Who Pays the Legal Costs of a Dependant’s Relief Claim?


Written on October 14, 2014 – 6:00 am | by Angela Casey

My colleague, Diane Vieira, recently blogged about the Divisional Court’s decision in Quinn v. Carrigan.  While she highlighted what the case had to say about the proper approach to determining dependant’s support, the case is also instructive on who should bear the costs of a dependant support application.

Prior to McDougald Estate v. Gooderham and Salter v. Salter Estate (in which Justice Brown notoriously warned estate litigants that an estate is not an ATM from which they may freely draw cash to pay their legal fees), there was a prevailing assumption that costs in Ontario estate litigation would typically be paid out of the estate.  However, it has been clear for a number of years now that parties in estate litigation face the same risks as any other Ontario litigant: if you end up the loser in the litigation, you risk being ordered to pay some or even all of the winner’s legal fees, depending on how unreasonable the judge determines your position to have been.

An important exception to the “loser-pay” principle was highlighted in the Gooderham decision.  That is, where litigation was the “fault” of the testator, then the costs of the litigation should presumptively be paid out of the testator’s estate.  In Carrigan, the Divisional Court confirmed that where a testator fails to adequately provide for one of his dependants in his will, then it will be appropriate that the reasonable costs of an ensuing dependant support application be paid out of the estate.  In Carrigan, the Court wrote that “the fault for the litigation lies squarely on the shoulders of Ron Carrigan, who could have taken the steps necessary to arrange his legal affairs before his death…the failure to organize his affairs to provide adequately for Ms. Quinn was his failure alone.”

I do not think that many who practice estate litigation in Ontario would be surprised at this proposition.  However, the Divisional Court in Carrigan confirmed that this may not end the analysis.  If parties in dependant support litigation take unreasonable positions that tend to increase the costs of litigation, then those parties risk having their cost award reduced by the costs attributable to their “bad behavior” as litigants.  Thus, the Court found in Carrigan that “although the genesis of this dispute arises from Mr. Carrigan’s failure to arrange his affairs properly, Ms. Carrigan and Ms. Quinn also bear significant responsibility for the way in which this litigation has unfolded. There has been some intransigence on both sides.”

The Divisional Court found that neither Ms. Quinn (the claimant), nor Ms. Carrigan, acting on behalf the estate, was without fault:

  • Ms. Carrigan acted unreasonably by refusing to provide information about estate assets to Ms. Quinn and requiring that Ms. Quinn accept an offer to settle without full information about the estate’s assets.
  • Ms. Quinn unreasonably tried to re-argue an aspect of the dispute that had already been determined by the Court of Appeal.
  • Ms. Carrigan disputed factual issues which should have been conceded, arguing that Ms. Quinn was not a “real spouse” and denying that she and Mr. Carrigan had ever separated.
  • Ms. Quinn spent an inordinate amount of court time trying to establish misconduct in the administration of the estate by Ms. Carrigan; the Court found that those issues “occupied an undue amount of time at trial relative to their significance.”

As a result, the Divisional Court held that each side should receive only partial indemnity costs out of the estate.  To the extent that each party incurred costs in excess of the partial indemnity costs awarded, those additional costs were to be borne by each party personally.

The take away from the Divisional Court is that even if dependant support litigation begins because of the fault of the testator, parties have a responsibility to litigate proportionately, to avoid litigious behaviour which tends to exacerbate, as opposed to resolve, the issues between them, and to avoid unreasonable positions.  They may face cost consequences if they fail to meet these expectations.

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    Tax Treatment of Monetary Inheritances


    Written on October 10, 2014 – 7:00 am | by Derek de Gannes

    Do you ever wonder why things are the way they are? Someone does and that someone recently asked the Canada Revenue Agency why inheritances are not taxable.

    Although the questioner was told by his or her accountants that inheritances are not taxable in Canada, they asked the Canada Revenue Agency (CRA) to reply with details of the specific legislation that carves out inheritances. In their response the CRA confirmed that the Income Tax Act does not contain any provision stating that inheritances are not taxable. However, the CRA did confirm their general position as set out in in paragraph 4 of Interpretation Bulletin IT-334R2, Miscellaneous Receipts, that is, recipients do not have to pay tax on most gifts and inheritances, also known as voluntary transfers of real or personal property without consideration.

    You should know that like transfers in other jurisdictions are not tax-free. Another example of how much there is to be thankful for in Canada.

    Happy Thanksgiving and thanks for reading.

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      SEPARATED COMMON LAW SPOUSES DON’T BENEFIT FROM ROLLOVERS – THE SEQUEL


      Written on October 9, 2014 – 8:30 am | by Corina Weigl

      In my last blog, Who Knew There is a Benefit to Having Two Spouses, I spoke of the ability to benefit from a rollover for income tax purposes in respect of property that passes to two different individuals, each of whom qualifies as the spouse or common-law partner of the deceased taxpayer. Subsequent to that blog I received several responses from readers providing me with additional food for thought on this topic.

      Spouse is not defined in the Income Tax Act but is taken to mean married. Common-law partner is defined in ss. 248(1) of the Income Tax Act. Unless otherwise specified, spouse entitlement remains, even if separated, as long as the spouses are not divorced. But for the common-law partner, being separated can be significant when it comes to rollovers.

      One reader, a senior practitioner within a financial institution, noted for common law partners, being separated will result in the lack of any rollover in circumstances where a rollover might still have been available to a separated but not divorced spouse.

      When spouses or common law partners are engaging in property transfers to settle their property rights as a result of relationship breakdown, in the event one of them dies before this is completed, the breakdown rollover will not be available. Specifically, Canada Revenue Agency has commented that the breakdown rollover is only available where the annuitant transferee and the spouse/partner transferor are living. See Technical Interpretations 2011-0418821E5.

      However, a surviving married spouse can receive property under the death rollover, even if they were separated from their deceased spouse. For spouses, if the breakdown rollover was intended but not completed before death of one of the spouses, it might be possible to still utilize the death rollover. This is not the case for common law partners. Where two common law partners have separated, their relationship will have ended such that they no longer qualify as common law partners under the Income Tax Act when one of them dies. As a result, the death rollover is not available for a transfer of property to an individual who was a common law partner but was separated from the deceased taxpayer before death.

      The upshot is that in the event of relationship breakdown among common law partners, it is important that property settlements occur quickly if the tax treatment of the rollover is an important component of the agreement. The unexpected death of one of spouses or partners before the transfer from one plan to the other occurs, means the financial institution cannot process a transfer of a registered plan to a surviving spouse or partner on a breakdown rollover basis. And for separated common-law partner survivors, the deceased’s estate cannot use the death rollover because the separated surviving partner does not qualify for it. So the surviving separated common-law partner can access neither the breakdown nor the death rollover.

      Corina Weigl

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