Door opened to abuse as beneficiaries left in the cold

When Adalgisa Di Michele died in 1996, she left her house to three of her children. None of them now owns any part of the Mississauga, Ont., home thanks to a recent Ontario Court of Appeal decision on the power of an estate trustee that lawyers say leaves a door open to abuse.

The will named one of Di Michele’s sons, Antonio, as an estate trustee for the home all of her children were to inherit. But years later, when he was facing a personal litigation matter in 2002, Antonio put up his mother’s property as security. In 2010, he lost the litigation and his opponents brought an application for the sale of the home.

Di Michele v. Di Michele hinged on the question of whether Antonio’s opponents could take the home. One of the siblings, Roberto, lived in the home with his mother and was under the impression he would take it upon her death, according to the ruling.

In an April 3 decision that highlighted the scope of an estate trustee’s power, the Ontario Court of Appeal found Antonio’s opponents in the personal litigation were entitled to the entire value of the house and not just the one-third share belonging to Antonio as per his mother’s will.

The ruling found an estate trustee is the true owner of a property unless the home is sold.

In the appeal, Roberto alleged Antonio was involved in a fraud in which he misrepresented himself as the owner of their mother’s home when in fact he was just a trustee of the estate. But the court, citing s. 63 of the Land Titles Act, disagreed.

“As a result of these provisions, it is clear that Antonio had the legal right to grant the mortgage,” wrote Justice Eileen Gillese on behalf of the court.

“Antonio was in the same position as if he had become the registered owner of the property under a transfer for valuable consideration: Land Titles Act, s. 63. A registered owner has the right to grant a mortgage over his or her land: Land Titles Act, s. 93(1),” she wrote.

Before the appeal, the trial judge had found that since the 2002 action was against Antonio personally and not in his capacity as an estate trustee, he would only have to give his opponents one-third of the home’s value. But the appeal court found the mortgage put up as a security was binding on the whole of the property.

“Second, the beneficiaries’ entitlement under the will did not amount to a property interest in the property,” wrote Gillese.

“The will does not give the beneficiaries a specific bequest on the property. Rather, it gives them a contingent interest in the residue of the estate.”

She added: “Accordingly, to become entitled, a beneficiary had to be alive on the date of distribution.

Until distribution, the beneficiaries had only a contingent beneficial interest in the residue of the estate, as well as the personal right to compel the estate trustee to duly administer the estate.”

In effect, the ruling gives no consequence to the abbreviation “TWW” under a land title, which refers to a trustee with a will, says Toronto lawyer Mark Ross.

A system that treats an estate trustee as a true owner of a property also opens the door to abuse, according to Ross.

“Under the Estate Administration Act, if there’s an unfettered power to sell given to an estate trustee, [the trustee] can sit on it for as long as he wants and he doesn’t have to sell it within three years, 10 years, 15 years .
. . and until he sells it, nobody has any interest in that property,” he says.

“That is an issue — that you have an unfettered right to sell. But it’s open to abuse,” he adds, noting some beneficiaries may delay selling a property to avoid creditors. For beneficiaries with an estate trustee, the message is to act on getting the property sold so they can recover their entitlements, Ross suggests.

That an estate trustee can act like a true owner is a novel issue, he notes.

Real estate lawyer Morris Sosnovitch says it’s true the decision means real estate lawyers no longer have to investigate a title if it lists a trustee with a will. But the court’s decision to relieve lawyers of that investigation is against the trend of urging them to probe even the slightest signs of fraud, he says.

The court in this case was lax on the due diligence expected of real estate lawyers, he adds, pointing to a section of the ruling that states that after Antonio offered the property as a security, his opponents were entitled “to operate on the assumption that Antonio was acting lawfully in granting the mortgage.”

Says Sosnovitch: “This is pretty incredible given the stringencies we’re expected to govern ourselves by with respect to fraud.”

Another concern relates to the treatment of the beneficiaries in this case.

“Even though the court in this decision did not find a fraud . . . the fact is that fraud was perpetrated on the innocent beneficiaries of the estate,” says Sosnovitch.

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