RECENT ISSUES AND COURT DECISIONS AFFECTING ESTATE PLANNING KIMBERLY A. WHALEY ESTATE LITIGATION COUNSEL WHALEY ESTATE LITIGATION JUNE 7, 2007

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1 PRACTITIONERS UPDATE: STEP CANADA 9 TH NATIONAL CONFERENCE RECENT ISSUES AND COURT DECISIONS AFFECTING ESTATE PLANNING BY KIMBERLY A. WHALEY ESTATE LITIGATION COUNSEL WHALEY ESTATE LITIGATION JUNE 7, 2007

2 PRACTITIONERS UPDATE: STEP CANADA 9 TH NATIONAL CONFERENCE RECENT ISSUES AND COURT DECISIONS AFFECTING ESTATE PLANNING INTRODUCTION: Canvassed herein, are a selection of recent issues and court decisions affecting the future of the Estate Planning practice for practitioners. I will touch on the implications of five recent court decisions for the estate solicitor to consider in the context of an estate s practice encompassing planning administration, and litigation issues and concerns. I. Issue: Limitation Periods Concerning Estates And Trusts Actions CASE AND REFERENCE: Bikur Cholim Jewish Volunteer Services v. Langston, February 5, 2007, Greer J., Docket /06 (2007 Carswell Ont 655); or Bikur Cholim Jewish Volunteer Services v. Penna estate (February 5, 2007) Greer J., Ont. S.C. 155 A.C.W.S. (3d) 194. CURRENT STATUS: Under Appeal to Court of Appeal for Ontario: Judgment of the Honourable Madam Justice Greer of the Superior Court of Justice dated February 5, 2007, dismissing a motion for, inter alia, a declaration that the limitation period for bringing a claim for damages against the estate of Lorraine Penna, or its executors arising out of an alleged breach of legal duty by Lorraine Penna while acting as an executor and trustee of the estate of Paul Penna has expired is under appeal at the Court of Appeal for Ontario, by the executor of the estate of Lorraine Penna deceased, Sylvia Bennett, Appellant on Appeal. FACTS: Date/Status August 29, 1996 December 18, 2003 In or about 1999 Text Paul Penna deceased surviving spouse, with life interest in Paul Penna Estate, Lorraine Penna, deceased. Lorraine Penna purportedly incapable, suffering from Alzheimer s disease from in or about 1999, but never removed or replaced as a co-trustee until after her death. 2

3 Date/Status Residuary Beneficiaries: Executors and Trustees of the Paul Penna Estate: On the death of Lorraine Penna as at December 18, 2003: Executors and Trustees of the Lorraine Penna Estate: Text Bikur Cholim Jewish Volunteer Services Shearim Yesodei Hatorah Zareinu Educational Centre of Metropolitan Toronto Trillium Health Centre Foundation o/a Queensway General Hospital The Toronto Humane Society Alzheimer Society of Canada Canadian Friends of Birkat Moshe Parkinson Society Canada The Scott Mission Tzvi Mond Penna Charitable Fund Murray Osheroff Mikey Drutz Eva Carr The Soad Foundation Toronto General Hospital & Western Hospital Foundation Capuchin Outreach to the Poor, Parkdale Lorraine Penna Charles Langston Barry Landen Ernie Sheriff replaced Lorraine Penna as executor and co-trustee of the Paul Penna estate Sylvia Bennett Barry Landen MOTION: The motion brought by Sylvia Bennett, before Her Honour, Madam Justice Greer of the Ontario Superior Court of Justice, in her capacity as executor and trustee of the Estate of Lorraine Penna deceased, was brought alone without her co-executor and trustee, Barry Landen, for a declaration as follows: (a) that the partial summary judgment motion brought on by Rutman, as Estate Trustee During Litigation, as well as any future claims for damages brought against the estate of Lorraine Penna, or its executors, arising out of any alleged breach of legal duty by Lorraine Penna while acting as an executor of the estate of Paul Penna, are statute barred; 3

4 (b) (c) that the partial summary judgment motion brought on by Rutman, as Estate Trustee During Litigation, as well as any future claims for damages brought against the estate of Lorraine Penna, or its executors, arising out of any alleged breach of legal duty by Lorraine Penna while acting as an executor of the estate of Paul Penna, be a defence to any and all subsequent claims for damages brought against the estate of Lorraine Penna, or its executors, arising out of any alleged breach of legal duty by Lorraine Penna while acting as an executor of the estate of Paul Penna, in these or related proceedings; and for an Order fixing costs. Partial Summary Judgment Motion: This is the motion brought by Ronald Rutman, the Estate Trustee During Litigation for the Estate of Paul Penna, seeking partial summary judgment, jointly and severally against Bennett and others, arising from an alleged breach of fiduciary duty by Lorraine Penna while acting as a co-executor of the Estate of Paul Penna. Date/Status Estate Trustee During Litigation: Text Ronald Rutman appointed by court order as the Estate Trustee During Litigation, removing Langston, Landen and Sheriff, in or about No Certificate of Appointment of Estate Trustee concerning the Estate of Paul Penna has ever been issued Landen effectively controlled and administered the Estate prior to the death of Lorraine Penna in 2003 In or about 2005 December 4, 2006 March 1, 2005 March 31, 2005 Langston and Sheriff commissioned a forensic audit of the estate accounts resulting in the removal of the executors and trustees of the estate of Paul Penna appointing the Estate Trustee During Litigation fraud being alleged at this time. partial summary judgment motion served on Bennett in the action seeking in part summary judgment jointly and severally against Bennett and Landen for breach of fiduciary duty while Lorraine Penna has been executor and Trustee with Landen of the Paul Penna Estate. Langston, Sheriff and Jakim Investments Ltd. (an estate asset, of which Lorraine Penna was a former director until October 14, 1999) commenced an action against Landen and Landen s wife and the numbered company for misappropriation of funds. The initial action did not name Lorraine Penna s estate, nor did the statement of claim issued. 4

5 Date/Status Text January 5, 2006 Bennett served with Notice of Application issued on December 21, 2005 over 2 years since date of death of Lorraine Penna April 20, 2005 May 13, 2005 July 7, 2006: During a counsel meeting (unclear as to nature of meeting, mediation?) the possibility of the claim against the Lorraine Penna Estate was raised, and Sylvia Bennett was subsequently put on notice of this claim by a letter in or about May 2005 (within 2 years). Notice of Claim against Lorraine Penna Estate (within 2 years). Lorraine Penna Estate named as a party to the proceedings in the context of a court order to prepare and pass estate accounts in respect of Paul Penna s estate (outside of 2 years from date of death). Relevant Statutes: The Limitations Act, R.S.O. 1990, c. T Sections 43, 44; The Trustee Act, R.S.O c. T. 23 Section 38, 38(3); The Estates Act. R.S.O Section 47; and The Limitations Act, 2002, S.O. 2002, c.24 Sections 24, 19 * The Limitations Act 2002, was passed in December 2002, and came into force on January 1, 2004 (Sections 17, 24, and the schedule thereto) * Courts of Justice Act Summary and Conclusion: The motion brought by Sylvia Bennett resulted in the Judgment of Greer J., wherein on analysis, Her Honour, concludes there is no limitation period preventing the Estate Trustee During Litigation from adding Bennett and Landen in their capacities as Estate Trustees of the Estate of Lorraine Penna, as parties to the action, for the purposes of the claim made against them. Bennett s motion accordingly was dismissed in its entirety. Analysis of the relevant statutory provisions on the applicability of the Limitation period: The Trustee Act, R.S.O. 1990, c.t.23, and the Limitations Act, R.S.O 1990, (the former Limitations Act ). 5

6 Under subsections 38(2) and (3) of the Trustee Act, actions against executors and administrators for torts were brought as follows: (1) except in cases of libel and slander, if a deceased person committed or is by law liable for a wrong to another in respect of his or her person or to another person s property, the person wronged may maintain an action against the executor or administrator of the person who committed or is by law liable for the wrong; (2) An action under this section shall not be brought after the expiration of two years from the death of the deceased. Under the provision of the former Limitations Act dealing with actions against Trustees, section 43(2), dealing with actions against trustees, it states: In an action against a trustee or a person claiming through a trustee, except where the claim is founded upon a fraud or fraudulent breach of trust to which the trustee was a party or privy, or is to recover trust property or the proceeds thereof, still retained by the trustee, or previously received by the trustee and converted to the trustee s use, the following paragraphs apply: 1. All rights and privileges conferred by a statue of limitations shall be enjoyed in the like manner and to the like extent as they would have been enjoyed in such action if the trustee or person claiming through the trustee had not been a trustee or person claiming through a trustee. Section 44(2) of that Act continues on to state, where there is a claim of a beneficiary against a trustee: 44(2) Subject to section 43, no claim of the beneficiary of a trust against the trustee for any property held on an express trust, or in respect of any breach of such trust, shall be held to be barred by a statute of limitations. Under these Sections 43(2) and 44(2), a claim against an executor which satisfied the exception in Section 43(2) of the former Limitations Act was not subject to any limitation period at all. The exception in Section 43(2) of the former Limitations Act was satisfied therefore because Lorraine Penna, as a co-executor of the Estate of Paul Penna, was a party or privy to the fraudulent breaches of trust of her co-executor, Barry Landen. Therefore, before coming into force of the New Limitations Act, there was no limitation period (under the former Limitations Act). This conclusion is not affected by the two-year limitation period contained in Section 38(3) of the Trustee Act, since before the coming into force of the New Limitations Act, 6

7 if the exception in Section 43(2) of the former Limitations Act was satisfied, Section 44(2) of the former Limitations Act provided the limitations answer there being no limitation period - and therefore Section 38(3) of the Trustee Act was irrelevant. In other words, in the present case there was no limitation period before the commencement of the New Limitations Act. It would appear the Legislature, in enacting these provisions, likely intended to exempt claims for fraud or fraudulent breach of trust or conversion of trust property, from all limitation provisions. Greer J. on her analysis under this former Limitations Act, concluded that these provisions exempted claims for fraud, fraudulent breach of trust, or conversion of trust property from all limitation provisions, citing cases in support as referenced in the Greer J. Judgement (see Judgment). The Limitations Act 2002, S.O. 2002, c.24 (the New Limitations Act ) proclaimed into force on January 1, 2004: The New Limitations Act repealed Sections 43 and 44, referenced above of the former Limitations Act. Therefore claims for fraud, fraudulent breach of trust, or conversion, being no longer referenced as exempt. In the New Limitations Act, there was no former limitation period which applied under the former Limitations Act, and although the Schedule to the New Limitations Act includes Section 38(2) of The Trustee Act, Greer J. concluded it did not apply, because Section 44(2) of the former Limitations Act, took such claims out of any limitations period all together. The New Limitations Act, it appears would apply to breaches of fiduciary duty which perhaps were not caught by the provisions of the former Limitations Act, and which would have possibly been the subject of equitable defences. Greer J. did not analyse the point of whether or not the former or the New Act precludes a claim for equitable fraud. Greer J. s analysis included an analysis of the transition rules in Section 24 of the New Limitations Act as a result of the Act or omission complained of, taking place prior to January 1, Subsection 24(2) of the New Limitations Act, provides that the transition rules under Section 24 of the Limitations Act are applicable to claims based on acts or omissions that occurred before January 1, 2004, but for which no proceedings have commenced prior to January 1,

8 The partial summary judgment motion is based on acts or omissions allegedly committed by Lorraine Penna prior to January 1, 2004, and neither the action, nor the application were commenced prior to January 1, 2004, remembering of course, that the Estate of Lorraine Penna was not added until January 7, 2006, as a party. Justice Greer held that Section 24 of The New Limitations Act was applicable in this case. Greer J. found that subsections 43(2) and 44(2) of the former Limitations Act together in effect abolished the limitation period under subsection 38(3) of the Trustee Act, on the basis that the claims made against the Estate of Lorraine Penna, in the partial summary judgment motion were founded upon a fraud or fraudulent breach of trust, to which Lorraine Penna was party or privy. Greer J. did find that the discoverability rule could also be applied to extend the limitation period under subsection 38(3) of the Trustee Act. Note that the discoverability rule is a judge-made rule of statutory interpretation to the effect that a cause of action does not arise (for purposes of applying a statutory limitation period) until all of the material facts on which it is based upon have been, or ought to have been, discovered by the plaintiffs through the exercise of reasonable diligence. Transition Rules: Note should be made of the recent Court of Appeal case for Ontario and the treatment therein and analysis of the New Limitations Act, Section 24 Hare v. Hare [2006] O.J. No (C.A.). Greer J. concluded that there was no former limitation period as defined under subsection 24(1) of the Limitations Act, in other words a limitation period applicable prior to January 1, Subsection 24(6) of the New Limitations Act provides that if there was no former limitation period, and if a limitation period under the Limitations Act, the New Limitations Act would apply were the claim based on an act or omission that took place on or after January 1, 2004, then the following rules apply: (i) (ii) if the claim was not discovered before January 1, 2004, the New Limitations Act applies as if the act or omission had taken place on January 1, 2004; and if the claim was discovered before January 1, 2004, then there is no limitation period. 8

9 On the basis of the finding that there was no former limitation period, Greer J., held that the first condition of subsection 24(6) of the New Limitations Act was satisfied. In respect of the second condition of subsection 24(6) of the New Limitations Act, Greer J. found that this was not met in that there was no limitation period under the New Limitations Act that would apply had the alleged acts or omissions occurred on or after January 1, That finding was based on the reasoning that although subsection 38(3) of the Trustee Act was included amongst the statutory limitation periods listed in the schedule to the Limitations Act, it was not however, a limitation period under the New Limitations Act. Justice Greer thereby concluded that subsection 24(6) of the New Limitations Act did not apply, and there was no applicable limitation period to the case. Claims for fraud or fraudulent breach of trust were exempt. A limitation period under the section 38(3) of the Trustee Act, is not, by definition a limitation period under the New Limitations Act. Accordingly, there would continue to be no limitation period as the former rules apply. In effect, Greer J. found that a limitation period in an act specifically preserved by the New Limitations Act, i.e,. section 38(3) of the Trustee Act a 2-year limitation provision, was not a limitation period under the New Limitations Act. It is interesting to note in this case, that subsection 47(1) of the Estates Act, R.S.O. 1990, chapter E.21 provides that the 2-year limitation period under subsection 38(3) of the Trustee Act, does not apply where notice of the claim, giving full particulars of the claim and verified by affidavit, is filed prior to the expiration of that limitation period. The notice of action was issued on March 1, 2005, the statement of claim in the action was issued on March 31, 2005, and Bennett and Landen were not added as parties to the action in their capacity as the executors and trustees of the Estate of Lorraine Penna until July 10, 2006, when they became parties to the order to pass the accounts of the Paul Penna Estate. Summary: The partial summary judgment motion was not served on Bennett until December 4, 2006, which was after the effective date under the New Limitations Act. Therefore, there continues to be no limitation period applicable to the claim as was concluded by Greer J. Although, the Judgment does not refer to particulars of the partial summary judgment motion as being provided to the Estate of Lorraine Penna by way of affidavit or otherwise, prior to December 4, 2006, pursuant to the provisions of section 47(1) of the Estates Act, it would appear that Justice Greer presumably found that sufficient notice had been given on March 31, 2005, April 20, 2005, or May 13, 2005, so as to vitiate the limitation period under subsection 38(3) of the Trustee Act. 9

10 There being no probate, it is not known whether notice of the claim was filed in the office of the Registrar per S. 47(1) of the Estates Act. If this case withstands appeal, it will mean that claims against deceased s estate trustees, and/or their estates, arising prior to January 1, 2004, yet not commenced prior to January 1, 2004, in respect of fraud, breach of trust, or conversion of trust property, will have no limitation period. On the other hand, claims against deceased s estate trustees and/or their estates arising after January 1, 2004, for fraud, breach of trust, or conversion of trust property, will be subject to the 2-year limitation period set out in subsection 38(3) of the Trustee Act, and therefore must be commenced within 2 years of the date of death of the deceased. Claims against living estate trustees for fraud, breach of trust, or conversion of trust property, arsing prior to January 1, 2004, would then appear likely to be subject to the 2- year limitation period in the New Limitations Act. Under the transition rules, of the New Limitations Act, the act would be deemed to have taken place on January 1, 2004, and the limitation period would then have expired on January 1, However, in similar circumstances, if the breach arose after January 1, 2004, the 2-year limitation period in the New Limitations Act, would likely apply. Issues on appeal: The Appellants on appeal have raised the following issues: (a) did Greer J. err in holding that the transition provisions under section 24 of the New Limitations Act are applicable in this case?; (b) if the answer is no, then did Greer J. err in holding that there is no former limitation period as defined in subsection 24(1) of the New Limitations Act?; and (c) if the answer to (b) is yes, then did Greer J. err in holding that there is no limitation period under the limitations act that would apply if the alleged acts or omissions had occurred on or after January 1, 2004? The Appellants contend that the transition provisions are not applicable, and in particular subsection 24(6) is not applicable, since subsection 19(1) of the New Limitations Act provides that the limitation period set out in the provisions listed in its Schedule prevail over any limitation period, otherwise set out under the New Limitations Act, including extending to the transition provisions under Section 24 of the New Limitations Act. Accordingly, the Appellants contend that therefore section 24 of the New Limitations Act has no application in this case. Furthermore, one of the provisions listed in the schedule to the Limitations Act is subsection 38(3) of the Trustee Act. The 2-year limitation period under subsection 38(3) of the Trustee Act, expired on December 18, 2005, 2 years 10

11 after the death of Lorraine Penna, accordingly, the Appellants contend the limitation period for the partial summary judgment motion has expired. The Appellants contend, Subsection 24(5) of the Limitations Act provides that if the former limitation period did not expire before January 1, 2004, and if a limitation period under the Limitations Act would apply were the claim based on an act or omission that took place on or after January 1, 2004, then the following rules apply: 1. If the claim was not discovered before January 1, 2004, then the Limitations Act applies as if the act or omissions had taken place on January 1, 2004; 2. If the claim was discovered before January 1, 2004, then the former limitation period applies. The Appellants contend that subsection 38(3) of the Trustee Act is one of the provisions listed in the Schedule to the Limitations Act. The two-year period under subsection 38(3) of the Trustee Act did not expire before January 1, The Appellants contend that a limitation period set out in the Schedule to the Limitations Act, is a limitation period under the Limitations Act. If this were not the correct interpretation, then all of the limitations periods listed in the provisions under the Schedule to the Limitations Act would cease to have any effect. Therefore, according to the Appellants, a limitation period under the Limitations Act, namely subsection 38(3) of the Trustee Act, would apply had the alleged acts or omissions occurred on or before January 1, The two conditions under subsection 24(5) of the Limitations Act are thereby satisfied according to the Appellants. The claims made against Lorraine Penna in this case were not discovered before January 1, 2004, Therefore the appropriate transition rule, if any, is subsection 24(5) of the Limitations Act. Subsection 24(5) of the Limitations Act provides that the alleged acts or omissions of Lorraine Penna are deemed to have been committed on January 1, The two-year limitation period under subsection 38(3) of the Trustee Act would be deemed to have expired on January 1,

12 Additionally, the appellants contend that section 47(1) of the Estates Act, listed in the schedule to the New Limitations Act, provides for a 2-year limitation period under subsection 38(3) of the Trustee Act, does not apply where notice of the claim, giving full particulars of the claim, and verified by affidavit, is filed prior to the expiration of that limitation period. The appellants contend that there was no such notice provided in the prescribed form, and therefore Her Honour erred in holding that notice was conferred on May 13, 2005, or any other date prior to December 4, The appellants request that the Judgement of Greer J. be set aside, and a declaration that any claims against the estate of Lorraine Penna, or its executors, out of an alleged breach of legal duty by Lorraine Penna be statue barred. The Provisions of The New Limitations Act 2002: Basic Limitation Period of 2 Years The New Act introduces a basic limitation period of two years. This runs from the day the claim is discovered. The basic limitation period applies to all claims, to remedy an injury, loss or damage that occurred as a result of an act or omission. The 2- year basic limitation period replaces the general limitation periods found in the former Limitations Act as well as many of the numerous special limitation periods found in other statutes. Some special limitation periods remain in force, and are set out in the Schedule to the New Act. Discoverability Principle: The New Act codifies the concept of discoverability setting out that a claim is discovered on the earlier of the day the claimant knew or ought to have known of the injury and the act or omission. The codified discoverability principle sets out a rebuttable presumption that a claim is discovered on the day the act or omission on which the claim is based took place. In order to rebut this presumption, the potential plaintiff must establish the claim was not discovered until some later date. 12

13 The discoverability doctrine can only operate to extend the basic limitation period to the ultimate limitation period of 15 years and not beyond. The discoverability principle does not appear to be expressly applicable to limitation periods other than the basic limitation period. Claims by or Against Estates: Trustee Act, R.S.O c T.23 s.38(3): Actions by or against executors for torts must be brought within two years from the date of death of the deceased. The discoverability doctrine does not apply to extend the time because the limitation period runs from a specific date (date of death) rather than from the date the cause of action arises per Wasckowski v. Hopkins Estate (2002), 47 O.R. (3d) (Ont. C. A.). Summary Claims Against Estates: Estates Act, R.S.O c E.21 s.44(2), s.45(2), s.47: Sections 44 and 45 of the Estates Act create a mechanism whereby an estate trustee can force a person with an alleged claim against an estate to prove that claim in a timely manner, so that the estate administration can be completed without having to wait until the expiration of the relevant limitation period. The estate trustee serves the claimant with a notice in writing that he/she contests the claim. A claimant who has received a Notice of Contestation of Claim must, within thirty days of receipt of the notice, apply to a judge for an order allowing the claim. If the claimant does not make such an application, he or she shall be deemed to have abandoned the claim and it is forever barred. ESTATE MATTERS AFFECTED BY THE NEW LIMITATION PERIOD Breach of Trust Claims: Part II of the former Limitations Act addressed breach of trust claims. The former Limitations Act, provided the only bar to a breach of trust action was the equitable defence of laches. As the previous Act has been repealed, the limitation period of two years from the day on which the claim was discovered applies. 13

14 Limitations Act 2002, R.S.O 2002 c 24 s.2, s.4: A proceeding must be commenced in respect to the claim before the 2 nd anniversary of the day on which the claim was discovered. Claims in Negligence: Limitations Act 2002, R.S.O c 24 s.4: A proceeding shall not be commenced in respect of a claim after the 2 nd anniversary of the day on which the claim was discovered. Under the previous Act, a claimant had 6 years after the cause of action in tort or contract arose in order to commence an action. Under the New Limitations Act, the basic two year limitation period applies. If the claim is not discovered within the 15 year ultimate limitation period, then no claim can be commenced past that period. Attempted Resolution: The running of time is suspended where the parties have agreed to have an independent third party resolve the claim or assist them in resolving it (i.e. a mediation, arbitration, etc.). If the claim is not resolved, the clock restarts when the dispute resolution process is terminated or a party terminates or withdraws from the agreement to attempt resolution. Query was there such an issue in the Penna Estate was there a mediation? Ultimate Limitation Period: The New Act provides that no proceeding shall be commenced in respect of any claim more than 15 years after the date on which the act or omission on which the claim is based took place. If a claim has not been discovered within 15 years of the occurrence which gave rise to the claim, an action commenced after the 15 th anniversary of that occurrence will be statute barred. 14

15 The ultimate limitation period does not run during any time that the person with the claim is a minor or an incapable party who is not represented by a litigation guardian. The running of the ultimate limitation period is also suspended during the time that a party wilfully conceals a cause of action from the person with the claim or wilfully misleads the person with a claim as to the appropriateness of a proceeding. The claimant bares the burden of proving that the ultimate limitation period should be suspended because of disability or wilful concealment, unless the claim is based on assault or sexual assault. No Limitation Period: A claim will only be subject to no limitation period at all if that is expressly provided for in the Limitations Act. s.16 and s.17 list the causes of action for which there is no limitation period. Query the application to Penna Estate. Contribution and Indemnity: For the purposes of determining the date on which the limitation period starts to run, in a claim by one alleged wrongdoer against another for contribution and indemnity, the limitation starts to run on the date that the first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought. Transition Provisions: There are transition provisions for claims based on acts or omissions that took place before coming into force of the new Limitations Act, where no proceeding has been commenced before the effective date. If the former limitation period has expired before the effective date (January 1, 2004), the new Act will not revive the claim. If the former limitation period has not yet expired on the effective date: (a) If there is no applicable limitation period under the New Act, the claim will not be subject to a limitation period; 15

16 (b) If the act or omission giving rise to the claim is not discovered by the end of 2003, the new Act applies as if the act or omission had taken place on the effective date; (c) If the claim was discovered before January 1, 2004, the former limitation period applies. II. Presumptions of Advancement and Resulting Trust Joint Accounts Pecore v Pecore, [2007] S.C.J. No. 17, S.C.C., per Rothstein J. McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish and Charron J.J., dissenting reasons by Abella J., May 03, 07. The Supreme Court of Canada dismissed the appeal by appellant, former husband, Michael Pecore, of Paula Pecore, Respondent on Appeal, and daughter of the deceased. The deceased had placed his assets in joint bank accounts with his daughter Paula Pecore. Paula Pecore did not contribute to the jointly held accounts. On the death of her father, Paula Pecore redeemed the accounts on the basis of rights of survivorship. The Appellant, former husband of Paula Pecore, claimed that the joint accounts were held in trust for the estate, and consequently formed part of the residue of the estate. The trial decision saw the application of the Presumption of Advancement, and finding in favour of Paula Pecore. The Supreme Court of Canada found the trial judge had erred in applying the Presumption of Advancement. The Presumption of Advancement a product of seventeenth century case precedent where an obligation of father s to their sons, reflected the assumption that parents traditionally intend to make gifts to their children. In effect, the Supreme Court of Canada abrogates this position, only preserving it to the extent that the Supreme Court of Canada stipulates the Presumption of Advancement continues to apply to gratuitous transfers from parents to minor children. The Supreme Court of Canada clarified further that the Presumption of Advancement applies equally as between mothers and fathers, to their children, both sons and daughters. 16

17 The Supreme Court of Canada further clarified in terms of disabled adult children who are dependant on parental support, that the Presumption of Advancement does not apply. The Supreme Court of Canada determined that the Presumption of Resulting Trust should have been applied at trial. The Presumption of Resulting Trust, the onus being on the recipient of the transfer, in other words, the transferee, to demonstrate that the transfer was intended by the transferor to be a gift. Rothstein J., stated that because joint accounts with rights of survivorship, both legal and equitable, vest when the account is opened, they amount to an inter vivos gift. Since the balance in joint accounts tends to fluctuate over time, the gift is the transferee s, i.e. the recipients, survivorship interest in the account balance at the time of the transferor s death. In effect, per Rothstein J., the Presumption of Resulting Trust means that the onus is on the surviving joint account holder to prove, on a balance of probabilities, that the transferor intended to give the survivor the rights of survivorship, to whatever assets are left in the account. Note in this case, the error at trial level did not effect the ultimate disposition on appeal, in effect the dismissal by the Supreme Court of Canada, since the trial judge in evidence, found a clear intention by the deceased, to leave joint accounts to Paula Pecore, daughter, by rights of survivorship. Therefore, the same results being achieved, regardless of the application of the Presumption of Advancement, or the application of the Presumption of Resulting Trust. Concluding remarks: Do not contend that joint accounts with rights of survivorship, means an automatic intent to gift the beneficial interest in the jointly held property upon death. Apply principles of this judgment to all transfers, not just joint accounts. Evidence of intention at the time of transfer, and subsequent to transfer, will be very important in determining the disposition on death, and to the avoidance of litigation. The Presumption of Resulting Trust will apply, and unless rebutted, the monies held jointly will become part of the estate, and not the joint account holder s property upon death. The Supreme Court of Canada in Pecore sets out some guidance as to the type of evidence required to prove intention. 17

18 III. Madsen Estate v Saylor, [2007] S.C.J. No. 18, S.C.C. per Rothstein J. McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish and Charron J.J., concurring reasons dissenting by Abella J. May 03, 07 The Supreme Court of Canada s decision in the Madsen Estate was released on the same date as in the Pecore estate, and have been referred to as companion decisions. The Appellant, Patricia Ann Brooks, was a joint account holder with her father. The accounts had rights of survivorship. The Appellant s father retained control of the joint accounts, and the funds were used solely for his benefit during his lifetime. The other children of the deceased commenced litigation taking the position that the accounts were to form part of the estate of the deceased. Patricia Ann Brooks was the executrix of the estate of her father. Applying the Presumption of Resulting Trust, the judge at the trial level found that there was no evidence to support the appellant s position that her father intended to gift the joint accounts to her, and held that they should be included in her father s estate. The Court of Appeal affirmed this decision. The Supreme Court of Canada dismissed the appeal. The Supreme Court of Canada held a Presumption of Resulting Trust applied to the gratuitous transfer of assets by the appellant s father into the joint accounts. The Presumption of Advancement had no application, because the applicant was not a minor. The appellant had the burden of rebutting the Presumption of Resulting Trust by showing, on a balance of probabilities, that her father intended to gift the assets in the accounts to her. There was evidence that the appellant s father intended for her alone to have the assets in the joint accounts. However, the evidence was insufficient to rebut the Presumption of Resulting Trust. Accordingly, in both the Supreme Court of Canada decisions in Pecore and Madsen, the court applied the Presumption of Resulting Trust. 18

19 Taken together, the two cases do give a great deal of guidance to estate practitioners, as to the sufficiency of evidence required to prove intention. Concluding remarks: Do not contend that joint accounts with rights of survivorship, means an automatic intent to gift the beneficial interest in the jointly held property upon death. Apply principles of this judgment to all transfers, not just joint accounts. Evidence of intention at the time of transfer, and subsequent to transfer, will be very important in determining the disposition on death, and to the avoidance of litigation. The Presumption of Resulting Trust will apply, and unless rebutted, the monies held jointly will become part of the estate, and not the joint account holder s property upon death. The Supreme Court of Canada in Pecore and Madsen sets out some guidance as to the type of evidence required to prove intention. IV. Capacity Issues in Estate Planning: The number of elderly persons, 65 years of age and older in Canada is on the rise and by year 2040, is estimated to be 9.3 million, or 25% of the population who are over age 65. Additionally, those living beyond age 85, will reach a peak within this time during the years 2030 to Together with an aging population, improved medical technologies which prolong life, come increased issues and risks concerning the elderly. These issues include mental decline, dependent relationships, duress, influence, and an increased need for institutionalization. The Alzheimer s Society confirms that presently Alzheimer s type dementia affects 1 person in 50, between the ages 65 through 74; 1 person in 9, between ages 75 and 84; and 1 in 3, aged 85 and above. The Canadian Bar Association, Elder Law Section suggests those practising Elder Law need to be prepared for numerous issues such as: o Age discrimination; o General planning for aging; o Elder abuse and exploitation; 19

20 o Housing of older persons in care facility regulations; o Ethical and practical aspects of advising older clients; o Mental capacity and consent; o Guardianship and court appointed substitute decision-making; o Health care decision-making; o Powers of Attorney/mandates; o Elder divorce and separation; and o Lawyer referral panels, and advocacy and pro bono work for the elderly of low or middle incomes 1 By area of law, Wills and Estates is the 5th most common area of claims (Insurance/LawPro-negligence): only litigation, real estate, corporate and family claims are higher. 2 What is LawPro(Lawyer s Insurer) saying: LAWPRO recently reported on the most common errors in the Wills and Estates area as follows: lawyer/client communication failures; inadequate discovery of facts or inadequate investigation; failure to know or properly apply the law; time and deadline related errors; conflicts of interests; and clerical/delegation 3 The statistics prepared by LAWPRO of errors are reported as follows: conflicts of interest - 6%; clerical and delegation - 8%; time management - 13% law - 14% inadequate investigation - 15% communications - 40% other - 4% 4 1 Volume 6 Issue 1, Winter 2007 LawPro Magazine page 5. 2 Volume 6 Issue 1, Winter 2007 LawPro Magazine, page 12, per Deborah Petch and Dan Pinnington. 3 LAWPRO Journal Volume 6, Issue 1, Winter 2007, pages 12-14, co-authored by Deborah Petch, Claims Counsel at LAWPRO, and Dan Pinnington, Director of PracticePRO 20

21 The statistics show implications for practitioners in areas of Estate Planning, Administration, Litigation, Elder Abuse and issues associated with the drafting, and abuse and misuse, of Power of Attorney documents. Capacity: Capacity to make a Will, and make a Power of Attorney is a legal test which is not being exercised diligently nor is it technically understood by the profession at large resulting in solicitor s negligence claims. Capacity assessors are to be educated in accordance with the provisions of the Substitute Decisions Act, 1990, 5 where a legal test for capacity is set out. The Estate Practitioner should be aware of undue influence being exerted on the elderly, physically infirmed, incapable, and so on, where such persons are at risk of misappropriation of their assets, fraud, forgery and depletion of their estate, often not realized until after death. There are legal, financial and social challenges associated with aging. In LawPro s annual report , LawPro reports that claims frequency, claims severity, and claims costs, all indicate an upward trend in LawPro estimates that the average cost per claim, will also increase the result of more large claims of $100, or more. LawPro also reports an increase in the number of claims reported can be partly attributed to continued growth in the number of lawyers in practice in In this type of environment, LawPro states that expertise and experience are critical. 8 LawPro attempts to resolve quickly those matters in which liability is clear. LawPro will not however make economic settlements: claims without merit are defended vigorously, even to trial if required. 9 4 LAWPRO Journal Volume 6, Issue 1, Winter 2007, pages 12-14, co-authored by Deborah Petch, Claims Counsel at LAWPRO, and Dan Pinnington, Director of PracticePRO 5 Substitute Decisions Act, R.S.O LawPro s Annual Report 2006, page 7 7 Law Pro s Annual Report 2006, page 8 8 Law Pro s Annual Report 2006, page 8 9 Law Pro s Annual Report 2006, page 8 21

22 Accordingly, the solicitor s duty in discharging his/her duty to substantiate capacity is clear. In recent years and especially in recent cases, solicitors have been criticized repeatedly by judges for failing to discharge this duty properly. A breach of duty to substantiate capacity, and the corresponding lack of evidence of capacity to put before the court, can cause estate planning initiatives to be invalidated on the grounds of incapacity, even though the testator may in fact have been competent. Where this occurs, the solicitor may be liable for the loss suffered by those disappointed by the estate planning initiatives. The duty to substantiate capacity should extend not just to estate planning, but also to Power of Attorney planning. The drafting solicitor has a legal obligation to make some assessment as to his/her client s capacity. Common errors that have been either the subject of criticism by the courts, or the basis of liability for professional negligence in the preparation of a Will include: 1. the failure to obtain a mental status examination or capacity assessment; 2. the failure to interview the client in sufficient depth; 3. the failure to properly record or maintain notes; 4. the failure to ascertain the existence of suspicious circumstances; 5. the failure to react properly to the existence of suspicious circumstances; 6. the failure to provide proper interviewing conditions relevant to the circumstances of the client; and in that regard, inclusive is the failure to exclude the presence of an interested party; and 7. the existence of an improper relationship between the solicitor and the client. 10 *For a recent review of solicitor s negligence, see Kimberly A. Whaley Solicitor s Negligence in Will Preparation: What are the Courts saying in 2007 ( April 10, 2007, LSUC, The Six-Minute Estate Lawyer 2007: Solicitor s Negligence April 16, 2007, OBA, Kingston, Righting Wills- Essential Tips for Practitioners: Solicitor s Negligence in the 21 st Century: A Trust and Estates Perspective). A tool for the Estate Practitioner: a Capacity Checklist: Testamentary Capacity: 10 M.M. Litman and G.B. Robertson, Solicitors Liability for Failure to Substantiate Testamentary Capacity (1984), 62 CAN. BAR REV

23 The question of testamentary capacity is almost wholly a question of fact. What must the client/testator understand in order to make a Will or testamentary document: The client/testator must understand the nature of the Act and its effects; The client/testator must understand the extent of the property of which he/she is disposing of; The client/testator must have the ability to comprehend and appreciate the claims to which he/she ought to give effect; The client/testator must have a disposing mind and memory to comprehend the essential elements of making a Will; and The client/testator must be sufficiently clear in his/her understanding and memory to know the nature and extent of his/her property; The client/testator must be sufficiently clear in his/her understanding and memory to know the persons who are the natural objects of his/her Estate; The client/testator must be sufficiently clear in his/her understanding and memory to know the testamentary provisions he/she is making; The client/testator must be sufficiently clear in his/her understanding and memory to be capable of appreciating all of these factors in relation to each other, and in forming an orderly desire to dispose of his/her property. 11 Undue Influence: What is undue influence? 12 It is influence which overbears the will of the person influenced, so that in truth, what he/she does is not his/her own act; The ability to dominate his/her Will, over the grantor/donor/testator; and Unconscientious use by one person of power possessed by him/her over another in order to induce the other to do something The test for testamentary capacity is set out in Banks v Goodfellow (1870) L.R. 5 QB. 549 (Eng. Q.B.). and Schwartz v Schwartz, 10 DLR (3d) CarswellOnt 243 [1970] 2 O.R. 61 (Ont.) C.A. Longmuir v. Holland (2000), 81 B.C.L.R. (3d) 99, 192 D.L.R. (4 th ) 62, 35 E.T.R. (2d) 29, 142 B.C.A.C. 248, 233 W.A.C. 248, 2000 BCCA 538, 2000 CarswellBC 1951 (C.A.) Southin J.A. ( dissenting in part); Keljanovic Estate v. Sanseverino (2000), 186 D.L.R. (4 th ) 481, 34 E.T.R. (2d) 32, 2000 CarswellOnt 1312 (C.A.); and Berdette v. Berdette (1991), 33 R.F.L. (3d) 113, 41 E.T.R. 126, 3 O.R. (3d) 513, 81 D.L.R. (4 th ) 194, 47 O.A.C. 345, 1991 CarswellOnt 280 (C.A.) 23

24 Capacity to grant or revoke a Continuing Power of Attorney for Property: Pursuant to the Substitute Decisions Act, 1992, S.O as am., a client/grantor must demonstrate knowledge of the following: 13 the nature and extent of his/her property and its approximate value; awareness of the obligations owed to his/her dependants; knows that the attorney can do anything with his/her property, except make a Will; knows that the attorney must account for all dealings with his/her property; know that if he/she is capable, he/she can revoke the Power of Attorney; and appreciate the possibility that the attorney could misuse the authority granted. Capacity to grant a Power of Attorney for Personal Care as set out in the Substitute Decisions Act, 1992, S.O as am.: 14 the client/grantor must have the ability to understand whether the proposed attorney has a genuine concern for his/her welfare; and the client/grantor must understand that he/she may need the attorney to make personal care decisions for him/her in respect of the following: (i) nutrition; (ii) shelter; (iii) clothing; (iv) hygiene or safety; and in the event that the grantor is not able to understand information that is relevant to making a decision concerning (i) to (iv), or is not able to appreciate the reasonably foreseeable consequences of a decision, or lack of decision, the attorney must act. * This checklist is intended for the purposes of providing information and guidance only and is to be used only for the purposes of guidance. This memorandum/checklist is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive. Kimberly A. Whaley, 2007 Babchuk v. Kutz: Judgment June 8, 2006, Alberta Court of Queen s Bench: There are many recent cases on capacity. In reviewing the recent case of Babchuk v. Kutz, a decision of Alberta of June 8, 2006, I found it particularly of interest, since it is a comprehensive Judgment, which not only goes through the relevant case law on capacity, but it also goes through the various tests, the standard and burden of proof, the weight of the differing evidence, inclusive of medical evidence, family evidence, and evidence of the trained estate lawyer. The analysis of the evidence made by the court against the backdrop of the principles first set out in Banks v. Goodfellow 15 is interesting. In this case, the trial judge found that the doctor s evidence did not carry as much weight as the lay witnesses. The Judge preferred 13 Section 8, of the Substitute Decisions Act, 1992, S.O. 1992, c 30, as am. 14 Sections 45 and 47, Substitute Decisions Act, 1992 S.O. c. 30, as am. 15 Banks v. Goodfellow (1870), [ ] All E.R. Rep. 47, L.R. 5 Q.B. 549, [1871] L.R. 11 Eq. 472, 39 L.J.Q.B. 237, 22 L.T. 813 (Eng. Q.B.) 24

25 the evidence of the lay witnesses together with the lawyer and the student at-law, finding that the deceased did have testamentary capacity as at the date of giving instructions, and the date of execution of the Last Will and Testament. This is a case where the deceased, Fred Babchuk died in hospital on January 26, Fred Babchuk was admitted to hospital on January 8, On January 16, 2001, Fred Babchuk gave instructions to his lawyers, Jones, for a Will. On January 17, 2001, Fred Babchuk executed his Will. The question before the court was whether or not Fred Babchuk had testamentary capacity when he gave instructions for, and executed his Will. The standard of a burden of proof for testamentary capacity as set out in the cases of Banks v. Goodfellow 16, Vout v. Hay 17, were relied upon. The evidence of Jones, the solicitor, and the student-at-law accompanying Jones was set out in over four pages of the Judgment of the trial Judge, Moen, J.. The Court found that the evidence of the solicitor was forthright. The Judge took note of the fact that Mr. Jones, the solicitor, was criticized by those challenging the Will for not doing a number of things before he took instructions and had the Will executed. Those things including, getting a medical opinion as to testamentary capacity of Fred Babchuk before Mr. Jones took the instructions. The trial judge was of the view that it would have been negligent for Mr. Jones not to take the instructions for the Will, when his client was in hospital, and obviously not well, perhaps dying. The trial Judge went further to suggest that had Mr. Jones waited, he may have prejudiced Fred Babchuk s ability to make a Will. The trial Judge further states the issue of his capacity can, and shall be dealt with immediately afterwards, if the lawyer feels that the client may not have been compus mentis at the time. Note this is somewhat different to the result of the Court of Appeal in Hall v. Bennett 18. In this case, Mr. Jones was clear that he believed that when taking the instructions, Fred Babchuk was capable of making his Will and executing it. The court noted that Mr. Jones may not have done all the things a trained estate lawyer would have done, but felt that the decision of Fred Babchuk s capacity did not in the circumstances turn on this. 16 Banks v. Goodfellow (1870), [ ] All E.R. Rep. 47, L.R. 5 Q.B. 549, [1871] L.R. 11 Eq. 472, 39 L.J.Q.B. 237, 22 L.T. 813 (Eng. Q.B.) 17 Vout v.hay, (1995), 7 E.T.R. (2d) CarswellOnt 186, 1995 CarswellOnt 528, 125 D.L.R. (4 th ) 431, [1995] 2 S.C.R Hall v Bennett Estate, appeal decision found at [2003] 64 O.R. (3d) 191 (CA) ; Hall v. Bennett, [2001] O.J. No. 5092, 40 E.T.R. (2d) 65 25