All About Estates

Rule of Convenience: Interest on Legacies

The common law “rule of convenience” can enable interest to be paid on legacies after one year.

This blog is authored by Gosha Sekhon, LL.B., B.A., Scotiabank.

Courts apply the common law “rule of convenience” in the situation of legacies that have not been paid within the first year of an estate. In general terms, this means that interest is payable on a legacy not paid on the first anniversary of death of the testator/testatrix.  Interest is owing from the first anniversary to the date the property is received by the legatee.

The recent decision of the Ontario Court of Appeal (OCA) in Rivard v. Morris et al. [2018 ONCA 181] considers the “rule of convenience” to determine if interest is payable on legacies left to two daughters in the Rivard Estate.

The two legatees had challenged the father’s will unsuccessfully. They then claimed interest on their legacies, as these were not distributed within one year of their father’s death.

While acknowledging the “rule of convenience”, the trial judge went on to exercise his discretion not to award interest for two reasons: a) the two heirs were also the estate administrators, and b) their will challenge was unsuccessful.

The OCA found that the trial judge erred in applying such discretion. The OCA explained that “It is called a ‘rule of convenience’ because it is a simple, predictable way of achieving the generally fair outcome of providing for the payment of interest on specific legacies”. The OCA concluded that interest was payable on the legacies at the rate of 5% simple interest. The daughters’ status as estate trustees was considered irrelevant as was their unsuccessful will challenge as it was not frivolous.

This rule is not, however, all that “convenient” when one considers the rate of interest applied. As we all know, interest rates are lower than when the rule was first established. Can it really be considered appropriate to continue to apply a 5% interest rate when the average yield currently falls short of that mark? Should the courts consider a more flexible benchmark so that a residual beneficiary is not inadvertently penalized?

 

About Malcolm Burrows
Malcolm is a philanthropic advisor with 25+ years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. malcolm.burrows@scotiawealth.com

0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *