Can Beneficiaries Receive Interim Distribution Pending Wills Variation Claim?
A child or spouse who is disinherited or not adequately provided for in a Will can bring an action seeking a variation. Wills variation litigation can take months or even years to resolve. In the meantime, estate assets may be tied up, leaving other beneficiaries without payment from the estate. The good news for those beneficiaries is that interim distribution pending the outcome of a wills variation claim is possible.
When will interim distribution be allowed?
If the beneficiaries whose interests might be affected by an interim distribution do not consent, the executor of the will can apply to the court for leave to make the interim payment. BC courts have discretion to order that executors make distributions from an estate notwithstanding a pending wills variation action. In Hecht v. Hecht Estate, the BC Court of Appeal set out the factors to be considered when deciding whether to exercise discretion to grant leave for an interim payment pending disposition of wills variation proceedings. Those factors include (at paras. 42- 46):
- the amount of the benefits sought to be distributed as compared to the value of the estate;
- the claim of the beneficiaries on the testator;
- the need of beneficiaries for money; and
- the consent of the residuary beneficiary to the proposed transfer.
Interim distribution was permitted in Hecht v. Hecht Estate. An examination of the facts of that case will provide a better understanding of how the court exercises its discretion.
High-value estate in Hecht v. Hecht
John Hecht and his first wife, Lotte, built a real estate empire known as “The Equitable Group.” Lotte died in 1983. John remarried on July 1, 1988 when he was 76 years old. His second wife, Ursula, was 68 years old at the time of marriage and financially comfortable in her own right. Shortly before their marriage, John and Ursula entered into a marriage agreement whereby she agreed to waive her rights under BC family law and wills variation legislation, and to limit her claim to John’s estate to the lump sum of $700,000, all articles of personal, domestic or household use in their residence, and the right to live in their residence for a period of three years following John’s death. Around that time, John also established four trusts. One of the trusts, called the Beta Trust, was to provide benefits to current and retired employees of the Hecht businesses. Benefits payable to the 50 beneficiaries of the Beta Trust ranged from $2,500 to $260,000, each benefit determined by reference to length of service and salary earned by the specific employees. Another of the trusts was The John Hecht Memorial Trust, created to benefit specific legatees in the sum of $5,500,000, payable on the date of John’s death.
Wills variation action commenced by second wife
John’s marriage to Ursula lasted only 49 days as he died on August 18, 1988. He left an estate valued at approximately $32,000,000. On March 14, 1989, Ursula commenced an action to vary John’s Will. Ursula took the position that John’s estate was worth $60,000,000 and that she was entitled to 20 per cent, or $12,000,000, of the estate. The trial in that action concluded in April 1991. Reasons for judgment issued in August 1991 dismissed Ursula’s wills variation claim, finding that John discharged his moral duty to Ursula and the provision he made for her in his Will was adequate, just and equitable.
Application for interim disbursement from estate
Ursula filed a notice of appeal in September 1991. At that point, over three years had passed since John’s death and trust beneficiaries remained unpaid. In November 1991, the executors applied to distribute certain amounts from John’s estate prior to the conclusion of Ursula’s appeal. Mr. Justice Carrothers’ analysis of the above factors was as follows:
- the amount of the benefits sought to be distributed as compared to the value of the estate: If the proposed distributions were allowed, undistributed assets in John’s estate would have a minimum value more than sufficient to meet the variation award sought by Ursula.
- the claim of the beneficiaries on the testator: Ursula played no part whatsoever in building John’s estate. Rather, the estate was a reflection of all the consuming joint efforts of John, his first wife, and the many employees of The Equitable Group. The benefits to be paid to the beneficiaries of the Beta Trust were employment related and a reward for those services.
- the need of beneficiaries for money: The overwhelming majority of the unpaid beneficiaries of the John Hecht Memorial Trust and the Beta Trust were of advanced age (all were over 60, some in their 70s, 80s, and 90s). Many were suffering from serious illnesses and a few had died. Many indicated a need for the bequests to make their elderly lives more comfortable and financially stable.
- the consent of the residuary beneficiary to the proposed transfer: The sole residual beneficiary (another trust established by John in his lifetime) consented to the interim payment. While she was not a residual beneficiary, Ursula’s consent to the distribution to the trustees of the trusts was sought, but her cooperation was not forthcoming.
Mr. Justice Carrothers allowed the executors’ application, making an order granting the executors leave to distribute the trust funds, with interest, to the trustees of the Beta Trust and the John Hecht Memorial Trust.
Bottom line on interim disbursements in wills variation actions
BC courts have the discretion to order that executors make payments from an estate notwithstanding a pending WESA s. 60 wills variation claim. In deciding if it is proper to order interim distribution, the court must consider the claims of the beneficiaries and their needs, the size of the benefits sought to be distributed, and the risk that a variation order would encroach upon the funds needed to satisfy those legacies or bequests. Legacies or bequests can be paid, notwithstanding a pending claim for variation, when the risk is remote that the variation order would encroach upon the funds needed to satisfy the benefits.