1. Introduction
It is well-known that when a person dies, whether testate or intestate, his debts must be paid first. And the debts also include funeral, testamentary, and administrative expenses, as well as executor’s compensation.[1] The executors or administrators are personally liable to pay the debts and if they fail to do so and distribute the assets to the beneficiaries, the creditors can sue the personal representatives to recover the amount of the debts.[2]
If the estate is insolvent because its assets are insufficient to pay all the debts, the creditors are entitled to the entire estate according to their priority or preference. Thus, the general creditors come last and take a pro rata share of what is left.
If the assets are sufficient to pay all the debts but insufficient to pay all the gifts made in the will, some or all of the gifts may have to abate. And in the case of an intestacy the shares of the beneficiaries will have to abate as well, subject to any statutory priorities.
Abatement is the pro rata reduction of the amounts of the testamentary gifts in the case of a testate estate when the estate is insufficient to pay the gifts in full. The order in which assets are liable to pay debts is determined by well-defined common law rules. However, a testator may change the order in her will and give priority to one or more gifts.[3]
The common law order of abatement for testamentary gifts is: (1) residuary personalty; (2) residuary realty that is not specifically devised; (3) general legacies, including pecuniary legacies payable from residue; (4) demonstrative legacies; (5) specific bequests and legacies of personalty; and (6) specific devises of realty. However, some statutes have changed these rules and provide that residuary real and personal property are liable rateably for the payment of debts.[4] Other statutes have replaced the common law rules with statutory rules.[5]
Daye v Daye Estate[6] is a recent example of an estate in which a gift of a life interest had to abate.
2. Facts
The testator, Laura Daye, died in 2021, survived by nine adult children. She named two of the children, Tracey and Tina, her executors. They obtained probate in 2022. They were the respondents in the proceedings in which their sister, Denise, brought an application to prevent an abatement. In 2014 Laura appointed three of her children, including Denise, as attorneys for property, but Denise renounced her role as attorney. From 2016 until her death Laura lived in a nursing home and her attorneys paid her expenses. They also managed the property, which required a lot of maintenance and repairs, and rented it to various tenants.
Using standard clauses for this purpose, Laura gave her executors a power to convert any portion of her estate and directed them to pay her debts. Then she went on to direct that the executors maintain the house as a residence under a separate trust and to permit Denise and Tina ‘to enjoy full use and occupation thereof for and during their lifetime’ with the right to sell the house if they informed the trustees that they did not wish to continue to use and occupy it. Laura left the residue equally to her nine children. The estate had some $10,000 in outstanding debts.
Denise brought an application in Chambers in Probate Court for an order directing the executors to permit her to move into the property pursuant to the life estate granted her in the will. The executors filed a notice of objection on the ground that the property had to be sold to pay the debts and therefore Denise would be unable to enjoy the life interest. The other children also filed notices of objection.
3. Analysis and Judgment
Denise argued that the attorneys had committed a number of misdeeds, that the executors failed to take steps to recover moneys allegedly owed by them, and that if they did recover the moneys there was no need to sell the house. However, the court found that there was no evidence that there was money owing to the estate by the attorneys. Besides, the executors had satisfied themselves that the attorneys had not committed any misdeeds and, in any event, executors have no obligation, based solely on unfounded allegations by one beneficiary, to seek an accounting from a former attorney in the absence of evidence of misdeeds.[7]
The court held, rightly in my view, that the interest given to Denise and Tina was a life estate. But an interest in real property may also have to abate to pay debts, and there were no other assets in this estate that would otherwise have to abate before realty. The house had to be sold to pay the debts and therefore the specific devise of the life estate had to abate. Laura had given her executors a power to sell, but in any event, they had that power at common law and also under section 50(1) of the Probate Act.[8]
—
[1] Lecky Estate v Lecky, 2011 ABQB 802.
[2] See, e.g., Canadian Imperial Bank of Commerce v Foley Estate, 1998CarswellNfld 58, 22 ETR 2d 277 (TD).
[3] See, e.g., Re Jost (1941), 15 MPR 477 (NSSC), affirmed [1941] 1 DLR 642 (NSCA), reversed on other grounds [1942] SCR 54; Lindsay v Walbrook (1897), 24 OAR 604 (CA); Mickler v Larson Estate, 2000 SKQB 426.
[4] See, e.g., Estates Administration Act, RSO 1990, c, E.22, s 5.
[5] See, e.g., Wills, Estates and Succession Act, SBC 2009, c 13, s 50.
[6] 2023 NSSC 305.
[7] For a similar case on point, see Estate of Ronald Alfred Craymer v Hayward, 2019 ONSC 4600.
[8] RSNS 2000, c 31, s 50(1).
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Written by: Albert Oosterhoff
Posted on: February 26, 2024
Categories: Commentary
1. Introduction
It is well-known that when a person dies, whether testate or intestate, his debts must be paid first. And the debts also include funeral, testamentary, and administrative expenses, as well as executor’s compensation.[1] The executors or administrators are personally liable to pay the debts and if they fail to do so and distribute the assets to the beneficiaries, the creditors can sue the personal representatives to recover the amount of the debts.[2]
If the estate is insolvent because its assets are insufficient to pay all the debts, the creditors are entitled to the entire estate according to their priority or preference. Thus, the general creditors come last and take a pro rata share of what is left.
If the assets are sufficient to pay all the debts but insufficient to pay all the gifts made in the will, some or all of the gifts may have to abate. And in the case of an intestacy the shares of the beneficiaries will have to abate as well, subject to any statutory priorities.
Abatement is the pro rata reduction of the amounts of the testamentary gifts in the case of a testate estate when the estate is insufficient to pay the gifts in full. The order in which assets are liable to pay debts is determined by well-defined common law rules. However, a testator may change the order in her will and give priority to one or more gifts.[3]
The common law order of abatement for testamentary gifts is: (1) residuary personalty; (2) residuary realty that is not specifically devised; (3) general legacies, including pecuniary legacies payable from residue; (4) demonstrative legacies; (5) specific bequests and legacies of personalty; and (6) specific devises of realty. However, some statutes have changed these rules and provide that residuary real and personal property are liable rateably for the payment of debts.[4] Other statutes have replaced the common law rules with statutory rules.[5]
Daye v Daye Estate[6] is a recent example of an estate in which a gift of a life interest had to abate.
2. Facts
The testator, Laura Daye, died in 2021, survived by nine adult children. She named two of the children, Tracey and Tina, her executors. They obtained probate in 2022. They were the respondents in the proceedings in which their sister, Denise, brought an application to prevent an abatement. In 2014 Laura appointed three of her children, including Denise, as attorneys for property, but Denise renounced her role as attorney. From 2016 until her death Laura lived in a nursing home and her attorneys paid her expenses. They also managed the property, which required a lot of maintenance and repairs, and rented it to various tenants.
Using standard clauses for this purpose, Laura gave her executors a power to convert any portion of her estate and directed them to pay her debts. Then she went on to direct that the executors maintain the house as a residence under a separate trust and to permit Denise and Tina ‘to enjoy full use and occupation thereof for and during their lifetime’ with the right to sell the house if they informed the trustees that they did not wish to continue to use and occupy it. Laura left the residue equally to her nine children. The estate had some $10,000 in outstanding debts.
Denise brought an application in Chambers in Probate Court for an order directing the executors to permit her to move into the property pursuant to the life estate granted her in the will. The executors filed a notice of objection on the ground that the property had to be sold to pay the debts and therefore Denise would be unable to enjoy the life interest. The other children also filed notices of objection.
3. Analysis and Judgment
Denise argued that the attorneys had committed a number of misdeeds, that the executors failed to take steps to recover moneys allegedly owed by them, and that if they did recover the moneys there was no need to sell the house. However, the court found that there was no evidence that there was money owing to the estate by the attorneys. Besides, the executors had satisfied themselves that the attorneys had not committed any misdeeds and, in any event, executors have no obligation, based solely on unfounded allegations by one beneficiary, to seek an accounting from a former attorney in the absence of evidence of misdeeds.[7]
The court held, rightly in my view, that the interest given to Denise and Tina was a life estate. But an interest in real property may also have to abate to pay debts, and there were no other assets in this estate that would otherwise have to abate before realty. The house had to be sold to pay the debts and therefore the specific devise of the life estate had to abate. Laura had given her executors a power to sell, but in any event, they had that power at common law and also under section 50(1) of the Probate Act.[8]
—
[1] Lecky Estate v Lecky, 2011 ABQB 802.
[2] See, e.g., Canadian Imperial Bank of Commerce v Foley Estate, 1998CarswellNfld 58, 22 ETR 2d 277 (TD).
[3] See, e.g., Re Jost (1941), 15 MPR 477 (NSSC), affirmed [1941] 1 DLR 642 (NSCA), reversed on other grounds [1942] SCR 54; Lindsay v Walbrook (1897), 24 OAR 604 (CA); Mickler v Larson Estate, 2000 SKQB 426.
[4] See, e.g., Estates Administration Act, RSO 1990, c, E.22, s 5.
[5] See, e.g., Wills, Estates and Succession Act, SBC 2009, c 13, s 50.
[6] 2023 NSSC 305.
[7] For a similar case on point, see Estate of Ronald Alfred Craymer v Hayward, 2019 ONSC 4600.
[8] RSNS 2000, c 31, s 50(1).
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