Court File and Parties
COURT FILE NO.: CV-19-193-ES DATE: 2019-07-17 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Andrew James Stuart in his capacity as succeeding Estate Trustee of the Estate of Andrew Hargrave Stuart, deceased Applicant – and – Cameron and Douglas Stuart, Duncan Robertson Stuart and Thelma Beaubien in her capacity as Estate Trustee of the Estate of Doreen Honour Stuart, deceased Respondents
Counsel: Jennifer M. Krotz - Counsel for the Applicant Dawn Phillips-Brown - Counsel for the Respondents
HEARD: July 16, 2019
The Honourable Justice James W. Sloan
Reasons for Judgment
[1] This application involves the interpretation of several clauses of the will. Andrew Stuart’s will is dated March 17, 1999. I will refer to him as “the husband”. I will refer to his wife Doreen as “the wife”.
[2] Prior to November 2019, the parties lived together in a property they owned as tenants in common. In November 2019 the husband went into long-term care where he passed away on December 30, 2002.
[3] At all material times, notwithstanding their separation for medical reasons, it appears that the parties remained husband and wife.
[4] In February 2000, the wife sold off their former matrimonial home and put a deposit on living arrangements known as a “life lease”. This lease was taken as tenants in common, however, because the husband was never able to leave his long-term care facility, he never resided in the residence governed by the life lease.
[5] The wife sold the life lease in 2007 and deposited 50% of the sale proceeds into the husband’s estate.
[6] In addition to this application, I am informed that there is a hotly contested passing of accounts action which raises a myriad of issues. I am further informed that the decisions made with respect to the interpretation of the Will may assist in both a mediation and/or on the passing of accounts.
[7] The court is being asked to assist in the interpretation of paragraphs 3(b), 3(h) and 3(j) of the subject Will which read as follows:
3(b) To pay my legally enforceable debts and funeral expenses and all expenses of administering trusts created under this Will; and to pay all legacy, succession and other duties and all inheritance and other taxes, wherever payable that may be exigible by reason of my death and to charge these against the capital of my estate. I authorize my Trustee to make any election or elections under any Income Tax Act including any election or elections to defer payments or make payments in annual instalments and I further authorize my Trustee to defer, pay by annual instalments, commute or prepay any income or death taxes.
3(h) To allow my wife, during her lifetime, the use and enjoyment of whatever interest I may own in any residence we may occupy at the time of my death. My Trustee may, at any time, with the consent of my wife, sell such interest with the proceeds of such sale assist in the purchase of another residence for the use and enjoyment of my wife as aforesaid and so on from time to time, always retaining the proportionate share in such residence for my estate. If my wife so prefers, my Trustee may sell such interest in the residence and hold the net proceeds of sale in trust for my wife as hereinafter set out. If, during any period, the whole or any part of the proceeds of any such sale be not so used, they shall be invested by my Trustee and my wife shall, during such period, be entitled to the net income therefrom. My Trustee in determining the proceeds of sale of any such interest in the residence with a view to providing another interest in the residence for my wife as aforesaid, shall not deduct the amount of any debts secured thereon.
All taxes, insurance, mortgage interest, repairs and any charges or amounts necessary for the general upkeep of such residence shall be paid by my wife so long as she shall continue to have the use and enjoyment of such residence.
On the death of my wife, any interest in such residence then held for the use and enjoyment of my wife as herein provided and/or any fund then held by my Trustee representing the sale of any interest in such residence shall be added to the residue of my estate to be dealt with as part thereof.
3(j) During the lifetime of my wife, Doreen Honour Stuart, my Trustee shall keep invested the residue of my estate and to pay the net income derived therefrom to or for the exclusive benefit of my wife in such annual or more frequent periodic payments as my Trustee, in her absolute discretion considers advisable to enable my wife to live in the manner and style to which she has become accustomed during our lifetime, provided that my Trustee may at any time or times pay to or for the benefit of my wife any amount or amounts out of the capital of such residue as my Trustee requires to enable my wife to live in the manner and style to which she had become accustomed during our lifetime;
[8] The court has been asked to answer the following questions:
I. Do the provisions of paragraph 3(h) of the Will with respect to the husband’s interest in “any residence we may occupy at the time of my death” extend to a residence that was owned by the husband and his wife as tenants in common, but was not occupied by the husband as of his date of death (and had never been occupied by him)?
[9] Under the “armchair rule” the court sits in the place of the testator and assumes the same knowledge he had to the nature and extent of his assets, the makeup of his family, and his relationship to its members.
[10] In this case the testator and trustee were husband and wife. They continued to live together as husband and wife under the same roof until the husband’s medical condition deteriorated to the point where he had to be moved into long-term care.
[11] Therefore, it appears on the evidence before the court that the only reason the parties were not living together at the time of his death was because of his medical condition.
[12] There is no doubt from reading the Will as a whole that the husband’s primary concern was that his wife would be adequately looked after financially, in the event of his demise.
[13] Notwithstanding the husband using the word “we” and “occupy” as opposed to ownership in his Will, this does not alter what I find to be his intention in drafting his Will. He clearly wanted his wife to be able to remain living in whatever home she and he, but for his medical condition, would have been living in at the time of his death.
[14] It appears that the husband’s sons were aware of this intention or at least acknowledged that the wife should be allowed to remain living in the life lease residence, since they took no steps to suggest otherwise.
[15] Therefore on the facts of this case and on a contextual reading of the Will, I answer the question set out at paragraph 8(i), in the affirmative.
II. If the answer to question 8(i) is “Yes” then, during her lifetime was the wife entitled to the net income earned on the proceeds of the sale of the residence which were not used towards the purchase of another residence?
[16] Pursuant to paragraphs 3(h) & 3(j) of the Will, the wife is entitled to the net income of the residue of the estate. I will deal with the term “net income” later in this judgment.
III. What did the husband mean by the term “net income” in his 1999 will?
[17] Unfortunately the term is not defined in the Will, yet obviously something must be deducted from the gross income to arrive at something that might be concluded to be net income. I believe it is safe to assume that income tax should be deducted because most people would think of net income in those terms.
[18] Since there is an Estate and an ongoing Trust involved, it seems appropriate to also deduct the expenses which would be incurred by the Estate and/or Trust on an annual basis. These expenses would include accounting fees, legal fees and executor/trustees fees.
[19] Therefore, I find that the term “net income” as it is used in the Will should be the gross income less income tax, accounting fees, legal fees and executors/trustees compensation paid on an annual basis.
[20] After the Trust was established the expenses, to the extent possible, should be apportioned between the income and capital of the estate/trust.
IV. What was the nature and extent of the wife’s authority or discretion pursuant to paragraph 3(j) of the Will to pay any and all of the net income to herself and under what circumstances?
V. Was the nature and extent of the wife’s authority or discretion to encroach on the capital for her own benefit pursuant to paragraph 3(j) of the Will limited to: “enable my wife to live in the manner and style to which she has become accustomed during our lifetime”?
[21] Husband has left a difficult paragraph to interpret. He talks about net income for the exclusive benefit of his wife and in her absolute discretion, however, he then puts a general limiting factor on that discretion, by stating that the monies paid to his wife from either net income or capital are to “enable my wife to live in the manner in style to which she had become accustomed during our lifetime”.
[22] I find that the appropriate interpretation of this paragraph is that, while the wife was alive, the income from the Estate could only be used to benefit her and that she did not have to get the approval of anyone else on a periodic basis, i.e. her access to funds was not to be micro-managed. However at the same time there is no doubt that the husband put what I would describe as a “loose cap” on her encroachment entitlement, by tying it to their accustomed standard of living.
[23] This appears to be in general terms, a way of trying to preserve the part of his estate that his wife did not need to maintain her life style while she was alive, for his children.
VI. Was the wife required to give consideration to her own personal means of support when determining whether to make payments to herself from the net income and/or capital and, if so, to what extent?
[24] I have already ruled that the wife’s powers to encroach on the estate were subject to the condition of maintaining her lifestyle. It would, therefore, make no sense if the wife’s cash flow was not taken into account.
VII. Did the provisions of paragraph 3(b) of the Will authorize the wife to pay all ongoing accounting expenses for the spousal trust, established at paragraph 3(j) of the Will, from the capital of the Estate only (as opposed to, for example, paying such costs from the income or apportioning the expenses between capital and income)?
[25] Although, on the evidence before me, there may be little practical difference. I see no reason why costs paid by the estate should not be apportioned, if possible, between capital and income.
[26] I hope I have answered all the questions that counsel raised, and we confirmed, that the end of the hearing.
[27] If counsel feel I have missed any questions they may at contact me through the Trial Coordinator.
[28] If the parties feel that the costs of the application before me should be paid otherwise than from the Estate, or if the parties are unable to agree on costs, Ms. Krotz shall forward her brief submissions on costs to me by July 25, 2019. Ms. Phillips-Brown shall forward her brief response to me by August 1, 2019. Ms. Krotz shall then forward her reply, if any, to me by August 8, 2019. Cost submissions may be sent to my attention by email, care of Kitchener.Superior.Court@ontario.ca. Cost submissions, excluding bills of costs, shall be limited to 5 pages using spacing of 1.5 and 12 pitch font.
[29] When discussing the issue of costs and who should pay them and on what scale, the court is cognizant that the testator was, to a great extent, the cause of this Application. He chose confusing language with respect to the wife’s ability to encroach and also saw fit not to appoint a neutral trustee, or co-trustee.
James W. Sloan Released: July 17, 2019
COURT FILE NO.: CV-19-193-ES DATE: 2019-07-17 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Andrew James Stuart in his capacity as succeeding Estate Trustee of the Estate of Andrew Hargrave Stuart, deceased Applicant – And – Cameron and Douglas Stuart, Duncan Robertson Stuart and Thelma Beaubien in her capacity as Estate Trustee of the Estate of Doreen Honour Stuart, deceased Respondents
REASONS FOR JUDGMENT J.W. Sloan J.