Two years ago I published an article entitled “Locus of Title in an Unadministered Estate and the Law of Assent”.[1] In it I argued that case law makes clear that a beneficiary of an estate the administration of which has not yet been completed does not have a beneficial interest in the property left to her in the deceased’s will or to which she is entitled on his intestacy. The deceased’s personal representative has the full, unbifurcated title to the property to permit him to pay all the deceased’s debts and administration expenses. Only when administration is complete does the personal representative become a trustee for the beneficiaries and only then do they acquire an equitable title to the property. Until administration is complete the personal representative is indeed a fiduciary, but not a trustee. These principles apply not only to the residue of a testate estate, but also to devises, specific gifts, and general legacies.
The beneficiary does have certain rights against the personal representative. These rights are a chose in action to have the estate properly administered and a right to have the moneys left to her by will, or to which she is entitled on the deceased’s intestacy paid to her. Moreover, this right is transmissible under the beneficiary’s will or on her intestacy if she should die before the deceased’s estate is administered.
An important part of my argument concerned the effect of the statutory trust contained in s. 2(1) of Ontario’s Estates Administration Act.[2] It provides:
- (1) All real and personal property that is vested in a person without a right in any other person to take by survivorship, on the person’s death, whether testate or intestate and despite any testamentary disposition, devolves to and becomes vested in his or her personal representative from time to time as trustee for the persons by law beneficially entitled thereto, and, subject to the payment of the person’s debts and so far as such property is not disposed of by deed, will, contract or other effectual disposition, it shall be administered, dealt with and distributed as if it were personal property not so disposed of.
This legislation raised the question: Does this statutory trust reverse the long-standing common law stated above that the personal representative has the full title and is not a trustee until administration is complete? My answer to that question was an unqualified No. And that is because of the origin of the statutory trust in s. 2(1) and its equivalents in other jurisdictions.
A colleague recently directed my attention to a Canadian case in which the court seems not to have been aware of the true nature of the statutory trust. I shall discuss the case below, but before I do so, it is necessary that I at least summarize the argument I made in my article to make the discussion of the case understandable. The discussion is rather technical and I apologize for that, but it is necessary for a proper understanding of the matter.
Section 2(1) finds its origin in England’s Land Transfer Act 1897.[3] Section 1 of this Act changed the law with respect to real property. Until then, real property passed directly to the devisee in the testator’s will or to the heir-at-law, but s. 1 provided that thenceforth the real property of a deceased person devolves upon his personal representative. And s. 2(1) went on to provide that the personal representatives “shall hold the real estate as trustees for the persons by law beneficially entitled thereto”. Although some Canadian jurisdictions had earlier enacted the equivalent of s. 1 of the Act, they enacted s. 2(1) somewhat later.[4]
In §2.7 of my article, and especially in the Excursus that is part of that section I demonstrated that s. 2(1) of the Land Transfer Act 1897 did not create a true trust.[5] Its purpose, at least in part, was to ensure that the old common law remainder rules (and some derivative rules)[6] could no longer be used to destroy contingent remainders by making such interests equitable.
Section 2(1) of the Act of the 1897 became effete with the enactment of Lord Birkenhead’s property legislation in 1925. Section 1(1) of the Law of Property Act 1925[7] provides that the only estates in land capable of existing at law are an estate in fee simple absolute in possession and a term of years absolute. And subsection (3) provided: “All other estates, interests, and charges in or over land take effect as equitable interests”.[8] This meant that legal executory interests ceased to exist in England and the common law remainder rules were emasculated.
The “colonies” did not copy the 1925 property legislation and thus their equivalents of s. 2(1) of the 1897 Act continued to be effective. But if the purpose of s. 2(1) was not to create a true trust, but rather to make contingent legal interests equitable, then it would be wrong to regard s. 2(1) and its equivalents in other common law jurisdictions as creating a true trust.
If the purpose of s. 2(1) was to create a true trust, one would have thought that the courts would have said so. But in the leading case, Commissioner of Stamp Duties (Queensland) v. Livingston,[9] Viscount Radcliffe, who delivered the advice of the Privy Council made no mention of the matter, even though the equivalent of s. 2(1) had been enacted in the Australian states. His Lordship was aware of the issue, since he opined that a trust would be incompatible with the title the law had always accorded the personal representative during the administration of an estate.[10] Therefore one can assume that he did not think that s. 2(1) created a true trust. Canadian cases occasionally refer to s. 2(1), but they do not refer to the trust issue.
The case mentioned above is Boger Estate v. Minister of National Revenue.[11] The testator was a farmer, whose farm consisted of seven quarter sections of land. He died in 1979 and used the land and other assets in the farming business immediately before his death He named one daughter his executor. He left his widow only a life estate in the home quarter and the residue of his estate to his children. The estate claimed a spousal rollover of the home quarter and a farm rollover of the remaining land and farming equipment under subs. 70(6) and 70(9) respectively of the Income Tax Act.[12] Subsection 70(9) provides for a rollover if the farm property has, on or after the taxpayer’s death and as a consequence of it, been transferred or distributed to a child of the taxpayer and it can be established that the property has vested indefeasibly in the child within 15 months of the taxpayer’s death. The farm equipment was sold by auction in 1979, but it was not until 1981 that the daughter became the registered owner of the farm lands as executor. The estate sold three sections of land in 1982 and capital distributions were made during 1981 and 1982. The Minister disallowed the farm rollover and the testator was deemed to have disposed of the land other than the home quarter at fair market value immediately before his death. Moreover, the proceeds from the farm equipment auction were included in the testator’s 1979 tax return.
The trial judge held:
(a) The farm lands were “transferred or distributed to the children within the meaning of subs. 70(9) and a formal conveyance to them was not necessary. Moreover, the fact that the farm lands were sold directly to a third party by the executor did not vitiate the “transfer” under the will. And further, the sale of the farm lands within the 15-month period did not prevent the application of subs. 70(9).
(b) The farm lands were vested indefeasibly in the children not later than 15 months after the testator’s death within the meaning of subs. 70(9).
The Minister appealed and argued that there had been no transfer or distribution to the beneficiaries until administration of the estate was complete. The Minister relied, inter alia, on Commissioner of Stamp Duties (Queensland) v. Livingston.[13] However, the court held that this case did not reflect the law of Alberta, because of s. 3 of the Devolution of Real Property Act,[14] which states: “… the personal representative of the deceased person holds the real property as trustee for the persons beneficially entitled thereto. …” Consequently, the court agreed with the trial judge and held that in Alberta “beneficial entitlement” arises on death and not at some later date.
The court also relied on Hillis v. The Queen,[15] which came to a similar conclusion with respect to a spousal rollover under subs. 70(6). The legislation equivalent to s. 3 of the Alberta Devolution of Real Property Act was s. 4(5) of Saskatchewan’s Devolution of Real Property Act.[16]
Boger Estate illustrates the danger of statutes or regulations that use the term “trust” loosely, without intending to impose the standard trust obligations on a person.[17] As I have attempted to demonstrate above and in my article, that was the case with s. 2(1) of Ontario’s Estates Administration Act and its equivalents in other provinces and territories. That provision did not oust the long-standing probate principle that the personal representative holds the complete, unbifurcated title to administer the estate. Thus, with great respect, I believe that the court erred in Boger in holding that the effect of the legislation was to vest the property in the beneficiaries on the testator’s death.
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[1] (2018), 48 Adv. Q. 41.
[2] R.S.O. 1990, c. E.22, emphasis supplied. Other provinces and territories have similar legislation. See: Administration of Estates Act, S.S. 1998, c. A-4.1, Part XI, s. 50.3; Chattels Real Act, R.S.N.L. 1990, c. C-11, s. 2; Devolution of Estates Act, R.S.N.B. 1973, c. D-9, s. 3; Devolution of Real Property Act, R.S.A. 2000, c. D-12, ss. 2, 3; R.S.N.W.T. 1988, c. D-5, ss. 3-4; R.S.N.W.T. (Nu.) 1988, c. D-5, ss. 3-4; R.S.Y. 2002, c. 57, ss. 2-3; Law of Property Act, C.C.S.M., c. L90, s. 17.3(1)-(5); Probate Act, S.N.S. 2000, c. 31, ss. 44-47; R.S.P.E.I. 1988, c. P-21, ss. 103-4; Wills, Estates and Succession Act, S.B.C. 2009, c. 13, s. 162.
[3] 60 & 61 Vict., c. 65.
[4] For example, it was only in 1910 that Ontario added the statutory trust in its revised Devolution of Estates Act, S.O. 1910, c. 56, s. 3(1).
[5] On this point cf. Waters Law of Trusts in Canada, 4th ed. by Donovan W.M. Waters, Mark Gillen, and Lionel Smith (Toronto: Thomson Reuters/Carswell, 2012), p. 52, note 37, where the authors say of s. 2(1) of the Ontario Act and semble of its equivalents in other jurisdictions: “This may say no more than that the personal representative must account to those who are beneficially entitled to the estate. It need not have any reference to trusteeship in the sense of a capacity to exercise statutory trustee powers”.
[6] Such as the pernicious rules in Purefoy v. Rogers (1671), 2 Wms. Saund. 380, 85 E.R. 1181 (Eng. K.B.; and Festing v. Allen (1843), 12 M. & W. 279, 152 E.R. 1204.
[7] 15 & 16 Geo. 5, c. 20.
[8] It is interesting that when Manitoba abolished the rules against perpetuities in that province, it provided that successive legal interests take effect in equity behind a trust, thus copying the English legislation in part. See Perpetuities and Accumulations Act, C.C.S.M., c. P33, which came into force 1 September 1992, s. 4(1). Saskatchewan and Nova Scotia, which also abolished these rules in their provinces, did not copy this provision. See Trustee Act, 2009, S.S. 2009, c. T-23.01, s. 58; and Perpetuities Act, S.N.S. 2011, c. 42, s. 3.
[9] [1965] A.C. 694, [1964] 3 All E.R. 692 (P.C. Australia).
[10] Ibid., p. 708 A.C.
[11] 1993 CarswellNat 930, 50 E.T.R. 1 (F.C.A.).
[12] R.S.C. 1985, c. 1 (5th Supp.).
[13] Footnote 9, supra.
[14] Footnote 2, supra.
[15] 1983 CarswellNat 175, 15 E.T.R. 156.
[16] R.S.S. 1978, c. D-27.
[17] This is also a danger in Ontario, which opted in the 1990s to replace the terms “executor” and “administrator” (collectively the “personal representative”) with the term “estate trustee”, since a personal representative is not a trustee until administration is complete. See Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 74 and 75.
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This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
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Written by: Albert Oosterhoff
Posted on: February 10, 2020
Categories: Commentary
Two years ago I published an article entitled “Locus of Title in an Unadministered Estate and the Law of Assent”.[1] In it I argued that case law makes clear that a beneficiary of an estate the administration of which has not yet been completed does not have a beneficial interest in the property left to her in the deceased’s will or to which she is entitled on his intestacy. The deceased’s personal representative has the full, unbifurcated title to the property to permit him to pay all the deceased’s debts and administration expenses. Only when administration is complete does the personal representative become a trustee for the beneficiaries and only then do they acquire an equitable title to the property. Until administration is complete the personal representative is indeed a fiduciary, but not a trustee. These principles apply not only to the residue of a testate estate, but also to devises, specific gifts, and general legacies.
The beneficiary does have certain rights against the personal representative. These rights are a chose in action to have the estate properly administered and a right to have the moneys left to her by will, or to which she is entitled on the deceased’s intestacy paid to her. Moreover, this right is transmissible under the beneficiary’s will or on her intestacy if she should die before the deceased’s estate is administered.
An important part of my argument concerned the effect of the statutory trust contained in s. 2(1) of Ontario’s Estates Administration Act.[2] It provides:
This legislation raised the question: Does this statutory trust reverse the long-standing common law stated above that the personal representative has the full title and is not a trustee until administration is complete? My answer to that question was an unqualified No. And that is because of the origin of the statutory trust in s. 2(1) and its equivalents in other jurisdictions.
A colleague recently directed my attention to a Canadian case in which the court seems not to have been aware of the true nature of the statutory trust. I shall discuss the case below, but before I do so, it is necessary that I at least summarize the argument I made in my article to make the discussion of the case understandable. The discussion is rather technical and I apologize for that, but it is necessary for a proper understanding of the matter.
Section 2(1) finds its origin in England’s Land Transfer Act 1897.[3] Section 1 of this Act changed the law with respect to real property. Until then, real property passed directly to the devisee in the testator’s will or to the heir-at-law, but s. 1 provided that thenceforth the real property of a deceased person devolves upon his personal representative. And s. 2(1) went on to provide that the personal representatives “shall hold the real estate as trustees for the persons by law beneficially entitled thereto”. Although some Canadian jurisdictions had earlier enacted the equivalent of s. 1 of the Act, they enacted s. 2(1) somewhat later.[4]
In §2.7 of my article, and especially in the Excursus that is part of that section I demonstrated that s. 2(1) of the Land Transfer Act 1897 did not create a true trust.[5] Its purpose, at least in part, was to ensure that the old common law remainder rules (and some derivative rules)[6] could no longer be used to destroy contingent remainders by making such interests equitable.
Section 2(1) of the Act of the 1897 became effete with the enactment of Lord Birkenhead’s property legislation in 1925. Section 1(1) of the Law of Property Act 1925[7] provides that the only estates in land capable of existing at law are an estate in fee simple absolute in possession and a term of years absolute. And subsection (3) provided: “All other estates, interests, and charges in or over land take effect as equitable interests”.[8] This meant that legal executory interests ceased to exist in England and the common law remainder rules were emasculated.
The “colonies” did not copy the 1925 property legislation and thus their equivalents of s. 2(1) of the 1897 Act continued to be effective. But if the purpose of s. 2(1) was not to create a true trust, but rather to make contingent legal interests equitable, then it would be wrong to regard s. 2(1) and its equivalents in other common law jurisdictions as creating a true trust.
If the purpose of s. 2(1) was to create a true trust, one would have thought that the courts would have said so. But in the leading case, Commissioner of Stamp Duties (Queensland) v. Livingston,[9] Viscount Radcliffe, who delivered the advice of the Privy Council made no mention of the matter, even though the equivalent of s. 2(1) had been enacted in the Australian states. His Lordship was aware of the issue, since he opined that a trust would be incompatible with the title the law had always accorded the personal representative during the administration of an estate.[10] Therefore one can assume that he did not think that s. 2(1) created a true trust. Canadian cases occasionally refer to s. 2(1), but they do not refer to the trust issue.
The case mentioned above is Boger Estate v. Minister of National Revenue.[11] The testator was a farmer, whose farm consisted of seven quarter sections of land. He died in 1979 and used the land and other assets in the farming business immediately before his death He named one daughter his executor. He left his widow only a life estate in the home quarter and the residue of his estate to his children. The estate claimed a spousal rollover of the home quarter and a farm rollover of the remaining land and farming equipment under subs. 70(6) and 70(9) respectively of the Income Tax Act.[12] Subsection 70(9) provides for a rollover if the farm property has, on or after the taxpayer’s death and as a consequence of it, been transferred or distributed to a child of the taxpayer and it can be established that the property has vested indefeasibly in the child within 15 months of the taxpayer’s death. The farm equipment was sold by auction in 1979, but it was not until 1981 that the daughter became the registered owner of the farm lands as executor. The estate sold three sections of land in 1982 and capital distributions were made during 1981 and 1982. The Minister disallowed the farm rollover and the testator was deemed to have disposed of the land other than the home quarter at fair market value immediately before his death. Moreover, the proceeds from the farm equipment auction were included in the testator’s 1979 tax return.
The trial judge held:
(a) The farm lands were “transferred or distributed to the children within the meaning of subs. 70(9) and a formal conveyance to them was not necessary. Moreover, the fact that the farm lands were sold directly to a third party by the executor did not vitiate the “transfer” under the will. And further, the sale of the farm lands within the 15-month period did not prevent the application of subs. 70(9).
(b) The farm lands were vested indefeasibly in the children not later than 15 months after the testator’s death within the meaning of subs. 70(9).
The Minister appealed and argued that there had been no transfer or distribution to the beneficiaries until administration of the estate was complete. The Minister relied, inter alia, on Commissioner of Stamp Duties (Queensland) v. Livingston.[13] However, the court held that this case did not reflect the law of Alberta, because of s. 3 of the Devolution of Real Property Act,[14] which states: “… the personal representative of the deceased person holds the real property as trustee for the persons beneficially entitled thereto. …” Consequently, the court agreed with the trial judge and held that in Alberta “beneficial entitlement” arises on death and not at some later date.
The court also relied on Hillis v. The Queen,[15] which came to a similar conclusion with respect to a spousal rollover under subs. 70(6). The legislation equivalent to s. 3 of the Alberta Devolution of Real Property Act was s. 4(5) of Saskatchewan’s Devolution of Real Property Act.[16]
Boger Estate illustrates the danger of statutes or regulations that use the term “trust” loosely, without intending to impose the standard trust obligations on a person.[17] As I have attempted to demonstrate above and in my article, that was the case with s. 2(1) of Ontario’s Estates Administration Act and its equivalents in other provinces and territories. That provision did not oust the long-standing probate principle that the personal representative holds the complete, unbifurcated title to administer the estate. Thus, with great respect, I believe that the court erred in Boger in holding that the effect of the legislation was to vest the property in the beneficiaries on the testator’s death.
—
[1] (2018), 48 Adv. Q. 41.
[2] R.S.O. 1990, c. E.22, emphasis supplied. Other provinces and territories have similar legislation. See: Administration of Estates Act, S.S. 1998, c. A-4.1, Part XI, s. 50.3; Chattels Real Act, R.S.N.L. 1990, c. C-11, s. 2; Devolution of Estates Act, R.S.N.B. 1973, c. D-9, s. 3; Devolution of Real Property Act, R.S.A. 2000, c. D-12, ss. 2, 3; R.S.N.W.T. 1988, c. D-5, ss. 3-4; R.S.N.W.T. (Nu.) 1988, c. D-5, ss. 3-4; R.S.Y. 2002, c. 57, ss. 2-3; Law of Property Act, C.C.S.M., c. L90, s. 17.3(1)-(5); Probate Act, S.N.S. 2000, c. 31, ss. 44-47; R.S.P.E.I. 1988, c. P-21, ss. 103-4; Wills, Estates and Succession Act, S.B.C. 2009, c. 13, s. 162.
[3] 60 & 61 Vict., c. 65.
[4] For example, it was only in 1910 that Ontario added the statutory trust in its revised Devolution of Estates Act, S.O. 1910, c. 56, s. 3(1).
[5] On this point cf. Waters Law of Trusts in Canada, 4th ed. by Donovan W.M. Waters, Mark Gillen, and Lionel Smith (Toronto: Thomson Reuters/Carswell, 2012), p. 52, note 37, where the authors say of s. 2(1) of the Ontario Act and semble of its equivalents in other jurisdictions: “This may say no more than that the personal representative must account to those who are beneficially entitled to the estate. It need not have any reference to trusteeship in the sense of a capacity to exercise statutory trustee powers”.
[6] Such as the pernicious rules in Purefoy v. Rogers (1671), 2 Wms. Saund. 380, 85 E.R. 1181 (Eng. K.B.; and Festing v. Allen (1843), 12 M. & W. 279, 152 E.R. 1204.
[7] 15 & 16 Geo. 5, c. 20.
[8] It is interesting that when Manitoba abolished the rules against perpetuities in that province, it provided that successive legal interests take effect in equity behind a trust, thus copying the English legislation in part. See Perpetuities and Accumulations Act, C.C.S.M., c. P33, which came into force 1 September 1992, s. 4(1). Saskatchewan and Nova Scotia, which also abolished these rules in their provinces, did not copy this provision. See Trustee Act, 2009, S.S. 2009, c. T-23.01, s. 58; and Perpetuities Act, S.N.S. 2011, c. 42, s. 3.
[9] [1965] A.C. 694, [1964] 3 All E.R. 692 (P.C. Australia).
[10] Ibid., p. 708 A.C.
[11] 1993 CarswellNat 930, 50 E.T.R. 1 (F.C.A.).
[12] R.S.C. 1985, c. 1 (5th Supp.).
[13] Footnote 9, supra.
[14] Footnote 2, supra.
[15] 1983 CarswellNat 175, 15 E.T.R. 156.
[16] R.S.S. 1978, c. D-27.
[17] This is also a danger in Ontario, which opted in the 1990s to replace the terms “executor” and “administrator” (collectively the “personal representative”) with the term “estate trustee”, since a personal representative is not a trustee until administration is complete. See Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 74 and 75.
—
This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
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