1. Assessing Capacity in Australia, STEP Journal, July 2014, Volume 22, Issue 6

 

"Enduring Complexity" [Kate Hanslow provides an overview of the various tests for capacity to execute instruments appointing enduring guardians in Australia.

 

Kate Hanslow is a senior associate at Worrall Lawyers (link to profile). Ms. Hanslow speaks of the concept of testamentary capacity and the sparcity of Australian case law on the "tests" for capacity to execute instruments appointing enduring guardians. Ms. Hanslow attributes the comparatively little case law as a consequence of the appointment of the enduring guardians in Australia albeit noting that it is a relatively recent development.

 

Kimberly Whaley and Ameena Sultan as referenced above in WEL News recently presented their updated paper on capacity, entitled: ' Decisional Capacity' at the MD Management, Seize the Moment All Advisor Conference 2014 on September 8, 2014

 

The article of Ms. Hanslow speaks about the appointment of a guardian to act as a substitute decision-maker in relation to medical, health and life style decisions, where such appointment is made after a person has suffered a medical condition that impacts their mental capacity.

 

In Australia, the legislation enabling the appointment of a guardian is jurisdictional to the state and territory as opposed to the common wealth of Australia. As such, like in Canada, the statutory provisions enabling the appointment of enduring guardians are not uniform across the jurisdictions within Australia, or indeed the provinces within Canada.

 

Ms. Hanslow addresses the statutory test for capacity to appoint enduring guardianships as being state or territory specific in that they are prescribed by a particular test. However in the absence of a statutory test, the common law test for capacity will apply.

 

In Ms. Hanslow's article: http://www.step.org/digital/journaljuly2014/ she speaks of the examples in Queensland and the Australian Capital Territory and references some of the differing legislation.

 

Interestingly, in Tasmania, the Guardianship and Administration Act, 1995 which does not set out a test for whether or not a person has the capacity to complete such an instrument, does however require that the witnesses to such appointment certify that the donor understands the nature and effect of the document.  This position Ms. Hanslow references as being similar to the position in Victoria, Guardianship and Administration Act 1986 (Vic) s35A (2), Schedule 4. Form 1.

 

The further guidance that Ms. Hanslow provides regarding capacity is similar to that set out in our Ontario Substitute Decisions Act, for the considerations of appointing an attorney for personal care.

 

In the absence of a statutory provision for a test for capacity, Ms. Hanslow references the decision in New South Wales of Scott v Scott[1], and highlighted the importance of examining all of the relevant circumstances which she reiterates as follows:

 

(1)The identities of  the donor and done of a disputed power of attorney;

(2)Their relationships;

(3)The terms of the instrument;

(4)The nature of the business that might be conducted pursuant to the power;

(5)The extent to which the donor might be affected in his or her person or property by an exercise of the power;

(6)The circumstances in which the instrument came to be prepared for execution, including any particular purpose for which it may have ostensibly be prepared; and

(7)The circumstances in which it was executed.

 

Notably too, Hanslow underscores the importance of the "test" for capacity where capacity will always be a matter to be determined by reference to the particular document itself and the circumstances existing at the time.

 

In our newsletter from June 2014 (link to newsletter archive) we addressed capacity issues and various assessments regarding capacity in the United Kingdom, and we continue to revisit this in our practice as we did when we revised the paper referenced within.

 JOHN POYSER

 

An excellent new resource which is very comprehensive is the recent released book of John Poyser, "Capacity and Undue Influence", Carswell, Thomson Reuters. (link to book info) and John's article: "Are Lawyers Being Fooled on Undue Influence?" ETPJ, Volume 33, 2014

 

2. American Bar Organization, Probate &  Property, July/August 2014, Financial Abuse

 

In the American Bar Organization, Probate & Property Magazine. July/August 2014, Volume 28, No. 4, an article by Kristen M. Lewis on "Financial Abuse of Elders" appeared.  It addressed the societal blight as it was referenced by Lewis resulting in an estimated lost to victims of $2.9 billion annually in the United States of America.

 

What was interesting, given that societies across the globe are facing these issues, was the scope of the elder financial abuse spoken of including the improper use of an "elder's" income or assets and not only outright theft, misappropriation or misuse by deception, coercion, duress, or undue influence, but also the intentional or negligent failure to use the "elder's" resources effectively for his/her support and maintenance.

 

Kristen Lewis is counsel in the Atlanta, Georgia office of Sniff Gambrel & Russell, LLP, http://www.sgrlaw.com/attorneys/profiles/klewis/, and she speaks of similar issues that we are facing in Ontario and indeed Canada, including breaches of fiduciary obligation and duty, misuse and abuse of powers of attorney and guardianship.  The article references studies in the U.S. which show that financial exploitation accounts for up to 50% of all forms of elder abuse and is regarded as a third most commonly substantiated type of elder abuse, after neglect and emotional or psychological abuse.  The article also references a 2009 research study reported in the Journal of the American Medical Association which concluded that elders who have experienced even modest abuse have a 300% higher risk of death than those who have not been abused.

 

Similar statistical analysis and review reference in the article includes the Alzheimer's Association which estimates that 16 million Americans will be diagnosed with the disease by 2050.  Moreover, the age-related psychological changes to the anterior insula area of the brain adversely affect a person's assessment of the trustworthiness of potential predators, according to studies by the National Institutes of Health[2]. Lewis refers to diminished financial capacity, as being the ability to manage money and financial assets to meet one's needs effectively, increases as one ages.  Lewis also speaks to the social isolation of elders, those which are non-institutionalized and that in a mobile society extended multi-generational families are no longer the norm.  The article also references the undetected unreported and untreated abuse that occurs every year in spite of the data which shows an increase of reporting elder financial abuse.  Moreover, a common problem in terms of reporting and tracking being the issue that elders often refuse to report victimization by their family members for reasons which include not wanting to prosecute them and not wanting to face public humiliation and embarrassment.  Notably, the article makes the following reference on page 12 "The general durable power of attorney has often been described as the most effective burglary tool since the crowbar".  It speaks to the dilemma associated with power of attorney documents and the interface with financial institutions.

 

While the article speaks of common issues faced by societies globally regarding financial abuse and in particular prosecution enforcement and remedies in the U.S. states, what was of particular interest to me was the concept of elder mediation.  The author references "The greatest obstacle to the widespread use of elder mediation is the general lack of awareness that it can be a good option for resolving conflicts that escalate into elder financial abuse".

 

Mediation is an effective tool in the prevention and the escalation of family conflict.

 

For our mediation services, please visit our website.

 

Voluntary dispute resolution empowers all parties to come to the table to consider  the issues and to come to a satisfactory resolution which may involve the implementation of less restrictive alternatives to, for instance in Ontario, court-ordered guardianships, to facilitate accountings where attorneys are in place, to ensure fiduciary support and to resolve disagreements between co-attorneys or co-guardians or co-trustees through the construct of agreements and professional assistance in carrying out the tasks fiduciaries are charged with.

 

Lewis speaks of this in terms of the U.S. particular issues including court-supervised conservatorships but also generally respecting ongoing coping strategies to deal with the consequences of an "elder's" diminishing capacity in areas of financial management and personal care. 

 

3. Passings of Accounts: More Developments

 

Goetz v Goetz, 2014 ONSC 729 (CanLII), 2014 ONSC 4120 (CanLII) 

 

In June 2014, Justice Campbell, who appears to have been seized of or case managed the Estate of Leonard Wilfrid Goetz, issued a further decision in the passing of accounts proceedings respecting this estate.

 

In Justice Campbell's prior decision of February 14, 2014, the court declined to approve the accounts and rather set out specific portions of those accounts that were deficient and ordered their remedy.

 

The earlier decision prior to Justice Campbell's involvement, of Justice Donohue, directed that the accounts be passed for a specific period and further with respect to two transactions for a time period prior to the date of death of the deceased.

 

Thereafter, there was an order that the executors pass their accounts relative to their administration of the deceased's estate.

 

The accounts were procedurally deficient and the court directed that proper amended accounts be prepared and filed.

 

Notably, at paragraph 12 of the February 14, 2014 judgment, the court directed that the executors seek the assistance of an experienced and properly licensed professional in preparing the estate accounts ordered to be passed. The court made comment that it hoped to avoid resorting to section 49(10) of the Estates Act. The provisions of section 49(10) as are follows:

 

Appointment of expert on examination of accounts

 

(10)  Where accounts submitted to the judge of the Superior Court of Justice are of an intricate or complicated character and in the judge's opinion require expert investigation, the judge may appoint an accountant or other skilled person to investigate and to assist him or her in auditing the accounts

 

At paragraph 13, the Judge commented that the cost of any proper assistance obtained in respect of the accounting would be borne by the estate.

 

The court did not suggest at that time that of course this amount, if expended on the proper preparation of accounts by a professional would not be deducted from compensation as is the precedent in support of this principle pursuant to the decision in Goldlust Estate, Re 1991 CarswellOnt 546.

 

Two other interesting issues were addressed by the court in the context of this passing of accounts. The first being whether or not a document or rather an interest in a foundation was testamentary in nature. The court noting at paragraph 35 as follows:

 

"the law on whether a document of this type is a testamentary instrument is not entirely clear. Generally, "if, at the time of its execution, the document is legally effective to pass some immediate interest in the estate, no matter how slight, the transaction will not be classified as testamentary" (see: James McKenzie, Feeney's Canadian Law of Wills) (2012) 4th edition, LexisNexis, Canada Inc., Section 1.23).  That statement of law comes from the British Columbia Court of Appeal decision of Wonnacott v Loewen (1990), 44, B.C.L.R. (2d) 23.

 

Wonnacott incorporated a statement from the Alberta Court of Appeal in Anderson v. Patton, [1948] 2 D.L.R. 202. In Anderson the court stated that if the document is not intended to have any operation until the settlor's death it is testamentary. If the document is intended to have and does have the effect of transferring the property or of setting up a trust in praesenti, though to be performed after the settlor's death, it is not testamentary.

 

The court thereafter concluded that the letter and foundation interest did not constitute as testamentary disposition. As it was intended to immediately transfer funds and contemplates an annual transfer of funds, the interest created by the document were considered to be more consistent with an inter vivos transfer. As such, the court concluded that the document would not be considered testamentary.

 

The second interesting issue related to a promissory note and whether or not it was enforceable as a debt of the estate and the court had the following to say:

 

[38] The final paragraphs of the document refer to the document being a promissory note. If it is a promissory note, the question becomes whether it is enforceable by the donee. The Supreme Court of Canada held in Glesby v. Mitchell, [1932] 2 S.C.R. 260, that a "promissory note, like any other promise, cannot be enforced, as between the parties unless there is a consideration for the promise".

 

[39] Peden v. Gear (1921), 50 O.L.R. 384 (Sup. Ct. (H. Ct. Div.)), stands for the proposition that a promissory note is no more than a promise to pay a certain sum of money, and the donee does not have a right to claim against the estate if the payee never provided any consideration for the promise. This proposition was applied in Bibco Inc. v. Young, 2005 MBQB 268 (CanLII), 2005 MBQB 268, 197 Man. R. (2d) 242.

 

[40] There is no evidence that any consideration was given for the note. Therefore the payees are not creditors of the estate and the letter is unenforceable. I have already noted that the court has no evidence with respect to this Foundation beyond the letter and power of attorney. For the court to reach a contrary conclusion substantially more evidence would be required.

 

In the follow up judgment of July 8, 2014, the court found that this was not a case to award a care management fee. The court found that there was an asset that continued to be unrealized and directed that it be realized and the proceeds distributed to each beneficiary. The court ordered that the statement of compensation be adjusted. The court ordered that the previous amount of compensation received by the executors be reduced and that the executors prepare an order in accordance with form 74.15 reflecting the court's decision.

 

4. Rectification and Procedure

 McLaughlin Estate v McLaughlin, 2014 ONSC 3162 (CanLII)

 

This decision by Lemon J. of the Ontario Superior Court of Justice in McLaughlin Estate v McLaughlin Estate is primarily a case on rectification of the Last Will of Elizabeth Anne McLaughlin. 

 

In the end, the court was satisfied that the Will should be rectified as requested on a balance of probabilities considering the evidence gathered in the materials filed.

 

Importantly, the court noting at paragraph 81 of the judgment, that there was no benefit to the deceased to orchestrate a subtle intestacy when she could have been as express in her wishes as he had been in the past.

 

Notably, the court stated that the deceased had added and removed beneficiaries in the past without hesitation, and she could still do that now.

 

As such, leaving out the residue clause would lead to an intestacy which should be avoided.

 

Notably, however, two procedural points are worth mentioning quite apart from the substantive nature of the decision.

 

These two procedural redresses involve issues which I frequently see in proceedings and ought to be avoided.

 

The first appears at paragraph 57, noting that one of the parties had purported to rely on and file material that was unsworn in any fashion, the court commenting that it need therefore not be responded to. Moreover, the court stated that unsworn evidence is not something that the court can rely upon as evidence [3].

 

The second issue concerned the fact that one of the parties requested relief that the court noted ought to have been brought by cross-application. Absent proper procedure therefore the court    was disinclined to make any orders requested and relied on the Verch v. Weckwerth, 2014 ONCA 338 (CanLII), 2014 ONCA 338:  http://canlii.ca/t/g7zm1. [4]

 

5. Joint Accounts

 

Lowe Estate v Low, 2014 ONSC 4095 (CanLII), http://canlii.ca/t/g7xdl, additional reasons cited in: Lowe Estate v Lowe (2014), 2014 ONSC 2436, 2014 CarswellOnt 5021 (ont. S.C.J.) http://canlii.ca/t/g6kr0

 

This application concerned the contents of a joint bank account in the names of the deceased and his nephew. The dispute was about whether the money became estate funds and under the control of the executors as of the date of death, or alternatively was available for distribution according to the instructions of the deceased.

 

The decision of the court finding that the contents of the bank account did not pass to the estate on death, noting that the joint account holder set up a trust for the appropriate beneficiaries as directed by the deceased.

 

The parties were not able to agree on costs.

 

As such, the court addressed the costs and found that the respondent was entitled to receive $10,000.00 that had been paid into court as security for costs, and the balance was payable by the applicant. Pursuant to a set off however, monies were credited to the applicant for the balance of the costs ordered. In summary, there was an order that the applicant pay the partial indemnity costs of the respondent

 6. Ali v. Fruci [5]

 

Ali v. Fruci, 2014 ONCA 596 (CanLII)

 

Ontario Court of Appeal: Plaintiff in Will Challenge Case Deserves Her Day in Court Despite "Inordinate" Delay Recently, in Ali v. Fruci,[6] the Court of Appeal set aside a motion judge's dismissal of a will challenge claim for delay.  The Court found that there was no "real or actual" prejudice to the defendants' right to a fair trial despite a finding of inordinate delay. The history of the action and the Appeal decision are discussed below:

 

History

 

In February of 2008 the plaintiff commenced a claim contesting two wills executed by her aunt who had passed away in 2007. The aunt had made three wills between 1998 and 2003, with the plaintiff named as the executor and residual beneficiary of the first will. The second and third will replaced the plaintiff with the defendants in the claim, a close friend of the deceased and the deceased's grandnephew. The action alleged that the deceased lacked testamentary capacity and was unduly influenced when she made her second and third wills.

 

All pleadings were completed in the action in August of 2008. Since that time no steps in the action were taken, except for some disclosure of documents in October 2011.

 

The Dismissal Motion

 

In September of 2013 the defendants moved under Rule 24.01(1)(c) of the Rules of Civil Procedure to dismiss the action for delay. Finding that the plaintiff's delay was both unreasonable and inexcusable, and that the delay prejudiced the defendants' right to a fair trial, the motion judge dismissed the action.

 

The Appeal

 

The Court confirmed the three-part test for dismissing an action for delay. On such a motion the defendants had to show:

1. The delay was inordinate or unreasonable;
2. The delay was inexcusable; and
3. The delay gave rise to a substantial risk that a fair trial of the issues in the litigation would not be possible.

For the first two parts of the test, the Court of Appeal deferred to the motion judge's findings that the delay was inordinate or unreasonable and inexcusable.

 

However, the Court of Appeal did not agree with the motion judge's conclusions for the third part of the test which focuses on whether a defendant's ability to put its case forward on the merits or have a fair trial is prejudiced by the delay. The motion judge found both presumed prejudice (which is inherent in a long delay) and actual prejudice to the defendants' right to a fair trial.  The Court of Appeal found that there was some presumed prejudice, but no actual prejudice, which was needed to dismiss the case:

 

[A]lthough the length of the delay was inordinate (and much of it was not adequately accounted for), this delay was not so inordinate that the respondents could rely on presumed prejudice alone to show that their right to a fair trial was substantially at risk. To deprive [the plaintiff] of her day in court, of a trial on the merits, the respondents had to show that they would actually be prejudiced by the delay. The motion judge did find actual or real prejudice but in our view that finding was unreasonable and cannot stand.[emphasis added][2]

 

The defendants had argued that they were prejudiced because two of the professionals who might have given evidence on the issue of the deceased's testamentary capacity had died (the lawyer who drafted the wills and one of the testator's doctors). However, as the Court of Appeal observed, two of the deceased's doctors were still alive, and available to testify, and there was "considerable documentary evidence to shed light on [the deceased's] capacity at the time she made the two wills challenged in this litigation." This evidence included the lawyer's files and a number of medical reports, one of which spoke directly to the deceased's capacity at the time she made her second will and a psychiatric assessment.

 

The Court set aside the motion judge's dismissal but stated that it was "imperative" that the action proceed promptly. Interestingly the Court awarded the plaintiff her costs for the appeal but awarded no costs for the motion.

 

7. Leibel v. Leibel 

 

2014 CarswellOnt 11102, 2014 ONSC 4516, http://canlii.ca/t/g8lzn

 

When It's Really Just Too Late...Finally, Clarity on Will Challenge Limitations

 

In a decision issued August 12, 2014, the Honourable Madam Justice Greer issued a decision on the issues of limitation periods, as well as estoppel, in will challenges.  The decision provides much-needed clarity on the topic of limitation periods in estate matters.

 

The estate in question was that of Eleanor Leibel.  Eleanor died on June 4, 2011, having executed two wills on April 9, 2011.

 

Her son Blake Leibel sought to challenge one of the wills.  He only took steps to do so, however more than two years after Eleanor's death.  On September 5, 2011, Blake commenced an application seeking a declaration that one of the two 2011 wills was invalid on the basis of incapacity and undue influence. 

 

The estate trustees and corporations in which the deceased had interests brought a motion asserting that Blake's will challenge was out of time and statute-barred.  They also argued, in the alternative that Blake was estopped from bringing the will challenge by virtue of the equitable doctrines of estoppel by convention and estoppel by representation.

 

In the time following his mother's death, and before commencing his application, Blake had taken various concrete steps in respect of the estate, including receiving funds and undertaking complicated corporate transactions.  He received $1.7 million from the proceeds of sale of a house his mother had left to him in one of the April 2011 wills.  He also obtained legal advice on those monies and arranged to lend some of the further proceeds of sales of the house to one of the deceased's corporations.  He further selected and received items of personal property from the estate.

 

On the issue of the two-year limitation period, Blake took the position that there is no limitation period in respect of will challenges, and even if there is one, that the will challenge had been brought within the requisite time period. 

 

In support of his application and its timing, Blake asserted that despite his conduct in co-operating with the estate trustees, he had at no time told the estate trustees that he would not bring a will challenge, nor had he signed any acknowledgment that the two 2011 wills were valid. 

 

On the issue of the limitation period, Greer J. held that the date of death was the date on which the limitation period started running.  Importantly, she noted that Blake had all the "material facts" necessary to commence proceedings as of July 2011, one month after Eleanor's death.

 

Greer J. pointed to the clear wording and purpose of the Limitations Act, 2002 which sought to set restrictions on when parties can commence proceedings. 

 

Justice Greer clarified that the limitation period starts to run on the date of death:

 

[36] Since a Will speaks from death, namely June 4, 2011, Blake's Application is out of time under the Act.  No steps were ever taken by Blake to extend the period under the Act.  All Blake's actions and his receipt of the proceeds of various bequests to him, were steps which said to the Estate Trustees that Blake accepted the terms of the 2011 Wills.[emphasis added]

 

Justice Greer wrote in part, in response to Blake's argument that there is no limitation period in will challenges:

 

 

As a result, the will challenge was found to be statute-barred.

 

Having ruled on the issue of the limitation period, Madam Justice Greer turned to the question of whether Blake was estopped by his actions from bringing his will challenge.  Greer J. set out the criteria for both estoppel by convention and estoppel by representation. Noting that Blake had worked co-operatively with the estate trustees on the basis of the 2011 wills, and that he took absolutely no steps until September 2013 to indicate his opposition to the will(s), Justice Greer found that Blake was estopped from challenging the will on the basis of both estoppel by convention and estoppel by representation.

 

And thus, Blake's challenge of his mother's will was dismissed, first on the basis that it had been brought out of time, and also because his conduct in receiving monies and co-operating with the estate trustees precluded him, late in the process, from challenging the will.

 

The decision is helpful in addressing the sometimes murky issue of limitation periods in will challenges and clarifying that the two-year limitation period under the Limitations Act, 2002 applies.  Two years from the date of death then, ends the limitation period in most will challenges.

 

As for estoppel, the decision stands for the principle that a beneficiary may not be able to challenge a will after having benefitted under its terms and taken no steps to otherwise indicate his or her objections to the will.

 

The message is clear: The Limitations Act¸ 2002 and the equitable doctrine of estoppel set out limits on proceedings that beneficiaries can bring.  Beneficiaries ought to act in a timely manner if they wish to challenge a will, and may face hurdles in challenging a will after having benefitted from and appearing to comply with its terms.

 

8. Legal Comment by Mark Handelman

 

Death is rarely a happy event and when a favourite celebrity passes, we all mourn together.  Joan Rivers passed today after a week in intensive care following cardiac arrest during what was supposed to be a routine medical procedure.  "Cardiac arrest" means your heart stopped pumping blood.  Without blood, cells die.  If the stoppage is short enough, perhaps no damage is done, but otherwise, parts of the body begin to die.  The longer the arrest, the more damage.  And, the brain is the most vulnerable part of our body to cardiac arrest.

How much brain damage is too much?  If I just lose the use of an arm, or lose the ability to speak clearly, I probably want to be kept alive.  But, what if I'm reduced to a vegetative or minimally conscious state?  Or worse?

When I litigate "end of life" cases, whether acting for a physician or the patient's family, the probable cause of the need for litigation is failure of the patient to have had discussions with his or her surrogate decision-makers about when to say, "enough!"  Some families become convinced that they are "saving" Dad when if asked, Dad would have said, "Let me die in peace with my dignity intact."  it is a highly personal decision that, failing family discussion, leaves loved ones in torment long after Dad's passing.  It is unfair both to Dad and to his family.

While these are difficult conversations for a lot of people to have, not having them opens the prospect of having to make far more difficult decisions without all available information.  The simple fact is, your loved ones won't know your wishes, values and beliefs unless you tell them.

And, as Ms Rivers' passing teaches, death is not always predictable.  Perhaps you should honour her memory by using her death to open this conversation with your own family?

[6] 2014 ONCA 596.

[7] 2014 ONCA 596 at para.17.

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