This article was co-authored with Ronald Neal, student-at-law.
A centuries’ old practice gives personal representatives one year after the death of a deceased to wind up the deceased’s estate (calling in assets, paying estate debts, converting assets to enable distribution of the estate, etc.). This is often called the “executor’s year”. However, in today’s world, it frequently takes more than one year to administer an estate.
What happens if a personal representative does not or is not in a position to distribute the estate after the executor’s year ends? This was the issue in the recent Ontario Court of Appeal decision of Rivard v Morris.
The deceased died in October 2013. In his last will, the deceased appointed his three children (a son and two daughters) as the co-estate trustees of his estate. He left each of his two daughters specific legacies of $530,000. The deceased left the residue of his estate to his son.
After their father’s death, the sisters challenged his last will. The will challenge settled in August 2016, finding that the father’s last will was valid. The sisters were paid their respective $530,000 legacies in October 2016 (2 years after the first anniversary of their father’s death). The sisters resigned as estate trustees. They also claimed that they were owed interest at 5% per year on their respective legacies commencing on the first anniversary of their father’s death.
The application judge recognized a common law rule providing for interest on specific legacies not paid after the executor’s year ends (his Honor did not name the common law rule). Yet, the application judge exercised a discretion not to award any interest payment to the sisters. In coming to this decision, his Honor considered that (i) the sisters had been estate trustees during much of the administration period, and (ii) the sisters’ will challenge application delayed the administration and distribution of the estate. The application judge recognized that the sisters were entitled to their will challenge application. However, his Honor held that “neither sisters nor the brother should be rewarded or penalized by the passage of time”.
The sisters appealed.
The Rule of Convenience
The Court of Appeal allowed the appeal, finding that the sisters were entitled to an interest payment on their respective $530,000 legacies.
In coming to its decision, the Court noted the centuries’ old practice that estates should be wrapped up within the executor’s year. The Court also referenced the related equitable “rule of convenience” to explain that interest will accrue on specific legacies not paid after the executor’s year ends. The Court defined the rule of convenience as follows:
[…] subject to the terms in the will to the contrary, if a specific legacy of personal property, or mixed fund of land and personal property, is payable under a will but is not paid to the beneficiary by the anniversary of the death of the testator, the beneficiary will begin to earn interest on the value of the property from that date until they have received that property.
The Court also noted subrule 65.02(2) of the Rules of Civil Procedure, a provision to the same effect. However, the Court noted that this provision does not apply to all estate administration matters as it only provides for “interest on accounts taken in administration proceedings”. The rule of convenience, however, may apply even where the matter is not litigated. Both the Court and the application judge held this provision did not apply to this case as there was no notice of application for a proceeding for the estate’s administration, no judgment given for the estate’s administration, and no referee appointed to wind up the estate.
Hard and Fast Rule
In further explaining the common law rule of convenience, the Court stated that interest is payable even if it is impossible or not practical to make a payment within the executor’s year. The Court clarified that this rule is not damages or compensation for delay in payment. Rather, the rule is meant to be “a simple, predictable way of achieving the generally fair outcome of providing for the payment of interest on specific legacies” and to give effect to the testator’s intention.
The Court explained that, if a testator does not believe the rule of convenience is fair, he or she can postpone or specify a date for the payment of specific legacies in his or her will. Alternatively, the testator can provide for a different rate of interest to apply on specific legacies paid after the first anniversary of the testator’s death.
However, the Court also cautioned that giving personal representative general powers of postponement in a will is not specific enough to avoid the rule of convenience. The court explained that a general authority to postpone a payment does not necessarily mean the testator did not wish for interest to be paid on a postponed payment.
In this case, the Court explained that the deceased had not provided any alternative dates for payment of the legacies in his last will. Therefore, it was presumed that the deceased wanted his daughters to be paid within a year’s time of his passing.
The Court held that the sisters were entitled to interest on late payment of their specific legacies as payment was delayed by 2 years. The Court specified that this was regardless of (i) being estate trustees during much of the administration period, and (ii) the delay in the estate’s administration caused by their will challenge litigation. The Court found that, under the rule of convenience, the sisters were each entitled to an interest payment of 5% per year from the first anniversary of their father’s death (or $53,000 each), payable from the residue of the estate.
With regard to the application judge’s exercise of discretion to not order an interest payment, the Court noted that there is no relevant Canadian or English case law indicating that courts have such discretion. While the Court balanced arguments for and against such discretion, it did not ultimately decide the issue.
It is not always reasonable to expect that an estate be wound up within one year of date of death. Initial steps in an estate’s administration (such as obtaining probate, calling in estate assets, paying estate debts, or obtaining a clearance certificate from Revenue Canada) often take considerable time outside of the personal representative’s control. Moreover, some estates can be difficult and complex to administer, particularly those with assets in other jurisdictions. As our readers may be well aware, estates can also be tied up in court proceedings for more than one year.
It may be that the executor’s year should be extended to 18 or 24 months. Or, perhaps, courts should have discretion to apply the rule of convenience or to award an interest payment. Each case should be decided on its facts. After all, the rule of convenience is an equitable principle and, as the Court of Appeal stated, “discretion is a hallmark of equity”.
When administering an estate, one should be mindful of the dual effects of the executor’s year and the rule of convenience. You might even say that it would be in one’s best interest to do so.
Othman ZMarch 14, 2018 - 3:07 pm
A very instructive read- Highly recommend it!