ONTARIO
SUPERIOR COURT OF JUSTICE
KITCHENER COURT FILE NO.: ES-780-12
DATE: 2012-12-06
IN THE ESTATE OF SARAH MCMAHON GRAFTON
B E T W E E N:
Margaret Ross, also known as Sarah Margaret Ross, Executor and Trustee of the Estate of Sarah McMahon Grafton, Deceased
Steven D. Gadbois, for the Applicant
Applicant
- and -
The Canada Trust Company, Executor and Trustee of the Estate of Sarah McMahon Grafton Deceased, S. Graeme Ross, J. Gordon Ross, Grafton J. Ross, James H. Ross and The Estate of Sarah Mary Jane Ross
Ross F. Earnshaw, for the Respondent The Canada Trust Company
Mark A. Radulescu, for the Respondents Graeme Ross, Grafton Ross and James Ross
Steven D. Gadbois, for the Respondent Gordon Ross
Respondents
HEARD: November 20, 2012 at Kitchener
MILANETTI J.
[ 1 ] This is one of those cases where I need to remind myself of the oath I swore upon appointment – to judge fairly and without sympathy or prejudice.
[ 2 ] The 92 year old Margaret Ross brings this application to have her co-executor/trustee, Canada Trust, removed from their responsibilities to the estate of her late mother, Sarah McMahon Grafton.
[ 3 ] The testator died July 28 th , 1971, leaving a will and three codicils (May 14, 1968, June 21, 1968, February 4, 1970, and September 14, 1970 respectively).
[ 4 ] The will named a number of individuals/entities as co-executors and trustees. Only two remain – Ms. Ross (the daughter of the testator) and the Canada Trust Company.
[ 5 ] This dispute revolves around a very large and quite valuable piece of cottage property in Muskoka; a place that is described as quite idyllic, the foundation of years of family memories and happy times.
[ 6 ] The will left a life interest in each of the testators’ daughters, Ms. Ross and her now deceased sister. They were to maintain the property during their lifetimes, a capital account that was to cover capital expenditures was also provided by the testator. Alas, it ran out in or about 1999.
[ 7 ] The residual beneficiaries were to be Ms. Ross’s children, three of four of those (Graeme, James and Grafton) are respondents opposed to this application.
[ 8 ] The fourth son Gordon supports the application. I heard that the property is large, well situated on the lake, and thus quite valuable.
[ 9 ] Ms. Ross, I heard, invested approximately $126,000.00 of her own money into the property. It is argued that full disclosure of these expenditures has not been made. Moreover, there is wonder whether the funds represent capital expenditures or maintenance costs. If the latter, the responding residual beneficiaries argue that such should not be repaid Ms. Ross as such expenditures were contemplated as her responsibility during her lifetime.
[ 10 ] Ms. Ross brings this application to have Canada Trust removed as she says they have prevented her from obtaining funds to maintain and improve the property when funds ran short.
[ 11 ] I understand Ms. Ross (through her son Gordon) had managed to negotiate a private ‘reverse mortgage’ with one Glen Drew. Mr. Drew, in 2009, agreed he would be willing to advance funds of approximately $180,000.00 to $200,000.00 with interest at the rate of 8 percent per annum calculated, compounded, and payable monthly to the maturity date of the mortgage. It was contemplated that the mortgage would be for a four year term and that the mortgage would be registered in the principal amount of approximately $280,000.00 to $300,000.00 to account for the capitalization of the interest as aforesaid.
[ 12 ] Mr. Drew’s affidavit further states that it was their intention that the mortgage would be renewed on similar terms as long as Margaret Ross wanted to retain the property, and the equity supported the same.
[ 13 ] Mr. Drew’s evidence comes in an affidavit dated September 11 th , 2012. What it does not say is that Mr. Ross would be still willing to advance the funds required. An undertaking was given at cross-examination of Ms. Ross to ask Mr. Drew if he would still be willing to advance the money. The answer provided by applicant’s counsel was that he would. No other details were provided.
[ 14 ] While counsel’s answer to an undertaking provides some evidence the absence of detail, and most importantly the absence of any such information in Mr. Drew’s recent affidavit, causes me significant concern. So too does the complete absence of any clear details of the size or terms of the said private loan. I thus afford the information little weight. This evidence is quite fundamental to the application and should have been much clearer. I find it to be quite vague.
[ 15 ] Ms. Ross asks that Canada Trust be removed as trustee given their failure to agree to this private reverse mortgage when it was first proposed back in 2009 and to date. I understand from the materials before me that Canada Trust communicated that they could not agree to a private mortgage, a reverse mortgage. It would appear that little happened after that time until the municipality in 2011 threatened to take steps to sell the property given the tax arrears that had been accumulating for more than three years ($29,000.00 currently I understand).
[ 16 ] I heard that the property is in need of significant repairs to its foundation (a quote of $50,000.00 to $60,000.00 was obtained quite some time ago) and that it has been entirely without electricity since 2009 when a storm knocked out the hydro lines. While electrical repairs were completed, the invoice of $7,396.55 has not been paid resulting in the lack of power to the property. Canada Trust has been paying insurance installments of $500.00 per month since January 2012; the estate account is thus overdrawn by $4,300.00.
[ 17 ] In short, maintenance for the property has fallen substantially behind. Ms. Ross attributes this to Canada Trust’s non-cooperation. She too has suffered as she has been unable to use the property in which she has a life interest owing to the absence of electricity. I am sensitive to her plight. She is struggling for a way to maintain and enjoy her life interest in her beloved cottage property.
[ 18 ] That being said, she asks me to change a fundamental term of her mother’s will – to remove a named trustee. While I have the jurisdiction to do this as a Superior Court Judge, I must not do so lightly. This cannot be done unless I am convinced that there is a solid rationale for doing so.
[ 19 ] My colleague Justice Quinn in Radford v. Radford Estate articulates the factors to be considered when asked to remove trustees. These are:
Choice of estate trustee not to be lightly interfered with;
Clear necessity for removal must be established;
Removal must be the only course to follow;
Removal to be guided by the welfare of beneficiaries;
Non-removal must likely prevent proper execution of trust.
[ 20 ] This will is most complex. It places Ms. Ross in a conflict position. While she maintains that her proposed plan to borrow funds against the property with monthly payments being capitalized, added to the mortgage and deducted from sale proceeds, would benefit both herself and the residual beneficiaries, three of the four residual beneficiaries do not agree with her approach. This position is echoed by her co-executor trustee, Canada Trust.
[ 21 ] It is the view of the residual beneficiaries that such could well preserve Ms. Ross’s life interest, but would in fact do so at the expense of their residual interest. At one point in her cross-examination Ms. Ross agreed with such statement. Her counsel argued that such agreement was in a different context –I am not sure that such was the case.
[ 22 ] Ms. Ross is doing what she can to protect her life interest in the property she loves. Sadly, I do not accept that she is acting prudently and with common sense as is her obligation as a fiduciary. It is clear on the evidence presented that the amount of money owed on the property, including the fees of Canada Trust, the arrears on the taxes, the hydro bill, the overdraft for the insurance, and the money owed Ms. Ross will eat up a substantial portion of the loan funds contemplated. There will thus be little left to address the larger repair costs needed as well as the ongoing maintenance costs going forward.
[ 23 ] Sadly, I have no confidence that the proposed plan protects either of Ms. Ross or the beneficiaries.
[ 24 ] It is clear that Ms. Ross bears the onus of satisfying me that the removal of Canada Trust is logical and the only course for me to follow. When I look at the factors required for removal of a trustee as set out above, I must say that:
Clear necessity for removal of Canada Trust has not been established
Given that the court is not to lightly infer with the discretion exercised by the testator (in choosing that act as executors and trustees), as the Weil case, 1961 157 (ON CA) , [1961] O.R. 888 at 889 (Ont. C.A.) interference must not only be well justified, but must amount to a case of clear necessity. I cannot see that a basis for justification of the removal has been adequately established; the evidence presented me falls far short of clear necessity. The only justification I see is that Canada Trust disagrees with Ms. Ross’s suggested approach.
Removal must be the only course to follow
The evidence presented me falls far short of proving that there is no other course to take but the removal of Canada Trust as a trustee/executor. Canada Trust proposes selling the property; something the will empowers the trustees and executors to do. The will gives them the “the right to list and sell the property where “it is advisable in the light of future events or circumstances not at this time determinable”.”
[ 25 ] It seems apparent that the testator had hoped that the capital account would be sufficient to pay for maintenance of the property over the life tenancies of her daughters, but it fell short. This is the unforeseen circumstance that brings us to the current situation of indebtedness and absence of an ongoing income stream to support the property.
[ 26 ] The most problematic factor for me however is that:
Removal must be guided by the welfare of the beneficiaries
Paragraph 103 of Justice Quinn’s Radford v. Wilkins decision cites Crawford v. Jardine , [1997] O.J. No. 5041 (Ont. Ct. (Gen. Div.)) which states that: “In deciding whether to remove an estate trustee, “the court’s main guide should be the welfare of the beneficiaries”.”
[ 27 ] While Ms. Ross argues that a reverse mortgage would provide funds to complete the required capital repairs to the foundation for instance, (thereby increasing the value of the property) I am uncertain if that will in fact increase the property value. If a purchaser were only interested in this lakefront property; intending to tear down the cottage for instance, it may well be that the money would have been unnecessarily spent.
[ 28 ] Moreover, I have a substantial concern as to the amount of money that would have to be borrowed to settle the debts, fix the property and allow the ongoing maintenance. I cannot say that the proposed decision is in the interests of the beneficiaries as much as it is in Ms. Ross’s.
[ 29 ] Ms. Ross has been put in an untenable position – she so clearly wants to maintain her life interest, but her fiduciary obligation is to preserve the trust assets.
[ 30 ] A mortgage of unknown dimension will clearly deplete the asset; part of it may enhance the value, but that is in itself uncertain.
[ 31 ] I must thus agree with the respondents. The application has failed to provide justification for the removal of Canada Trust. Her application must fail.
[ 32 ] The parties may provide me with three page written submissions as to costs within 15 days of the date of this judgment.
MILANETTI J.
Released: December 6, 2012
KITCHENER COURT FILE NO.: ES-780-12
DATE: 2012-12-06
ONTARIO SUPERIOR COURT OF JUSTICE IN THE ESTATE OF SARAH MCMAHON GRAFTON B E T W E E N: Margaret Ross, also known as Sarah Margaret Ross, Executor and Trustee of the Estate of Sarah McMahon Grafton, Deceased Applicant - and – The Canada Trust Company, Executor and Trustee of the Estate of Sarah McMahon Grafton Deceased, S. Graeme Ross, J. Gordon Ross, Grafton J. Ross, James H. Ross and The Estate of Sarah Mary Jane Ross Respondents REASONS FOR JUDGMENT MILANETTI J. JAM:mg
Released: December 6, 2012