A parent dies and the adult children become equal beneficiaries of the residue of the parent’s Estate.
The Estate is primarily made up of income producing real estate holdings that remain profitable. Some of the siblings want to continue to operate the properties, while other siblings want the properties to be sold and converted to money to be distributed to the beneficiaries.
Does a beneficiary have the right to force an executor to sell real property that forms part of the Estate?
Let us assume that the siblings who want the executor to sell the real estate holdings grow weary of the perceived “delay” by the executor in proceeding with the sales. One option worth considering is to try to force a sale under the Partition Act1. The availability of this option depends on the nature of the beneficiaries’ ownership interest in the property.
Rights under the Partition Act.
Pursuant to section 3 of the Partition Act, any person interested in land in Ontario who is entitled to the immediate possession of an estate therein, may bring an action or make an application for the partition or for the sale of that land. This raises two issues. Do beneficiaries qualify as “any person interested in land” and are they entitled to “immediate possession”? Let’s review the law to answer these questions.
Do beneficiaries have an interest in land?
In the scenario described above, the deceased owned the land. Upon her death, all of her property vests in the estate trustee2. What the estate trustee is permitted to do with that land depends on the Will. If there is no Will, the estate trustee’s conduct is governed by the laws of intestacy. If the deceased died intestate (without a will), then the laws of intestacy apply and the executor’s authority is governed by the relevant legislation and the common law. In the normal course, the executor is expected to administer the estate (i.e. gather in all the assets, sell them in order to pay any liabilities and then distribute the remaining monies to the beneficiaries) within what is colloquially referred to as the “executor’s year”. The executor’s year would generally extend to real estate assets as well.
If, however, the Deceased executed a will, the executor’s authority is governed by the terms set by the Deceased. Absent any terms to the contrary, the executor is still expected to administer the estate within the “executor’s year”. However, it is very common for testators to grant their executors broad discretionary powers to administer their estate. For example, many wills provide the estate trustee with the discretion to choose whether to sell or retain assets.
Let us assume that the siblings who want the income generating properties to be sold by the executor grow weary of the perceived “delay” by the executor in proceeding with the sales. In Ontario, more than likely, the siblings would then want to bring an action or application for partition and sale of the properties pursuant to the Partition Act which states that “all joint tenants, tenants in common…and all parties interested in, to or out of, any land in Ontario, may be compelled to make or suffer partition or sale of the land, or any part thereof, whether the estate is legal and equitable or equitably only.”
However, the ability to bring an action or make application for partition and sale is restricted to persons entitled to immediate possession of a property pursuant to section 3 of the Partition Act. The Ontario Court of Appeal has held that while a beneficiary with a specific entitlement to a particular property meets this definition, it excludes a residual beneficiary3. The case law refers to a residual beneficiary as having only a contingent beneficial interest, “which prior to or absent an appropriation of such asset to the beneficiary is insufficient to apply for partition and sale”4.
So, can a residual beneficiary “appropriate” the asset in order to apply for partition and sale?
By default, real property automatically vests to a residual beneficiary 3 years after the death of the deceased pursuant to section 9 of the Estate Administration Act. So, after three years, a residual beneficiary becomes a person interested in land and entitled to immediate possession, which means that they can commence an application under the Partition Act for sale or partition of the property.
However, within the initial three (3) years, the case law seems to suggest that a residual beneficiary does not qualify as a person entitled to apply for partition and sale under the Partition Act.
Okay, but what about those siblings who still want to hold onto the properties?
Section 9 of the Estate Administration Act is only a default provision, which the Deceased is permitted to ‘contract out’ of. To do so, the Will must contain clear language demonstrating the deceased’s intention5. A will that grants the Estate Trustee broad discretion to choose whether to sell or retain assets, will “trump” the other beneficiaries’ desire to have the properties sold.
While there have been cases in which the Court concluded that the language of the will “contracted out” of section 9 of the Estate Administration Act, the cases have not clearly identified what language will trigger such an outcome and each case will turn on its own facts.
In order for a beneficiary to apply under the Partition Act to compel an executor to sell the property forming part of the estate, the beneficiary must first establish that he has an interest in land and is entitled to immediate possession. The estate trustee must first pay all the debts of the estate and all the assets of the estate can be used to pay those debts. Even a beneficiary entitled to a specific bequest of the property is not entitled to that bequest until it’s determined that there is sufficient funds in the residue to pay all of the estate debts.
Once that determination has been made, the Ontario Court of Appeal makes it clear that a residual beneficiary only qualifies to apply under the Partition Act, when a specific property interest vests in the beneficiary.
If the Deceased dies without a Will or the Will does not specify the Deceased’s intention, the 3-year automatic vesting rule applies pursuant to section 9 of the Estates Administration Act. However, if the Will provides the executor with broad powers and control, the beneficiary may never be able to resort to the Partition Act.
Whether you are a beneficiary seeking to force the estate trustee to sell real property or an estate trustee, you should seek competent, qualified legal counsel before taking action.
- Partition Act R.S.O. 1990, CHAPTER P.4 ↩
- See Section 2(1) of the Estates Administration Act. See Section 120 of the Land Titles Act ↩
- Ferrier v. Civierio, 2001 CarswellOnt 1717 (O.N.C.A); 909403 Ontario Ltd. v DiMichele, 2014 CarswellOnt 4064 (O.N.C.A.) at paras. 79-81 ↩
- 909403 Ontario Ltd. v. DiMichele, 2014 CarswellOnt 4064 (O.N.C.A.) at para. 104 ↩
- 909403 Ontario Ltd. v. DiMichele, 2014 CarswellOnt 4064 (O.N.C.A.) at para. 98 ↩