I am sure that the duties of executors are reasonably well-known. But sometimes an issue arises that is out of the ordinary and then it is good to refamiliarize ourselves with basic principles. The recent Alberta case, Halstead v Selock,[1] is useful for that. The facts are a bit complex, but this is an outline of them.
The Testator, Sydney Wales Metcalfe (the ‘Testator’), died in 1968. In his will he made the following provisions about an apartment building located on certain lands in Calgary (the ‘Lands’). In clause 4 of the will, he directed the executors to pay:
(e) one-third of the income derived from the Lands to Wood’s Christian Homes (an incorporated charity); and
(f) the second one-third of the income derived from the Lands to his daughter, Barbara Selock.
Further, he directed that on Barbara’s death,
(g) one-half of her share of the income should be held for the benefit and education of Barbara’s daughter, Sharon Selock, until she attained age 21 and then it should be paid to Sharon directly; and
(h) one-half of Barbara’s share of the income should be paid to Wood’s Christian Homes.
Then, in clause 4(i) the Testator directed that the last one-third of the net income from the Lands should be held for the benefit and education of Sharon until she attained age 21 and then should be paid directly to Sharon. On Sharon’s death, this one-third share should be paid to Wood’s Christian Homes.
Finally, he devised the lands on the death of the survivor of Barbara and Sharon to Wood’s Christian Homes (hereafter ‘Wood’s Homes’).
The Surrogate Court granted probate of the will to Barbara as sole executor in 1969. Counsel for the estate then informed Wood’s Homes that it was a beneficiary under the will.
It was unclear whether Woods’ Homes received any income from estate, although it was allocated to it (at least initially). From 1975 to 2018 it had no further contact with the estate’s representatives and it took no steps in relation to the devise of the lands until 2018. Wood’s Christian Homes changed its name in 2007 to ‘Wood’s Homes Society’, but nothing turned on that change.
Sharon died in 1999, but although one-third of the income payable to her during her lifetime was then to be paid to Wood’s Homes, it seems that this did not happen, and Wood’s Homes did not learn of Sharon’s death until 2018. Barbara died in 2009 but the representatives of the estate did not inform Wood’s Homes, although an obituary and a notice of creditors were published. The respondent Lance Selock, Barbara’s son, was granted probate of her estate in 2010. The administration of the estate of the Testator had not yet been concluded by then and Lance and his wife, Kathleen, assumed control over the Testator’s estate and managed the Lands. Kathleen was paid a monthly fee for this service. In 2018 a real estate agent investigated the title to the lands and contacted Wood’s Homes. He told the charity that Barbara had died and that it was the rightful owner. Wood’s Homes then retained counsel for advice. Pursuant to an application made by Wood’s Homes in February 2019, CS Armstrong J removed Lance as executor in respect of the Lands, and appointed the applicant, Neal Halstead, as Limited Administrator of the Lands (the ‘removal application). Subsequently, upon the direction of GD Marriott J in March 2020, a Limited Grant of Administration was issued to the applicant, and the Lands were then registered in his name as Limited Administrator. Lance remained the executor by devolution of executorship of the other assets in the Testator’s estate. Lance appealed the order removing him as executor with respect to the Lands, but the Court of Appeal dismissed the appeal, holding that the decision of Armstrong J was reasonable.[2]
On 26 April 2019 Wood’s Homes brought an action (the ‘Wood’s Homes Action’) against Lance and others claiming breach of trust, breach of fiduciary duties, knowing receipt, and negligence. It sought an accounting of all revenues generated from the Lands since the Testator’s death, disgorgement of net income, and damages. It also sought title to the Lands or damages in the alternative. The defendants raised a limitations defence and other defences.
The applicant then brought this application for advice and directions and sought an order authorizing the transfer of title to the Lands to Wood’s Homes, together with all income generated from the Lands since Barbara’s death. Lance opposed the application.
The court noted that the applicant was lawfully appointed Limited Administrator of the Lands, that he was a fiduciary, must act in the best interests of the beneficiaries, and must fulfill the directions of the Testator in his will. Thus, unless there was some basis on which the court directs him not to transfer the Lands to Wood’s Homes, he must do so.
Since the application involved a consideration of limitation defences that were also raised in the Wood’s Homes action, the advice and direction the court would give would amount to partial summary judgment in that action. This imposed a burden on Wood’s Homes to prove that it sought this remedy within the two-year limitation period described in s. 3(1)(a) of the Limitations Act.[3] It provides a defence if the claimant does not seek a remedial order within two years from the date on which the ‘claimant first knew, or in the circumstances ought to have known’ that an injury occurred. Section 3(1)(b) contains an ultimate limitation period of 10 years. It provides a defence if the claimant did not seek a remedial order within 10 years after the claim arose. Only the first limitation period applied, since Wood’s Homes did seek a remedial order before the ten-year period expired when it issued the statement of claim on 26 April 2019. Further, any limitation issues that arose in respect of the bequest of income from the Lands, which were raised in the Wood’s Homes Action, were not in issue on this application, only those that arose in respect of the devise of the Lands.
On the death of the survivor of Barbara and Sharon, the executor, namely, Lance, had only one duty in respect of the Lands, namely, to transfer it to Wood’s Homes. He held that obligation as executor and not as trustee since the obligation was an aspect of the distribution of estate assets. As a fiduciary, Lance had the obligation to keep the beneficiaries of the estate, including Wood’s Homes, informed of the status of the estate and to comply with the Testator’s directions. The same result would obtain if there was a testamentary trust of the Lands. As explained by the Court of Appeal in the earlier appeal of the removal order, if there was a testamentary trust, it did not end when Barbara died, but continued and Lance had continuing duties as trustee, for a trust does not come to an end until its terms have been carried out.[4]
So far, so good. But did the limitation defence prevent the applicant from transferring the Lands to Wood’s Homes? The earliest date on which the limitation period could have commenced was on the death of Barbara in 2009, since that was the date that the Lands vested in Wood’s Homes.[5] Did Wood’s Homes know, or ought it to have known that an injury had occurred? The court found that the evidence clearly showed that Wood’s Homes did not discover that Sharon and Barbara had both died until the real estate agent informed them. Moreover, while Wood’s Homes knew in 1969 that it was a beneficiary under the Testator’s will, it also knew that the transfer of the Lands to it would not happen for many years until both Sharon and Barbara had died. The question then became whether a reasonable person in the same circumstances as Wood’s Homes would have known of their deaths or could have discovered that information with some diligence. Normally the claimant will have to show that it took some active steps to satisfy the reasonable diligence requirement. But in some cases, the court may take all circumstances into account and draw the conclusion that the claimant ‘ought not to have known’ about the injury and was not required to make reasonable inquiries.[6]
In most cases the defendant has no obligation to contact the claimant to disclose facts that might give rise to a claim. However, the matter is different when the defendant is an executor who holds property in trust for the people who have been given specific gifts in the will, for the executor has fiduciary obligations to the beneficiaries. Thus, the executor must report and account to the beneficiaries and must distribute the assets in a timely manner. In the removal appeal, the Court of Appeal defined the core tasks of a personal representative when administering an estate as follows:[7]
14 The core tasks of a personal representative when administering an estate are to: identify the estate assets and liabilities; administer and manage the estate; satisfy the estate debts and obligations; and distribute and account for the administration of the estate (s 7). The personal representative is required to perform the role honestly and in good faith, in accordance with the Testator’s intention and with the will, and with the care, diligence and skill that a person of ordinary prudence would exercise in comparable circumstances where a fiduciary relationship exists, and to distribute the estate as soon as practicable (s 5).
Further, Justice CS Anderson noted in her reasons for judgment on the application to remove Lance as executor with respect to the Lands that he breached his duties to the beneficiaries. She stated:[8]
I do not accept that Lance Selock has done nothing wrong. His conduct as executor is very troubling. He has breached his duties as set out under section 5 of the Estate Administration Act and refused or failed to fulfill his core duties for which he is responsible as required under section 7 of the Estate Administration Act. He failed to distribute the estate as soon as practicable. He failed to notify and regularly communicate with Wood’s Homes as beneficiary of the lands. He failed to give any accounting of the administration of the estate required every two years until he was contacted by Wood’s Homes’ counsel. He has failed to administer the estate in a prudent and timely manner.
In the current application the court noted that the duties owed by Lance as executor were ongoing duties and stated:
77 I conclude that as executor, Lance Selock was not entitled to simply remain silent and to wait for the limitation period to expire. He had a positive duty to report to the beneficiary and to transfer title. He did not discharge those duties.
78 The duty that Lance Selock had to disclose was magnified in this case because, as he argues in his written submissions, a successful limitation defence would potentially permit him and his sister to take the Lands as the ultimate residuary beneficiaries. This gave rise to a significant conflict which demanded full disclosure. Lance Selock as executor could not remain silent. He had a duty to advise that the conditions in sub-clause 4(i) had been satisfied and that Wood’s Homes had a vested beneficial interest in the Lands. He failed to do this.
79 If the Lands formed part of a testamentary trust, then in his role as trustee de son tort or de facto trustee, Lance Selock breached similar fiduciary duties owed to the beneficiary, Wood’s Homes.
80 In these circumstances, I conclude that Wood’s Homes was entitled to expect that the executor would fulfill his statutory duties as well as his fiduciary obligations. I conclude that Wood’s Homes was entitled to rely on the executor to properly discharge his duties and to advise when the conditions in sub-clause 4(i) had been satisfied and thus when it was entitled to receive a transfer of the Lands.
The court went on to note that in this case Wood’s Homes ‘ought not to have known’ that Barbara and Sharon had died. Thus, the limitation period did not begin to run until Wood’s Homes had actual knowledge of their deaths in October 2018. Since its action was commenced within two years of that date, the Limitations Act offered no defence to Wood’s Homes’ entitlement to the Lands.
Thus, the court granted summary judgment to the applicant and held that he was authorized to transfer title to the Lands to Wood’s Homes, along with any interest generated by the lands since Barbara’s death that were in the applicant’s possession.
The take-away therefore is that an executor or trustee who has failed to fulfill the duties of an executor or trustee will be denied the right to plead a limitation defence in certain limited circumstances.
—
[1] 2021 ABQB 1026. I am indebted to Heather Hogan for drawing this case to my attention.
[2] Wood’s Homes Society v Selock, 2021 ABCA 431. Although the court did not have to decide whether the Lands were part of a testamentary trust (an issue raised on the appeal), it noted that if the Lands were trust property, Lance took on the role of trustee de son tort or de facto trustee with respect to the Lands.
[3] RSA 2000, c L-12.
[4] Footnote 2, supra, paras 25-26.
[5] The court noted that the period could have commenced much later because the executor has the duty to satisfy the testamentary gifts as soon as possible. However, it proceeded on the assumption that the period commenced on Barbara’s death.
[6] The court cited James H Meek, Jr Trust v San Juan Resources Inc, 2005 ABCA 448 in support of this position.
[7] Footnote 2, supra, para 14. The references in the quotation are to sections of the Estate Administration Act, SA 2014, c E-12.5.
[8] Quoted at para 75 of this decision.
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Written by: Albert Oosterhoff
Posted on: April 22, 2022
Categories: Commentary
I am sure that the duties of executors are reasonably well-known. But sometimes an issue arises that is out of the ordinary and then it is good to refamiliarize ourselves with basic principles. The recent Alberta case, Halstead v Selock,[1] is useful for that. The facts are a bit complex, but this is an outline of them.
The Testator, Sydney Wales Metcalfe (the ‘Testator’), died in 1968. In his will he made the following provisions about an apartment building located on certain lands in Calgary (the ‘Lands’). In clause 4 of the will, he directed the executors to pay:
(e) one-third of the income derived from the Lands to Wood’s Christian Homes (an incorporated charity); and
(f) the second one-third of the income derived from the Lands to his daughter, Barbara Selock.
Further, he directed that on Barbara’s death,
(g) one-half of her share of the income should be held for the benefit and education of Barbara’s daughter, Sharon Selock, until she attained age 21 and then it should be paid to Sharon directly; and
(h) one-half of Barbara’s share of the income should be paid to Wood’s Christian Homes.
Then, in clause 4(i) the Testator directed that the last one-third of the net income from the Lands should be held for the benefit and education of Sharon until she attained age 21 and then should be paid directly to Sharon. On Sharon’s death, this one-third share should be paid to Wood’s Christian Homes.
Finally, he devised the lands on the death of the survivor of Barbara and Sharon to Wood’s Christian Homes (hereafter ‘Wood’s Homes’).
The Surrogate Court granted probate of the will to Barbara as sole executor in 1969. Counsel for the estate then informed Wood’s Homes that it was a beneficiary under the will.
It was unclear whether Woods’ Homes received any income from estate, although it was allocated to it (at least initially). From 1975 to 2018 it had no further contact with the estate’s representatives and it took no steps in relation to the devise of the lands until 2018. Wood’s Christian Homes changed its name in 2007 to ‘Wood’s Homes Society’, but nothing turned on that change.
Sharon died in 1999, but although one-third of the income payable to her during her lifetime was then to be paid to Wood’s Homes, it seems that this did not happen, and Wood’s Homes did not learn of Sharon’s death until 2018. Barbara died in 2009 but the representatives of the estate did not inform Wood’s Homes, although an obituary and a notice of creditors were published. The respondent Lance Selock, Barbara’s son, was granted probate of her estate in 2010. The administration of the estate of the Testator had not yet been concluded by then and Lance and his wife, Kathleen, assumed control over the Testator’s estate and managed the Lands. Kathleen was paid a monthly fee for this service. In 2018 a real estate agent investigated the title to the lands and contacted Wood’s Homes. He told the charity that Barbara had died and that it was the rightful owner. Wood’s Homes then retained counsel for advice. Pursuant to an application made by Wood’s Homes in February 2019, CS Armstrong J removed Lance as executor in respect of the Lands, and appointed the applicant, Neal Halstead, as Limited Administrator of the Lands (the ‘removal application). Subsequently, upon the direction of GD Marriott J in March 2020, a Limited Grant of Administration was issued to the applicant, and the Lands were then registered in his name as Limited Administrator. Lance remained the executor by devolution of executorship of the other assets in the Testator’s estate. Lance appealed the order removing him as executor with respect to the Lands, but the Court of Appeal dismissed the appeal, holding that the decision of Armstrong J was reasonable.[2]
On 26 April 2019 Wood’s Homes brought an action (the ‘Wood’s Homes Action’) against Lance and others claiming breach of trust, breach of fiduciary duties, knowing receipt, and negligence. It sought an accounting of all revenues generated from the Lands since the Testator’s death, disgorgement of net income, and damages. It also sought title to the Lands or damages in the alternative. The defendants raised a limitations defence and other defences.
The applicant then brought this application for advice and directions and sought an order authorizing the transfer of title to the Lands to Wood’s Homes, together with all income generated from the Lands since Barbara’s death. Lance opposed the application.
The court noted that the applicant was lawfully appointed Limited Administrator of the Lands, that he was a fiduciary, must act in the best interests of the beneficiaries, and must fulfill the directions of the Testator in his will. Thus, unless there was some basis on which the court directs him not to transfer the Lands to Wood’s Homes, he must do so.
Since the application involved a consideration of limitation defences that were also raised in the Wood’s Homes action, the advice and direction the court would give would amount to partial summary judgment in that action. This imposed a burden on Wood’s Homes to prove that it sought this remedy within the two-year limitation period described in s. 3(1)(a) of the Limitations Act.[3] It provides a defence if the claimant does not seek a remedial order within two years from the date on which the ‘claimant first knew, or in the circumstances ought to have known’ that an injury occurred. Section 3(1)(b) contains an ultimate limitation period of 10 years. It provides a defence if the claimant did not seek a remedial order within 10 years after the claim arose. Only the first limitation period applied, since Wood’s Homes did seek a remedial order before the ten-year period expired when it issued the statement of claim on 26 April 2019. Further, any limitation issues that arose in respect of the bequest of income from the Lands, which were raised in the Wood’s Homes Action, were not in issue on this application, only those that arose in respect of the devise of the Lands.
On the death of the survivor of Barbara and Sharon, the executor, namely, Lance, had only one duty in respect of the Lands, namely, to transfer it to Wood’s Homes. He held that obligation as executor and not as trustee since the obligation was an aspect of the distribution of estate assets. As a fiduciary, Lance had the obligation to keep the beneficiaries of the estate, including Wood’s Homes, informed of the status of the estate and to comply with the Testator’s directions. The same result would obtain if there was a testamentary trust of the Lands. As explained by the Court of Appeal in the earlier appeal of the removal order, if there was a testamentary trust, it did not end when Barbara died, but continued and Lance had continuing duties as trustee, for a trust does not come to an end until its terms have been carried out.[4]
So far, so good. But did the limitation defence prevent the applicant from transferring the Lands to Wood’s Homes? The earliest date on which the limitation period could have commenced was on the death of Barbara in 2009, since that was the date that the Lands vested in Wood’s Homes.[5] Did Wood’s Homes know, or ought it to have known that an injury had occurred? The court found that the evidence clearly showed that Wood’s Homes did not discover that Sharon and Barbara had both died until the real estate agent informed them. Moreover, while Wood’s Homes knew in 1969 that it was a beneficiary under the Testator’s will, it also knew that the transfer of the Lands to it would not happen for many years until both Sharon and Barbara had died. The question then became whether a reasonable person in the same circumstances as Wood’s Homes would have known of their deaths or could have discovered that information with some diligence. Normally the claimant will have to show that it took some active steps to satisfy the reasonable diligence requirement. But in some cases, the court may take all circumstances into account and draw the conclusion that the claimant ‘ought not to have known’ about the injury and was not required to make reasonable inquiries.[6]
In most cases the defendant has no obligation to contact the claimant to disclose facts that might give rise to a claim. However, the matter is different when the defendant is an executor who holds property in trust for the people who have been given specific gifts in the will, for the executor has fiduciary obligations to the beneficiaries. Thus, the executor must report and account to the beneficiaries and must distribute the assets in a timely manner. In the removal appeal, the Court of Appeal defined the core tasks of a personal representative when administering an estate as follows:[7]
14 The core tasks of a personal representative when administering an estate are to: identify the estate assets and liabilities; administer and manage the estate; satisfy the estate debts and obligations; and distribute and account for the administration of the estate (s 7). The personal representative is required to perform the role honestly and in good faith, in accordance with the Testator’s intention and with the will, and with the care, diligence and skill that a person of ordinary prudence would exercise in comparable circumstances where a fiduciary relationship exists, and to distribute the estate as soon as practicable (s 5).
Further, Justice CS Anderson noted in her reasons for judgment on the application to remove Lance as executor with respect to the Lands that he breached his duties to the beneficiaries. She stated:[8]
I do not accept that Lance Selock has done nothing wrong. His conduct as executor is very troubling. He has breached his duties as set out under section 5 of the Estate Administration Act and refused or failed to fulfill his core duties for which he is responsible as required under section 7 of the Estate Administration Act. He failed to distribute the estate as soon as practicable. He failed to notify and regularly communicate with Wood’s Homes as beneficiary of the lands. He failed to give any accounting of the administration of the estate required every two years until he was contacted by Wood’s Homes’ counsel. He has failed to administer the estate in a prudent and timely manner.
In the current application the court noted that the duties owed by Lance as executor were ongoing duties and stated:
77 I conclude that as executor, Lance Selock was not entitled to simply remain silent and to wait for the limitation period to expire. He had a positive duty to report to the beneficiary and to transfer title. He did not discharge those duties.
78 The duty that Lance Selock had to disclose was magnified in this case because, as he argues in his written submissions, a successful limitation defence would potentially permit him and his sister to take the Lands as the ultimate residuary beneficiaries. This gave rise to a significant conflict which demanded full disclosure. Lance Selock as executor could not remain silent. He had a duty to advise that the conditions in sub-clause 4(i) had been satisfied and that Wood’s Homes had a vested beneficial interest in the Lands. He failed to do this.
79 If the Lands formed part of a testamentary trust, then in his role as trustee de son tort or de facto trustee, Lance Selock breached similar fiduciary duties owed to the beneficiary, Wood’s Homes.
80 In these circumstances, I conclude that Wood’s Homes was entitled to expect that the executor would fulfill his statutory duties as well as his fiduciary obligations. I conclude that Wood’s Homes was entitled to rely on the executor to properly discharge his duties and to advise when the conditions in sub-clause 4(i) had been satisfied and thus when it was entitled to receive a transfer of the Lands.
The court went on to note that in this case Wood’s Homes ‘ought not to have known’ that Barbara and Sharon had died. Thus, the limitation period did not begin to run until Wood’s Homes had actual knowledge of their deaths in October 2018. Since its action was commenced within two years of that date, the Limitations Act offered no defence to Wood’s Homes’ entitlement to the Lands.
Thus, the court granted summary judgment to the applicant and held that he was authorized to transfer title to the Lands to Wood’s Homes, along with any interest generated by the lands since Barbara’s death that were in the applicant’s possession.
The take-away therefore is that an executor or trustee who has failed to fulfill the duties of an executor or trustee will be denied the right to plead a limitation defence in certain limited circumstances.
—
[1] 2021 ABQB 1026. I am indebted to Heather Hogan for drawing this case to my attention.
[2] Wood’s Homes Society v Selock, 2021 ABCA 431. Although the court did not have to decide whether the Lands were part of a testamentary trust (an issue raised on the appeal), it noted that if the Lands were trust property, Lance took on the role of trustee de son tort or de facto trustee with respect to the Lands.
[3] RSA 2000, c L-12.
[4] Footnote 2, supra, paras 25-26.
[5] The court noted that the period could have commenced much later because the executor has the duty to satisfy the testamentary gifts as soon as possible. However, it proceeded on the assumption that the period commenced on Barbara’s death.
[6] The court cited James H Meek, Jr Trust v San Juan Resources Inc, 2005 ABCA 448 in support of this position.
[7] Footnote 2, supra, para 14. The references in the quotation are to sections of the Estate Administration Act, SA 2014, c E-12.5.
[8] Quoted at para 75 of this decision.
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