Appointing an ETDL without a will challenge

The purpose of this blog is to examine a proposition put forth by a senior member of the bar in one of his publications¹. In his publication Brian A. Schnurr² said the following:

“There is some authority for the proposition that, absent the circumstances described in s. 28 — i.e., a challenge to the validity of the deceased’s will or an action obtaining, recalling or revoking any probate or grant of administration — the Court does not have the jurisdiction to appoint an Estate Trustee during Litigation….. However, more recent jurisprudence suggests that the Court will appoint an Estate Trustee during Litigation in cases that fall outside the circumstances described in s. 28, particularly where the appointment of a neutral third party is necessary to ensure the transparent and orderly administration of the estate.”

Court’s Role in appointment of Estate Trustee During Litigation (“ETDL”)

Generally, the authority to act as an executor and estate trustee with a will flows from the testamentary document³. Aside from being a vehicle through which the provincial government collects probate fees, a certificate of appointment confirms that the testamentary document in question is the last will and testament of the deceased. Why is that important? Because people make new wills all the time. People, institutions, and government bodies rely on that court confirmation (referred to as probate) as verification that the named executor and estate trustee has the authority to pay bills, access and distribute assets, collect bills, represent the estate in lawsuits, etc., and deal with the estate’s assets.

Given that the authority to be executor and estate trustee flows from the will, it makes sense that when there is a will challenge, the authority of the named executor is in limbo. It’s for that reason that s. 28 of the Estates Act provides the court with jurisdiction to appoint an ETDL when the validity of the testamentary document is put into question. But, there are other times where, arguably, it is no less reasonable that a neutral responsible non-party manage the affairs of the estate until such time as the litigation is resolved.

Let’s analyze the legislation to see if it’s only in the context of a will challenge that the statute provides the court with authority to appoint an ETDL.

Administration pending action
28. Pending an action touching the validity of the will of a deceased person, or for obtaining, recalling or revoking any probate or grant of administration, the Superior Court of Justice has jurisdiction to grant administration in the case of intestacy and may appoint an administrator of the property of the deceased person, and the administrator so appointed has all the rights and powers of a general administrator, other than the right of distributing the residue of the property, and every such administrator is subject to the immediate control and direction of the court, and the court may direct that such administrator shall receive out of the property of the deceased such reasonable remuneration as the court considers proper (emphasis added)

In characterizing when the court has jurisdiction to appoint an ETDL, the first portion of s. 28 provides for the appointment of an ETDL when there is an “action touching on the validity of the will” (the “Will Challenge Clause”). The legislation then uses the word “or” which suggests there are other instances when an ETDL will be appointed. The second instance provided is when there is a pending action “for obtaining, recalling or revoking any probate or grant of administration” (the “Removal Clause”). Query how one might restrict the application of s. 28 to only when there is a Will Challenge. Let’s review a case that does just that.

In Forbes v. Gauthier Estate⁴ the deceased’s last will and testament divided the residue into four equal shares between beneficiaries. The deceased’s sister sought a declaration that the estate trustee held one-half of the residue of the estate by way of constructive trust or resulting trust. She also sought the appointment of an ETDL. The respondent opposed the appointment of an ETDL on the grounds that there was no “… applicability of this rule and/or other Rule 74 and 75 sub-rules.”   The position of the court was obiter, but it referenced a case⁵ which dealt with relied on Justice Haley’s analysis in Belz v. Mernick Estate⁶ is worth repeating.

“When one examines the structure of Rule 74 and 75 which pertain to estates one sees that Rule 74 is concerned with application for probate of wills and estate administration where there is no will and to that end provides for a person having, or appearing to have, a financial interest in a estate to, inter alia, oblige an executor to probate or renounce probate of a will, produce information about estate assets and to account. There is nothing which allows the court to interfere and make directions about the administration of the estate until there is a passing of accounts. Rule 75 is directed at attacks on the validity of a will or a probate document put forward as a last will. It does not deal with the administration of the estate by the estate trustee. The issues which are referred to under rule 75.06 relate to issues concerning the validity of the will and not to determination of financial interests under the will.”

The argument, in simple terms, is that

1. Rule 75.06(3)(f) which provides for the appointment of an ETDL is in the contexts of Rule 74 and 75;
2. Those Rules deal with applications for probate and estate administration where there is no will;
3. The courts don’t have any jurisdiction to deal with administration until there is a passing of accounts; and
4. So there is no jurisdiction to appoint an ETDL unless the Will is challenged.

I confess to being somewhat perplexed by the argument. The wording in s 28 of the Estates Act seems to provide the court jurisdiction to appoint an ETDL in the context of an application to remove an executor because that necessitates the return of the certificate of appointment.⁷

There may be no will challenge, but when a rogue or ne’er do well is acting in fundamental breach of his/her fiduciary duty and putting the assets of the estate at risk s. 28’s language seems wide enough to permit the appointment of an ETDL in that context. Moreover, in the context of a Part V application for support the applicant may have valid concerns that the executor is dissipating the assets of the estate or the s. 72 assets to thwart collection.   In these instances where there are allegations of impropriety it may not make sense for the executor to continue managing the estate. It may make sense to have an ETDL appointed.   I refer the reader to the Consolidated Practice Direction Concerning the Estates List in the Toronto Region⁸. Under the section dealing with passing of accounts (paragraph 21) the Practice Direction refers to paragraph 46. That paragraph replicates Rule 75.06(3) (f), which provides for the appointment of an ETDL. The practice direction clearly contemplates the appointment of an ETDL in the context of passing of accounts. Not every passing of accounts involves a will challenge. In fact, many do not.

Jurisprudence Supporting Appointment of ETDL outside a Will Challenge.

There are a number of cases to support the proposition that subrule 75.06(3) (f) is an independent authority for the appointment of an ETDL where it is imperative that the applicant and the Court be put in a position to know what the real value of the estate assets are and how they are to be administered during the litigation.⁹ Subrule 75.06(3) (f) provides “On an application or motion for directions, the court may direct that an estate trustee be appointed during litigation, and file such security as the court directs.”

In McColl v McColl¹⁰ the applicant commenced an application under Part V of the Succession Law Reform Act (SLRA) seeking support for herself and her son. She also sought the appointment of an ETDL. While the notice of application also challenged the validity of the will, that factor was not mentioned in Her Honour’s endorsement. In this case the executor had not applied to probate for the primary will and declined to comply with the order to deliver the deceased’s bank books and records, tax returns, investment statements and data regarding all assets and values of the Estate. In support of the appointment of the ETDL, the applicant argued that the truth about these assets would not be revealed unless the Court immediately appointed a neutral ETDL to operate the businesses and determine their values. Justice Greer ordered that the ETDL be appointed. I quote excerpts of her decision because it is directly on point to our question.

25     S.28 of the Estates Act R.S.O. 1990, c. E.21, gives the Court the authority to appoint, “an administrator of the property of the deceased person.” That administrator is given all the rights and powers of a general administrator, other than the right to make distributions under the Will or on an intestacy. The Court may direct that such administrator shall receive such reasonable remuneration as the Court considers proper. In addition, the Court has the power under subrule 75.06(3)(f) of the Rules of Civil Procedure R.R.O. 1990, Reg. 194 to appoint an estate trustee during litigation, and file such security as the court directs.

26     As is pointed out in Estate Litigation, B. Schnurr, 2nd ed., (Thomson Reuters, looseleaf), c.24.2, “A decision to refuse the appointment should only be exercised in the clearest of cases.” It goes on to say:

Generally, the Court’s discretion will be exercised in favour of the appointment of an Estate Trustee during Litigation where assets are required to be held, preserved or otherwise dealt with, and debts are to be paid. This will be the case in the vast majority of estates. However, in some simple estates, where the assets are all in liquid form, such as T-Bills or GICs, and little else is required to administer the estate, a Court may decide that an Estate Trustee during Litigation is not necessary.

31     The Mother’s evidence is such that it strongly shows the need for the appointment of an ETDL. See: Groner Estate, Re, 1994 CarswellOnt 2478 (Ont. Gen. Div.).

Justice Greer seems to be of the view that s. 28 of the Estates Act provides her with jurisdiction to appoint an ETDL in the context of a support application under the SLRA. Alternatively, she relies on subrule 75.06(3) (f) of the Rules of Civil Procedure. Let’s deal with her comments about subrule 75.06(3) (f).

In the unreported case Marilyn Dietrich et al v Matthew Playfair et al. in Court file no. 2012-272 there was no will challenge. The conduct of the three estate trustees was at issue. Counsel for the estate trustees took the position that the court did not have the jurisdiction to appoint an ETDL absent a will challenge. Justice Greer disagreed. In her endorsement Justice Greer stated,

“I have the jurisdiction under R75.06(3)(f) to appoint an ETDL. In the circumstances of this case the balance of convenience, if applied, favours the beneficiaries who have the monetary interests in the estate. There is no rush in making that order. The Trust Company will bring its expertise in administering the estate during litigation as a neutral party who will ready the documentation needed and protect the assets…”¹¹

We have touched briefly on how the practice direction quotes the entirety of that rule for an order for directions in the context of a passing of accounts. To argue that this subrule is auxiliary to s. 28 and is only meant to enable the appointment of an ETDL under section 28 seems forced. If the Rules were simply authorizing what is already authorized by section 28 of the Estates Act, what purpose would the drafters of the regulations have had to include it? Arguably, subrule 75.06(3)(f) was meant to provide the court with jurisdiction to appoint an ETDL outside what was already provided by the Estates Act.

In Kalman v Pick¹² Justice McEwen appointed an ETDL. There was a very high level of acrimony requiring that His Honour seize himself of the litigation. The litigation was becoming very expensive with each side seeking contempt orders against the other for failure to comply with orders for productions. The case involved an application for dependant’s support under Part V of the SLRA as well as an accounting. I have excerpted those portions of Justice McEwen’s decision relevant to our discussion

The Bank of Nova Scotia Trust Company shall be appointed to act as Estate Trustee During Litigation (“ETDL”).  It has filed a consent.  The ETDL shall be appointed without the necessity of posting security……

I am aware that a court should not lightly interfere with the Testator’s choice of Estate Trustee or Trustees but the simple fact of this case is that, as noted, a level of dysfunction has arisen that requires the appointment of the ETDL.  To date, it appears that the Respondents bear most of the responsibility.  At the end of the day, the trial judge will have to make significant findings of credibility.  The current state of affairs at this time, however, is that the Respondents have not passed accounts as required, have not provided meaningful documentation on a number of occasions, and have provided conflicting evidence with respect to the disposition of the deceased’s condominium, amongst other things, all of which endanger the administration of the Estate and is of concern to the Applicant who is the beneficiary.

The Respondents raised the issue of the unnecessary expense involved with having an ETDL.  I disagree that this will result in unnecessary expense. In my view, given the excessive legal fees that are being generated, the appointment of an ETDL will likely result in savings to the parties in that the administration of the Estate can be done in an orderly fashion, without acrimony and suspicion.  The estimate of the proposed cost provided by the ETDL is in the $25,000 to $30,000 range.  This pales in comparison to the ongoing legal expense being incurred by the parties.

When explaining the rationale for the appointment of an ETDL, Justice McEwen, in Kalman v. Pick, does not specifically mention whether his order is based on s. 28 of the Estates Act, or subrule 75.06(3)(f) or the inherent jurisdiction of the court. What was key to his decision is that executor’s apparent lack of transparency and conflicting evidence suggested that the administration of the Estate was at risk. That seemed to be his rationale for appointing an ETDL.

In Potrzebowski v Potrzebowski¹³, There was no will challenge.  There was not even a will.  The case involved a dispute between the second wife and the daughters of the deceased’s first marriage about who was the appropriate candidate to be an estate trustee without a will.  Peter Potrzebowski died in October 2016. He had never prepared a will. Justice Price named a lawyer as an ETDL in accordance with Rule 74.10 of the Rules of Civil Procedure forthwith upon the filing of the necessary supporting application with the Court, without further notice or service upon anyone”

In Langston v. Landen,¹⁴ the deceased made a Will providing cash legacies, a life interest of 70% of the residue for the deceased’s Wife, with 30% to a Charitable Fund. The Will provided that upon his wife’s demise the balance of her life interest would go to the charitable fund. At the time the case was heard there was $24 million missing from the estate. They were prepared to resign and Justice Greer had to decide who should replace the named Trustees.  Key to our discussion is the fact that there was no will challenge.  In paragraph 20 of her decision Justice Greer found,

“The Court, however, does not necessarily have to replace these Trustees at the moment. It may appoint an Estate Trustee during Litigation pursuant to s.28 of the Estates Act, R.S.O. 1990, c. E.21. Such a Trustee is subject to the immediate control and direction of the Court, and takes over the administration of the deceased’s property and is entitled to reasonable remuneration as fixed by the Court.”

Justice Greer’s decision in this case is consistent with this paper’s premise that section 28 of the Estates Act provides jurisdiction to a judge to appoint an ETDL any time the proceeding involves the removal of an estate trustee.  The court’s jurisdiction under section 28 does not only get triggered when there is a will challenge.

Conclusion

Section 28 of the Estates Act provides the court with jurisdiction to appoint an ETDL in the context of a Will Challenge or removal of an executor. Arguably, based on the cases reviewed herein, for those matters outside the parameters of s. 28 of the Estates Act the Courts may rely on subrule 75.06 (3)(f). The tests for exercising that discretion are set out in in Kalman v. Pick and McColl v. McColl. When the conduct of the estate trustee is endangering the administration of the Estate the court will exercise its discretion to appoint an ETDL to ensure the transparent and orderly administration of the estate.