Today’s blog is being brought to you by our guest blogger, Anna Chen.
It is a long-standing common law rule that a personal representative has one year after a deceased’s death to wind up the estate. Referred to as the “executor’s year”, the rule is intended to give the personal representative some time to administer the estate before beneficiaries have a legal entitlement to demand payment.
A related and similarly long-standing rule in equity is the “rule of convenience”, which states that, except as otherwise provided in the will, a legacy carries interest after one-year from the deceased’s death (i.e. at the end of the executor’s year). Under this rule, the rate of interest is generally assumed to be simple interest at the rate of 5% per annum.
In the modern day, the administration of an estate can be complicated, and often cannot be completed within the executor’s year. It is therefore not surprising that the applicability of these rules, which were developed centuries ago, are being challenged.
However, the Ontario Court of Appeal’s recent decision in Morris v. Rivard, 2018 ONCA 181, has again confirmed that these long-standing rules are still applicable. Drafters of wills and personal representatives should therefore be cognisant of what the rule of convenience is and how it may affect the distribution of the estate. Beneficiaries should also be aware of this rule, as it may affect their entitlement from the estate.
In Morris v. Rivard, the deceased died in 2013. He was survived by a son and two daughters. The deceased’s last will provided the daughters with cash legacies of $530,000 each and the brother with the residue of the estate. The will appointed all three siblings as executors. The daughters challenged the will, alleging undue influence. The parties settled in 2016, with a finding that the last will was valid. The sisters resigned as executors and the real properties were conveyed to the brother on the condition that he would pay the legacies to the sisters.
A dispute subsequently arose in which the sisters claimed that they were entitled to interest in addition to their legacies, which was to be payable out of the brother’s residuary estate. The application judge held that no interest should be paid, in part because the sisters had been estate trustees during much of the administration period and the administration of the estate was delayed due to the sisters’ challenge to the will.
The Court of Appeal allowed the appeal, and held that the rule of convenience applied. The sisters were awarded simple interest at the rate of 5% per annum from the first anniversary date of their father’s death. Without deciding whether or not the courts have discretion to refrain from applying the rule of convenience, the Court of Appeal stated that even if such discretion exists, the application judge failed to apply the proper principles and based his conclusions on irrelevant factors. For instance, the appellate court held that it was irrelevant that the sisters were estate trustees and it was not appropriate to deny the them interest on their legacies simply because they started the litigation that caused the delay.
Some other key takeaways from this decision are:
- Rule 65.02(2) of the Rules of Civil Procedure adopts the rule of convenience and applies only where courts administer an estate. The legislated provision does not subsume the common law rule.
- The rule of convenience applies even where payment within the executor’s year is impossible or impracticable.
- The interest to be applied is simple interest at a rate of 5% per annum, notwithstanding that such rate is materially different from the present market interest rate.
- If the testator does not consider the rule of convenience to be fair, the testator can oust the rule by specifying in the will the date of payment of the legacy and any right to interest.
About Anna Chen
Anna Chen is a member of the Litigation and Private Client Services practice groups at Fasken, Toronto office. Originally from the firm’s Vancouver office, Anna assists clients in British Columbia and Ontario when disputes arise involving wills, trusts, inheritances, estate administration and family property division. Anna helps to resolve issues through negotiation, mediation and, when necessary, litigation.