Category: Deceased Owes Me Money

It is imperative to understand the limitation period to bring a claim in Estate Litigation. If a claim is statute barred (past the limitation period), then the claim will first need to overcome the issue of being out of time, and if the court opines that the claim is statute-barred, then that is the end of the claim (even if it is a meritorious claim).

It is for this reason that it is crucial to understand the limitation period that may apply to different claims and to decipher when the time for limitation starts running.

Limitations Act, 2022

The Limitations Act, 2022 S.O. 2002, c. 24, Sched. B (“Act”), which came into force on January 1, 2004, consolidates, combines and reforms all the provincial laws on limitations. The Act also impacts estate-related statutes such as the Estates Act, Estates Administration Act, Family Law Act, etc.

The Act states that the limitation period is two years from the date of the “discovery” of a claim. This two-year limitation period is termed as the “basic” limitation period.

In addition, there is an “ultimate” limitation period which is fifteen (15) years from the day of the act or omission.

Discoverability

Section 5 of the Act states that a claim is discovered on the earlier of:

(a) The day on which the person with the claim first knew the following:

(i) That the injury, loss or damage has occurred,

(ii) That the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) That the act or the omission was that of the person against whom the claim is being raised,

(iv) That, having regard to the nature of the injury, loss or damage, a proceeding would be an  appropriate means to seek to remedy it; and

(b) The day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

The rule of thumb in estate litigation is that the claims must be brought within two years from the date of death (of the deceased’s estate that is the subject matter of the claim).

Ultimate limitation

In addition to the above basic limitation, Section 15 of the Act also prescribes an ultimate limitation period of fifteen (15) years. Subject to certain claims for which there is no set limitation period, the Act provides that irrespective of the discoverability of the claim, an ultimate limitation period of fifteen years is applicable.

The ultimate limitation is calculated from the day of the occurrence of the act or omission and not when the claim was discovered.

As the basic limitation of two years is included in the ultimate limitation of fifteen years, a claim cannot be made after the expiration of this fifteen years, even if it was not discovered within these fifteen years. It is imperative to clarify that the ultimate does not extend the basic limitation period. The ultimate limitation period cannot be used by parties to save already “dead claims.” The ultimate limitation period would not be applicable to claims that have already expired because they were discovered or discoverable more than two years before the proceeding commenced.

The Act makes it clear that in cases where an act or omission is continuous or prolongs, the limitation period would be calculated from the date on which the act or omission ceases to take place.

Exceptions to ultimate limitation

The exceptions provided in Section 15(4) of the Act can be summarised as follows:

The limitation period does not run during any time in which:

1. The person with the claim is incapable of commencing a proceeding because of his/her physical, mental or psychological condition (s.15(4) (a) (i)), and
2. Is not represented by a litigation guardian (s.15(4) (a) (ii))
3. The person with the claim is a minor not represented by a litigation guardian (s.15(4)(b)),
4. The person against whom the claim is made wilfully conceals from the person with the claim the fact that the injury, loss or damage has occurred, that it was caused by or contributed by an act or omission (s.15(4)(c)(i)), or
5. Wilfully misleads the person with the claim as to the appropriateness of a proceeding as a means of remedying the injury loss or damage (s.15(4)(c)(i)).

Other Limitation Periods in Estates

It is relevant to mention that the Act applies to all claims, unless an express exception is set out. A limitation period in a statutory provision listed in the schedule will prevail over the limitation provisions of the Act.

Some of the other note-worthy limitations pertaining to estates litigation are as follows:

1. Summary claims against the estate under Section 44(2), 45(2) and 47 of the Estates Act must be commenced 30 days after notice of contestation of claim.
2. Court-directed distribution of estate assets under Section 17(3) of the Estates Administration Act R.S.O. 1990, c. E.22 must be commenced within 3 years from the court direction.
3. Equalization claims under Section 7(3) of the Family Law Act must be commenced within 6 months after the first spouse’s death.
4. Claim for support of dependants under Section 61 of the Succession Law Reform Act must be commenced within 6 months from the grant of a certificate of appointment.
5. Personal claims under Section 38(3) of the Trustee Act must be commenced within 2 years from the date of death.

Conclusion

Counsel must be vigilant about the time for bringing claims. Counsel must ensure that the limitation doesn’t expire without them advising their client of its expiry or issuing a claim to preserve the limitation period.

 

 

 

 

 

 

Losing a loved one is an emotional, overwhelming and turbulent time for everyone. This anxiety, coupled with the sudden responsibility to administer the estate of the deceased (if you have been appointed as the estate trustee) can be treacherous to navigate.

This can be particularly challenging when the liabilities of the estate are greater than the assets.

Duties of estate trustee in an insolvent estate

The duties and obligations of an estate trustee are multifold. The first and foremost responsibility of an estate trustee is to find, secure and review the will of the deceased if the deceased had one. Thereafter, the legally prescribed duties of an estate trustee are broadly to arrange the funeral, secure and appraise the assets of the deceased, apply for probate, (if required), pay taxes and other debts of the deceased, provide accounting to the beneficiaries and distribute the assets in the prescribed manner.

In situations when the liabilities of the estate exceed the assets, the estate would be considered an “insolvent estate.” The estate trustee should consider whether they would simply pay the debts, for example, if there are sufficient funds for these debts (but nothing leftover remaining) or if it would be more prudent to file for bankruptcy of the estate.

Filing for bankruptcy

 The Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (Act) stipulates that the trustee has to administer the estate and file for its bankruptcy. An insolvent estate is not automatically bankrupt, it must be formally declared bankrupt under the Act. This can be done so either by the creditors or the estate trustee.

The estate trustee would have to proceed with filing formal proceedings for bankruptcy of the estate. The court will then proceed with the bankruptcy proceedings under the Act, including appointing an official receiver.

Estate trustee absolved of duties

 Once a trustee in bankruptcy is appointed, the estate trustee would be absolved of all his/her responsibilities and liabilities towards the administration of the estate as this is now the responsibility of the trustee in bankruptcy. This would also ensure that the estate trustee is not held personally liable for any mishaps with the administration of the estate as they have essentially “passed on the baton” for administering the estate.

Notwithstanding the utmost care and efforts that may be put in by the estate trustee to administer the estate, certain unanticipated claims may arise. Therefore, putting the estate into bankruptcy may be practically and legally the most viable way to administer the estate.

Many estate trustees might not be aware of the depth of legal responsibilities that comes with the administration of an estate. An insolvent estate poses greater risks to an administer as debtors have complicated rankings regarding who should be getting paid first.

 

 

Kim Gale is an estate litigation lawyer and principal of Gale Law, an estate litigation firm in Toronto. She can be reached at 416-868-3263 or kgale@localhost. She is the author and creator of the blog Law for Millennials –  The Complete Beginners Guide to Law and is co-founder of diversity and inclusion group NCA Network. Patak Mahajan is an internationally trained lawyer with over five years of experience in disputes resolution and litigation in India. She is registered with the Bar Council of India since 2016 and is currently an L.L.M. candidate at Osgoode Hall Law School, York University.

She is a summer student with Gale Law, outreach and events co-ordinator with the NCA Network and the L.L.M representative of Asian Law Students Association (ALSA) of Osgoode 2022-2023.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, The Lawyer’s Daily, LexisNexis Canada, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

The issue we are addressing is whether you can act as executor of an estate that owes you money. If you are owed money, you would argue that you are a creditor of the estate.

There is no absolute law that prohibits a creditor from being appointed as an executor of the estate.

However, there is case law which deals with removal of an executor who was also a creditor when a conflict of interest arises and the beneficiaries object.

Browne v. Browne Estate

In the Supreme Court of British Columbia case Browne v Browne Estate 2014 BcSC 656, the parties were half siblings, and by her will, their mother divided the estate equally between the parties. After the mother’s death, and without obtaining probate, the respondent used the power of attorney for property document (which should have ceased upon death) to sell the residence for $750,000.

The respondent then applied one half of the net proceeds against her husband’s line of credit. She deposited the balance and through counsel made an offer of settlement to her half-sister to settle the estate without obtaining probate and conditional upon her half-sister not contesting her “suspect” accounting.

She claimed a total expenses of $257,000, which she felt entitled to due to the personal care she provided to the deceased for the last five years.

Her half sibling applied to the court and obtained an order removing the respondent as executor on the basis that she was unable to act impartially, that the accounting was at best cursory, and that the claim for expenses were largely unexplained without any supporting documentation.

Conflict of Interest

The actions of the respondent demonstrated a “lack of fidelity” to the beneficiaries and underscored her potential conflict of interest because of her significant claim on the estate as a creditor (para. 52).

The court found that there were several reasons that would give rise to the removal of the executor and trustee. First and foremost was the potential for conflict of interest given that the executor/ trustee claimed to be a 53% creditor of the estate assets (to which the other beneficiaries disagreed). Also, it was a question of whether it would be difficult for the executor to act with impartiality (not whether she would or would not do so).

The court found that the respondent was in a conflict of interest because of her significant claim on the estate as a creditor.

This is simply a classic conflict of interest, for which the Courts will generally not hesitate to remove the executor/trustee on proper evidence.

Lastly the improper use of a power of attorney document to deal with assets of the estate, rather than applying for probate, was a clear indication of her unwillingness to act as executor.

[37] The general test for removal of trustees/executors is set out in Letterstedt v. Broers (1883-84) L.R. 9 App. Cas. 371 (South Africa P.C.) at 385-389. Lord Blackburn says:
[The] main guide must be the welfare of the beneficiaries…The acts or omissions must be such as          to endanger the trust property, or to show a want of honesty, or want of property capacity to                  execute the duties, or a want of reasonable fidelity.”

[38] Lord Blackburn stated at 387:
In exercising so delicate a jurisdiction as that of removing trustees, their Lordships do not venture to lay down any general rule beyond the very broad principle above annunciated, that their main guide must be the welfare of the beneficiaries. Probably it is not possible to lay down any more definite rule in a manner so essentially dependent on details often of great nicety. But they proceed to look carefully into the circumstances of the case.

[39] Letterstedt was followed in Conroy v. Stokes, [1952] 4 D.L.R. 124 (B.C.C.A.) at 127.

[40] As noted by Donovan Waters, Q.C. in Water’s Law of Trusts in Canada Fourth Edition at 898:
… it is clear that much will turn on the facts of the particular case, and it is only by an analysis of the cases that the manner of application of those guidelines can be seen. The dishonesty of the trustee is an obvious ground for his removal. It is the gravest breach of trust, but dishonesty can extend beyond the situation where the trustee appropriates the trust property for himself to the situation where he has a discretion as to the division of the fund between himself and … other persons, and allocates to himself the lion’s share.

[41] Courts are reluctant to remove an estate trustee. A priority is to respect the testator’s decision in appointing that person: Veitch v. Veitch Estate, 2007 BCSC 952.

[42] Animosity or hostility between an executor and a beneficiary is not sufficient on its own to warrant removal as an executor: Letterstedt at 389

Borisko v Borisko

Distrust

Another case is Borisko v Borisko, 2010 ONSC 2670 where the court found it appropriate to grant a remove an estate trustee where significant allegations aroused the distrust and hostility of the beneficiaries.

The court stated that an application for removing a trustee was not a fact finding process. In its reasons, the court considered a number of allegations indicating a breach of duty or conflict of interest. The trustee was alleged to have tried to buy shares from the beneficiaries when he knew they were valued at nearly twice what he offered. He was also alleged to have withheld this information from the beneficiaries. The trustee was said to have refused to transfer the shares and dividends in a company to the family trust, but instead included the assets in the estate to increase the estate’s value and his compensation. These allegations, which were substantiated with evidence, were sufficient for the Court in this case to order the removal of the trustee.

The Trustee Act section 48 and onwards deals with the obligations of an executor to properly deal with creditors. If there is any question as to whether there is an actual debt or the amount of the debt, it could be argued that the executor in a conflict of interest.

Factors Considered

Some other factors to consider would be: who are the beneficiaries, how much is the alleged debt and what is it for? Is it well documented and therefore not likely to be objected by the beneficiaries? Can it be proved that monies were actually advanced?

While being a creditor does not automatically disqualify a person from being an executor, there can be serious issues as to conflict of interest. Beneficiaries may move to remove the executor and possibly claim costs against the executor if they are in a conflict of interest.

Lee v. Ponte

In this case, an estate trustee brought a claim on behalf of a deceased. In 2007, Shui Yee Lee loaned $55,000 to Cesar Ponte. This loan was secured by a promissory note payable on demand or on the sale of a specific property, whichever occurred earlier.

Ms. Lee became aware that Ponte had sold the property on June 6, 2013. However, Ms. Lee passed away and her estate trustee made a demand for payment in May 2015, but didn’t bring an action until July 17, 2015.

Her claim was dismissed on summary judgment as the motion judge found that the action was statute barred. The judge found that the limitation period began when Ms. Lee was aware that the property was sold, and the estate trustee commenced the action more than two years after June 6, 2013.

Special treatment for an estate trustee?

The Limitations Act 2002 (the “Act”) sets out in section 4 a basic limitation of two years.

However, section 7(1) states that this limitation period does not run any time in which the person having the claim is incapable (s.1(a)) or not represented by a litigation guardian (s.1(b)). Section 7(2) clarifies that a person is presumed to be capable of commencing a proceeding, unless the contrary in proven.

The estate trustee argued that s.7 of the Act should be liberally interpreted and cited the case Papamonolopoulos v. Toronto (City) Board of Education, 56 O.R. (2d) 1. In this case, Justice Brooke stated that there should be liberal interpretation of the statute of limitations and the benefit should be given to the person whenever his right to sue for compensation is in question.

In Lee v Ponte, the estate trustee argued that a deceased person is incapable of bringing a proceeding. The Act affords for time for a litigation guardian to be appointed and this should also apply to an estate trustee.

Give an estate trustee the same leeway as a litigation guardian?

The estate trustee pointed out that it “takes time for an estate trustee to review the affairs of the deceased, and to obtain probate.”

The Court of Appeal dismissed the appeal by rejecting the arguments of the estate trustee.

The court found that the motion judge was not wrong in dismissing the claim as it was correctly barred by the limitation period. The court stated that the language of section 7 is not “elastic” in the “grammatical and ordinary of the words” to apply to a deceased person.

No – Estate Trustee not same as Litigation Guardian

The Court of Appeal did not consider an estate trustee to be a litigation guardian.

The court made it clear that a person who has died with a claim cannot be considered an incapable person. Also, the estate trustee who commences a proceeding for the claim cannot be considered to be the deceased’s a litigation guardian.

File that Claim!

Time plays a vital role in litigation. The Act dictates that generally a person should initiate legal proceedings within 2 years from when the claim is discovered by the person making the claim. Limitation periods exist to provide certainty to all parties.

This decision is a reminder that an individual should bring a legal proceeding as soon as the cause of action arises. Once the limitation period begins and the clock starts, it can only be stopped in certain (‘non-elastic’) circumstances. Even after a claimant passes away, their claim is still subject to the limitation period and it is up to the estate trustee to carry the torch, before the clock blows it out.