Wealth Preservation 2016
I. Introduction
This paper focuses on British Columbia developments in the estate litigation area since the last Wealth Preservation CLE covering this topic in 2012. With the Wills Estates and Succession Act SBC 2009, c. 13 ( WESA) coming into force on March 31, 2014, there are some interesting developments, but frankly there have not been very many cases dealing with the new provisions at this point. This paper will also review the trend of our Courts in dealing with wills variation actions and cases dealing with incapacity. It should be noted that this paper does not cover every estate litigation case since 2012, rather it is just a sampling of some cases the author considered significant or interesting.
II. WESA
A. Testamentary Instrument
The first reported decision dealing with section 58 of WESA is Re: Young Estate 2015 BCSC 182. The Deceased’s Will included a clause that her personal effects were to be dealt with in accordance with a written memorandum. The executor could not find a memorandum but did find two documents on the Deceased’s dining room table in her home that were dated four years after the Will was made disposing of her personal property. The executor applied to court to determine if these documents ought to be admitted to probate. The Court referred to section 58 of WESA and considered authorities from other provinces. The Court held that one document could be admitted to probate as it was signed by the Deceased and stated that it was prepared “in advance of death”; as well, the Deceased had given a copy of the document to her friend and asked her to help ensure the beneficiaries listed in the document would receive the items. The Court was satisfied the document represented the Deceased’s testamentary wishes as it contemplated distribution of property to specific beneficiaries; it employed language that conveyed an air of finality; it was signed the Deceased (suggesting knowledge and approval); was kept in a place where it would be found and a copy was given to a third party. The other document had been made about four months after the first document but was not signed and no copies were distributed. The Court held this was not to be admitted to probate as it was merely an expression of non binding wishes.
Another case dealing with WESA section 58 is Re: Yaremkewich Estate 2015 BCSC 1124. Here the Deceased signed a stationers will kit Will and put it in an envelope along with three handwritten documents. The Will had handwritten terms to “see attached instructions” and “see attached for other bequests”. One of the other documents was a list of bequests of personal effects. The second document was a list of charitable bequests to be distributed from the “remaining money from estate”. The third other document was a list of instructions for the care of the Deceased’s dog. The witnesses to the Will testified there were no other documents attached to the Will when they signed it. The Court found that the Will did not comply with the formalities to make a valid Will as set out in WESA because the Deceased did not sign the Will in front of the witnesses. Because there was no valid Will, the other documents could not be incorporated into it. The Court then went on to consider whether WESA section 58 could save the Will and other documents. The Court considered various Manitoba decisions and Re: Young Estate in an attempt to determine her testamentary intent. The Court considered: the contents, the detailed wording, the circumstances in which the documents were found, the fact the Deceased was ill at the time and putting her affairs in order, the Deceased had told the witnesses that other specific bequests were going to be added, she used a Will template, the documents evidenced she had put a great deal of thought into them, there was nothing to suggest they were “draft” documents, they were all written by the Deceased, whether or not there were any suspicious circumstances or evidence this was not her testamentary intention. The Court concluded that the other documents were made shortly after she made her Will and that the Deceased intended them to operate along with her Will. The Will and the list of personal bequests and the list of charitable bequests were treated together as her Will and admitted to probate. The list of care instructions for her dog was not a testamentary intention and not admitted to probate.
B. Common Law Spouse
Section 2(1)(b) of WESA includes in the definition of a spouse, including a person in a marriage-like relationship with the deceased for at least two years. The Court in Re Richardson Estate 2014 BCSC 2162 considered whether WESA had changed the criteria to determine whether a person was a common law spouse. The Court concluded that the prior factors as set out in the leading cases of Molodowich v Penttinen (1980) 17 RFL (2d) 376 (shelter, sexual and personal behavior, services, social, societal, support and children) and Austin v. Goerz 2007 BCCA 586 still are applicable. In this case, the fact the parties had two residences was not enough to negate a finding they were common law spouses.
C. Notice Of Dispute
In Re: Dow Estate 2015 BCSC 292, the Court allowed a person who was a beneficiary under a prior Will (but not the last Will) of the Deceased, to be added to the class of persons entitled to receive the form of Notice of an application for a grant of probate, in order for that person to file a Notice of Dispute, as Probate Rule 25-10 (1) suggests only persons that are entitled to Notice of the probate application may file a Notice of Dispute.
The Court in Re: Richardson Estate 2014 BCSC 2162 referred to above, also dealt with an application to remove a Notice of Dispute. Probate Rules 25-10 (10) & (11) allow a Notice of Dispute to be removed where it is in the best interests of the estate. The Court determined that this is a different test than the old situation of cancelling a probate caveat. In this case, since the Court decided that the applicant for administration was the common law spouse, the Notice of Dispute of a more remote next of kin (the Deceased’s brother) was removed so to allow administration to be granted to the surviving spouse.
III. Wills Variation
This part of the paper shall review some of the wills variation cases since 2012. This is not a comprehensive review of every wills variation case since 2012. After some general comments, this paper reviews some developments in areas related to wills variation claims in B.C..
The conclusion from all of the wills variation cases is that clients intending to disinherit a spouse or child and insist on leaving assets to be dealt with through a Will, ought to be advised to set out their reasons in writing and that even then, there are no guarantees the reasons shall withstand a wills variation challenge. The estate planning practitioner ought to make inquiries to assess whether the reasons are valid and rational in accordance with these cases.
Note that all of the wills variation cases refer to Tataryn v. Tataryn Estate [1994] 2 SCR 807 and Clucas v Clucas Estate (1999) 25 ETR (2d) 175, and most refer to Dunsdon v. Dunsdon 2012 BCSC 1274, in considering the applicable wills variation principles.
Perhaps it is a coincidence, but in many of the cases in which a spouse commenced a wills variation claim, the relationship was a common law one rather than a legal marriage. One might conclude that married spouses tend to get proper planning advice and make better provision for their spouse. Possibly common law spouses do not often appreciate their legal obligation to provide for their spouse. This suggests an opportunity to educate our clients that are in common law relationships.
A. Executor’s Role
There is consistent, longstanding authority that an executor must take a neutral role in a wills variation proceeding. However, what if the Deceased’s Will specifically directs his executor to defend a wills variation claim and to use estate funds for that purpose (even if it depleted the whole estate)? This was the situation in Ketcham v. Walton 2012 BCSC 175, where the Deceased’s Will expressly disinherited his estranged children in favour of friends and charities. The executor applied to the Court for directions under section 86 of the Trustee Act, RSBC 1996, c. 464. The Court confirmed that the executor must be impartial and that the clause was repugnant for directing the executor to take an active role in the litigation. The Court went on to find that this clause also amounted to an “in terrorem” clause that is void as against public policy. Any clause that attempts to deny a person a statutory right (or a remedy under their right) is void as against public policy. However, the Court did direct that if there is no person actively defending the children’s claim (as the Trustee was given the power to select the residual beneficiary), the executor was permitted to use estate funds to a reasonable degree, to assist the Court as Amicus by questioning the children’s claim.
B. Privilege
Where a solicitor acts for an executrix who subsequently renounces her right to probate and brings on a WVA claim, only the portion of the solicitor’s file dealing with the estate administration is required to be produced, not the solicitor’s advice regarding the WVA claim. See: Chang v. Lai Estate 2014 BCSC 128
In Brown v. Terins 2015 BCSC 775, the Court was asked to revisit the situation where an executor/beneficiary refused to disclose the file of the lawyer involved with the preparation of the Will in order to determine what reasons the Will Maker may have had to disinherit the child claimant. The Court did not accept that there was an exception to the rule that privilege that can only be waived by the executor and refused to order production of the records relating to the reasons for making the Will. At trial, the evidences indicates that Will Maker’s reasons to disinherit his common law spouse were based on a cohabitation agreement they had entered into years before he died, but ultimately the Court varied the Will in favour of the claimant. See: 2016 BCSC 42.
C. Interim Distribution
Under section 155 of WESA, no distribution may be made, without a court order or the consent of all beneficiaries and intestate successors, for 210 days from the issuance of the grant. Where an executrix makes distributions within this time frame, alleging ignorance of the statutory provisions, the court will never-the-less order that the executrix must repay the estate or post security for the improper advances within a specified time frame.
See: Stevens v. Wood Estate 2013 BCSC 2380
If one or more of the parties to a wills variation proceeding wish to obtain an advance from the deceased’s estate, absent consent, an application can be made to court for such an order. In an application to approve a partial settlement that was opposed by some beneficiaries, the Court declined to order the payment to the settling parties. This is a matter within the discretion of the Court. The Court is concerned about the proportion of the settlement vis-a-vis the size of the estate, whether the beneficiaries will receive their gift regardless of the outcome of the plaintiff’s claim, whether the residual beneficiaries consent to the advance and whether the interests of those parties opposing the payment will be fully protected. As well, the need for funds of the party applying for the advance will be considered. The court did not wish to vary the Will prior to a hearing on the merits of the claim. See: Peverley Estate v. Peverley Estate 2014 BCSC 889
D. Deceased’s Reasons To Disinherit
While a contemporary judicious parent would distribute his or her estate equally between his or her adult independent children, it is open to the will maker to conclude a child’s conduct disentitles the child to an equal share, provided such conclusion is based on accurate and rational reasons. However, even where the Court finds a parent’s reasons to be accurate and rational, the will may be varied. In a situation where there is a large increase in value of real property given to one child since the Will was made, compared to the rest of the estate divided between the two children, the Will was varied. The Court roughly followed the percentage of the estate that the plaintiff would have received at the time the Will was made and awarded an increase to the plaintiff’s share of the residue to take into account the increase in the real property value. see: Kelly v. Bell 2012 BCSC 841
The BCSC reviewed the law regarding the will maker’s reasons in Holvenstot v. Holvenstot Estate 2012 BCSC 923. The Court held that a parent may make a list of reasons for disinheriting a child and the onus is on the child to prove the stated reasons are false. Even if the court concludes that a large number of the stated reasons are false, the court can still conclude that the remaining reasons justify disinheritance. The next question is whether the true reasons must meet a test of whether the disinheritance meets an objective standard of what a judicious parent would do in those circumstances. While there were a number of trial decisions indicating that the objective standard was the test, the trial judge noted that the Court of Appeal in Hall v Hall Estate 2011 BCCA 354 seems to ignore this and only consider whether the reasons were true and logically connected to the act of disinheritance. The trial Judge stated that for the test in deciding whether a will maker’s reason is rationally connected to the decision to disinherit, it is enough that judicious parent could (not “would”) have made that decision based on the true reasons. In other words, the court does not need to decide the reasons are objectively justifiable. The Court also dealt with the issue of whether a will maker may change her mind after the reasons were recorded such that she no longer wanted to disinherit her child. In this case, the findings of fact were that she did not change her mind. The plaintiff’s action was dismissed.
Practitioners ought to be aware of the trend of our court to give effect to the will-maker’s stated reasons and that the claimant has the onus to prove the reasons are not valid and rational.
E. Resulting Trust Situations Within A Wills Variation Claim
There are two cases illustrating the relationship of a resulting trust claim in a wills variation proceeding. In McKendy v McKendy 2015 BCSC 2433, the deceased placed real property in joint names with her son. The Court held that the transfer was not intended to be a gift but rather was held on a resulting trust for the estate. However, the result of this was that the son now had a good wills variation claim since the will left him nothing because he was to get the property as the surviving joint tenant, and so the Will was varied in his favour.
In Beam v. Mills Estate 2015 BCSC 1269 a transfer of real property to one daughter was challenged on the basis of resulting trust, undue influence and as a fraudulent conveyance, but all attacks failed. In the result, the deceased’s Will was varied in favour of the Plaintiffs such that the bequests to the same daughter under the Will were deleted.
F. Agreement or Estoppel
This paper will deal with the fraudulent conveyance aspect of Mawdsley v. Meshen 2012 BCCA 91 separately. However, one interesting wills variation concept arising from this case is the extent to which a wills variation claimant may be limited in their relief because the claimant participated in the formulation of, and agreed to, the estate plan. The Court here found that the plaintiff had fully participated in the aspect of the plan whereby the deceased arranged to divest herself of her assets via jointures and an alter ego trust. The Court held that the plaintiff spouse was not entitled to set aside these transactions; in effect, that the plaintiff, by his participation and agreement to the estate plan was estopped from his claim. The plaintiff did not participate in discussing the details of the deceased’s will, so the same argument could not be made about the Will. The Court awarded him the residue of the estate in his WVA claim (which was much smaller than he hoped for, given that the deceased’s other estate planning withstood the challenge).
While our courts have consistently held that a person cannot contract out of their statutory wills variation rights (at least until the deceased has died), in an appropriate situation where it is clear that a claimant has fully participated in the will planning (for example, in a Mutual Will situation), a court may well deny a claimant relief on the basis of estoppel.
An interesting development in the US is the use of Family Harmony Agreements. These are documents created as a result of a family meeting whereby the parents and children have a full and frank discussion about the parents’ estate plan. Everyone then signs a Family Harmony Agreement. This would be particularly useful in situations where there is a step parent and children from a different relationship. A third party mediator may be employed to assist the parties to come to a resolution. It may be that independent legal advice would be required to give effect to the document in B.C., and one would expect that if there was not full disclosure or if there was a radical change in circumstances, the court would not enforce the agreement. However, even if the agreement was not strictly enforceable, there is a much stronger likelihood that no claims would be made if the plan is carried out based on the moral commitment of the parties to hold to their agreement.
G. Summary Trial And Late Life Marriage
The case of Kish v. Sobchuck 2016 BCCA 65, a five judge bench of the Court of Appeal, is very significant, perhaps less for the issue of dealing with wills variation claims via summary trial than as an indication of the Court’s view of claims by common law spouses in later life relationships where they wanted to keep their affairs apart from each other and benefit their children from prior relationships. Their Wills made no provision for each other. The deceased made a written WVA statement that he was not leaving anything for the plaintiff because she had their own assets and he had contributed to her property and it was more important to provide for his daughter who was a single mother.
One concern is the comment by the Court that, because the plaintiff was suffering from dementia and resides in a care facility “where, one assumes, her care is paid for by government in large part or completely” it was “doubtful that any award from the testator’s estate will be of any real benefit to her.” If this is an inferred reference to imposing a “needs” test, this is a huge change in direction. The Courts have often commented that what is required is a provision in a Will that is adequate, just and equitable based on legal and moral obligations, not just financial need. It may suggest a bias against persons with dementia who may be residing in government subsidized facilities. The Court does not refer to any evidence as to how a person in a care facility could benefit from extra funds, so if such evidence is presented in future cases, we may have a more definitive answer on this point.
With respect to the summary trial, the issue requiring the consideration of the five member bench, was, what was the standard of review on appeal (as the will variation legislation allows the court of appeal discretion to review a trial judge’s findings). The Court concluded that the trial judge’s exercise of discretion may be reviewed without deference, but all findings of fact (whether from oral testimony, affidavits or documents) are to be given deference, subject to the standard of finding a palpable and overriding error.
The evidence was that even with a bare bones existence, the plaintiff’s expenses exceeded her income by about $5,000 per year. The trial judge awarded the plaintiff $100,000 out of an estate worth $186,000 which had been left to the deceased’s daughter under his Will. The court found that the daughter had received about $250,000 from the deceased outside of his Will.
The court of appeal considered that the plaintiff’s house could be rented or sold and the proceeds invested in order to make up the shortfall in her income. As noted previously, there does not appear to have been any evidence as to how the plaintiff could benefit from additional funds, leading to the conclusion of the Court is that there is little that can be done to increase her enjoyment of life. While the Court states that the purpose of the WVA is not to enable a plaintiff to build up an estate of her own but to ensure she is adequately maintained, this ignores the cases where the Court has made awards in favour of a plaintiff who died after the deceased and the award can only serve to build up a plaintiff’s estate. The analysis in those cases focussed on whether adequate provision was made for the plaintiff, at the time of the deceased’s death.
The Court considered the contemporary community standards where this was a late life marriage after each had been self-supporting and had children and where they kept their finances separate. The deceased’s estate was approximately equal to the plaintiff’s assets but this ignores the funds the deceased’s daughter received outside of the estate. The Court gives more emphasis to the interest of testator autonomy in a non traditional marriage situation than past decisions dealing with traditional marriages. The Court did not want to ignore the wishes of both parties to benefit others on their deaths.
The Court also considered the relative size of their estates and what legal support obligation the deceased had if they separated and concluded adequate provision was not made for the plaintiff. However, considering the parties wishes, their circumstances and the principle of testamentary autonomy, the award was reduced to $30,000.
H. Costs
This claim was brought by a person claiming to have been adopted by the deceased in a foreign country, based on the culture of the country. A number of lawyers had advised the plaintiff that a wills variation claim was bound to fail because unless he could prove a valid adoption by the deceased, he had no standing as a child of the deceased. However, the plaintiff found a lawyer that advised him it would succeed based on the idea that he might find expert evidence from the foreign country to prove a cultural adoption was legal and so the action was commenced. The claim was dismissed at a summary trial as the plaintiff lacked standing as he could not prove he was a legal child of the deceased. Given there was no hope that the plaintiff could have succeeded with wills variation claim, the Court ordered that the plaintiff pay special costs of the defendants. The Court was critical of the conduct of the plaintiff’s counsel, but adjourned the application that he personally pay the costs, so he could get independent representation. See: Saran v. Saran 2015 BCSC 1865
IV. Fraudulent Conveyances
The 2012 CLE course dealt with the trial and appeal in Mawdsley v. Meshen 2012 BCCA 91, in detail. Since that time, the application to the Supreme Court of Canada for leave to appeal was refused: 2012 CarswellBC 2613. Therefore we are left the BC Court of Appeal as the most definitive word on the fraudulent conveyance topic in the context of a wills variation situation.
The Plaintiff was the common law spouse of the Deceased. While the Deceased was ill, shortly before her death, she arranged her affairs using various estate planning tools, including the creation of jointures, gifts, a will and an alter ego trust. The Deceased had a successful garden supply business that she inherited from her prior spouse and built up by the efforts of herself and her family. Part of her planning included the transfer of the company shares of the business into the alter ego trust. The Plaintiff challenged the Will and transactions on the basis of lack of capacity and undue influence (which were dismissed at the end of the Plaintiff’s case) and claimed unjust enrichment for services rendered to the business (which were found to be insignificant) and under the Wills Variation Act. In order to bring assets back into the deceased’s estate, he claimed the transfers to the alter ego trust were void due to the operation of the Fraudulent Conveyance Act. The Plaintiff lost his unjust enrichment claim and his FCA argument at trial but the will was varied to give him the residue of the estate (which was not much).
The Plaintiff appealed the issue of the FCA. The Court of Appeal dismissed the appeal. The Court held that with respect to the question of “intent” under the FCA, that while a claimant need no longer show a “subjectively dishonest or fraudulent state of mind” on the part of the transferor, the claimant must prove an intention to defeat creditors or others as a matter of fact. Of course, such an intention may be inferred from all the circumstances, and the well-known “badges of fraud” are often resorted to for this purpose, creating a presumption of fraudulent intent. But the presumption is rebuttable, and merely proving that the effect of the transfer is to hinder or delay creditors or others is not, as a matter of law, sufficient. The Court of Appeal upheld the trial Judge’s findings of fact that the Deceased entered into her estate plans without the intention to defeat the Plaintiff’s WVA claim but rather for other reasons (to save probate fees and to protect her children by trusts for their lifetimes).
V. Cases Involving Incapacity Related Issues
A. Medical Care Directives
A case that has garnered media attention in the past year is Bentley (Litigation guardian of) v. Maplewood Seniors Care Society 2014 BCSC 165 , 2015 BCCA 91. Mrs. Bentley is a former nurse who is suffering from the final stages of Alzheimer’s Disease (being non-communicative and unable to recognize anyone) and residing in a long term care facility. She is being kept alive by the facility staff spoon feeding her. Her husband and children applied to Court to have the facility stop feeding her in accordance with her pre-expressed wishes. Prior to the proclamation of the adult guardianship legislation in 2000, Mrs. Bentley had made a Living Will that contains language commonly found in Living Wills, such as, “not wishing to be kept alive by artificial means” and “no heroic efforts made to keep me alive”.
The Court found that there was ambiguity in the words chosen by Mrs. Bentley and that these terms would not amount to a refusal of consent to the care facility as spoon feeding was neither artificial or heroic. The Living Will was not a Representation Agreement nor an Advance Directive, as the proper forms and execution processes were not complied with. Even if it was considered to be an Advance Directive, this would be irrelevant anyway, since the Court held that Advance Directives cannot cover personal care matters and feeding was a personal care, rather than a health care, matter. The chambers judge concluded that by opening her mouth and swallowing, Mrs. Bentley was consenting to be fed (although there was a contrary opinion from her doctor that her reaction was not a conscious but merely reactionary).
There is a concern arising from the Court’s obiter dicta comments that not feeding a person would amount to abuse or neglect under the Adult Guardianship Act. If that is the case, then even a legal Representative under a valid Section 9 Representation Agreement dealing with all personal and health care, or a court appointed committee of person, could not make a decision to withhold feeding.
This decision was appealed on the issue of whether the facility’s action in spoon feeding Mrs. Bentley amounted to battery. The Court of Appeal held that as a result of the finding by the chambers judge that Mrs. Bentley consented to the feeding, there could not be a battery. The Court also confirmed that the onus of proof is on a person trying to establish a lack of capacity, i.e., capacity is presumed.
B. Termination of Representation Agreements
Practitioners dealing with committee applications should watch out for section 19(b) of the Patient’s Property Act. This provides that once a person is declared incapable and a committee is appointed for the person, the person’s Representation Agreement is automatically terminated, unless the Court orders otherwise. This is also the case where the Representation Agreement only dealing with health and personal care, was made many years before the Patient’s Property Act application, which only declared the person incapable of managing his estate (i.e. his financial and legal affairs). See Re: Clay 2016 BCSC 261. The answer is to raise this issue with the Court at the time of the committee application and have evidence to support whether or not the Representation Agreement should continue, so the court can rule on whether the Representation Agreement ought to continue.
C. Medically Assisted Death
In Carter v. Canada (Attorney General) 2015 SCC 5, the Supreme Court of Canada held that sections 14 and 241 of the Criminal Code unjustifiably infringe on section 7 of the Charter, to the effect they prohibit the medical assisted suicide of a person who consents to the suicide and who has a grievous and terminal medical condition that causes intolerable suffering. The Court’s declaration of invalidity was suspended in order to allow the Federal and or Provincial Parliaments an opportunity to draft legislation to comply with this decision.
The Federal government has now introduced Bill C-14, An Act to Amend the Criminal Code, which will allow a person to have medical assistance in dying. It proposes that the person must use a doctor or nurse for assistance in dying, but that others involved would also avoid prosecution. In order to qualify, a person must be eligible for Canadian health services, be at least 18 years old, have a grievous and irremediable medical condition and their death is reasonably foreseeable, make a voluntary request for medical assistance in dying and be capable of giving informed consent (both at the time of the request and the time of the administration). There are proposed safeguards including the requirement of two independent witnesses to the person’s signature on a written request, at least one other medical practitioner confirms that the person meets the criteria, there are 15 days between the request and the administration (which can be shortened if the person may lose capacity before then) and immediately before administration, the person gives express consent to receive medical assistance in dying.
As an interim measure, the Chief Justice of the B.C. Supreme Court has issued directives to allow for a person to apply to Court for an exemption from the provisions of the Criminal Code to allow the person to obtain physician assisted suicide. The first B.C. case using the exemption application resulted in some clarification of the confidentiality of the process and subsequently a determination that the applicant met the criteria set out by the Supreme Court of Canada in Carter based on affidavits filed by the applicant, the applicant’s spouse, the applicant’s family doctor and the doctor who agreed to assist in the suicide. Re: A.A. 2016 BCSC 570.
VI. Conflict of Interest
A. Acting For Multiple Parties
A recent decision from the Ontario Court of Appeal is a warning to estate planning practitioners. In Roth Estate v Juschka 2016 ONCA 92, the “family” lawyer acted for all parties in a family wealth transfer plan. The parents and their daughter and son-in-law all owned shares in a family grocery business, in which they all were working. The parents wanted to retire from the business, but still needed some income. A share transfer arrangement was agreed upon by the parties whereby the parents’ shares would be transferred to the daughter and son-in-law in exchange for a percentage of the profits (50%) from the business being paid to the parents for their lifetimes for consulting services. As well, an interest bearing promissory note for the value of the shares was granted by the daughter and son-in-law to the parents, that was payable on demand or in forty years or if the business was sold. The was an unwritten understanding that payments for the consulting services would reduce the debt and that any balance owing on this PN would be forgiven in the parent’s Wills upon their death. The lawyer and accountant felt these terms of forgiveness and reduction of the debt could not be incorporated into the documents because of concerns over how CRA would treat the arrangement. The “family” lawyer acted for all parties, but admitted that the deal was directed by the father.
The arrangement carried on for a number of years with the daughter and son-in-law running the business but making large payments to the parents who were no longer involved in the operations. They expanded the business by involving a large grocery chain who provided financing. The business was not able to generate enough income after the payments to the parents, to sustain the daughter and son-in-law, so they had to sell the business to the large grocery company and stop the payments to the parents. The father died and the mother sued for payment of the PN as the business was sold.
The Court held that the loan had to be paid by the daughter and son-in-law, but that they were entitled to recover the amount they had to pay from the lawyer. The basis of the lawyer’s liability was that he owed a fiduciary duty to all of his clients. The lawyer failed to recognize the potential conflict of interest between his clients and failed to raise this with them and have all of his clients consent to his acting for everyone and failed to recommend independent legal advice. As well, not ensuring that the loan forgiveness provisions were enforceable, was breach of the standard of care he owed to his clients.
B. Law Society Practice Code
Effective in 2013, the Law Society of B.C. has developed the Code of Professional Conduct for British Columbia. In many cases, the Code states a simple rule, but then includes an extensive Commentary and Annotations, which often raise practical examples. Estate planning practitioners should note in particular the following sections: 3.2-9 Clients with diminished capacity; 3.4 Conflicts; 3.4-2 Consent; 3.4-5 Joint retainers; and 3.4-37 & 38 Testamentary Instruments and Gifts.
The Commentary for Joint Retainers includes the following in relation to Wills:
“[2] A lawyer who receives instructions from spouses or partners to prepare one or more wills for them based on their shared understanding of what is to be in each will should treat the matter as a joint retainer and comply with rule 3.4-5. Further, at the outset of this joint retainer, the lawyer should advise the spouses or partners that, if subsequently only one of them were to communicate new instructions, such as instructions to change or revoke a will:
(a) the subsequent communication would be treated as a request for a new retainer and not as part of the joint retainer;
(b) in accordance with rule 3.3-1, the lawyer would be obliged to hold the subsequent communication in strict confidence and not disclose it to the other spouse or partner; and
(c) the lawyer would have a duty to decline the new retainer, unless:
(i) the spouses or partners had annulled their marriage, divorced, permanently ended their conjugal relationship or permanently ended their close personal relationship, as the case may be;
(ii) the other spouse or partner had died; or
(iii) the other spouse or partner was informed of the subsequent communication and agreed to the lawyer acting on the new instructions.”
Estate planning practitioners need to incorporate these concepts into their practise and retainer agreements.