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A rule of inconvenience?

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A rule of inconvenience?

A centuries’ old practice gives the deceased’s personal representative one year after the date of death to wind up the deceased’s estate.  Often referred to as the “executor’s year”, the personal representative is required to gather in the assets, pay liabilities, and distribute the estate according to the terms of the will or the laws of intestacy.  Today, however, it often takes more than a year to administer an estate.  Yet, as explained in the recent case of Rivard v Morris1, interest will accrue on specific legacies not paid at the end of the executor’s year.

In Rivard, the deceased died in October 2013.  The deceased left his two daughters specific legacies of $530,000 each and the residue of his estate to his son.  After their father’s death, the daughters challenged his will.  The litigation settled in August 2016 and the daughters received their legacies (two years after the first anniversary of the deceased’s death).  The sisters then claimed that they were owed interest at 5% per year on their respective legacies.

The application judge recognized (but did not name) a common-law rule providing that interest was to be paid on specific legacies not paid at the end of the executor’s year.  However, the court exercised its discretion not to award any interest payment to the daughters on their specific legacies - one reason being that the daughters’ will challenge delayed the estate’s administration and distribution.  The daughters appealed.

The appeal was allowed.  The Ontario Court of Appeal held that the daughters were entitled to an interest payment of 5% per year on their legacies after the first year.  The ONCA noted that estates should be wrapped up within the executor’s year.  Moreover, it referenced the equitable “rule of convenience” to explain that interest will accrue on specific legacies not paid after the executor’s year ends.  Interest is payable even if it is not possible or practical to make a payment within the executor’s year, and even if the legatees caused the delay.

According to the ONCA, if a testator does not believe the rule of convenience is fair, she can postpone or specify a date for the payment of specific legacies in her will or set a different interest rate (will drafters take note!).

In this case, no alternative date for payment or interest rate was indicated in the will.  Therefore, it was presumed that the deceased wanted his daughters to be paid within a year of his passing.  The ONCA concluded that the daughters were entitled to an interest payment of 5%2 per year from the first anniversary of the deceased’s death payable from the residue of the estate (i.e. two years of interest).

With regard to the application judge’s exercise of discretion to not order an interest payment, the ONCA noted that there was no relevant Canadian or English case law indicating that courts have such discretion.  The ONCA considered arguments for and against the exercise of such discretion, but ultimately did not decide this issue.  The deceased’s son has filed for leave to appeal with the Supreme Court of Canada.3

It seems self-evident that administering an estate can often take longer than anticipated and/or be outside of the personal representative’s control.  Moreover, some estates can be difficult and complex to administer, particularly when assets are located outside of the jurisdiction or complex tax issues loom.  Will challenges bog down estates in litigation for years.  Therefore, it is not always reasonable to expect that an estate will be wound up in a year.

Nevertheless, the rule of convenience provides certainty and avoids disputes as to whether interest is payable and when such interest should accrue; it may not be a perfect rule, but it is “convenient”.  However, some in the estate bar have argued that the executor’s year should be extended to 18 or 24 months (a more realistic timeframe).  Or, perhaps, courts should have unhampered discretion to order that no interest is payable.  After all, they argue, the rule of convenience is an equitable principle and, as the ONCA stated, “discretion is a hallmark of equity”.  Estate litigation is never dull.

1 Rivard v Morris, 2018 ONCA 181 (CanLII).

2 Section 3 of the Federal Interest Act provides for a rate of interest of 5% whenever interest is payable by agreement of the parties or by law and no rate is fixed by the agreement of the parties or by law.

3 No word on whether leave has been granted.

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