A centuries’ old practice gives personal representatives one year after the death of a deceased to wind up the deceased’s estate[1]. This is often called the “executor’s year”. However, in today’s world, it frequently takes more than one year to administer an estate.
What happens if a personal representative does not or is not in a position to distribute the estate after the executor’s year ends? This was the issue in the recent Ontario Court of Appeal decision of Rivard v Morris[2].
BACKGROUND
The deceased died in October 2013. In his will, the deceased appointed his three children (a son and two daughters) as the co-estate trustees of his estate. He left each of his two daughters specific legacies of $530,000 and the residue of his estate to his son.
After their father’s death, the daughters challenged his will. The will challenge settled in August 2016, finding that the deceased’s will was valid. The daughters resigned as estate trustees. The daughters were paid their respective $530,000 legacies in October 2016 (two years after the first anniversary of the deceased’s death). However, they also claimed that they were owed interest at 5 per cent per year on their respective legacies commencing on the first anniversary of the deceased’s death.
When the issue came before the application judge, the court recognized a common-law rule providing that interest was to be paid on specific legacies not paid after the executor’s year ends (the court did not name the common-law rule). However, the court exercised its discretion not to award any interest payment to the daughters on their specific legacies despite the passage of time. In coming to this decision, the court considered that (i) the daughters had been estate trustees during much of the administration period, and (ii) the daughters’ will challenge delayed the estate’s administration and distribution. The court recognized that the daughters were entitled to bring a will challenge. However, the court held that none of the parties “should be rewarded or penalized by the passage of time”[3].
The daughters appealed.
THE RULE OF CONVENIENCE
The Court of Appeal allowed the appeal, finding that the daughters were entitled to an interest payment of 5 per cent per year on their respective $530,000 legacies, from the first anniversary of the deceased’s death.
In coming to its decision, the Court of Appeal noted not only that estates should be wrapped up within the executor’s year, but referenced the related equitable “rule of convenience” to explain that interest will accrue on specific legacies not paid after the executor’s year ends.[4] The Court of Appeal defined the rule of convenience as follows:[5]
[…] subject to the terms in the will to the contrary, if a specific legacy of personal property, or mixed fund of land and personal property, is payable under a will but is not paid to the beneficiary by the anniversary date of the death of the testator, the beneficiary will begin to earn interest on the value of the property from that date until they have received that property.
“Intended to Exact Rough Justice”[6]
In further explaining the rule of convenience, the Court of Appeal stated that interest is payable even if it is not possible or practical to make a payment within the executor’s year. The Court of Appeal clarified that this rule is not damages or compensation for delay in payment. Rather, the rule is meant to be “a simple, predictable way of achieving the generally fair outcome of providing for the payment of interest on specific legacies”[7] and to give effect to the testator’s intention.
The Court of Appeal explained that, if a testator does not believe the rule of convenience is fair, he or she can postpone or specify a date for the payment of specific legacies in his or her will. Alternatively, the testator can provide for a different rate of interest to apply on specific legacies paid after the first anniversary of the testator’s death.[8]
The Court of Appeal’s Decision
In this case, the Court of Appeal explained that the deceased had not provided any alternative dates for payment of the legacies in his will. Therefore, it was presumed that the deceased wanted his daughters to be paid within a year’s time of his passing.
The Court of Appeal held that the daughters were entitled to interest on late payment of their specific legacies as payment was delayed by two years. The Court of Appeal explained that this was regardless of (i) being estate trustees during much of the administration period, and (ii) the delay in the estate’s administration caused by their will challenge. Pursuant to the rule of convenience, the daughters were each entitled to an interest payment of 5 per cent per year from the first anniversary of their father’s death (or $53,000 each), payable from the residue of the estate.
With regard to the lower court’s exercise of discretion to not order an interest payment, the Court of Appeal noted that there is no relevant Canadian or English case law indicating that courts have such discretion. While the Court of Appeal balanced arguments for and against such discretion, it did not ultimately decide this issue.[9]
CONCLUSION
It is not always reasonable to expect that an estate be wound up within one year of the date of death. Initial steps in an estate’s administration[10] often take considerable time outside of the personal representative’s control. Moreover, some estates can be difficult and complex to administer, particularly those with assets in other jurisdictions. Estates can also be tied up in court proceedings for months or even years.
As the Court of Appeal noted, one way to avoid the consequences of the rule of convenience is for the testator to specify in his or her will a date by which specific legacies are to be paid. Alternatively, a testator can provide for a different interest rate to apply on specific legacies paid after the first anniversary of the testator’s death.
It may also be that the executor’s year should be extended to 18 or 24 months. Or, perhaps, courts should have discretion to apply the rule of convenience or to award an interest payment. Each case should be decided on its facts. After all, the rule of convenience is an equitable principle and, as the Court of Appeal stated, “discretion is a hallmark of equity”[11].
When administering an estate, one should be mindful of the dual effects of the executor’s year and the rule of convenience. You might even say that it would be in one’s best interest to do so.
[1] For example, calling in estate assets, paying estate debts, and converting assets to enable distribution of the estate.
[2] Rivard v Morris, 2018 ONCA 181 [Rivard].
[4] The Court of Appeal also noted subrule 65.02(2) of the Rules of Civil Procedure, a provision to the same effect. Both the Court of Appeal and the application judge held this provision did not apply to this case. The Court of Appeal explained that this provision does not apply to all estate administration matters as it only provides for “interest on accounts taken in administration proceedings”, where the application is governed by rr 65.01 and 65.02 and where a referee has been appointed to wind up he estate. In this case, the Court noted that there was no notice of application for a proceeding for the estate’s administration, no judgment given for the estate’s administration, and no referee appointed to wind up the estate. Thus, the provision did not apply.
[8] The Court of Appeal also cautioned that giving personal representative general powers of postponement in a will is not specific enough to avoid the rule of convenience. The Court of Appeal explained that a general authority to postpone a payment does not necessarily mean the testator did not wish for interest to be paid on a postponed payment.
[9] The Court of Appeal did comment that, if discretion was available, it must be applied in the clearest of cases.
[10] For example, obtaining probate, calling in estate assets, paying estate debts, or obtaining a clearance certificate from Revenue Canada.