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Executors Fees and 3 Year Rule of Vesting Real Estate with No Probate

Executors Fees and 3 Year Rule of Vesting Real Estate with No Probate
Date: 11 Sep, 2022| Author: Fred Streiman

A number of years ago we touched on the complicated area of what your executor also known as an estate trustee will be paid for fulfilling their role in administering an estate.

In the 2022 decision by the Honourable Mr. Justice F. Bruce Fitzpatrick of the Ontario Superior Court of Justice in Winkworth v. Murray, the court had to deal with a number of complicated issues.  The case revolved around the late mother’s estate and her three surviving adult children.

Two of the children were named as executors and all three were named as equal beneficiaries.  The case is yet again another example of why this author’s initial inclination is against having multiple executors. It is a frequent comment by our clients, that they do not wish to favor one child over another, that they love all of them equally and as such want to name all of their children as executors. Our response is that you can show your love by naming all of them as equal beneficiaries, but generally speaking, multiple executors in the absence of complete cooperation can lead to unexpected difficulties, costs and delays.

The two executors in this case, despite being siblings, fought for 7 years over the administration of their mother’s relatively straight-forward estate, repeatedly appeared before the court seeking its assistance when there really should have been no need for a single court application.

For reasons beyond this author’s comprehension, one of the arguments before the court was what executor’s compensation should the two estate trustees receive. Considering that any fees that the executors receive are deducted off the top of the estate, and that the two executors are entitled to two-thirds of the estate, they are by and large paying themselves. Not only are they paying themselves, but they are converting a tax free inheritance into taxable income. Another manifestation of a family having deep-seated problems.

Justice Fitzpatrick, justifiably spent a great deal of time lambasting the executors, raised a number of important points that we will canvass in this blog.

What should the court do when a adult child continues to live in the home of the now-dead willmaker rent free?  How should the estate deal with this issue, which is a relatively frequent occurrence. The case strongly infers that compensation be paid and that it should be along the lines of occupation rent, a subject not unheard of in the family law context.  One can look at the market value of the of the benefit being received by the child over staying in the home.

As we discussed in our blog article posted some 8 years ago titled Paying your Estate Trustee, there are a number of guiding principles for estate trustees and the courts in determining what compensation or executors’ fees should be paid.

Justice Fitzpatrick accurately summarize the law.  It is not only found in the Trustee Act section 61 (1) but also there is much judge made law on the point.  As a launch pad we have the rough 5% tariff of the total value of the estate assets which is described by Justice Killeen in the 1990 Jeffrey Estate decision.  However, that is only the starting point and there are five factors that the court will look at in determining the amount of executors’ compensation to be paid. Those five factors were first set out in the 1905 decision RE Toronto General Trusts Corp. and Central Ontario Railway and also confirmed in the 2021 decision of the Ontario Divisional Court in Feinstein v. Friedman. The five factors are:

a. The size of the trust;

b. The care and responsibilities involved;

c. The time occupied in performing the duties of trustee;

d. The skill and ability shown by the trustee; and

e. The success resulting from the administration of the estate by the trustee.

In the decision of Justice Fitzpatrick, he sarcastically commented that the two executors demonstrated significant ability in finding ways not to cooperate to complete the estate administration. Justice Fitzpatrick expressed the simple common sense opinion “I think being an estate trustee means having to compromise”.

In the end, Justice Fitzpatrick granted the executors compensation of approximately 2.5% rather than 5% of the value of the estate.  Note that this figure is taxable and the legal fees spent in pursuing this in addition to resolving other petty complaints would have far outweighed anything that was received.

Another interesting point raised in the decision is the often-overlooked provision of the Estate Administration Act section 9. It holds that even in the absence of probate, generally speaking, title to property is vested in the beneficiaries even without a conveyance. An executor has the ability to register that legal transfer.  This is only of modest benefit as few executors can wait for three years to elapse before transferring real estate. However this is an esoteric area of real estate/estate law that estate lawyers keep tucked in their back pocket.

JOINT TENANTS vs TENANTS-IN-COMMON

Date: 29 Mar, 2022| Author: Fred Streiman

There is no more basic yet more misunderstood term in real estate than the difference between joint tenancy vs. tenants-in-common.

These are the two most common methods for multiple people or companies owning a single property. There is a vast difference between the two, despite the similarities in their names. Joint tenancy  or Joint Tenants means there is an automatic right of survivorship between the multiple owners. If two or more people own a single property as joint tenants, upon the death of one of them, their ownership interest automatically flows to the others irrespective of the deceased’s Will. Far and away the most common example is that of the family home. The vast majority of couples purchase their homes and take title as joint tenants. Upon the first of the spouses to die the other becomes with very little legal work or formality the sole registered owner of that property. One’s Will has no effect and is irrelevant.

Tenants-in-common has no right of survivorship. When one of the multiple owners who hold a property as tenants-in-common dies, their interest goes wherever their Will says it goes. This is appropriate for business or partnership relationships. Tenants-in-common permit different percentage ownership interests in a property unlike joint tenancy.   In Joint tenancy every owner must have the same percentage ownership

The difference is immense and careful attention needs to be paid to this. 

Severing Joint Tenancy

Land Titles First Dealings Probate Exemption – Part 2

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Date: 02 Sep, 2021| Author: Fred Streiman

When a lawyer looks at the Province of Ontario’s Parcel Register, one can find an official record of the legal status of any parcel of land in Ontario.  Some people take advantage other online services, but those are not legally reliable.  There is no substitute for a parcel register operated by the Province of Ontario – Service Ontario.  This is all registered under the Teranet system by which the Province of Ontario keeps track of all properties throughout the Province of Ontario.

The magic words one needs to find when looking at the parcel register to determine whether or not a property qualifies for the land titles first dealings probate exemption can be found in the upper left-hand corner under the title Estate Qualifier.  If a property qualifies, one needs to see the acronym LTCQ or Land Titles Conversion Qualified.  If these magic words are found that is only the first step.  The next step is to see the date of the conversion from registry office into land titles, generally the date of the PIN creation date.  The third step is to look for any transfers or mortgages after that date effecting the land.  If such a transfer or mortgage can be found, then the first dealings exemption has been used up and probate cannot be avoided.  A transfer would include one by a personal representative, which almost always is an executor of an estate.  What does not trigger the loss is a survivorship application and usually a transmission/land.

If the description beneath estate qualifier is Fee Simple Absolute, then the exemption has been lost and probate must be applied for.

An exotic and esoteric corner of the world that can have very significant cost consequences to our clients.  Again, justifying why one needs a qualified Wills and Estates’ lawyer to assist in the administration of an estate.

Stressed About the Mortgage Stress Test…

Stressed About the Mortgage Stress Test
Date: 11 Jun, 2021| Author: Rebecca Rosenberg

By:  Rebecca Rosenberg

Effective June 1, 2021, the federal government has implemented a higher bar for the mortgage “stress test”. The amended stress test will now be set at either the higher of 5.25 per cent or two full percentage points above the borrower’s current mortgage rate. While the new level is only half a percentage point higher than it was before (previously 4.79%), buyers’ purchasing powers are expected to be cut by about five per cent.

The mortgage stress test was introduced in 2017 in an attempt to cool demand in Canada’s searing housing market. The test is used by the banks to ensure that homebuyers can keep up with their mortgage payments amid rising interest rates without sinking into debt. Presumably, the changes were made to offset the current decline in interest rates due to the COVID-19 pandemic.

Here’s how the test works: if you have a $400,000 mortgage and your interest is at 1.8% on that mortgage, you are paying a yearly interest of $7,200. If you want to refinance your home or take out a new mortgage, according to the new stress test, you will have to be able to withstand your interest payments at the higher of the two previously mentioned rates. If you end up falling under the 5.25 per cent level, then you must qualify your mortgage at that interest rate for an amount of $21,000 a year instead of $7,200.

Contrary to the government’s purported aim for changing the test, critics have expressed concern that the increased percentage will alienate buyers, especially first-timers, from an already tumultuous housing market.

If the goal is to cool down the market, amending the stress test only treats the symptoms and not the cause. Increasing pressure on buyers won’t lessen demand. There are a host of other factors that contribute to supply and demand in the housing market. These factors include issues, such as international buyers and immigration, neither of which will be slowing down anytime soon.

Nevertheless, the new stress test is here to stay. That is why it’s important now more than ever to ensure that you qualify for a mortgage before you enter into a purchase and sale agreement. Otherwise, you’re on the hook for a contract you may not be able to afford.

PRESUMPTION OF RESULTING TRUST APPLIES TO REAL ESTATE

Date: 06 Nov, 2020| Author: Fred Streiman

DO NOT ADD YOUR CHILDREN ON TITLE TO YOUR HOME TO AVOID PROBATE

In another blog article we discussed the treacherous extension to beneficiary designations of the legal creature known as the presumption of resulting trust. That line of cases is fraught with many difficulties which are explained in that blog article.

However in the recent Ontario Court of Appeal decision in Kent v. Kent, the court held that a transfer of real estate is subject to the same presumption. The presumption was thusly applied. The owner of a property, in this case a mother, added her daughter as a joint tenant owner to her home gratuitously. After the daughter died, the beneficiary of her will, claimed after the mother subsequently died that the house is now mine. The court said no, that unless the recipient can rebut the presumption, there is a deemed presumption that the recipient – the daughter in this case – was holding her interest in the home in trust for the grantor – the mother in this case.

In an attempt to simplify the concept, we provide the following example. To begin one must understand the concept of joint tenancy, especially with respect to real estate.

Joint tenancy is the common method by which married couples own their homes and other property, but it can apply to any multiple owners of real estate. Owning property as a joint tenant means upon the death of one, there is an automatic right of survivorship. The surviving party, irrespective of the deceased’s Will, is now the owner of the deceased’s portion in that property. As an example, if a husband and wife own their home as joint tenants and the husband dies, the wife automatically is now the owner of the entire home irrespective of the husband’s Will and there is no need for probate or court approval.

But what if an aging parent adds a child or children as equal joint tenant owners? The Court held in Kent v. Kent that the presumption of resulting trust applies. In other words, because the daughter in this case paid no money in return for receiving her half interest in the house, the onus was on her to prove that the adding of the daughter’s name as a joint tenant owner was indeed meant to be a gift and not that the daughter was holding it in trust for her mother.

The specific facts in Kent v. Kent are rather unusual and complicated and it is unlikely that exact scenario will arise again. But what makes this decision important, is that when a child is added on title to a homethat is not the end of the matter. Kentv. Kent is an Ontario Court of Appeal decision, in other words, the second highest court in Canada to have weighed in on this issue.

In our office, we have a strategy for avoiding probate yet still sheltering the parental home from ex-husbands and wives of the parents’ children or creditors. It is important that a fully detailed trust declaration is completed and it is inappropriate to simply add a child’s name as one of the joint owners of a property in the hopes of avoiding the necessity of probate.

SEVERING JOINT TENANCY

Date: 14 Jan, 2020| Author: Fred Streiman

In an earlier blog, we canvassed the difference between joint tenancy and tenants in common. We concluded that blog with the question; what if the intention of one of the owners of the real estate changes their mind, and no longer wishes there to be an automatic right of survivorship.

How this is done is an area has been canvassed by many judges over many years in many jurisdictions. Justice Reid in 2019 in the decision of Marley vs. Salga reviewed the law on this issue. Quite frankly, the facts are so exotic and specific they do not justify repeating. (well I do anyone but very briefly below). However, the author does recommend the case as being an excellent summary of the law on this complex area.

The leading case in Ontario on severing a joint tenancy is Hansen² 2012 Ontario Court of Appeal. It reinforced the laws English roots arising from the famous 1864 decision of Williams vs. Hensman which sets out three methods by which a joint tenancy can be severed. One example is anyone of the persons operating upon his own share may cause a severance as to that share. Such an owner always has the right to sever their interest from the joint tenancy and end of course at the same time their own right of survivorship. Secondly, a joint tenancy may be severed by mutual agreement. The third alternative is there may be a severance by any course of dealing sufficiently clear that the interest of all were mutually treated as constituting a tenancy in common. There must be an express acts of severance, it is not suffice to rely on an intention or a declaration behind the backs of the other person’s interest. Chief Justice Winkler in the Hensman decision in essence reduced it down to the three rules:

  1. Unilaterally acting on one’s own share such as selling or encumbering it.
  2. A mutual agreement between the co-owners to sever the joint tenancy.
  3. Any course of dealing sufficient to prove that the interest of all were mutually treated as constituting a tenancy in common.

It is the last that is the most indefinite and gives rise to litigation. The normal method of severing a joint tenancy, which is definitive, is simply to convey one’s own interest to oneself. This does not require a consent of any other interested party and clearly meets rule number one set out above.

In the unique facts of the Marley vs. Salga decision, the deceased had made survivorship provisions in his Will, but that was not sufficient. More importantly, was a recorded conversation at the hospital of the parties involved in which the severance was discussed and in that unusual fact situation, the survivor appeared to agree with the abandonment of the right of survivorship.

There is great controversy over whether or not the decision is correct and nonetheless this was the decision. The case should be looked upon not so much as a precedent based upon its particular facts, but as a review once again of the important law of what it takes to sever a joint tenancy.

What is the risk if one fails to sever a joint tenancy upon separation? At times, a simple commencement of a court action has been determined to be a dealing which negates the joint tenancy. But any prudent lawyer would advise if one no longer wished the automatic right of survivorship to take place and they are willing to abandon their own potential benefit of the right of survivorship to take active steps and to sever the joint tenancy. As stated earlier, this can be done as simply as transferring one’s interest in the property onto themselves.

JOINT TENANTS VS TENANTS-IN-COMMON

SUPPORT DEAD OR ALIVE

Date: 12 Dec, 2019| Author: Fred Streiman

One’s entitlement to support from an estranged spouse or common law partner is governed either by the Divorce Act or the Family Law Act. After death, a dependent that has not been properly looked after by the deceased in their Will may bring an application for dependent relief under the Succession Law Reform Act. In most circumstances, if a party is a dependent of a deceased that failed to make such a provision, they may commence an action under the Succession Law Reform Act for dependency relief. One cannot contract out of that obligation unlike the right to receive spousal support under both the Divorce Act and the Family Law Act.

The courts have held on a number of occasions the purpose of a dependent support order under the Succession Law Reform Act is significantly different than the purpose of a spousal support order under the Divorce Act. One needs to start with the decision in Cummings² a 2004 decision of the Ontario Court of Appeal and the decision in Phillips- Renwick vs. Renwick Estate a 2003 trial decision of the Ontario Superior Court of Justice.

While support if bared under a valid agreement can be waived one cannot contract out of the entitlement to dependent relief under the Succession Law Reform Act.

Gifts to Children and Family Law Issues, Repayment and Limitation Periods

Date: 15 Oct, 2015| Author: Elliott Dale

Thumbnail-LogoAt Dale Streiman Law LLP, we are asked as lawyers for the purchaser to act on all matters.  On financing, when purchasing a home, there are monies lent by a parent to child for the purposes of down payment and closing costs.  While often called a “gift” or “loan”, the expectation is that such monies are to be repaid at some point in the future.  If the lender permits such loan or gift, the monies being loaned by a parent to child should be secured in some fashion.  The preferred route would be by way of a subsequent mortgage registered against the property on closing as this becomes registered security.  In the alternative, a promissory note can be given payable either on demand or with terms of payment over a certain period.  However, it must be known that a promissory note does not provide registered security like a mortgage and could give rise to default by the child on such “gift” or “loan”.  In either case, the documents should be executed by the child and their spouse, if applicable and the parent providing the said funds.  If a mortgage is given, the parents giving the loan should hold the property as joint tenants, with a right of survivorship in the event the parents are elderly.  Joint ownership of any mortgage, loan or lien would result in the ownership of the loan being passed to the surviving owner/spouse in the event that one of the spouses dies.

The other disturbing issue that many parents and clients are not aware when parents loan children monies for their purchase is that if the loan is not secured, monies advanced by the parents may be considered by any court as a gift not to the child alone but their spouse.  If monies were secured by way of mortgage or a promissory note, the documents would be prepared based on a “demand loan” so that the parents can demand the return of the monies. If the parents loan the monies and payments on the loan are to be made sporadically, monthly or otherwise and such payments are not made for two years, the courts may decide that the loan cannot be enforced under the terms of the Ontario Limitations Act. That may result with the spouse of the child remaining in the home, without liability to repay the parents on any loan even if the loan was secured by way of a registered mortgage on the property or by an unsecured debt evidence, such as a promissory note.

Parents often ask if the interest if charged under such loan is to be declared as income on the parent’s tax return.  The answer is that interest is to be declared unless such interest is forgiven or rescinded and evidence of such forgiveness is in writing and if that complies with cases and rules of the Canada Revenue Agency. The parents can forgive the interest accruing under some debt annually on such basis.

ELLIOTT DALE/SHANA DALE

Negotiation of chattels and fixtures: Are they included or not?

Date: 14 Sep, 2015| Author: Elliott Dale

Thumbnail-LogoWhen you walk into a new home, you are not just looking at the colour of paint or choice of flooring. The furniture, mirrors, light fixtures, and appliances, all play into the aesthetics and feel of a home and may be one reason you buy a specific home over another. You might like the upgraded appliances or the rustic pantry in the kitchen. One thing to consider though is whether the furniture, appliances and fixtures you see come with the house or whether they are “extra”. Each residential Agreement of Purchase and Sale in Ontario contains a chattels and fixtures clause. When you go to look a new home you must determine, with the use of experienced realtors, whether an item is considered a chattel or fixture, and whether such is included with the purchase price or excluded.

In Ontario, all fixtures are deemed to remain with the property unless the seller excludes them. A vendor can take a chattel with them unless they include them in the agreement. It can be confusing to differentiate. A good rule of thumb is to ask whether the item is attached to a wall or space or can it be easily removed, almost temporary. If it only attached by a plug or a hook such as a mirror or picture, it would likely fall under chattel but if it is built in or requires tools to remove it, it likely falls under the category of fixture.

If you are a vendor, even if the answer seems obvious, clarify with your agent if there is something you want to keep to ensure that it is clearly written in the agreement. If you are a purchaser, do not assume that all you see will be yours and ensure your agent understands your needs. It is better to be overly cautious than move in on closing to discovery missing items you thought would be there. The more detail listed in the agreement the better. The parties are best to record by make and model the chattels to remain and what are to be excluded. Often, a good realtor can negotiate what fixtures and chattels are included or excluded in an agreement.

Specific attention should be paid to the hot water tank, furnace, alarm system or other equipment as these may be subject to rental contracts or leases. Your offer should clearly state whether or not the furnace and/or other equipment is being included in the purchase price. If you are a vendor, and if the furnace/a/c/equipment is being financed, you may be surprised to learn that you have to pay the entire balance off before closing. A warranty is made by the vendor that all included chattels are being transferred “free and clear of all encumbrances”, thus all the equipment being transferred has to be fully paid off.

In summary, diligence and detail is key to ensure all parties understand what they are buying, and what they are selling to avoid any disappointment, cost or large out of pocket payouts before closing.

By Shana Dale

Gifts to Children and Family Law Issues, Repayment and Limitation Periods

Date: 29 Jun, 2015| Author: Elliott Dale

Thumbnail-LogoAt Dale Streiman Law LLP, we are asked as lawyers for the purchaser to act on all matters.  On financing, when purchasing a home, there are monies lent by a parent to child for the purposes of down payment and closing costs.  While often called a “gift” or “loan”, the expectation is that such monies are to be repaid at some point in the future.  If the lender permits such loan or gift, the monies being loaned by a parent to child should be secured in some fashion.  The preferred route would be by way of a subsequent mortgage registered against the property on closing as this becomes registered security.  In the alternative, a promissory note can be given payable either on demand or with terms of payment over a certain period.  However, it must be known that a promissory note does not provide registered security like a mortgage and could give rise to default by the child on such “gift” or “loan”.  In either case, the documents should be executed by the child and their spouse, if applicable and the parent providing the said funds.  If a mortgage is given, the parents giving the loan should hold the property as joint tenants, with a right of survivorship in the event the parents are elderly.  Joint ownership of any mortgage, loan or lien would result in the ownership of the loan being passed to the surviving owner/spouse in the event that one of the spouses dies.

The other disturbing issue that many parents and clients are not aware when parents loan children monies for their purchase is that if the loan is not secured, monies advanced by the parents may be considered by any court as a gift not to the child alone but their spouse.  If monies were secured by way of mortgage or a promissory note, the documents would be prepared based on a “demand loan” so that the parents can demand the return of the monies. If the parents loan the monies and payments on the loan are to be made sporadically, monthly or otherwise and such payments are not made for two years, the courts may decide that the loan cannot be enforced under the terms of the Ontario Limitations Act. That may result with the spouse of the child remaining in the home, without liability to repay the parents on any loan even if the loan was secured by way of a registered mortgage on the property or by an unsecured debt evidence, such as a promissory note.

Parents often ask if the interest if charged under such loan is to be declared as income on the parent’s tax return.  The answer is that interest is to be declared unless such interest is forgiven or rescinded and evidence of such forgiveness is in writing and if that complies with cases and rules of the Canada Revenue Agency. The parents can forgive the interest accruing under some debt annually on such basis.

ELLIOTT DALE/SHANA DALE

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