The “Rule of Convenience” & Interest Payable to Beneficiaries: Rivard v. Morris
The “Rule of Convenience” & Interest Payable to Beneficiaries: Rivard v. Morris 2018 ONCA 181 (CanLII), http://canlii.ca/t/hql7z
In Rivard v. Morris, the Ontario Court of Appeal found that pursuant to the common law principle of the “rule of convenience” the appellants were entitled to interest, at a rate of 5% per annum on amounts payable to them under the Last Will & Testament (the “Will”) that had been delayed for more than a year after the testator’s death.
FACTS:
The testator was survived by his two daughters and one son. He executed a Will on August 1, 2013, which divided his estate equally between his three children. On August 24, 2013, he executed a second Will which left the residue of his estate (including significant farmland) to his son. The daughters were to receive legacies of $530,000.00 each. All three children were named as estate trustees. The testator died in October of 2013.
The sisters challenged the validity of the second will. The challenge held up the division of the estate until August of 2016 when the dispute was settled with a finding that the second Will was valid. Payment of the sisters’ legacies occurred in October of 2016.
The sisters then brought an application for interest payable on each of their legacies, out of the brother’s residuary estate, commencing one year after their father’s death.
The application judge found that Rule 65.02 of the Rule of Civil Procedure (which directs interest to be paid) did not apply to this case, but the common law “rule of convenience” was applicable (although he did not refer in name to the “rule of convenience”). He then used his discretion to deny the interest sought. He reasoned that the sisters had been estate trustees during the administration of the estate and the delay in payment was caused by their challenge to the Will. While he accepted the sisters’ right to bring the application, he held that in the circumstances, neither the sisters nor the brother should be rewarded or penalized by the passage of time.
The Appeal:
The sisters appealed the decision raising the following issues for determination:
- did the application judge err in holding that r. 65.02 does not apply?
- did the application judge err in exercising discretion to deny interest?
- if interest was payable, what rate of interest should have been applied?
Does Rule 65.02 apply?
Justice Paciocco, writing on behalf of the Court of Appeal, found that Rule 65.02(2) applies where courts administer an estate, while the “rule of convenience” applies where personal representatives administer the estate. Since the estate was not administered by the Court, in this case, r 65.02 did not apply.
Does the parallel common law “rule of convenience” apply?
Subject to the testator’s instructions, pursuant to the “rule of convenience”, if a specific legacy is payable under a will but is not paid to the beneficiary by the anniversary date of the testator’s death, the beneficiary will begin to earn interest on the value of the property from that date until receipt of the property. This principle is a mechanism for promoting full enjoyment of specific legacies. By imposing interest payment obligations at the end of the “executor’s year”, specific legatees can more fully enjoy the benefits of the gifts that were intended where distribution is delayed beyond the executor’s year. Justice Paciocco describes the rule as one that is blunt and intended to “exact rough justice”.
In this case, the appellants were provided with legacies of $530,000 each without any conditions or contingencies stipulated within the Will. It was thus presumed that the testator wanted the legacies to be distributed within a year. Yet payment was delayed beyond the executor’s year. As such, interest was payable.
The brother argued that the executor’s general powers of postponement set out in the Will were indicative of the testator’s intention not to apply the “rule of convenience”. Justice Paciocco disagreed, noting that the powers are not specific enough to achieve the result sought.
Did the Judge err in using his discretion?
Justice Paciocco ultimately declined to decide whether a Judge has the discretion to deny interest, where the “rule of convenience” applies. However, he did note that for a variety of reasons, including the absolute nature of the rule and need for certainty, such discretion would be undesirable: “If such a discretion does exist, then the value of certainty and simplicity would require that the discretion be exercised only in the clearest of cases. This is not one of those cases.”
The Court went on to find the decision of the application’s judge to deny interest cannot stand. The Judge’s reliance on the reasonableness of the expectation of payment within a year was an error in principle. Interest payable under the “rule of convenience” is not predicated on the possibility of payment within a year.
It was also contrary to the principle to deny interest because the appellants had started litigation that caused the delay: “If simply commencing litigation against the estate is a ground for denying entitlement to interest, even meritorious litigation will be discouraged.”
Moreover, what the “rule of convenience” provides is an entitlement, based on the presumed intention of the testator. It is neither a reward to the beneficiary, nor, a punishment to the beneficiaries of the estate.
Applicable interest rate:
The Court found that even though a 5% interest rate may seem aggressive relative to the current prime rate, given the state of authority (previous case law and English authorities) and the manner in which this case was presented, there was no reason to deviate from the established 5% rate.
Takeaways:
The decision underscores the certainty of the “rule of convenience” and reaffirms the requirement for estate trustees to be informed of their responsibilities and the importance of the timely administration of an estate. When advising clients on estate planning and administration, it is important to consider the consequences of any delayed payment to beneficiaries of bequests/legacies and the application of the “rule of convenience”.
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Written by: Kimberly A. Whaley
Posted on: March 14, 2018
Categories: Commentary
The “Rule of Convenience” & Interest Payable to Beneficiaries: Rivard v. Morris 2018 ONCA 181 (CanLII), http://canlii.ca/t/hql7z
In Rivard v. Morris, the Ontario Court of Appeal found that pursuant to the common law principle of the “rule of convenience” the appellants were entitled to interest, at a rate of 5% per annum on amounts payable to them under the Last Will & Testament (the “Will”) that had been delayed for more than a year after the testator’s death.
FACTS:
The testator was survived by his two daughters and one son. He executed a Will on August 1, 2013, which divided his estate equally between his three children. On August 24, 2013, he executed a second Will which left the residue of his estate (including significant farmland) to his son. The daughters were to receive legacies of $530,000.00 each. All three children were named as estate trustees. The testator died in October of 2013.
The sisters challenged the validity of the second will. The challenge held up the division of the estate until August of 2016 when the dispute was settled with a finding that the second Will was valid. Payment of the sisters’ legacies occurred in October of 2016.
The sisters then brought an application for interest payable on each of their legacies, out of the brother’s residuary estate, commencing one year after their father’s death.
The application judge found that Rule 65.02 of the Rule of Civil Procedure (which directs interest to be paid) did not apply to this case, but the common law “rule of convenience” was applicable (although he did not refer in name to the “rule of convenience”). He then used his discretion to deny the interest sought. He reasoned that the sisters had been estate trustees during the administration of the estate and the delay in payment was caused by their challenge to the Will. While he accepted the sisters’ right to bring the application, he held that in the circumstances, neither the sisters nor the brother should be rewarded or penalized by the passage of time.
The Appeal:
The sisters appealed the decision raising the following issues for determination:
Does Rule 65.02 apply?
Justice Paciocco, writing on behalf of the Court of Appeal, found that Rule 65.02(2) applies where courts administer an estate, while the “rule of convenience” applies where personal representatives administer the estate. Since the estate was not administered by the Court, in this case, r 65.02 did not apply.
Does the parallel common law “rule of convenience” apply?
Subject to the testator’s instructions, pursuant to the “rule of convenience”, if a specific legacy is payable under a will but is not paid to the beneficiary by the anniversary date of the testator’s death, the beneficiary will begin to earn interest on the value of the property from that date until receipt of the property. This principle is a mechanism for promoting full enjoyment of specific legacies. By imposing interest payment obligations at the end of the “executor’s year”, specific legatees can more fully enjoy the benefits of the gifts that were intended where distribution is delayed beyond the executor’s year. Justice Paciocco describes the rule as one that is blunt and intended to “exact rough justice”.
In this case, the appellants were provided with legacies of $530,000 each without any conditions or contingencies stipulated within the Will. It was thus presumed that the testator wanted the legacies to be distributed within a year. Yet payment was delayed beyond the executor’s year. As such, interest was payable.
The brother argued that the executor’s general powers of postponement set out in the Will were indicative of the testator’s intention not to apply the “rule of convenience”. Justice Paciocco disagreed, noting that the powers are not specific enough to achieve the result sought.
Did the Judge err in using his discretion?
Justice Paciocco ultimately declined to decide whether a Judge has the discretion to deny interest, where the “rule of convenience” applies. However, he did note that for a variety of reasons, including the absolute nature of the rule and need for certainty, such discretion would be undesirable: “If such a discretion does exist, then the value of certainty and simplicity would require that the discretion be exercised only in the clearest of cases. This is not one of those cases.”
The Court went on to find the decision of the application’s judge to deny interest cannot stand. The Judge’s reliance on the reasonableness of the expectation of payment within a year was an error in principle. Interest payable under the “rule of convenience” is not predicated on the possibility of payment within a year.
It was also contrary to the principle to deny interest because the appellants had started litigation that caused the delay: “If simply commencing litigation against the estate is a ground for denying entitlement to interest, even meritorious litigation will be discouraged.”
Moreover, what the “rule of convenience” provides is an entitlement, based on the presumed intention of the testator. It is neither a reward to the beneficiary, nor, a punishment to the beneficiaries of the estate.
Applicable interest rate:
The Court found that even though a 5% interest rate may seem aggressive relative to the current prime rate, given the state of authority (previous case law and English authorities) and the manner in which this case was presented, there was no reason to deviate from the established 5% rate.
Takeaways:
The decision underscores the certainty of the “rule of convenience” and reaffirms the requirement for estate trustees to be informed of their responsibilities and the importance of the timely administration of an estate. When advising clients on estate planning and administration, it is important to consider the consequences of any delayed payment to beneficiaries of bequests/legacies and the application of the “rule of convenience”.
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