All About Estates

Valuing Estate Assets – A Hierarchy of Evidence

Acting as an estate trustee can be a difficult job. It is often made more difficult when you have to work with a sibling. While the types of disputes co-estate trustees can have with one another are seemingly infinite, one common fight is over valuing an estate asset. Valuing estate assets properly is important – it may impact estate tax, the deceased’s personal taxes, and the sale price of the item. Agreeing on how to value the estate asset – then sticking to the agreement – can be a challenge. Such was the case in Dewaele v Roobroeck, 2020 ONSC 7534.

Rose, Ronald, and Richard are the children and sole beneficiaries of their parents’ estates. They were also named as co-estate trustees pursuant to their parents’ wills. Litigation arose early in the administration of the estates as the co-estate trustees were unable to work cooperatively towards the orderly administration of the estates. On consent, the parties obtained an order directing a formal appraisal to be obtained of the assets of the estates. The appraiser valued the real property, farm equipment, and household items owned by the parents as of the date they died (the “Cooper Appraisals”).

The accountant hired by the co-estate trustees prepared the estates’ tax returns based on the value of the estate assets set out in the Cooper Appraisals. Similarly, the lawyer hired to prepare the probate applications calculated the amount of estate administration tax owing based on the Cooper Appraisals. At that point, Richard and Ronald objected to the Cooper Appraisals on the grounds that the values were inflated and refused to sign the cheque paying the estate administration tax or to file the tax returns.

Richard and Ronald argued that using the Cooper Appraisals would result in: (i) an overpayment of estate administration tax; (ii) an overpayment of income taxes by both estates; and (iii) an overpayment if either Richard or Ronald wished to purchase any assets from the estate (in particular, they expressed a desire to buy at least one of the farm properties from the estate).

In response, Rachel argued that it was important for the estate trustees to use values that were accurate and defensible – when filing the probate application and the estate taxes, the co-estate trustees were personally liable for the truth of the statements contained therein.

The court considered the hierarchy of evidence of values. The first and best evidence of the value of an asset is its sale price on the open market: “the true test of fair market value is the amount that item achieves on an open sale.”[1] However, some estate assets (real estate in particular) cannot be sold without probate. Since the values of the estate assets must be listed on the probate application, the next best evidence of value is a formal appraisal: “an appraisal [is] simply an opinion, albeit an educated opinion.” [2]

Richard and Ronald did not put forward competing formal appraisals in support of their position. Rather, they suggested that the tax returns and probate application should list the values of the assets based on their personal opinions and research.

The court held that it was not being asked to make a finding as to whether the Cooper Appraisals or the values put forward by Richard and Ronald is most accurate. Rather, the court was being asked to determine whether Rachel was entitled to insist that the Cooper Appraisals be used for the purposes of filling the estate taxes and probate applications. On this point, the court agreed with Rachel.

The court ultimately removed Richard and Ronald as co-estate trustees, allowing Rachel to move forward with the estate administration on her own. Among other reasons, the court held that Ronald and Richard’s refusal to sign the probate application or file the estate taxes unduly held up the estate administration and put into jeopardy the estate’s ability to take advantage of time-sensitive tax elections.

While the grounds for removing estate trustees are well trod, this case is interesting for its discussion of valuation disputes. It may seem preferable at first blush to value estate assets as low as possible – this will result in a tax savings to the estate. However, the estate trustees must all be in agreement about the valuation method and valuation itself if they go this route: they will be called upon to defend the valuation by CRA.

Where there is a dispute about valuation methods, the court will consider not only the “best evidence” of values, but how and why the valuation is being used. In this case, it was reasonable for Rachel to insist that the trustees rely on the Cooper Appraisals to prepare the probate application and estate taxes; after all, the estate trustees had all agreed to obtain the Cooper Appraisals. Implicit in that agreement was the idea that they would rely on the Cooper Appraisals for the purposes of the estate administrative tasks rather than their personal opinions.

[1] Dewaele v Roobroeck, 2020 ONSC 7534 at paragraph 86.

[2] Dewaele v Roobroeck, 2020 ONSC 7534 at paragraph 86.

About Gillian Fournie
Gillian is a lawyer with de VRIES LITIGATION LLP. Her practice focuses on the area of trusts and estates litigation. gfournie@devrieslitigation.com

0 Comments

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.