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The Presumption of Capacity in Palichuk v Palichuk

Palichuk v Palichuk, 2021 ONSC 7393 (CanLII), https://canlii.ca/t/jk8gt

Introduction

The presumption of capacity and the autonomy of competent adults should not be overturned without strong evidence to the contrary. The recent Ontario case of Palichuk v Palichuk[1] demonstrates this important notion while simultaneously tackling the question of whether the determination of capacity is an issue that must be decided by trial.

In Palichuk, the court was asked to determine the capacity of an older adult in four separate areas, each requiring their own legal criteria. However, the court had to first evaluate the evidence of three competing narratives from a bitter yet not uncommon family dispute.

Facts

The Parties are Nina Palichuk, and her two adult daughters, Susan and Linda Palichuk.

Nina is a 90-year-old widow who lived on a two-acre property in Acton for approximately 50 years with her late husband, Steve Palichuk. In 2019, Nina moved into Amica, an assisted living retirement home.[2] Linda is married with one grown child, and Susan is single with three grown children. Susan is retired and moved into the Acton home to live with Nina in 2016.[3]

On July 4, 2016, Nina signed Power of Attorney documents, naming Linda and Susan as attorneys for Property and Personal Care. Also, in 2016, Nina added Linda as a joint account holder on her BMO investment account.

On September 11, 2020, Nina had a change of heart and disinherited Linda from her Will, removed her as an Attorney for Property and Personal Care (appointing Susan as sole attorney), and signed a transfer and declaration of trust, transferring her Acton home to Susan. Title was transferred to Susan the same day. Susan signed and agreed to hold the title as bare trustee for Nina.[4]

Linda and her counsel argue that these changes to legal instruments and the transfer are all invalid because of undue influence and that a trial is required to assess whether Nina was subject to undue influence.[5]

Linda brought an application naming her mother, Nina, and sister, Susan, seeking orders which would declare Nina incapable, appointing Linda as guardian for property and personal care and assess the validity of the legal instruments and transfer.

Nina’s application sought an order removing Linda as a joint account holder on the BMO account. The court dismissed Linda’s application and allowed Nina’s, removing Linda from the BMO account.

The Narratives of Linda and Susan and Nina

Linda’s evidence is that by 2017, Susan had no longer kept up with the general maintenance of the home and, by 2018, was preventing visitations between Linda and Nina. What’s more, Linda accuses Susan of being a hoarder and, of misappropriating Nina’s funds.[6]

On cross examination, Linda testified that she believed Susan was plotting to move Nina out of her retirement home and back home in Acton to save money. This was based on a conversation where Susan complained to Linda about the high cost of Nina’s living arrangements.[7]

Susan denied all of Linda’s allegations and while she did not go into extensive detail in her defence, she testified that Linda spent money on a landscaping company, contrary to Nina’s wishes.[8]

Nina’s feelings and, subsequently, her capacity, were summarized in three short affidavits. On May 6, 2021, Nina stated that she doesn’t need a guardian but if she did, Susan would solely make decisions for property and personal care.

Regarding her choice to make Linda joint attorney and account holder Nina stated that she “felt bullied by Linda, was afraid of Linda, and agreed only because she felt she had no choice,” and that she no longer wants Linda on her account, but that Linda won’t remove herself.[9]

Nina’s position is that she is mad at Linda and can manage her own money without anyone’s supervision. She supported this with cogent answers during examination.[10]

The Question of Capacity

At the request of Nina’s counsel, Ms. Sweatman, two capacity assessments were conducted by Geriatric Psychologist Dr. Shulman who reported that Nina had mild cognitive impairment affecting her ability to recall fine details but having little impact on her ability to understand.[11] In the words of Nina, “You got to remember, I’m 90 years old, and I can be a little forgetful. And I know I am a bit forgetful. But I try and answer it correctly.”

Nina’s Justification for Disinheriting Linda

Nina disinherited Linda based on the belief that Linda misappropriated funds from the BMO account when Linda accessed the BMO account to pay for landscaping services and on the fact that Nina felt Linda was keeping her BMO statements from her. In fact, Linda switched the account to online statements. Linda said she discussed this with Nina. In the decision, Chown J. posed an interesting paradox; either it is not true that Linda discussed this with Nina, justifying Nina’s belief of being denied her statements or it is true, in which case, Linda must have thought Nina was capable enough to learn a relatively new skill.[12]

Nina also disinherited Linda because she felt Susan was more deserving because of her situation. The court agreed that Nina had a ‘rational’ belief to the relative wealth of her daughters and the condition of the Acton home, despite the fact that Justice Chown felt “some positions Nina took regarding Linda appeared unfair.”[13]

Police Occurrence Evidence

Nina’s capacity was strongly supported by evidence in police occurrence reports. Nina had previously made allegations that Linda had misappropriated funds, however, after a police investigation, no charges were laid.

In her interviews with police, Nina described relationships with her daughters and the unauthorized landscaping charges stating that, “Linda did it anyway to sell the house.”[14]

The police occurrence reports were helpful, holding that “Nina was articulate, alert and consistent when talking to the writer.”[15]

Capacity Assessment by Dr. Shulman

Dr. Shulman prepared two reports. Linda’s counsel disputed the 2nd report as improper reply evidence, however, the court held that “Linda made a strategic decision not to obtain an expert report to respond to Dr. Shulman for purposes of this hearing but rather to object to the admissibility of his second report.”[16] Dr. Shulman was cross-examined on both reports and the court ruled this meant Linda could not claim she was prejudiced. Dr. Shulman interviewed Nina on three occasions. The court found his conclusions to be ‘persuasive’

Analysis

Justice Chown held that as a threshold issue, there was no point in having a trial over the validity of impugned instruments when they take effect on future contingency. Nina, being free to change her Will and powers of attorney at any time, could simply prepare new instruments before a trial, making litigation moot.[17] Chown J. held that the court should not expend its resources in a wasteful exercise, bearing in mind that the issue Linda sought to have adjudicated was hypothetical and premature. Justice Chown cited the decision of Re Skinner[18] for the proposition that the function of the court is not to answer hypothetical questions, but only questions of law as they arise as a result of facts which actually exist.[19]

Is it Fair to Decide Capacity without a Trial?

Justice Chown looked at the decision in Przysuski v City Optical Holdings Inc.[20] where Justice Firestone outlined the general principles to consider in determining whether an application should be converted into an action:

  • Where the legislature has stipulated that a proceeding may be brought by application, in which case a, prima facie right to proceed is made out; and,
  • When a Judge cannot make a proper determination of the issues on the application record.

The Przysuski decision also looked at Collins v Canada (Attorney General)[21] which set out the following relevant factors:

  • Whether material facts are in dispute;
  • The presence of complex issues requiring expert evidence and/or a weighing of evidence;
  • Whether there is a need for pleadings and discoveries; and,
  • The importance and impact of the application and relief sought.

The Assessments of Capacity

Chown J. had to assess Nina’s capacity in four areas. From the outset, his honor acknowledged that the onus for the determination of capacity is not the same for all four assessments but because that was not a material issue in the case, it would not be addressed.

The decision held that, “Nina readily meets the requisite capacity in all applicable spheres” before embarking on a detailed analysis of capacity under the Substitute Decisions Act[22] (“SDA”) and the four areas in question in the case.

For Linda to be appointed Nina’s guardian of property, Nina would have to be declared “incapable of managing property” Chown J. provided that the test for incapacity is defined under section 6 of the SDA:

A person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his or her property or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.

Justice Chown was careful to point out that the law values autonomy and presumes capacity unless the contrary is proven: Starson v Swayze.[23] The decision of Koch (Re)[24] was revisited for the proposition that “capacity exists if the person is able carry out her decisions with the help of others.”

Based on the reports of Dr. Shulman, Nina required some assistance in transporting to and from the bank and her financial advisor and help with showering to avoid falling.[25] Linda made observations when Nina lived with her for three weeks in June of 2020, however, aside from documenting that Nina forgot to take her medication, there were no examples of significant memory issues, confusion, or lack of comprehension of financial or other issues.[26]

Capacity to Give a Continuing Power of Attorney

The test for whether someone is capable of granting or revoking a Continuing Power of Attorney is defined in section 8 of the SDA:

Capacity to give continuing power of attorney

8 (1) A person is capable of giving a continuing power of attorney if he or she,

(a) knows what kind of property he or she has and its approximate value;

(b) is aware of obligations owed to his or her dependants;

(c) knows that the attorney will be able to do on the person’s behalf anything in respect of property that the person could do if capable, except make a Will, subject to the conditions and restrictions set out in the power of attorney;

(d) knows that the attorney must account for his or her dealings with the person’s property;

(e) knows that he or she may, if capable, revoke the continuing power of attorney;

(f) appreciates that unless the attorney manages the property prudently its value may decline; and

(g) appreciates the possibility that the attorney could misuse the authority given to him or her.

Capacity to revoke

(2) A person is capable of revoking a continuing power of attorney if he or she is capable of giving one.

The court also cited the decision of Covello v Sturino[27] for holding that the capacity to grant a power of attorney “requires a lesser level of capacity than that required to manage property”

Capacity to Give a Power of Attorney for Personal Care

In order for Linda to be appointed Nina’s guardian for personal care, she needed to demonstrate that Nina was “incapable of managing her personal care.” The test for the capacity to give and revoke a continuing power of attorney for personal care is found in section 47 of the SDA:

Capacity to give power of attorney for personal care

47 (1) A person is capable of giving a power of attorney for personal care if the person,

(a) has the ability to understand whether the proposed attorney has a genuine concern for the person’s welfare; and

(b) appreciates that the person may need to have the proposed attorney make decisions for the person. … Capacity to revoke

(3) A person is capable of revoking a power of attorney for personal care if he or she is capable of giving one.

Testamentary Capacity

Chown J., embarked on a detailed review of testamentary capacity supported by John E.S. Poyser’s text Capacity and Undue Influence[28] which examines Schwartz v Schwartz[29] where Laskin J.A. recited the time-honored test from Banks v Goodfellow[30] followed by his own restatement of the test “in more contemporary terms.”

The court acknowledged that Nina “need only know in a general way the nature and extent of her property.”[31] Nina possesses an awareness of property, assets, and resources, plus, she appreciates the social awkwardness of her decision.[32] What’s more, Nina told Dr. Shulman that her Will was not set in stone and would be willing to divide her assets evenly if Linda treated her better.[33]

Capacity to Give an Inter Vivos Gift

Justice Chown again examined Poyser’s text which looked at Ball v Mannin (1829)[34] a case that is widely accepted as the leading case in England and Canada on the test for capacity applicable to inter vivos gifts. Ball holds that the donor must be “capable of understanding what he did by executing the deed in question, when its general purport was fully explained to him.”[35]

Justice Chown ruled that the transfer of the Acton property might be properly treated as testamentary. Susan, as bare trustee will derive no benefit from the transaction until Nina dies. Under this analysis, Justice Chown held that the capacity to give an inter vivos gift was not necessary (understanding how the transfer affects the donor’s future security and comfort). If, however, this transfer was considered an inter vivos gift, Chown J., held it was no hurdle; Nina provided a reasonable-enough lay explanation of the effect of the declaration of trust to satisfy her capacity.

Conclusion

Despite declaring Nina to have overall capacity, Justice Roger Chown provided a thoughtful analysis in Palichuk v Palichuk which supported autonomy and the presumption of capacity while succinctly clarifying four of the criteria for capacity under the Substitute Decisions Act. The decision reminds us that advanced age often is accompanied by mild cognitive decline that should not be taken as evidence of a lack of capacity and that competent adults have the freedom to make testamentary decisions according to their wishes.

[1]           2021 ONSC 7393. [Palichuk]

[2]           Palichuk at para. 11.

[3]           Ibid at para. 20.

[4]           Ibid at para. 9.

[5]           Ibid at para. 100.

[6]           Ibid at paras. 17-19.

[7]           Ibid at paras. 24-25.

[8]           Ibid at paras 34-37.

[9]           Ibid at paras. 44-45.

[10]         Ibid at para. 46.

[11]         Ibid at para. 55.

[12]         Ibid at para. 61.

[13]         Ibid at para. 65.

[14]         Ibid at para. 72.

[15]         Ibid at para. 73.

[16]         Ibid at para. 89.

[17]         Ibid at para. 102.

[18]         [1970] 3 O.R. 35 (H.C.J.).

[19]         Ibid.

[20]         2013 ONSC 5709 at paras. 5-10.

[21]         (2005), 2005 CanLII 28533 (ON SC), 76 O.R. (3d) 228 (S.C.) at para. 5.

[22]         1992, S.O. 1992, c. 30.

[23]         2003 SCC 32, [2003] 1 S.C.R. 722 at paras. 7, 77, 85, and 91.

[24]         (1997), 33 O.R. (3d) 485 (S.C.) at p. 521.

[25]         Palichuk, supra, at 134-136.

[26]         Ibid.

[27]         [2007] O.J. No. 2306, at para. 20.

[28]         (Toronto: Carswell, 2014) at pp. 43 to 72.

[29]         [1970] 2 O.R. 61 (C.A.), aff’d [1972] S.C.R. 150.

[30]         (1870), 5 Q.B. 549, at p. 565.

[31]         Palichuk, supra, at para. 149 which cites Orfus Estate v. Samuel and Bessie Orfus Family Foundation, 2013 ONCA 225 at para. 60; Re Schwartz, at para. 78; Quaggiotto v. Quaggiotto, 2019 ONCA 107 at para. 7.

[32]         Ibid at para. 152.

[33]         Ibid at para 153.

[34]         4 E.R. 1241 (H.L.)

[35]         This test was expanded in Re Beaney (Deceased), [1978] 2 All E.R. 595, at p. 601, followed in Canada by MacGrotty v. Anderson, [1995] B.C.J. No. 1857 (B.C.S.C.); Lynch Estate v. Lynch Estate (1993), 9 Alta. L.R. (3d) 291 (Q.B.), at para. 108; McLeod Estate v. Cole, 2021 MBQB 24; Egli v. Egli, 2005 BCCA 627.

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