valid will is no longer revoked by a subsequent marriage of the will-maker. The new revocation provisions are set out in s Changes in Intestate Inheritance Rights The division to a spouse upon intestacy has been modified under Division 1 of WESA. Where a deceased dies without a will and leaves a spouse and children, under WESA, the surviving spouse is entitled to all the household furnishings, the first $300,000 of other assets and half of the remainder of the estate if he or she shared children with the deceased. That amount is reduced to $150,000 and half the remainder if the deceased s descendants are from another relationship. WESA abolishes the interest in the spousal home instead the surviving spouse will have to purchase the spousal home from the estate at fair market value within six months unless the surviving spouse is a joint owner and receives the home under the survivorship provisions. Other than the rights of the spouse and issue, intestate heritance rights will be based on the parentelic inheritance system and end at the fourth degree of kinship (s. 23(3) WESA). Under the parentelic system, where a deceased has no spouse or issue, the estate passes to the parents of the deceased and their descendants (the deceased s siblings, nieces, nephews, etc.) and if there are none, to the grandparents and their descendants and so on. This system should achieve a more even distribution between the two sides of an intestate s family. 4. Court Will Have an Increased Discretion to Correct Wills Under WESA the court will have a greater discretion to ensure that a deceased s last wishes are carried through, even where the document containing those wishes may not meet the formal requirements of

6 1.1.4 WESA (s. 58). It is not clear how far this provision will take the court but it may be that an unsigned document, lawyer s notes, a copy of a will from a computer or instructions may be sufficient to stand as a court-ordered testamentary document. Also, rectification may be more easily ordered by the court. Whether sitting as a court of probate or a court of construction, where the court determines that the will does not fulfill the will-maker s intentions because of an accidental slip or omission, a misunderstanding of the instructions or a failure to follow the instructions when drafting (s. 59). Also, once WESA is in force, all wills, even those made prior to the new legislation, may be rectified by the court under the WESA. Also, WESA extends the existing presumption of undue influence in respect of gifts made while someone is living to apply to gifts made under a will (s. 52). This change means that if the gift is challenged, the recipient of the gift must prove that he or she did not exert undue influence over the deceased. The wills variation regime is substantially unchanged under WESA. A spouse or a child (natural or legally adopted) of the deceased must still commence a claim within six months of the issuance of the representation grant. However, the claimant commencing the action will be required to serve the executor within thirty days of issuing the Notice of Claim, unless the court provides for an extended time. At the solicitor level, the above provisions increase the need for diligence in maintaining a wills file. All records of instructions and notes from meetings with the client must be kept diligently in the estate planning file since these records may comprise extrinsic evidence should there be any drafting issue or later rectification applications before the court. Solicitors may want to add explicit language into the testamentary instructions regarding preferential gifting to ensure that the documents are not later challenged by competing heirs as gifts made subject to undue influence. 5. Administration of Small Estates, Insufficient Estates and Insolvent Estates WESA contains provisions to facilitate the administration of small estates, which are defined as estate less than $50,000 and with no interest in land. The provisions in Division 2 of WESA provide for a simplified small estate declaration application to be made to court. Initially, solicitors may be required to assist administration clients in the early days as they navigate these new rules and deal with the banks and others third parties, such as ICBC. When an estate is not large enough to satisfy all debts and gifts, WESA provides in s. 50 a new priority for distribution of the assets: property specifically charged with a debt, property distributed as an intestate estate and residue, general demonstrative and pecuniary legacies, specific legacies and property over which the willmaker had a general power of appointment. Section 50 of WESA provides that interests in land must be used to pay off estate debts pro rata with personal property. Under the current regime, personal property is used to pay the debts first, with land only being used if there is insufficient personal property to pay the debts. The new order for abatement is set out in s. 54(4). WESA also establishes changes for the administration of insolvent estates. The debts must be paid in accordance with the priority scheme set out in ss of WESA. Section 170 adds priorities, including protection for unpaid spousal support and family maintenance, and amends time frames and amounts to more closely reflect the insolvency regime set out in s. 136 of the Bankruptcy and Insolvency Act. The compensation of the personal representative and legal expenses continue to have priority. Solicitors assisting administration clients will want to familiarize themselves with the new WESA distribution priorities once the statute is in force. Also, s. 51 of WESA provides that where property that is the subject of a testamentary gift is disposed of by an attorney acting under an enduring power of attorney or a representative acting under a s. 7 or s. 9 Representation Agreement, the beneficiary is entitled to receive from the estate an amount equivalent to the proceeds of the disposition. This section does not apply if the will-maker has the attorney or representative dispose of the item and the will-maker had capacity at the time of giving the instructions.

7 6. Summary These highlighted areas represent just a selection of the many changes being made to estate planning and estate administration. Solicitors will want to review their practices to ensure that their actions in assisting clients drafting wills and other estate planning documents comply with the new procedures. Further, the new probate rules and forms for WESA are expected to be finalized and implemented in conjunction with WESA and solicitors will be required to become acquainted with those once they emerge. B. Part 2: Case Law Update Easingwood v. Cockcroft Fraudulent Conveyances and the WVA Revisited The question of whether the BC Fraudulent Conveyance Act, R.S.B.C. 1996, c.163 (the FCA ) has a long enough reach to claw back assets that have been moved, without mala fides, as part of an estate planning arrangement has been a live legal issue in BC for a number of years but most particularly since the Court of Appeal issued its decision in Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521 ( Braydon ). This paper will briefly consider the development of cases around the Wills Variation Act (the WVA ) and the FCA up to and after Braydon. And, indeed whether Braydon has made any significant changes to the FCA and estate cases. The issue has most recently re-emerged in the BC Supreme Court decision of Easingwood v. Cockcroft, 2011 BCSC 1154, which is currently being appealed to the BC Court of Appeal. In that case, two adult children assisted their incapable father, by using their enduring powers of attorney, to set up an inter vivos trust into which they transferred most of the father s assets. Upon the father s death, his widow challenged the trust and the transfer based, inter alia, on her WVA claim. However, the Court determined that she had no status under the FCA to support that aspect of her claim. 1. The Basics: When is a Conveyance Fraudulent? The FCA is a succinct statute that provides as follows in its entirety: Fraudulent conveyance to avoid debt or duty of others 1 If made to delay, hinder or defraud creditors and others of their just and lawful remedies (a) a disposition of property, by writing or otherwise, (b) a bond, (c) a proceeding, or (d) an order is void and of no effect against a person or the person s assignee or personal representative whose rights and obligations by collusion, guile, malice or fraud are or might be disturbed, hindered, delayed or defrauded, despite a pretence or other matter to the contrary. Application of Act 2 This Act does not apply to a disposition of property for good consideration and in good faith lawfully transferred to a person who, at the time of the transfer, has no notice or knowledge of collusion or fraud. 2. Who Are Creditors and Others? There are several things to note about the FCA. First, it is not only creditors, but others who can obtain the benefit of the act. Creditors and others includes present creditors, future creditors and those who might become creditor of the debtor.

8 1.1.6 Spouses have achieved standing as an other pursuant to the FCA but only where the courts have determined that the spouse had a legal or equitable claim at the time of the impugned transfer. For example, in both Jack v. Parkinson (1994), 91 B.C.L.R (2d) 96 (C.A.) and Pearce v. Ferguson (1995), 9 E.T.R. (2d) 146 (B.C.S.C.), the courts determined that a separated spouse fell with the meaning of the FCA as other because there was an outstanding legal or equitable claim between that separated spouse and the deceased at the time of death. However, in both cases, the status of other was derived from the Family Relations Act and not from the WVA. Further, in both cases, the pre-braydon courts were loath to find that the transfers had been made with fraudulent intent and so did not void the transactions despite the standing of the separated spouse as an other. There has been some development in the cases surrounding whether an informally separated spouse may also have status as an other. For example, in Chan v. Chan, 1993 CanLII 702 (S.C.), a separated spouse was accepted by the court as qualifying as an other even though no formal triggering event had occurred in the separation. In that case, the defendant wife granted a second mortgage over the family home which was registered in her name. The husband brought an application for division of their property and asked the court to set aside the mortgage as a fraudulent conveyance. Mr. Justice Spence stated that the family home was registered in the wife s name and no interest vested in the plaintiff husband until the occurrence of a triggering event in their separation, which did not happen until after the conveyance had occurred when an order for divorce was made. However, he held at para. 9: I am of the opinion that a spouse with a potential claim under the Family Relations Act falls within the description in s. 1 of the Fraudulent Conveyance Act of an other with a just and lawful remedy. And, in AWD v. CCDD, 2005 BCSC 1142, a divorce proceeding case, Madam Justice Gray stated in obiter that the phase creditors and others in the FCA includes an estranged spouse (at para. 146). Also, in the Ontario case of Stone v. Stone, [2001] O.J. No (C.A.), the Ontario trial judge found that a terminally ill husband who disposed of his property by inter vivos gifts to his adult children had done so to frustrate the division of the family assets which otherwise would have occurred upon his death and the judge held that the conveyances were void pursuant to the Fraudulent Conveyance Act of Ontario. In dismissing the appeal, the Court determined at para. 25 that: [I]n order for a spouse to qualify as a person who is intended to be protected from conveyances of property made with an intent to defeat her interests, she must have had an existing claim against her husband at the time of the impugned conveyances. That is a right that she could have asserted in an action. The Court concluded that in that case the wife could have asserted her rights under the Family Law Act if she had been aware of the impugned transfers. However, the husband had been careful to keep them secret from the wife and this had prevented her from exercising her rights under family law. Therefore, though not formally separated, the wife was an other pursuant to the Ontario Fraudulent Conveyance Act. However, in DeLeeuw v. DeLeeuw, 2003 BCSC 1472, the Court refused to comment on whether the spouse who was not separated could be considered to be creditor or other pursuant to s. 1 of the FCA (paras ). In that case, the deceased s spouse and three of the deceased six children commenced an action against the estate of the deceased based on (1) the FCA, based on a transfer of the common shares of a corporation by the deceased in implementing his estate plan, (2) the WVA, based on a claim that the deceased did not make adequate provision for his spouse and adult children, and (3) that a resulting or constructive trust had arisen in the favour of one of the sons in regards to a portion of the property. The FCA issue was rejected by the pre- Braydon court for lack of indicia of fraudulent intent on the behalf of the deceased husband. The will, however, was varied in favour of the claimant but the victory was hollow since the transferred assets were not confirmed in the estate.

9 1.1.7 Based on the above caselaw, it seems that a spouse who brings a claim as an other under the FCA must have a right or potential claim which could have been asserted against the transferring spouse during lifetime. To date, there has been no spousal case which has held that the spouse s rights prior to death is sufficient to constitute him or her as an other under the FCA. Indeed, all claims dealing with the children of the deceased, have denied the child the status of an other under the FCA unless the child had some legal claim against the parent that was in existence before the parent died. The courts have been clear that the standing to bring a WVA claim itself is insufficient to give the child of a deceased status under the FCA as a creditor or other. In Hossay v. Newman, 1998 CanLii (S.C.), an adult son brought an action against his father s estate based on the claim that a number of inter vivos planning transaction made shortly before the father s death were fraudulent conveyances made with the intention of defeating the son s right to vary the will. The plaintiff son claimed that he fell within the defined class of creditor and others in the FCA. However, the Court held that because the adult son s only claim against the deceased would arise on death, under the WVA, he did not have the status of "creditor or other" under s. 1 of the FCA. The Court noted that if a beneficiary had a legal or equitable claim against the testator prior to the testator s death, a transfer of assets made to avoid that claim would be voidable as a fraudulent conveyance which would result in the assets being in part of the estate and exposed to a potential WVA claim after death: 10 However, if there is no legal or equitable claim which pre-exists the death of the testator, then the claim is solely one arising on death under the Wills Variation Act. Without any prior foundation, the claimant does not have the status of creditor or other within the meaning of s. 1 of the Fraudulent Conveyance Act. In Mordo v. Nitting, 2006 BCSC 1761, Madam Justice Wedge, citing Hossay v. Newman, determined that it is permissible for a deceased to plan his or her estate to avoid claims under the WVA and that the claim of an independent child under the WVA on moral grounds is not a sufficiently a claim by creditors or others to bring that claim within the FCA. The deceased in that case was a widow with two children, a son and a daughter. Her relationship with her daughter was good whereas the relationship with her son, a successful business man, was fractious. The deceased wanted to leave most of her estate to her daughter but was concerned that her son would make an application to vary her will if the provisions were left to testamentary planning. Therefore, the deceased settled an inter vivos trust in which she remained the income beneficiary during her lifetime. Upon her death, under the terms of the trust, the trust property was transferred to her daughter and issue. The son alleged that the trust was a sham but this argument was rejected by the court. The Court also rejected the proposition that estate arrangements are fraudulent conveyances when they are intended to frustrate WVA claims or probate taxes: [381] According to Alex, the Trust was a device employed by Eida and her solicitor to defeat his anticipated WVA claim. Alex argued, on public policy considerations, that the court cannot uphold the Trust as an inter vivos transaction because to do so would be to neuter the Probate Fee Act, S.B.C. 1999, c. 4, the WVA and the Wills Act. I cannot agree. Inter vivos trusts, including alter ego trusts, are standard estate planning tools. As noted in Waters at , trusts are often used to avoid probate fees and achieve other legitimate estate planning objectives. [382] The issue of arranging one s affairs to avoid possible claims under the WVA in circumstances such as these was decided many years ago by this court in Hossay v. Newman (1988), 22 E.T.R. (2d) 150 (B.C.S.C.) [Hossay]. Mr. Justice MacKenzie (as he then was) held that the claim of an independent adult child under the WVA on moral grounds is not a claim by creditors or others under the Fraudulent Conveyance Act, R.S.B.C. 1996, c Despite the passage of eighteen years since Hossay, the legislature has not seen fit to pass legislation or amend existing legislation to prevent the avoidance of claims under the WVA.

10 1.1.8 This decision echoes the earlier judgment of Hecht v. Reid (1991), 43 E.T.R. 295 (S.C.), appeal dismissed (1993), 49 E.T.R. 97 (C.A.), wherein Madam Justice Boyd quoted from the judgment of Mr. Justice Riley of the Alberta Supreme Court in Dower v. Alberta (Public Trustee) (1962), 38 W.W.R. 129 at 141 as follows: Gifts made inter vivos with an intent to reduce the size of a man s estate do not hinder, delay or defeat his dependent s claims under the statute as the statute does not authorize any interference with inter vivos dispositions of his property. The 2009 decision in Antrobus v. Antrobus, 2009 BCSC 1341, further supports the proposition that a child must have a legal or equitable claim in existence at the time of the transfer to qualify as an other pursuant to the FCA. In that case, the parents transferred their real estate into joint tenancy with a number of their children and settled a number of inter vivos trusts to ensure that one particular daughter, who had fallen out of their favour, would not inherit from their estate when they died. On the particular facts, the disinherited daughter had been required to work in the parents family business at the weekends without any compensation but on the promise that she would be the sole beneficiary of her parents estate. Madam Justice Smith held that the daughter had an equitable claim against her parents at the time of the transfer based on unjust enrichment. Additionally, she found that the conveyances were made with the intention to defeat that claim of the daughter and set them aside as fraudulent conveyances. Antrobus v. Antrobus was upheld on appeal, 2010 BCCA 356, but the quantum of the daughter s entitlement was varied. Therefore, the cases appear clear that the existence of a legal or equitable claim against the deceased s estate during the deceased s lifetime is an essential threshold to the WVA claimant establishing standing under the FCA. 3. Indicia of Fraud and Braydon Traditionally, if the standing of creditor or other was established, the courts dealing with allegations under the FCA then would review the impugned transactions for certain recognized badges of fraud to determine whether or not the conveyance had been made to delay, hinder or defraud. The indicia recognized by the courts included: (1) The state of the debtor s financial affairs at the time of the transaction, including his income, assets and debts; (2) The relationship between the parties to the transfer; (3) The effect of the disposition on the assets of the debtor (i.e., whether the transfer effectively divests the debtor of a substantial portion or all of his assets); (4) Evidence of haste in making the disposition; (5) The timing of the transfer relative to notice of the debts or claims against the debtor; (6) Whether the transferee gave valuable consideration for the transfer. 1 Other indicia or badges of fraud that the courts have recognized include continuing to remain in possession following a conveyance and secrecy respecting the transactions. The Braydon decision is significant because the Court of Appeal confirmed that any transfer of assets made with a view to protect such transferred assets from present and or future creditors is prohibited by the FCA, regardless of whether the transfer was made with or without malice or fraud. The Court stated at para. 73: 1 Justice of Appeal Braidwood in Banton v. Westcoast Landfill Diversion Corp., citing with approval a number of factual indicia of fraudulent intention or badges of fraud from Frimer v. Lurcher, [1984] B.C.J. No. 728 (S.C.).

11 1.1.9 [73] The only intent now necessary to avoid a transaction under the modern version of the Act is the intent to put one s assets out of the reach of one s creditors (per RBC v. Clarke). No further dishonest or morally blameworthy intent is required. The facts of Braydon, a non-estate case, can be summarized as follows. Botham Holdings Ltd. ( BHL ) was a real estate orientated company which had significant real estate holdings which it transferred (through a single-winged butterfly transaction) to Braydon Investments Ltd., a related corporation which was incorporated for this purpose. BHL had also, two months prior to the real estate transfer to Braydon Investments Ltd., become partner in a general partnership formed to undertake an auto leasing business. Approximately, seven months later, the car leasing venture failed and within 19 months both the car leasing operation and BHL were assigned into bankruptcy. The creditors sought to recover against the assets that had been transferred to Braydon Investments Ltd. The lower court made no finding of malice or fraud but set aside the transfer of the assets from BHL to Braydon because the transfer was made with the intent to shield the assets from creditors who were in existence or were contemplated as existing in the future. The Court of Appeal upheld the trial judgment, determining that that bad faith or dishonest intent are not requisite for a fraudulent conveyance, and that the only intent necessary was to put one s assets out of the reach of one s creditors. The Court of Appeal further acknowledged that while Mr. Botham might have been pursuing other business objectives, such as trying to obtain tax advantages, it was clear that he intended to put BHL s assets beyond the reach of the car leasing operation s creditors, which showed sufficient intent to create a fraudulent conveyance. The Braydon Court of Appeal affirmed the proposition that creditors and others refers to both present and future creditors. The Supreme Court of Canada refused leave to appeal. 4. Post-Braydon Estate Planning Cases Involving the FCA a. Mawdsley v. Meshen, 2010 BCSC 1099 In Mawdsley v. Meshen, the judge was asked to determine whether a series of estate planning transactions, including asset transfers which moved the assets from the estate of the deceased, Ms. Meshen, several months before her death, could be challenged by the deceased s spouse of 18 years, Dennis Mawdsley, as fraudulent conveyances. For the purposes of the case, the Court accepted that Mr. Mawdsley had the standing to bring the FCA claim. The impugned transactions included an alter ego trust to benefit Ms. Meshen s three children and brother-in-law upon her death, transferring her residential property into joint tenancy between herself and her son, placing cash in a joint safety deposit box owned by her jointly with her daughter and adding her daughter as a joint owner on three of her bank accounts, transferring other properties outright to her children. The deceased made no provision for her common-law spouse, Mr. Mawdsley, either in her will or by inter vivos transfer before her death. He brought a WVA claim and challenged all of the transfers under the FCA. He claimed that he had an existing claim in unjust enrichment that had arisen in the deceased s lifetime which was in existence when she made the transfers of her assets and, therefore, he fit the definition of creditor or other. His unjust enrichment claim was based on his role as her spouse and his role assisting her with investment and business. He argued that she had been enriched by his contributions while he had suffered a corresponding deprivation without juristic reason. Madam Justice Ballance sidestepped the FCA inquiry of whether Mr. Mawdsley was an other and based her factual findings on (1) a clear, though unwritten, agreement between Ms. Meshen and Mr. Mawdsley that they would keep their property separate, and (2) Mr. Mawdsley presence at the meetings where the transfers were planned and enacted. She stated at para. 208: 208 However, the determination of Dennis s standing [as other ] is not necessary in this case. This is because, for the reasons that follow, I have concluded that the preponderance of the evidence shows that Joan did not possess the fraudulent intent

12 of the kind required under the FCA when she carried out the impugned dispositions. For the limited purpose of the following discussion relative to Joan s intent, it will be assumed that the effect of the dispositions under attack was to defeat Dennis s lawful remedy under the WVA, and that he is therefore qualified to bring a claim under the FCA. Madam Justice Ballance concluded that the deceased had not been motivated by an intention to defeat any claim of her spouse but had been following legitimate estate planning objectives when she set up the inter vivos transfers and trusts but most importantly that the spouse was fully aware that the deceased had not provided for him during her lifetime and had made no objections nor claims during that time. However, Madam Justice Ballance went on to apply a Pecore analysis to assets that had been transferred into joint ownership by Ms. Meshen to her daughter, namely the joint safety deposit box and the joint bank accounts (containing approximately $1.4 million). Madam Justice Balance determined that those assets were actually held by the daughter upon a resulting trust for the estate. She then concluded that Mr. Mawdsley was successful in the WVA portion of his claim and varied the will to provide that the residue of the estate was to go to him, as spouse. The judgment is under appeal. b. Easingwood v. Cockcroft Easingwood v. Cockcroft is the court s most recent consideration of the FCA and the WVA. The case is notable because it directly grappled with the issue that Madam Justice Ballance sidestepped in Mawsdley; that being whether a non-separated spouse can qualify as a creditor or other under the FCA. Further, the case also applied the recent Supreme Court of Canada analysis of unjust enrichment from Kerr v. Baranow, 2011 SCC 10, in the estate litigation context. The judgment in Easingwood v. Cockcroft was the result of a summary trial application brought by the trustees of the Reg Easingwood Alter Ego Trust to dismiss the action commenced by the surviving spouse, Mrs. Easingwood, challenging the transfer of the deceased s property to the trust by his two children using their power of attorneys. The trustees based their dismissal application on the grounds that (1) the trust was validly created and legally enforceable and (2) the conveyances were all valid and legally binding. Mrs. Easingwood s position was, inter alia, that (1) the deed of settlement was null and void and that the assets belonged to the estate, (2) all the transfers of property were fraudulent conveyances and were void, (3) the estate, the trust and various of the deceased s children were unlawfully enriched and that she had suffered a corresponding deprivation for which there was no juristic reason, and (4) for an order pursuant to the WVA that the deceased failed to adequately provide for her in his will. The factual background of the case is as follows. The Easingwoods were married for 26 years, prior to Mr. Easingwood dying. Prior to their marriage in 1983, the deceased and Mrs. Easingwood entered into a marriage agreement, pursuant to s. 48 of the Family Relations Act, R.S.B.C. 1996, c.128, in which they acknowledged that they were both widowed with children, and both intended to maintain their estates as their separate individual property. Mr. Easingwood had four children from his first marriage. In 1993, unbeknown to Mrs. Easingwood, Mr. Easingwood discussed divorce options with his daughter, a retired lawyer. His daughter told him at that time that his personal and corporate assets could be considered family assets and could be subject to a property division claim if he proceeded with a divorce. He did nothing further in that regard from that day forth. In 2001, Mr. Easingwood granted enduring powers of attorney to his eldest son and daughter (Hank and Lauren, respectively), and in 2004 he executed a will which provided a life interest in the principal residence for Mrs. Easingwood. From June 2007, Hank and Lauren started using their powers of attorney to assist Mr. Easingwood, who was by that time struggling with dementia and memory loss.

13 In 2008, Hank and Lauren settled the Reg Easingwood Alter Ego Trust to maintain and protect Mr. Easingwood s assets and also to provide for alternate trustees if one or both of them became unable to act. A driving factor for the establishment of the Trust related to the required joint nature of the powers of attorney and Hank s prognosis with terminal cancer. Both attorneys were concerned that if Hank was to predecease Mr. Easingwood, his assets would not be manageable under the authority of the powers of attorney. The terms of the Trust were established to mirror the terms of Mr. Easingwood s will. In December 2008, the majority of Mr. Easingwood s assets, valued at approximately $5 million, excepting the residential home, were transferred to the Trust and a life interest to Mrs. Easingwood was registered against the principal residence. Neither Mr. nor Mrs. Easingwood was told about the Trust. On September 12, 2009, Mr. Easingwood died and Mrs. Easingwood learned of the Trust. She commenced her claim against the estate on September 28, In regards to the fraudulent conveyance claim, Madam Justice Dillon directly engaged with a consideration of whether Mrs. Easingwood qualified as a creditor or other pursuant to the FCA. Mrs. Easingwood advanced three bases for being considered an other. The first was based on the Family Relations Act and the notional entitlement of 50% if Mr. and Mrs. Easingwood had been separated at the time of his death. However, Madam Justice Dillon rejected that argument, stating that a spouse who had not commenced a family law claim or who could not provide evidence that would reasonably support a right to claim under the Family Relations Act was not an other : [51] In my view, in order to qualify as a potential claimant so as to be a creditor or other within the meaning of the FCA, a spouse must either have begun an action under the FRA or there must be an evidential basis to reasonably conclude that the claimant has a potential right or claim to have asserted entitlement to family assets on marriage breakup under s. 56 of the FRA. The plaintiff does not qualify under any of these criteria. Kay and Reg were happily married at all material times and there was no likelihood that the marriage was about to break up in November There were no irreconcilable differences between them, no periods of separation, or indicators of strife except for the stress of Reg s illness. Kay always knew the terms of Reg s will and the Trust does not depart from those terms. Kay had never said that the provision for her under the will was inadequate or indicated that she would contest it. She was never involved in decisions about Reg s business or investments as she had recognized Reg s desire for Hank and Lauren to manage his affairs in June She could have had access to the information in Reg s accounts at the bank and she participated in discussions at the bank where it was clear that she was neither the decision-maker nor the beneficiary. There is no reality to a claim under the FRA when there is no evidence as to the value of any of either Reg's or Kay s assets at the time of the marriage and no description of Kay s present needs, notwithstanding the presumption in s. 60 and the provisions of s. 65 of the FRA. The marriage agreement which, I find, was applied by both Reg and Kay, kept Reg s business and other assets that were transferred to the Trust as separate property of Reg. Kay kept her own property to herself. It is not sufficient for Kay to now maintain that she is a creditor or other because she might have brought a claim under the FRA if she and Reg had separated. Mrs. Easingwood s second basis to be considered as other was that she had a claim in unjust enrichment based on (1) the work she had done as a homemaker for personal services and (2) for Mr. Easingwood s companies for unpaid services performing such duties as bookkeeping, leasing of units, collection of rents, paying bills, corresponding and dealing with tenants, and dealing with emergencies in the rental premises from time to time. Madam Justice Dillon applied the three step framework for determining unjust enrichment that was recently restated in the Kerr v. Baranow: (1) there must be an enrichment, (2) there must be a corresponding deprivation, and (3) there must be no juristic reason for the enrichment.

14 Madam Justice Dillon found that Mrs. Easingwood had suffered no deprivation from any of the wifely services she had provided as a homemaker: [55] With respect to services provided to Reg personally, there is no evidence that Kay ever expected to be compensated for the homemaking and caregiving that she provided. She acknowledged that she never expected Reg to reimburse her for any amounts that she expended for food and other household items. Reg provided the plaintiff with a home which was to be the sole property of Reg under the marriage agreement. Reg could have transferred an interest in the home to Kay, but he never did. While domestic services can certainly support a claim in unjust enrichment (Kerr at para. 42), there is also the consideration of the injustice of the enrichment wherein one party shares a disproportionate share of assets which are accumulated by the joint efforts of the parties during the relationship (Kerr at para. 60). On the evidence here, it cannot be established that Kay suffered a corresponding deprivation from any services that she provided to Reg. Further, even if there had been a deprivation, Madam Justice Dillon held that the marriage agreement would have provided sufficient juristic reason to prevent a successful claim of unjust enrichment. In the second instance pled by Mrs. Easingwood for unjust enrichment, Madam Justice Dillon determined that that alleged unjust enrichment claim was against the companies and not against Mr. Easingwood or the estate and this right could not be the basis of a fraudulent conveyance action against the estate. The judge also rejected the claim that the attorneys, Hank and Lauren, had overstepped the authority of the power of attorney. She held that the attorneys were entitled to take advantage of estate planning tools and to establish the Trust which did not go beyond the plans Mr. Easingwood had expressed himself in his earlier will despite no express power provided in the powers of attorney. She found that in all the circumstances the Trust was valid and proper. 5. Summary of FCA and WVA Easingwood v. Cockcroft, subject to an appeal decision, appears to further restrict the already narrow circumstances in which a spouse can qualify as an other for the purposes of the FCA. It confirms the earlier caselaw that held that in order to have status as an other, the spouse must have a legal or equitable claim that existed during the lifetime of the deceased spouse. Where a disinherited spouse seeks to base his or her legal or equitable claim on the Family Relations Act, then that spouse must, following Easingwood v. Cockcroft, be able to provide clear evidence of separation, divorce, or other measurable triggering events which support this proposition. In the estate planning context, a cynic may conclude from the cases that the Braydon doctrine has changed little for the interests of spouses and children. While, post-braydon no dishonest intent must be proven for a fraudulent conveyance, under the current law spouses will only qualify as others when they can prove with hard evidence that a legal or equitable right existed at the time of the impugned transfer, and neither spouses nor adult children are able to avail themselves of the FCA based on WVA standing alone. Of course, solicitors are reminded that Chapter 4 Rule 6 of Professional Conduct Handbook, prohibits lawyers from engaging in any activity that the lawyer knows or ought to know assists in or encourages any dishonesty, crime or fraud, including a fraudulent conveyance, preference or settlement. Solicitors should canvass clients background information when assisting with estate planning asset transfers. II. Conclusion With the legislative transitions of WESA hopefully shortly upon us and the appeals of Mawdsley v. Meshen and Easingwood v. Cockcroft, we can expect an interesting time in estate law as the line it is drawn, the order is fadin and the times they are a-changin.