DATE: 20011220
DOCKET: C33803
COURT OF APPEAL FOR ONTARIO
CHARRON, MACPHERSON AND CRONK JJ.A.
IN THE MATTER OF THE ESTATE OF ERNEST McLAUGHLIN
B E T W E E N:
THE ESTATE OF FLORENCE BEATRICE RAY McLAUGHLIN
Herbert T. Arnold for the appellant
Claimant (Appellant)
- and -
ROBERT McLAUGHLIN, JOHN McLAUGHLIN, STUART BRUCE McLAUGHLIN and THOMAS EDWARD O’MARRA
Brian P. Pilley for Mary Diana McLaughlin
Estate Trustees (Respondents)
Paul T. O’Marra
for the Estate of Ernest McLaughlin
HEARD: October 17, 2001
On appeal from the judgment of Justice Casimir N. Herold dated January 28, 2000.
MACPHERSON J.A.:
A. INTRODUCTION
[1] The central issue in this appeal is whether the trial judge erred in his assessment of the role and conduct of a man involved in the administration of two estates – his mother’s and his brother’s. Bruce McLaughlin, representing his mother’s estate, made a claim for approximately $400,000 against the trustees of his brother Ernest’s estate three years after his brother’s death. The trial judge dismissed the claim and gave effect to a provision in the brother’s will that would transfer $50,000 to a trust for three of the intended beneficiaries of the mother’s estate.
B. FACTS
(1) The parties and the events
[2] Stewart and Florence McLaughlin were married for many years. Stewart died first. Florence made her last will and testament on January 15, 1965. She named one of her seven children, Ernest, as her executor and trustee. She named a second son, Bruce, as alternate trustee in case Ernest died before her or was “unable to act” as trustee. Florence’s will authorized Ernest to pay her debts, funeral expenses and estate taxes or duties. The will also dealt with the residue of her estate by devising it to Ernest as trustee to be used for the benefit of Florence’s children, in the exercise of Ernest’s absolute discretion:
I give . . . my remaining property . . . to my said trustee upon the following trusts, namely:
(b) To administer at his absolute discretion the residue of my estate in whatsoever manner he sees fit for and to the exclusive benefit of . . . my sons and daughters who shall all be referred to as “my beneficiaries”.
It is my [intention] that my trustee administer my estate in such a fashion as to provide for financial emergencies in which any of the beneficiaries of this trust will may [sic] find themselves at any time during their lives. However expenditures and distributions may be made at any time, in any proportion or size, and to any, several or all of the beneficiaries, and for any purpose whatsoever at the entire discretion of the trustee, either to meet said financial emergencies or for the general benefit of the beneficiaries. [Emphasis added.]
[3] Florence died on April 7, 1971, leaving seven children, Reginald, Bruce, Ernest, Donald, Ivy, Violet and Marjory. Ernest began to serve as trustee. The principal step he took was to sell Florence’s home fifteen years later, in 1986, for a net realization to the estate of $167,878.94. Ernest deposited this amount into his personal bank account. He transferred $100,000 from this account to his investment account in January 1987. The remaining $67,878.94 remained in his personal account and was fully depleted, to unknown recipients for unknown purposes, within 18 months.
[4] None of Ernest’s siblings raised any questions or concerns about Ernest’s administration of his mother’s estate from 1971 to 1993. Donald, the only sibling to testify at the trial, said that he knew Ernest had sold his mother’s home in 1986 for about $186,000, that Ernest had put the proceeds into his own account and was managing them with a view to enhancing or augmenting them, and that “I saw nothing wrong with that”. On one occasion, Ernest gave Donald $3000 and Donald thought that on another occasion Ernest gave Marjory $2000.
[5] In 1993, Ernest was in failing physical and mental health. His sons John, a teacher, and Robert, a pilot, and his brother Bruce, a lawyer and land developer, stepped in to make arrangements for his personal care and the management of his financial affairs. They placed him in a nursing home. On July 27, 1993, Ernest revoked his previous wills and signed a new will in which he named John, Robert, Bruce and his family lawyer, Thomas O’Marra, as executors and trustees. On the same day, Ernest also signed a new power of attorney naming the same four men as attorneys. The will contained a new provision relating to the distribution of some of the residue of his estate:
- THE SUM OF $50,000.00 is to be kept in trust to meet any emergencies in the case of my two sisters Ivy and Violet and my brother Donald so long as they shall live, less amounts received by them since the date of July 27, 1993, and upon their demise the balance is to become part of the residue of my estate.
[6] Ernest died on October 9, 1996. In November 1996, the trustees, including Bruce, applied for probate of Ernest’s estate and swore that the assets in the estate were $408,640.
[7] Three years passed. In 1999, Bruce took three steps. In August, he sought and obtained an appointment of succeeding (to Ernest) trustee of his mother’s estate. In December, by court order he was removed as trustee of Ernest’s estate. Also in December, and now wearing the single hat of trustee of his mother’s estate, he launched this claim on behalf of the beneficiaries of that estate against the trustees of Ernest’s estate. The claim was for $167,878.94 plus pre-judgment interest from December 16, 1986, the date on which Ernest had deposited the proceeds of the sale of his mother’s house into his personal bank account.
(2) The litigation
[8] The claim against Ernest’s estate was heard by Herold J. in January 2000. He dismissed the claim for $167,878.94 plus pre-judgment interest from December 16, 1986 and held that Ernest’s estate was liable to pay Florence’s estate only the $50,000 (plus interest) provided for in Ernest’s 1993 will. The principal basis for the trial judge's decision was his conclusion that Bruce, acting in his personal capacity and as trustee of his mother’s estate, acquiesced in an arrangement whereby Ernest’s obligations as trustee of his mother’s estate would be satisfied by the inclusion in Ernest’s 1993 will of the new provision setting aside $50,000 for the benefit of his surviving and potentially needy siblings, Donald, Ivy and Violet. It was wrong, therefore, for Bruce, three years after Ernest’s death, to resile from this arrangement and make this claim on behalf of his mother’s estate.
[9] The appellant, the estate of Florence, speaking through the surviving trustee Bruce, appeals from the trial judge’s decision.
C. ISSUE
[10] The issue on the appeal, as set out in the appellant’s Notice of Appeal, is whether the trial judge “erred in finding that the claimant had settled its claim against Ernest McLaughlin (now deceased and represented by the Estate Trustees) for an accounting of the Estate of Florence Beatrice Ray McLaughlin”.
D. ANALYSIS
[11] I think it useful to deal first with the appellant’s central submission and then move to a consideration of related, but secondary, submissions.
- (1) Principal submission – no acquiescence
[12] The appellant’s principal submission is that the trial judge erred in reaching this conclusion:
I am satisfied, on the particular facts of this case, that Bruce acquiesced . . . in his capacity as surviving executor and trustee of the Florence estate.
The appellant contends that this conclusion is wrong because Bruce did not become the legal trustee of Florence’s estate until October 1999. Until then, he was not, in effect, a watchdog for Florence’s estate, but simply one of the potential beneficiaries of her estate.
[13] The trial judge engaged in an extensive review of the evidence and rejected this submission. He pointed out that in Florence’s will Bruce was named as the alternate executor and trustee of Florence’s estate if Ernest predeceased his mother or was “unable to act”.
[14] Thus, in this case, the trust instrument expressly provided for a successor trustee to Ernest. Although the will did not stipulate a process for the formal removal, discharge or substitution of trustees, by its terms it clearly contemplated substitution of trustees consequent upon Ernest’s inability to act.
[15] By 1993, it was clear that Ernest’s health was failing. In July 1993, he signed a new power of attorney designating Bruce as one of four attorneys.
[16] Importantly, on the same date, Ernest also signed a new will. His 1992 will was a conventional one providing for his wife and four children. There was no provision for any of Ernest’s siblings. His 1993 will established the $50,000 trust for his siblings Donald, Ivy and Violet. The trial judge’s observation about this development was:
[Bruce] orchestrated and virtually dictated the terms of a new will in 1993 and a power of attorney with compatible terms. In those documents in which Bruce was named an executor and an attorney, there is provision for a $50,000 trust fund for the benefit of some of the beneficiaries of Florence’s trust will. It is also clear that Bruce assisted in the drafting of these documents based upon his apparent understanding that Ernie felt some responsibility to those persons and no other reason for that other than the trust obligation is apparent to me on the evidence.
[17] I agree with this analysis. It is supported by the trial testimony of John and Robert McLaughlin and Thomas O’Marra, three of the four trustees of Ernest’s estate. It is also supported by the testimony of Donald, who was called as a witness by Florence’s estate:
Ernie said to me – he said, I should say, that I should speak to Bruce, if I needed any immediate – any help, okay, because he was declining in health at that time, I suppose.
[18] Counsel for the appellant argued on appeal that the trial judge’s finding was inconsistent with certain documentation prepared by Bruce sometime subsequent to the July 1993 will that, on its face, appears to suggest that there were ongoing negotiations. However, in and of themselves, these documents do not detract from the trial judge’s finding that there was a settlement in July. This is particularly so since Bruce, the key player in the events of the summer of 1993 leading to Ernest’s new will, did not testify. In the trial judge’s words, he “was not available to give evidence at trial, having made other arrangements which took him out of the country”.
[19] No finding of legal incapacity was made concerning Ernest in 1993. However, he began that year to reside in a nursing home, arranged by his four attorneys. He suffered from Alzheimer’s disease, or a similar condition, and could no longer understand his financial and related affairs. Thus, he had clearly become “unable to act” as trustee of Florence’s estate.
[20] In the spring of that year, Bruce began to perform the acts of the office of trustee of Florence’s estate, although his assumption of this role was not then confirmed by Ernest in writing, or by the courts. Bruce’s conduct in arranging for a new power of attorney and will for Ernest, which included provision for the $50,000 trust fund for Ernest’s needy siblings, and his subsequent review with Ernest’s other attorneys of the assets of both Ernest’s and Florence’s estates, were actions extending beyond those of a mere potential beneficiary under Florence’s will. In December 1993, Bruce confirmed in writing to Ernest’s solicitors that Ernest had relinquished to him the role of executor of Florence’s estate. He continued thereafter to describe himself as Ernest’s successor in trusteeship under his mother’ will.
[21] In 1993, therefore, Bruce had become the de facto trustee under his mother’s will, in accordance with its succession terms. As stated by the trial judge:
In the case at bar, it might well be argued that Bruce did not become the administrator subsequent to his personal acquiescence but rather that he was acting as the administrator and trustee for his siblings at the time he acquiesced and that he did so in both capacities. In this connection, it must be remembered that he was named as the alternate executor and trustee of Florence’s estate if Ernie predeceased or was unable to act.
Although Bruce did not formalize that status until 1999 when he sought and accepted a certificate of appointment of succeeding estate trustee with a will, he was clearly exercising that function from the time he knew he had to take charge of Ernie’s affairs in late 1992 or early 1993 . . . .
[22] I agree with these observations. The terms of Florence’s will clearly authorized Bruce to act as successor trustee when Ernest became unable to serve in that capacity. This occurred by 1993. Moreover, Bruce’s own conduct indicated that he had assumed the responsibilities of the office of trustee of his mother’s estate. This met with no objection from Bruce’s siblings and cloaked him with authority to act on behalf of the beneficiaries of Florence’s estate in effecting a settlement of that estate’s claims against Ernest (see s. 48(2) of the Trustee Act, R.S.O. 1990 c. T.23).
[23] Bruce not only acquiesced in the establishment of the $50,000 trust fund under Ernest’s will, he facilitated its creation. This had the effect, in the circumstances described above, of settling the claims of Florence’s estate against Ernest in a manner binding upon all beneficiaries of that estate.
[24] The trial judge made a factual finding that from 1993 onwards Bruce was acting in his capacity as trustee of Florence’s estate and that he agreed to – indeed initiated – the manner in which Ernest reconciled his own assets and Florence’s estate in his 1993 will.
[25] Further, the trial judge pointed out that in November 1996, one month after Ernest’s death, Bruce joined with the other trustees of Ernest’s estate and applied for probate of Ernest’s will. In the probate application they swore that all the assets in Ernest’s estate had a value of $408,640; they said nothing about some of those assets belonging to Florence’s estate.
[26] Bruce could not, therefore, turn around three years later and attack the very will he had been so instrumental in creating. On the basis of the testimony and documentary evidence at the trial, and in the absence of a contrary explanation from Bruce, the trial judge’s analysis and conclusion on this issue are unassailable.
- (2) Other submissions
[27] The appellant contends that the trial judge erred in several other respects. The appellant did not explicitly set out these alleged errors in its Notice of Appeal. The respondents submit that the appellant’s omission in this regard violates rule 61.08(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 which provides:
61.08(2) No grounds other than those stated in the notice of appeal . . . may be relied on at the hearing, except with leave of the court hearing the appeal.
[28] There is some force in the respondent’s procedural objection. However, if one takes a liberal, perhaps even charitable, view of the additional submissions advanced by the appellant, I think it (barely) possible to regard them as ‘related’ to the appellant’s principal submission. Accordingly, I will consider them, albeit briefly.
- (a) Segregation of trust funds
[29] The appellant asserts that Ernest was under a duty, which he breached, not to commingle funds from Florence’s estate with his personal accounts. There are two problems with this submission.
[30] First, Bruce knew that the funds from Florence’s estate received by Ernest after the sale of Florence’s home were mixed with Ernest’s personal account. In a Discussion Paper he prepared for a meeting of the trustees of Ernest’s estate in the summer of 1994 he stated: “It appears reasonable to assume that Ernest sold the Hillcrest house and mixed the funds with his own funds”. There is nothing in the Discussion Paper, or elsewhere in the record, to indicate that Bruce, or anyone else, objected to Ernest’s handling of the funds from his mother’s estate. Moreover, Donald, Ernest’s and Bruce’s brother, whose knowledge of his mother’s estate was limited, testified as follows:
Q. And do you know what happened to the proceeds from the sale of the house?
A. Yes, Ernie subsequently put it into his accounts and managed it for – to enhance it. That’s my understanding . . . that’s exactly what he did. He told me he did that, yeah. I saw nothing wrong with that.
[31] Second, while it is clearly prudent that a trustee segregate trust funds and this practice is to be encouraged, there is no absolute legal duty requiring that trustees segregate all trust funds in all circumstances. Professor Eileen Gillese, in her leading text The Law of Trusts (1997) at p. 132, states that it “is unclear whether there is a duty not to commingle . . . I am of the view that it is a highly desirable practice, but not a duty”.
- (b) Accounting
[32] The appellant submits that Ernest had a duty, which he breached, to maintain his accounts in such a manner that he could answer to the beneficiaries of Florence’s estate for the management of those funds.
[33] Trustees have a clear duty to account for the handling of trust property. Under this duty, trustees must keep proper accounts of their dealings with trust property and be ready to produce them for inspection and examination by the beneficiaries upon reasonable request therefor by the beneficiaries (Gillese, supra, at p. 140).
[34] In this case, however, Bruce and Donald were clearly aware of Ernest’s intermingling of the assets of Florence’s estate with his own holdings and neither they nor any of the other beneficiaries of Florence’s estate objected in any way to Ernest’s activities. Moreover, no request was ever made of Ernest to account for the trust property from Florence’s estate, or to produce records concerning it, at any time prior to his death. In the special circumstances of this case, therefore, it is not open to the beneficiaries of Florence’s estate at this late date to be heard to complain of Ernest’s management of the trust property, or to demand a formal accounting some six years after Bruce, as acting trustee of Florence’s estate, facilitated and effected a settlement of that estate’s claim against Ernest.
- (c) Donald
[35] The appellant contends that Donald, one of Ernest’s siblings and a likely beneficiary of Florence’s estate, lacked knowledge of material facts concerning Florence’s estate, including the monetary value of the trust and that he had little to say in the administration of the trust.
[36] I am not sure that these submissions give rise to any legal consequences. The legal claim against Ernest’s estate is made by all of the beneficiaries of Florence’s estate, represented by her trustee, Bruce. The knowledge or role of a single potential beneficiary is irrelevant to the legal claim.
[37] In any event, Donald did not lack knowledge of material facts concerning Florence’s estate. He testified:
Q. And are you aware of the assets in your mother’s estate? Do you have any knowledge of that?
A. Well, of course she had the house and she had her warrants and the shares from the Bell Telephone that Reg arranged for her to buy.
Donald also knew that the principal asset, Florence’s home, had been sold in 1986 for $186,000 and he knew that Ernest was managing the estate funds. He testified “I saw nothing wrong with that”.
[38] Moreover, Donald had no interest in being involved in the administration of his mother’s estate. It is clear from his testimony that he relied on his brothers Ernest and Bruce to manage his mother’s estate.
E. DISPOSITION
[39] I would dismiss the appeal with costs.
- RELEASED: December 20, 2001
“J. C. MacPherson J.A.”
“I agree Louise Charron J.A.”
“I agree E. A. Cronk J.A.”