COURT OF APPEAL FOR ONTARIO
MacPherson, Watt and Pepall JJ.A.
In the Estate of Gail Mildred Evans (a.k.a. Gail Mildred Fray), deceased
BETWEEN
Carlton Eugene Fray, personally and in his capacity as administrator of the Estate of Gail Mildred Evans
Applicant (Respondent)
and
Richard Evans and Donald Evans
Respondents (Appellant)
George F. Brant, for the appellant
Shawn M. Philbert, for the respondent
Heard: October 8, 2013
On appeal from the judgment of Justice David L. Edwards of the Superior Court of Justice, dated March 4, 2013 and his costs order dated March 27, 2013.
Pepall J.A.:
INTRODUCTION
1This appeal concerns the distribution of a residual interest that has passed on an intestacy.
2In his judgment dated March 4, 2013, the application judge held that each of the appellant Richard Evans and his brother, Donald Evans (“Donald”), was entitled to a one-third interest in the residue of the estate of their mother who died intestate. The application judge also resolved a dispute which arose between the respondent administrator and the two brothers as to the extent of the brothers’ interest in real property which was the estate’s largest asset, and whether the value of their interest in the estate was fixed as at the date of their mother’s death or the date of distribution of the estate. For the reasons that follow, I am of the view that the application judge erred in ruling that it was the former and therefore would allow the appeal.
FACTS
3Gail Evans (“Gail”) died intestate on July 30, 1992. She was survived by her two sons from a first marriage, the appellant and Donald, and by her second husband, the respondent Carlton Eugene Fray.
4The respondent, a real estate agent, was the administrator of her estate.
5The largest asset in the estate was a residential property (“the residence”). It had previously been owned by Gail and her first husband and was the childhood home of their two sons. For financial reasons, Gail had been forced to sell the residence after her first husband left the marriage but she subsequently repurchased it in 1982 as a tenant in common with the respondent. She held a 90 percent interest in the residence and the respondent a 10 percent interest. She and the respondent lived there.
6Since Gail’s death, the respondent has occupied the residence, paid the taxes and other expenses and also caused the mortgage to be discharged in 2012. He paid no occupation rent to the estate.
7At the date of Gail’s death in 1992, based on the respondent’s estimate of value, the residence was worth $200,000. As of the date when the application was heard in March 2013, it had a value of approximately $650,000.
8In 1992, the net value of the estate was found by the application judge to be $95,745.61.
9In 1992, the respondent as administrator paid $1,763.89 to each of the sons. He then paid nothing more to the appellant until 15 years later when in August 2007, he paid him $2,000. Between 2007 and October 2011, the respondent paid $27,850 to the appellant and between November 1999 and October 2011, he paid $22,250 to Donald. The receipts for payment stated:
Received from Carl E. Fray [amount] toward the yet to be determined amount of [my] inheritance from the estate of Gail M. Fray.
10In addressing these payments, the application judge found at para. 18 of his reasons that:
Clearly, the parties were treating the situation as if Richard and Donald held an interest in the estate which was appreciating in value.
The parties conducted their affairs as if Donald and Richard held a specific interest in the real property and the payments by Carlton to them reflected the increased value of their share as a result of the appreciation of the real property.
11In November 2011, the appellant retained counsel who wrote to the respondent’s counsel and broached the subject of the completion of the administration of Gail’s estate. The respondent took the position that the appellant had been paid in full.
12Unable to agree, on October 3, 2012, the appellant caused a transmission of interest to be registered on title to the residence. The ownership interest was described as 30 percent in favour of each of the appellant and his brother and 40 percent in favour of the respondent.
13The respondent then commenced an application in December 2012 requesting a declaration that he was the sole owner of the residence and that the brothers’ entitlement had been satisfied. He sought repayment of $11,108.24 from the appellant and $5,508.24 from Donald.
14The parties agreed that pursuant to the Succession Law Reform Act, R.S.O. 1990, c. S.26, the respondent was entitled to a preferential share of $75,000 and one third of the residue of Gail’s property. The two sons were also each entitled to one third of the residue.
15The respondent as administrator never passed his accounts. There was no evidence of any release signed by the beneficiaries, and there was no court order of discharge.
APPLICATION JUDGE’S DECISION
16In a brief endorsement, the application judge identified three issues to be addressed:
Did the brothers continue to have an interest in the estate?
If so, did the estate owe the brothers money or did they have an interest in the residence?
If not, did the brothers owe the estate any money?
The application judge found that the appellant and his brother each held a one-third interest in the residue of the estate. He applied s. 9(1) of the Estates Administration Act, R.S.O. 1990, c. E.22, which provides that if not distributed to the beneficiaries within three years after the death of the deceased, real property vests in the beneficiaries. He concluded that while the brothers each had a specific interest in the real property, it did not amount to a one-third interest. Rather, as the respondent argued, each had a 2.575655 percent interest in the real property. (The respondent arrived at this figure by following four steps. First, the estate residue was $20,745.61, the difference between the net value of the estate at the date of death, which was $95,745.61, and the respondent’s preferential share of $75,000. Second, the appellant was entitled to one third of the residue, or $6,915.20. Third, the respondent paid the appellant $1,763.89 towards his share in October 1992, which reduced the share to $5,151.31. Fourthly, $5,151.31 is equal to 2.575655 percent of the value of the residence at the date of death, which was $200,000.)
17Based on the residence’s value of $650,000, each brother’s 2.575655 percent interest was worth $16,741.76. It is implicit from his reasons that the application judge calculated their percentage interest based on a date of death valuation.
18As the brothers had each been paid more than $16,741.76, they were required to pay the respondent the amounts requested by him.
PARTIES’ POSITIONS
(a) The Appellant
19The appellant submits that the respondent as administrator never concluded the administration of the estate. He failed to liquidate the assets and make a distribution of the residue to the beneficiaries.
20The application judge erred in calculating the value of the appellant’s entitlement based on the value of the residence and estate residue at the date of Gail’s death.
21Furthermore, pursuant to s. 9 of the Estates Administration Act, on July 30, 1995, three years after Gail’s death, the property vested automatically in the three beneficiaries, one of whom was the appellant. The appreciation in the value of the real property should accrue to the benefit of all of the residual beneficiaries and not just the respondent.
(b) The Respondent
22The respondent submits that the appellant’s interest in the estate was satisfied by the payments made. He argues that s. 9 of the Estates Administration Act did not give the appellant a one-third interest in the residence but an interest amounting to 2.575655 percent based on a date of death valuation. He relied on an Alberta case, Re MacLellan Estate, 2011 CarswellAlta 1471 (Q.B.) in support of his position that the correct date for determining value for distribution purposes is the date of death.
ANALYSIS
(i) Succession Law Reform Act
23The Succession Law Reform Act addresses the devolution of an intestate’s estate.
(a) preferential share
24Section 45(2) provides that when a person dies intestate and is survived by a spouse and issue, the spouse is entitled to a preferential share of the estate provided that the net value of the property exceeds the quantum of the preferential share. If the net value is less than the preferential share, the spouse is entitled to the property absolutely.
25The quantum of the preferential share is fixed by regulation, and the applicable regulation is that which was in force at the deceased’s date of death. As agreed by the parties, given that Gail died in 1992, the preferential share amounted to $75,000.
26The net value of the property is defined in s. 45 to mean “the value of the property after payment of the charges thereon and the debts, funeral expenses and expenses of administration.”
(b) distribution of residue
27Section 46(2) of the Succession Law Reform Act provides:
Where a person dies intestate in respect of property and leaves a spouse and more than one child, the spouse is entitled to one-third of the residue of the property after payment [of the preferential share], if any.
28Section 47 provides that, subject to the rights of a spouse, the property is to be distributed equally among the deceased’s children (specifically, “among his or her issue who are of the nearest degree in which there are issue surviving him or her”).
(c) statutory scheme
29Accordingly, under this statutory scheme, an administrator must:
(1) pay the charges on the property and the debts, funeral expenses and expenses of administration;
(2) ascertain the net value of the property to determine whether the preferential share may be paid to the spouse or whether the property vests absolutely in the spouse;
(3) collect and distribute the residue to the beneficiaries.
(ii) Estates Administration Act
30Section 9(1) of the Estates Administration Act provides that real property vests in beneficiaries within three years of the death of the deceased if it has not been disposed of, conveyed to, divided or distributed to the beneficiaries. Specifically, s. 9(1) states:
Real property not disposed of, conveyed to, divided or distributed among the persons beneficially entitled thereto under s. 17 by the personal representative within three years after the death of the deceased is, subject to the Land Titles Act in the case of land registered under that Act and subject to subsections 53(3) and (5) of the Registry Act and subject as hereinafter provided, at the expiration of that period, whether probate or letters of administration have or have not been taken, henceforth vested in the persons beneficially entitled thereto under the will or upon the intestacy or their assigns without any conveyance by the personal representative, unless such personal representative, if any, has signed and registered, in the proper land registry office, a caution in Form 1, and, if a caution is so registered, the real property mentioned therein does not so vest for three years from the time of the registration of the caution or of the last caution if more than one was registered.
(iii) Application of Statutory Schemes
31Applying these statutory schemes to the facts of this case, it is conceded that the net value of the estate exceeded $75,000 and that each of the appellant, Donald and the respondent was entitled to one third of the residue of the property. The property in this case consisted primarily of real property, that is, the residence in which the respondent resides.
32The valuation date for purposes of calculating entitlement to a preferential share is the date of death. In 1992, the net value of the property amounted to $95,745.61. As such, it exceeded the $75,000 preferential share by approximately $20,000. It was therefore evident that the respondent was entitled to a preferential share under s. 45(2) of the Succession Law Reform Act but was not entitled to Gail’s property absolutely.
33However, this valuation based on date of death is for the purposes of calculating entitlement to a preferential share. It does not determine the precise value of the residue as, absent agreement, this may only be ascertained on collection and conversion of Gail’s assets and distribution of the beneficiaries’ respective one-third shares. Although dealing with a different issue, the Nova Scotia Supreme Court, Appeal Division in Re Estate of Joseph W. Rudderham (1971), 1971 CanLII 1100 (NS CA), 21 D.L.R. (3d) 457, stated at p. 465:
The general rule of administration of estates requires valuation of assets to be distributed among beneficiaries to be made as of the date of distribution and not as of the date of the testator's death.
34The appellant was entitled to one third of the residue of his mother’s property. In 1992, he received a payment of $1,764.89 and nothing more until 2007.
35The application judge correctly found that the residue had not been distributed and that given the passage of three years since Gail’s death, the real property vested in the three beneficiaries without the necessity of a conveyance from the respondent as administrator. Moreover, as the application judge found, this was consistent with the parties’ expectations. They all believed that their respective interests were appreciating in value. The dispute arose because, based on the respondent’s view of things, only his share of the residue was to reflect the full appreciation in the value of the residence. Assuming reasonable expenses and costs of administration, and the absence of payment of any occupation rent, this would result in a considerable windfall for the respondent.
36In supporting the respondent’s position, the application judge erred in valuing the appellant’s interest in the residue as of the date of death of his mother. The residue of an estate is crystalized and determined after the deceased’s property has been collected and debts and expenses paid including those associated with the administration of the estate.
37It is possible for beneficiaries to agree to the quantum of their entitlement but it is clear from the record and from the application judge’s findings that there was no such agreement here.
38Furthermore, the decision of Re MacLellan does not assist the respondent. The issue in that case revolved around whether the property exceeded the quantum of the preferential share. The Alberta court used the date of death to determine that the spouse was entitled to the entirety of the estate because the value of the property was less than the quantum of the preferential share.
DISPOSITION
39I would allow the appeal, set aside the judgment of the application judge and substitute an order: (i) that the appellant has a one-third interest in the residue of Gail’s estate; (ii) directing a reference to determine the residue of the estate and the appropriate quantum of the appellant’s share of his mother’s estate. This should include, but not be limited to, an identification of the charges paid for the residence, the debts and expenses of administration, any occupation rent due on account of the appellant’s interest in the residence; and (iii) that the respondent in his capacity as administrator is to pass his accounts.
40The application judge fixed costs in the amount of $21,000 in favour of the respondent to be paid by the appellant. I would set aside that costs order and substitute an order in favour of the appellant in the amount of $7,200 inclusive of disbursements and applicable tax on account of the proceedings below. In addition, I would order the respondent to pay costs of $7,800 inclusive of disbursements and costs on account of the appeal.
Released:
“JCM” “S.E. Pepall J.A.”
“DEC 20 2013” “I agree J.C. MacPherson J.A.”
“I agree David Watt J.A.”
