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Trusts, Wills Variation

Financial Nondisclosure the “Cancer” of BC Estate Litigation

By Candace Cho

In Haley (Re), 2017 BCSC 2057, http://www.courts.gov.bc.ca/jdb-txt/sc/17/20/2017BCSC2057.htm nondisclosure of financial information and assets surrounding the passing of accounts was described as the cancer of BC estate litigation. Failure on the part of the administrator, executrix, or trustee to disclose and consult with beneficiaries in a timely manner results in the failure to pass accounts as presented, increases the expense associated with their passing, and leaves the beneficiaries with the bitter aftertaste of a reasonably based suspicion that justice was not done.

Nondisclosure Leads to BC Estate Litigation in Haley (Re)

Haley (Re) was an application by the executrix for the final passing of accounts of the estate of her father, Dale Haley, who died in December 2004. Mr. Haley appointed her as executrix because she was a certified management accountant and they had a close relationship. Mr. Haley’s will provided a life estate to his wife Shirley, with the remainder of the estate, on Shirley’s death, to be divided equally among his five adult children. As such, the executrix was one of the residual beneficiaries of her father’s estate.

The application for the final passing of accounts was brought roughly 13 years after Mr. Haley’s death, by which point the relationship between the executrix and her siblings (the “plaintiff beneficiaries”) was in tatters. The plaintiff beneficiaries’ objections to the passing of accounts centred mainly upon the executrix’s failure to disclose information concerning the assets of the estate and their disposition, failure to consult with the beneficiaries where appropriate, and the remuneration of the trustee.

Largest Estate Assets

The largest asset of the estate was a property Mr. Haley owned and resided at in Courtney, BC with his wife Shirley. When Mr. Haley died in 2004, the property was in a state of disrepair. The executrix did not live in BC, but her siblings did; they cleaned and repaired the property and helped Shirley with her needs. After Shirley’s death in July 2009, the siblings unanimously decided to sell the property as quickly as possible. One of the siblings offered to rent the property, but the executrix declined on the basis that the objective was to sell as quickly as possible. Despite the intention of obtaining a quick sale, the executor did not have the property appraised until 2010 and then did not list the property with a realtor until 2014. The property eventually sold in 2015 for $300,000 ($81,000 less than the appraised value), more than six years after Shirley’s death. The property sat empty for the intervening six years, without rental income.

The second biggest asset of the estate was a mortgage owed by the executrix to the deceased in the amount of $102,794.15. The details of the mortgage remained private during Mr. Haley’s life and it was not until the second day of the passing of accounts that the mortgage details and amortization schedules were disclosed. This created considerable discord and distrust amongst the plaintiff beneficiaries.

Decision on Passing of Accounts

The accounts of the executrix were passed as presented, with two exceptions: (i) the full $10,000 interim distribution was to be made to two of the siblings from whom the executrix improperly deducted decades-old debts, and (ii) the remuneration of the executrix.

Determining Executrix’s Remuneration

The allowance to be made for an executor, trustee, or administrator’s remuneration is determined on a quantum meruit basis (i.e., the reasonable value of the services rendered), subject to a 5% ceiling as established by s.88 of BC’s Trustee Act http://www.bclaws.ca/civix/document/id/complete/statreg/96464_01#section88. The executrix in Haley (Re) sought remuneration of $23,787.67 (the maximum allowable capital fee of 5% plus an annual care and management fee for 12 years). District Registrar Nielson noted that maximum remuneration is not awarded as a matter of routine in BC estate litigation; rather, an executrix is entitled to remuneration that is appropriate, fair, and reasonable in all the circumstances. Registrar Neilsen ultimately ordered that the executrix receive $12,500 for both a capital and care and management fee, which is just over half of what the executor was asking for.  I recently discussed the legal principles applicable to determining entitlement of an executor to fair and reasonable remuneration. https://onyxlaw.ca/wills-variation/executors-fees-bc-assessing-fair-reasonable-remuneration/

Application of Legal Principles to the Circumstances

Although the executrix was a certified management accountant, she had no prior experience as an executrix of an estate and was not to be held to a “standard of perfection” (at para. 138). There were successes in the administration of the estate which were directly attributed to the work of the executrix in Haley (Re). For example, she was readily involved with the paying of bills and she displayed skill and ability in that all monies paid into and out of the estate were accounted for accurately. However, there were significant failures in the administration of the estate which stemmed from the executrix’s failure to disclose financial information in a timely fashion, or at all, and a failure to consult with the plaintiff beneficiaries on matters that would bear directly on their interests:

  • She did not provide annual financial reports or disclosure to the plaintiff beneficiaries in the roughly 13 year span following the testator’s death and the passing of accounts.
  • She failed to pursue funds from the deceased’s former employer, who had simply changed names and continued carrying on business.
  • While the accounts showed that the executrix had diligently repaid the mortgage she owed to the estate, she failed to disclose the details of it until the second day of her oral evidence on the passing of accounts.
  • The plaintiff beneficiaries were aware that a life insurance policy existed but the executrix refused to disclose the amount of the policy until the formal passing of accounts. (The total amount of the policy was a paltry $17.81 and that amount had been paid into the estate in June 2005.)
  • She attempted to sell some of the deceased’s gun collection and then authorized the destruction of the remaining weapons without asking the plaintiff beneficiaries whether they wanted them if they could not be sold.
  • A few months before his death, Mr. Haley had purchased a VW diesel for $5,995. After his death, the executrix removed the vehicle from the property and purchased it for herself by depositing $5,995 into the estate. This was done without first informing, or consulting the plaintiff beneficiaries. It came as a surprise when, one day, the vehicle was simply nowhere to be found.
  • There was significant delay in disposing of the property. After Shirley’s death, the property sat empty for five years without rental income. The accounts were not passed for a further three years. Given the plan for quick sale and the fact that the executrix lived outside of BC, she should have listed the property with a realtor much sooner.

These failures to disclose details in a timely fashion negatively impacted the administration of the estate. It prevented a consensual passing of the accounts and, in part, caused the parties to “lawyer up” at considerable cost to the estate.

Costs of Passing of Accounts

District Registrar Nielson saw no reason to depart from the usual order that the estate pay the executrix’s costs of the passing of the accounts as special costs. However, given that a formal passing of the accounts may not have been necessary if full and timely disclosure had been made well in advance of the hearing, it was unfair for the plaintiff beneficiaries to bear the bulk of the costs of the passing of the accounts. As such, in this case, the costs of the passing of the accounts was awarded to both the executrix and the plaintiff beneficiaries, paid by the estate, assessed as special costs.

Bottom Line: Importance of Full Disclosure in BC Estate Litigation

Failure to disclose and consult breeds mistrust and can lead to BC estate litigation as in Haley (Re). Full disclosure is an essential element to the smooth administration of an estate.