CITATION: Ricci v. Ricci, 2016 ONSC 6614
COURT FILE NO.: CV-15-2706-0ES
DATE: 2016 10 24
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MICHAEL RICCI – and – LIVIO RICCI, Estate Trustee of the ESTATE OF FILOMENA RICCI
BEFORE: Fairburn, J.
COUNSEL: A. MacColl, for the Applicant
G. Solomon, for the Respondent
HEARD: September 1, 2016
ENDORSEMENT
(A)Overview
[1] Filomena and Livio Ricci had four boys. Livio experienced financial difficulties resulting in the 1997 transfer of their marital home into Filomena’s name. Filomena died in 2004. She left Livio with a life interest in the home, to be held in trust for their four sons.
[2] In 2015, without notice to the beneficiaries, Livio took personal possession of the home and obtained a new mortgage. While 3 of his sons appear to be content with their father’s actions, the applicant is not. He asks that Livio be removed as the trustee and that he be substituted in Livio’s place. He further requests that the transfer of the property to Livio personally be voided and vested back into Filomena’s estate.
[3] The application is dismissed.
(B)Filomena’s Will
[4] Filomena and Livio purchased their family home in 1976. Livio got into financial difficulties about 20 years later. In 1997 his interest in the home was transferred to Filomena in order to protect it from creditors. There is no dispute that it remained the matrimonial home, but for the fact that Filomena remained the sole person on title until her death in 2004.
[5] Filomena made Livio the executor and trustee of her estate. She granted him a life interest in the home, allowing him to use the property for his personal use and enjoyment. Upon Livio’s death, the property is to form the residual of Filomena’s estate and is to be divided equally among the four sons (including the applicant). This is equally true of any proceeds that may result from the property.
[6] The will makes Livio the executor and trustee. If he cannot act, the applicant is to be the replacement trustee. The will provides as follows:
- I give, devise and bequeath all my property of every nature and kind and wheresoever situate, including any property over which I may have a general power of appointment, to my said trustee [Livio] upon the following trust, namely: …
(b) To hold any interest I may own at my death in any lands, premises and buildings in Ontario of whatsoever tenure in which in my trustee’s opinion I may be mainly and ordinarily resident at the time of my death ... “Residential Premises” … upon the following trusts:
(i) to permit my husband, the said Livio Ricci to have the personal use, occupation and enjoyment thereof as a place of residence during his lifetime; he at his own expense paying for all utilities and operational expenses consumed in and about such residential premises.
(ii) I request and authorize my trustee out of the capital and income of my residuary estate and in such manner and proportions as my trustee at his discretion shall direct to make payments for all or any of the expenses related to the residential premises other than the expenses provided for in paragraph 3B(i) hereof.
[7] The will permits the trustee to sell the home as he sees fit. The net proceeds can be used to purchase a new residence. Any remainder falls into the remainder of the estate. The same terms apply to any new residence that may be purchased. At Livio’s death, “the residential premises and any substitution therefor shall fall into and form part of the remainder of [Filomena’s] estate” and be divided equally among the boys.
[8] Filomena specifically directed that her trustee could “use his discretion in the realization of [her] estate”. This included the power to sell parts of the estate in any manner and upon any terms as he may in his “uncontrolled discretion” decide upon.
(C)The History of the Property after Filomena’s Death
[9] At the time of Filomena’s death, there were two mortgages on the property, totaling almost $380,000, one being $318,750 and the other being $60,000.
[10] The property was transferred to Livio in his capacity as the estate trustee in 2007. Shortly after the transfer, Livio secured a $150,000 line of credit from the TD Bank. The money was used to clear the $60,000 mortgage that bore an interest rate of 9 percent per annum. It was also used to pay down the arrears that had accumulated on the other mortgage following Filomena’s death.
[11] In 2012, a $565,000 line of credit, secured by a mortgage, was obtained from the RBC. The interest rate was set at prime plus 7 percent. Livio used the RBC funds to pay off the previous mortgage and the TD line of credit. Once these payments were made, the debt owing on the property was a grand total of $366,000. Only this amount was advanced from the line of credit. The RBC mortgage was obtained with the written approval of each of the beneficiaries.
[12] By 2015 the RBC mortgage was still hovering at just in excess of $366,000. No principal had been paid down. Livio moved to replace the RBC mortgage on more favourable terms. He says that he did this for the estate. He wanted to pay some of the principal and could only do this by renegotiating the mortgage at a better rate. In order to do so, Livio transferred the property to himself. His affidavit suggests that, despite the transfer to himself, he continues to hold the property for the benefit of Filomena’s estate and, specifically their four sons. I will return to this below.
[13] Upon transferring the property to himself, he obtained a new first mortgage from the TD Bank. He increased the principle by just over $30,000 to a total of $399,000. He has provided evidence that he did this to reimburse himself for improvements he had made to the property. Recall that under paras. 3(b)(i) and (ii) of Filomena’s will, Livio is permitted to use capital and income from the estate to pay for expenses unrelated to utilities and operational expenses. It is not disputed the Livio has made capital improvements to the property since Filomena’s death, including replacing the roof, furnace, water heater and putting in new marble floors and an oak staircase. He says that between $50,000 to $60,000 has been spent on these home improvements that should increase the ultimate value of the property.
[14] The interest rate on the TD mortgage was lower than the RBC mortgage and the payments became amortized. This means that since January 2015, Livio has been paying principal and interest on the home.
[15] The applicant is one of Livio’s sons, Michael. When he learned that Livio had moved the home into his personal possession, letters were exchanged between counsel.
[16] Following upon Michael’s inquiries, Livio says that he received legal advice that he enter into a declaration of trust. While it was always his intention to hold the property in trust for his sons, in accordance with Filomena’s wishes, he decided to formalize his intention by executing the declaration of trust.
[17] The declaration is backdated to January 6, 2015, the date that he transferred the property into his personal possession. Livio attests to the fact that he did this to ensure that his intentions at the time that he transferred the property and his intentions today are clear. His intention is to remain true to Filomena’s wishes and I accept this to be the case.
[18] The declaration of trust declares that the property,[^1] the title of which is in his name, is a “trust property” and is held by him in trust for his four sons. They are each named and the document makes it clear that the estate is to be divided equally among them. It says:
… I, Livio Ricci, do hereby declare for myself, and my heirs, executors, administration, personal representatives, successors and assigns, that from after the date hereof, the lands and premises municipally known as 4 Weston Road [sic], Toronto, Ontario (the “Trust Property”), the title to which is in my name, and all of the benefits pertaining to the Trust Property are held by me in trust for the following in the percentages set forth opposite their respective names: [4 sons named with 25% each]. …
The trust herein is specifically made in accordance with the Last Will and Testament of Filomena Ricci ….
(D)The Parties’ Positions
[19] Michael says that when his father transferred title of the home to himself, and took out a new mortgage, he breached his obligations as a trustee and engaged in serious misconduct. He argues that it is clear that he should be removed as the trustee. The applicant argues that Livio’s conduct is so egregious that he simply cannot continue to act as the executor of Filomena’s estate and should be stripped of his current role.
[20] As Filomena named the applicant as her executor and trustee if Livio was unable to act, Michael Ricci asks to replace his father in this role. He also asks that the mortgage granted to Livio on January 6, 2015 be declared valid and a subsisting debt of the Filomena’s estate.
[21] Michael Ricci is not joined in this litigation by the other beneficiaries, his brothers. Indeed, his brother Christopher provided an affidavit saying that he denies his father has done anything other than act in accordance with his mother’s wishes. He disputes that the applicant is attempting to protect the beneficiaries and believes that if Michael is granted the relief requested that it would have the opposite effect. He says that he has spoken with his other brothers (not the applicant) and that they agree with him and “object to all of the relief sought by Michael”. No affidavits were filed from the other beneficiaries.
[22] Livio takes the position that he has done nothing to compromise Filomena’s estate and, in fact, has only acted so as to increase the value of the estate that will ultimately go to his sons, to be divided in accordance with her wishes. Unlike before, he is now paying down the principal on the mortgage. He has also put many improvements into the property, many of which he has not been reimbursed for. He also relies upon the declaration of trust as a means by which to make his intentions in respect to the property clear, to fulfill the wishes and directions of his late wife.
(E) Analysis
[23] Section 37 of the Trustee Act, R.S.O. 1990, c. T.23 allows the court to remove a personal representative upon grounds. A “personal representative” is defined as an executor, administrator or administrator with will annexed. Section 5 of the Trustee Act permits the court to appoint a new trustee in substitution for an existing trustee. See Limebeer Estate (Re), [2005] O.J. No. 375, at para. 19; Hawkins v. Hawkins Estate, 2013 ONSC 661, at para. 33.
[24] The question in this matter is whether Livio should be removed and replaced by Michael as the trustee.
[25] A testator’s wishes as to who should act as trustee should only be interfered with in rare circumstances: Chambers Estate v. Chambers, 2013 ONCA 511, at para. 95; Re Weil, 1961 157 (ON CA), [1961] O.R. 888 (C.A.) at p. 889. A named trustee should only be removed on the “clearest of evidence” and only where there is no option available other than to remove the trustee: Chambers Estate, at para. 95.
[26] Adopting the court’s comments in Re Leguia (No. 2) (1936), 155 L.T.R. 270 (C.A.), at p. 276, Gillese J. in Chambers, at para. 95, found that the removal and replacement of an executor is an “unusual and extreme course”, although one that does fall within the discretion of the court. A conflict of interest with the estate is one basis upon which an executor can be passed over: Chambers, at para. 96.
[27] The main guide for determining whether a trustee should be removed is the “welfare of the beneficiaries”: see Tulloch J. (as he then was) in Limebeer, at para. 20, citing Letterstedt v. Broers (1884) 9 App. Cas. 371, at pp. 385-89. The court should grant relief only where allowing the trustee to continue to act will imperil the administration of the trust: Hawkins, at para. 34; Limebeer, at paras. 22-23.
[28] The applicant and respondent encourage the court to consider a number of principles in determining whether Livio should be removed and replaced by Michael. While they state the considerations in slightly different ways, they largely come together on the factors that should be taken into account:
(a) the court should not lightly interfere with the testator’s choice of trustee;
(b) the trustee of choice should not be removed except where it is clearly necessary to do so;
(c) the court’s main guide should be the welfare of the beneficiaries;
(d) the court must find that allowing the trustee to continue will prevent the proper execution of the trust; and
(e) the past misconduct is likely to continue such that the assets and interests of the beneficiaries will not be protected.
See: Hawkins, at para. 36; Virk v. Brar Estate, 2014 ONSC 4611, at para. 48.
[29] Livio says that he has done nothing that serves to endanger the administration of the trust. In fact, he argues that everything he has done serves to enhance the value of the home to the ultimate benefit of the beneficiaries, including the applicant.
[30] The applicant argues that by moving the home into his personal possession, Livio has placed himself in an impossible conflict of position and it is obvious on its face. The assets of the beneficiaries cannot be properly protected in these circumstances.
[31] Michael points to a letter from Livio’s lawyer dated March 17, 2015 where the lawyer explains that Livio has tried to do what is best for his children and provide for his children equally upon his death. If Michael persists, though, the lawyer suggests that Livio will consider redrafting his will to exclude Michael. The applicant says that this shows he is at great risk.
[32] Of course, Livio points to Michael’s response to the letter, making certain demands, including that the applicant be replaced as the trustee and the home be sold. It is suggested that the sale proceeds can be used to purchase a one bedroom condominium in which the father can have a life interest. Livio points to this letter as evidence that if the application is granted, Michael will subvert the will of the testator.
[33] I conclude that while Livio likely should not have transferred the property into his personal possession without having first consulted the beneficiaries, much like he did when he remortgaged the property in 2012, his failure to do so is not fatal to his position as a trustee. The entire context must be considered.
[34] I accept that at the end of the day, the beneficiaries have benefited from the refinancing of the property which flowed as a result of moving the property into Livio’s personal possession. They continue to benefit from this move. The best evidence of this fact is that the applicant does not seek to challenge the validity of the new TD mortgage. Rather, he seeks an order confirming the mortgage granted to Livio as a valid and subsisting debt of the estate of Filomena. I am satisfied that despite the potential conflict that Livio placed himself in, the estate has benefited from the action he took.
[35] As for the alleged conflict, I am also satisfied that the declaration of trust clearly establishes Livio’s intentions respecting the property, intentions that align with those of the testator. The declaration makes clear that despite the fact that the property is now held in his name, he holds it in trust for his four sons. While he signed the declaration of trust long after he transferred the property into his personal name, the declaration has been backdated to the date he took those steps.
[36] Everything he has done in relation to the property has benefitted the beneficiaries. I accept that he has made significant improvements to the property and that he is now paying down the principal on the property. While it is true that Livio has threatened to write the applicant out of his own will, the declaration of trust makes clear that he intends on honouring Filomena’s wishes in respect to her property. Of course, he has no choice in this regard. He must honour Filomena’s wishes.
[37] Conversely, if the applicant replaces Livio as the trustee, he has suggested that the home should be sold and a one-bedroom condominium purchased in its stead. He says that his father may have a life interest in that condominium and live out his days there. It seems that this plan is antithetical to Filomena’s wishes, as expressed in her will.
[38] In the end, I conclude that it is not necessary to interfere with Filomena’s choice of trustee. To date, the welfare of the beneficiaries have not been compromised and, subject to an order to be made, leaving Livio as the trustee will not prevent the proper execution of the trust.
[39] While the declaration of trust, combined with the current state of the mortgage, goes a long way to satisfying the court that Livio’s actions are consistent with his obligations as a trustee, personal ownership of the trust property may cause the applicant unnecessary disquiet into the future. This is particularly true given the seemingly difficult family relationships that have developed since Filomena died. As such, the declaration of trust (once it is amended and signed) may be registered on title to the home.
(F) Final Order
[40] The application is dismissed.
[41] The declaration of trust, signed by Livio Ricci and dated January 6, 2015, is to be amended. There is a typographical error in the current declaration of trust, describing the property as “4 Weston Road, Toronto”, when in fact the property is “4 Westonwood Road, Toronto”. The amended declaration of trust will reference the correct municipal premises.
[42] The amended declaration of trust will be signed and witnessed within 14 days of the order being signed.
[43] Upon completion, copies of the amended declaration of trust will be immediately provided to each of the beneficiaries.
[44] The declaration of trust may be registered on title for the lands and premises municipally known as 4 Westonwood Road. Anyone may take steps to register the declaration of trust.
[45] While the respondent may remain the sole registered owner of 4 Westonwood Road, Toronto, for clarity and certainty, it is held in trust in accordance with the Last Will and Testament of his deceased spouse, Filomena Ricci.
[46] The respondent shall take no steps in relation to the 4 Westonwood Road, Toronto property except in accordance with his fiduciary obligations as a trustee.
Fairburn J.
DATE: October 24, 2016
CITATION: Ricci v. Ricci, 2016 ONSC 6614
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MICHAEL RICCI – and – LIVIO RICCI, Estate Trustee of the ESTATE OF FILOMENA RICCI
COUNSEL: A. Maccoll, for the Applicant
G. Solomon, for the Respondent
ENDORSEMENT
Fairburn J.
COURT FILE NO.: CV-15-2706-0ES
DATE: 2016 10 24
Date: October 24, 2016
[^1]: The property is improperly described in the declaration as “4 Weston Road”. I address this difficulty at the end of my reasons.