Among the many duties of an estate trustee is the task of ascertaining what assets form the estate and the value to be attributed to them. This process is critical to determine estate administration tax that may be applicable, whether there is enough value to satisfy any debts and administration expenses of the estate and ultimately how the net estate will be divided amongst beneficiaries. However, as was seen in Murphy Estate, 2012 ONSC 974 (CanLII), a mistake in determining what assets form the estate can prove detrimental to the interests of contracting parties.
In Murphy Estate, Mrs. Mildred Irene Murphy preferred two of her three natural children in her will. In order to avoid litigation, her children and two step-children attempted to contract privately as to the disposition of the estate. In this regard it was agreed that the residue of the estate would be divided equally among the five children.
Unfortunately, the contract contemplated that a RRIF account the deceased held in her name with TD Waterhouse formed a part of the estate. She designated her sons, Michael and Stephen Fines as beneficiaries. This means that the RRIF does not form part of the estate but in fact passes outside of the estate directly to the named beneficiaries. There was no evidence presented detailing how long she held the RRIF, whether it predates her 1995 will or how long her sons were designated as beneficiaries.
The contract between the parties was signed when only a preliminary investigation had been made of the estate’s assets, then thought to be worth $266,282.29, and the estate’s liabilities. Furthermore, it was premised on the RRIF account, worth about $150,000, being part of the estate. Thereafter, it was discovered that the estate also owed $70,000 to Revenue Canada. There were also back taxes owed for 2005. There were also the legal accounts that had to be paid from the estate to both the applicant and the respondents throughout this litigation.
The court noted that it was clear that none of the parties had made a clear inquiry as to what the exact assets and liabilities of the estate would be. The court further determined that simply by relying on the pro forma statement by counsel as to what the assets appeared to be is not enough to change a non- estate asset into an estate asset.
The court reviewed the case law regarding the impact of mistakes on the validity of contracts. In this regard, relevant case law stated that if the unmistaken party is ignorant of the other’s mistake the contract will be valid and binding. However, in this case it was observed that all of the parties were mistaken as to the value of the estate net of liabilities. Thus, the court concluded that the TD Waterhouse RRIF was not to be an asset of the estate and, therefore, was not required to be paid back to the estate.
This case highlights the importance of verifying with reasonable certainty all estate assets and debts, especially before contracting on the basis of that information.
If you would like assistance in determining estate assets and debts or have a question about another aspect of estate administration, please contact Andrea Kelly.
*****
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.
