Kasanda v. Sartarelli, 2023 ONSC 4400
COURT FILE NOS.: CV-21-86009 and CV-22-88918 DATE: 28/07/2023 ONTARIO SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE ESTATE OF ALFONSO SARTARELLI
BETWEEN: ELKE KASANDA, in her capacity as Estate Trustee of the Estate of Alfonso Sartarelli Applicant/Respondent – and – HELMUT SARTARELLI, in his personal capacity, in his capacity as Attorney for Property of Alfonso Sartarelli, and in his capacity as Estate Trustee of the Estate of Alfonso Sartarelli, Applicant/Respondent
- and – D. SCOTT MURRAY, in his capacity as Estate Trustee of the Estate of Alfonso Sartarelli Respondent
Counsel: Miriam Vale Peters for Elke Kasanda J.P. Zubec for Helmut Sartarelli Kathleen McDormand for Scott Murray
HEARD: April 28, 2023, with further written submissions received May 2, 2023
DECISION ON APPLICATIONS FOR REMOVAL OF ESTATE TRUSTEES
Justice Sally Gomery
[1] Alfonso Sartarelli passed away on May 24, 2018. He had two children, Elke Kasanda and Helmut Sartarelli. In his September 2016 Will, Alfonso left his Estate to Elke and Helmut and appointed them as trustees of his Estate, along with his long-time solicitor, Scott Murray. [1]
[2] The administration of the Estate has not advanced significantly over the last four years. Elke alleges that Helmut has unreasonably refused to pursue claims by the Estate for debts he allegedly owed to Alfonso and that he is generally unfit to act as a trustee. Helmut accuses Elke of obstructing the Estate’s administration, acting unilaterally, refusing to accept the advice of experts, and generally disregarding her duties as an Estate trustee.
[3] Elke and Helmut have now each brought an application to remove the other as an Estate trustee. Although Elke’s original application sought Murray’s removal as well, she and Murray have since reached an agreement whereby she will pay his legal fees and Executor’s compensation and he will seek to resign, with her support. He will bring a motion for an order authorizing him his resignation, if necessary, following the adjudication of these applications.
[4] For the reasons that follow, Helmut’s application is granted and Elke’s application is dismissed. As Alfonso’s heirs, both Elke and Helmut have a personal interest in the outcome of the Estate’s administration. I find, however, that Helmut has consistently acted in the Estate’s interests and has relied on professional advice appropriately. His continued role as Estate trustee will not compromise its administration. Elke has preferred her own interests by refusing to cooperate with the co-trustees or authorize steps necessary for the Estate’s administration. To the extent she has taken action to move matters forward, she has done so unilaterally. I find that she has either misunderstood or disregarded her fiduciary duties and that this conduct will continue if she is not removed as Estate trustee.
Legal Principles on an Application to Remove an Estate Trustee
[5] Section 37(1) of the Trustee Act, RSO 1990, c. T.23, as amended, authorizes a judge to remove an executor. Where an executor is not the sole executor, the court need not appoint a person to replace them: s. 37(4).
[6] In Radford v. Radford Estate (2008), 2008 ONSC 45548, 43 E.T.R. (3d) 74 (Ont. S.C.), at paras. 100-113, Quinn J. canvassed the principles on an application to remove an estate trustee. They were later summarized in Johnston v. Lanka, 2010 ONSC 4124, 103 O.R. (3d) 258, at para. 15, as follows:
(1) the court will not lightly interfere with the testator’s choice of estate trustee; (2) clear evidence is required that removal of the trustee is necessary; (3) the court’s main consideration is the welfare of the beneficiaries; and (4) the estate trustee’s acts, or omissions must be of such a nature as to endanger the administration of the trust.
[7] An estate trustee named in a will should be removed only “on the clearest of evidence that there is no other course to follow”: Crawford v. Jardine, [1997] O.J. No. 5041 (Ont. Gen. Div.), at para. 18; Re Weil, 1961 ONCA 157, [1961] O.R. 888 at p. 889. Even if an estate trustee has not executed their functions perfectly or ideally, “that is not the test”: Radford, at para. 120; St Joseph’s Health Centre v. Dzwiekowski, 2007 ONSC 51347, at para. 25.
[8] Past misconduct may justify removal if it is likely to continue in the future. The court must assess “whether the trust estate is likely to be administered properly in accordance with the fiduciary duties of the trustee and with due regard to the interests and welfare of the beneficiaries”; removal “is intended not to punish trustees for past misconduct but rather to protect the assets of the trust and the interests of the beneficiaries”: St Joseph’s Health Centre, at para. 28.
[9] Conflict between co-trustees may also warrant removal. Unless a will provides otherwise, executors appointed pursuant to it must act jointly, and their decisions must be unanimous: Kaptyn Estate (Re), [2009] O.J. No. 1685, 2009 ONSC 19933, at para. 16; Dewaele v. Roobroeck, 2020 ONSC 7534, at paras. 51 and 54. If the application judge is satisfied that the due administration of the estate would be compromised absent removal, then removal is justified: Chambers Estate v. Chambers, 2013 ONCA 511, at paras. 98 and 99. In some cases, dissension and animosity amongst co-trustees has been held to justify removal, even without any finding of misconduct: St. Joseph’s Health Centre, at paras. 29 and 30; Dewaele, at paras. 54 to 56, and other caselaw cited by Sheard J. in her decision in that case.
Facts Relevant to the Applications
The Parties’ Relationship Prior to Alfonso’s Death
[10] Helmut and his wife, Caroline Sartarelli, had a close relationship with Alfonso. Helmut bought Alfonso’s garden ornament business in 1995. They worked together for many years, both before and after the sale. They lived on adjoining properties for many years before Alfonso moved in with them. Caroline, an accountant, prepared Alfonso’s tax returns. Alfonso had a joint account with Helmut for decades.
[11] Elke’s relationship with Alfonso was strained for many years. She felt that she and her husband Paul Kasanda did not receive the same financial support that her parents gave to Helmut and Caroline. Elke wrote to Helmut in 2010, questioning whether it would be fair if Alfonso failed to include her in his will. In 2017, she wrote to Caroline, saying she wanted to review Alfonso’s will with his solicitor (Murray), Helmut and Alfonso. According to Murray’s July 29, 2022 affidavit, he met with Elke and her husband Paul Kasanda in mid-2018 and reviewed the terms of Alfonso’s Will with them.
[12] As already mentioned, Alfonso died on May 24, 2018. There is no evidence that he lacked capacity when he executed the September 2016 Will.
Alfonso’s Will and the Administration of the Estate to July 2019
[13] Alfonso’s Will is straightforward. He transferred all his property at his death to the appointed Estate trustees. He directed the trustees to pay all debts, including income taxes, and to sell any assets for this purpose. He directed that his rental property on Stittsville in Ottawa be transferred to Elke and that the contents of the joint account be transferred to Helmut. Any residual assets were to be split equally between Helmut and Elke.
[14] The administration of the Estate proceeded smoothly for the first year after Alfonso’s death. An application was filed for a certificate appointing Murray, Elke, and Helmut as Estate trustees under Alfonso’s will. The total estimated value of the Estate in the statement of assets, prepared by Murray and filed with the application, was $278,000. Most of this represented the value of the Stittsville property. No debts allegedly owed by Helmut to the Estate or claims by the Estate against Helmut (or anyone else) were listed. According to Murray’s July 2022 affidavit, he did not list any liability that Helmut might have pursuant to a mortgage and promissory note executed in Alfonso’s favour in 1995, “because of the applicable limitation period, no payments had ever been made, and no demand had been made on the promissory note”.
[15] Elke did not raise any concern or questions about the statement of assets. A certificate of appointment was issued, on consent, on September 21, 2018.
[16] Helmut paid for Alfonso’s funeral costs, unpaid medical bills, probate fees, and various expenses. Elke says that she spent $40,000 improving the Stittsville property before it was put on the market. She also received all rent paid for the property, even though Helmut had personally paid some utilities and insurance payments for it after Alfonso’s death. The property sold for $320,000. This money was deposited in a trust account at Murray’s firm (the “Trust Account”). Following the sale, Murray transferred $200,000 from the Trust Account to Elke as an interim distribution.
[17] In early 2019, Helmut and Murray agreed to have Elke’s accountant, Eoin Ruane, prepare Alfonso’s 2018 tax return, even though Caroline had prepared them historically and offered to do it for free. The tax return was filed on April 27, 2019. The Estate trustees agreed that the taxes calculated in the return, $7,224, should be paid from the Trust Account. According to Caroline, Murray asked her to review the return, as he suspected that it failed to declare all taxes owing in respect of the Stittsville property. After reviewing Alfonso’s earlier tax returns, Caroline confirmed on July 15, 2019 that the Estate would have to pay recapture tax because Alfonso had claimed a capital cost allowance for the property’s depreciation in the years prior to his death. She prepared a spreadsheet with the relevant information and forwarded to Ruane, Murray, and Elke.
The Disagreement Over Allocation of the Estate’s Liabilities
[18] A serious disagreement arose in July 2019 over the payment of the Estate’s liabilities.
[19] In a July 9, 2019, letter, Murray advised Helmut and Elke of the Estate’s deficit and his opinion about how it should be addressed. He was of the view that the Estate owed Helmut $17,876, to reimburse him for expenses he had paid on the Estate’s behalf. It owed legal fees and executor’s compensation to Murray, totaling $11,141. And it would have to pay the Canada Revenue Agency recaptured taxes due in respect of the Stittsville property, which Murray provisionally estimated would be between $8,000 to $13,000. [2] Murray wrote that there was “virtually no rest, residue or remainder” in the Estate, and that:
The law pertaining to the payment of debts and expenses of an estate are that same are paid firstly from residue and if that is insufficient then the specific legatees and devisees entitlements are reduced pro rata to the extent necessary to pay those items. Simply put, the estate’s assets are firstly available to pay the testamentary expenses being reasonable funeral and legal expense, then to satisfy creditors, then to be distributed, firstly, to specific devisees and legatees and thereafter to residuary beneficiaries.
[20] Murray advised Elke and Helmut that they would “need to abate in terms of the actual sums which they are receiving and those abatements are to be calculated pro rata”. He calculated that Elke had been gifted 89.76% of the Estate (based on the net realization on the sale of the Stittsville property), while Helmut’s share (the joint bank account) accounted for only 10.25%. Based on these percentages, Elke would have to reimburse $26,000 for Estate expenses that Helmut had already paid and for legal fees and executor’s compensation due to Murray. Helmut’s share of these expenses was $2,971. Murray proposed that Helmut and Elke should cover any further taxes to be assessed in the same proportions.
[21] Elke rejected this proposal as unfair. In her view, it did not recognize the labour that she put into renovating the Stittsville property prior to putting it on the market. More fundamentally, as stated in her May 2022 affidavit, the proposed division of the Estate’s liabilities was inequitable because she received a “pittance” in Alfonso’s Will compared to the cash and properties that Helmut received from their father during his lifetime, which in her view “likely amounted to close to $2 million”. She took the position, and continues to assert, that Helmut should reimburse some of this money to the Estate.
[22] As a result, Elke has refused to authorize any payment to Helmut from the Trust Account.
Elke’s Application and Motion for Directions
[23] In March 2021, Elke brought one of the two applications now before me (CV-21-86009). In it, she seeks Helmut and Murray’s removal as Estate trustees; an order for Helmut to pass his accounts as Alfonso’s attorney for property prior to his death; a determination as to whether Helmut breached his duties as Estate trustee or as Alfonso’s power of attorney for property prior to his death and, if so, a determination of his debt to the Estate; and disclosure of all of Murray’s records regarding work he had done for Alfonso over his lifetime. Elke alleges that Helmut never fully paid the purchase price for the garden ornament business that he acquired from Alfonso in 1995; that he improperly removed over $250,000 from the joint account with Alfonso; and that he mismanaged Alfonso’s financial affairs, resulting in recapture taxes on the Stittsville property on his death. She takes the position that the Estate should pursue Helmut for the amounts she believes he owes, and that Helmut and Murray have failed to comply with their duties as Estate trustees by failing to do so.
[24] In a decision on a motion for directions in January 2022, I dismissed Elke’s request for disclosure of Murray’s files and directed that the parties participate in mediation. If the parties’ dispute failed to resolve, I directed that a hearing on Elke’s application to remove Helmut and Murray as Estate trustees should proceed first, since she did not require leave to seek this relief. I adjourned the balance of the outstanding issues without making any determination as to whether Elke would satisfy the threshold such that a trial of them should be ordered. I later granted Helmut leave to bring his own removal application (CV-22-88918), to be heard together with Elke’s application.
The CRA Issue
[25] From August 2019 to June 2022, the Estate failed to file an amended 2018 tax return for Alfonso that recognized liability for unpaid taxes.
[26] On August 26, 2019, the Estate’s accountant Ruane e-mailed Helmut, Elke, and Murray an updated 2018 income tax return for Alfonso. Based on the amended return accounting for the tax recapture on the Stittsville property, Ruane calculated that the Estate owed the Canada Revenue Agency a balance of $22,985. Ruane asked the trustees to sign the amended return so it could be filed. Murray agreed and Helmut deferred to his opinion. Elke demurred. On September 16, 2019, she instructed Murray not to make any payment to the CRA from the Trust Account because she and her husband were “still reviewing the calculations” and would need “a few more days”.
[27] In November 2021, Murray’s office wrote to Elke recommending payment of the taxes owed by the Estate based on the amended return. She did not authorize payment.
[28] In March and April 2022, lawyers for Helmut and Murray again each tried to convince Elke that the taxes owed to the CRA based on the amended return should be paid. They were concerned about interest and penalties that could be assessed, given the delay in filing and payment. Elke’s initial response, through her lawyer Ms. Vale Peters, was that the Estate did not have any liability for taxes because Alfonso’s amended 2018 return for 2018 had not yet been filed. She also took the position that there were other tax issues that should be addressed, such as whether Helmut and Caroline had failed to claim appropriate tax deductions or credits for Alfonso and whether a capital cost allowance should have been claimed on the Stittsville property in prior years.
[29] Elke’s response prompted Helmut to retain a tax expert, Denis Chainé. In June 2022, Chainé wrote a report affirming that a taxpayer cannot avoid tax liability by failing to file a return. Chainé also confirmed that interest accrues on unpaid taxes from the date they are due (in this case, May 1st, 2019) and that failing to file despite being advised by an accountant they taxes are due could trigger penalties.
[30] In her May 11, 2022 affidavit, Elke denied that she was blocking the Estate’s administration by failing to authorize the CRA payment and affirmed that she “was prepared to direct” payment of the taxes owed by the Estate. In response, Helmut’s counsel Mr. Zubec sent Ms. Vale Peters an authorization and direction for Elke’s signature so that the amended 2018 return could be filed and the amount owed could be paid to the CRA. On June 2, 2022, Ms. Vale Peters advised that Elke had signed a freshly dated copy of the amended tax return, which she had obtained from Ruane. She proposed to file it, but only on the condition that Helmut would personally pay the bulk of the taxes owed. Helmut and Murray objected to this proposal, given that there were sufficient funds in the Trust Account to pay the taxes owed.
[31] On July 29, 2022, Murray served an affidavit stating that Elke had refused to authorize the payment of money owed to the CRA based on the amended 2018 account, despite his advice to her that she should do so. He expressed the view that the interest and penalties could be accumulating, for which the Estate trustees could be personally liable.
[32] On September 9, 2022, Elke filed a responding affidavit through which she notified Helmut and Murray, for the first time, that she had filed the 2018 amended tax return on August 15, 2022. She asserted that she would pay any taxes assessed “since no one else is stepping up to the table”. She takes the position on these applications that she never impeded filing the amended 2018 return, but only a sending a cheque to CRA in the absence of an agreement between the Trustees about the allocation of the money to be paid.
[33] On December 15, 2022, the Estate received a notice of assessment from CRA for taxes owed based on the amended 2018 return. The notice included a charge for $4,258 in interest. Helmut made a payment to CRA for 10% of the total amount owed, based on Murray’s July 2019 opinion about his liability for the Estate’s debts. The balance owing was paid from the Trust Account. The parties have still not agreed on whether the Estate or Elke should ultimately be liable for the interest charge.
Elke and Murray’s Settlement
[34] In her May 11, 2022 affidavit, Elke stated that Murray had told her that he would resign as Estate trustee provided that the taxes owed to the CRA were paid, his legal fees and executor’s compensation were paid, and he obtained a release from any liability in connection with his work as Estate trustee. Elke said that she had agreed to these terms. This was the context in which she affirmed that she was prepared to direct immediate payment of amounts owed by the Estate. She added that she would support a motion that Murray intended to bring to obtain the court’s consent to his resignation.
[35] On receipt of this affidavit, Mr. Zubec wrote to Ms. Vale Peters expressing the view that Helmut was entitled to disclosure of any correspondence between Elke and Murray about a settlement, because the trustees were obliged to be transparent in their dealings. He also expressed the view that she would be breaching her fiduciary duty if she agreed to Murray’s resignation in return for her compliance with her obligations as Estate trustee.
[36] On January 17, 2023, the parties met, with their counsel, to discuss a potential settlement of their dispute. Discussions between Helmut and Elke fell apart, and Helmut indicated that he was leaving the meeting. Elke and Murray indicated that they were going to continue their discussion without him. Helmut nevertheless opted to leave.
[37] On February 2, 2023, Murray and Elke signed minutes of settlement. The terms are as follows:
- Elke and her husband agreed to sign a joint and several indemnity in Murray’s favour in respect of any claims by the CRA against him for taxes, interest, or penalties owed by the Estate, to a maximum of $200,000.
- Elke agreed to personally pay Murray’s legal costs of $9,955 on the motion for directions; his reasonable costs on a motion to resign as Estate trustee, if required; $11,786 in legal fees for work done for the Estate (unless Helmut agreed they should be paid from the Trust Account); and executor’s compensation of $5,875 (unless, once again, Helmut agreed that this amount should be paid from the Trust Account).
- Elke agreed to consent to Murray’s motion to resign as Estate trustee, and to support his position that the motion should be heard before or at the same time as the hearing of Elke and Helmut’s removal applications. On issuance of an order permitting Murray to resign, Elke anticipated obtaining a direction or order transferring the funds held in trust for the Estate from Murray’s firm to her lawyer, Ms. Vale Peters.
- Elke waived any right to request an accounting from Murray for the period during which he acted as Estate trustee, or to cross-examine him on any affidavits he had sworn or would swear in these applications or his motion to resign.
- Elke agreed to abandon her request, in her application, for an order for Murray’s removal as Estate trustee, and to execute a full and final release and indemnity in Murray’ favour.
[38] When Helmut received a copy of the minutes of settlement, he refused to consent to have Murray’s motion to resign heard ahead of the removal applications, on the basis that the motion might not be necessary. He also refused to consent to the payment of Murray’s legal fees or executor’s compensation, on the basis that he could not determine if they were reasonable, and because the Estate might not have sufficient funds to pay these amounts in full.
The Estate’s Current Assets
[39] Approximately $67,000 currently remains in the Trust Account. There is an additional $15,000 in the joint account.
Should Helmut be Removed as Estate Trustee?
[40] Elke contends that Helmut should be removed on three bases: (1) he has preferred his own interests over his fiduciary duty; (2) he refuses to concede that the mortgage he granted to Alfonso in 1995 is a debt owed to the Estate; and (3) he cannot competently administer the Estate. The last ground was not raised in Elke’s application, but I allowed her to amend it during the oral hearing since Helmut had been put on notice of this argument in her factum.
[41] Having carefully considered Elke’s submissions, I find that she has not established that Helmut should be removed as Estate trustee.
Helmut Has Not Acted to Prefer His Own Interests Over His Duties as Trustee
[42] Elke contends Murray’s July 2019 opinion attributing 90% of the Estate’s debt to her was wrong and that Helmut accepted this opinion only because it favoured his personal interests. She likewise suggests that Helmut preferred his own interests in agreeing with Murray’s assessment that the Estate has no viable claim against Helmut. She argues that his position on these issues shows that he is in a conflict of interest and that he is incapable of acting in the interest of the Estate’s beneficiaries.
[43] I reject these arguments. Helmut was not, by virtue of his fiduciary duty as Estate trustee, required to accept Elke’s opinion on legal issues over Murray’s opinions. There is furthermore no evidence that Helmut’s position on these issues has hampered the administration of the Estate to date, or that it would endanger the Estate absent his removal as trustee.
[44] It was reasonable for Helmut to accept Murray’s July 2019 opinion on the apportionment of the Estate’s liabilities and his assessment that the Estate had no viable claims against Helmut. Murray is an experienced lawyer. He had been Alfonso’s solicitor for decades. He assisted both Alfonso and his late wife, Helmut and Elke’s mother, in preparing their wills. There was no evidence to suggest that Murray was inherently biased in Helmut’s favour. He has explained, in his affidavits, why he concluded that the Estate had no right of action against Helmut with respect to the mortgage and promissory note executed almost thirty years ago.
[45] On the issue of the allocation of liabilities, Elke relies on Re Simpson, 1927 ONSC 388 in support of her argument that the Estate must pay any debt or encumbrance on a specific legacy to be provided for the beneficiary’s own use. This does not really assist her since both specific bequests in Alfonso’s 2016 Will — the joint account given to Helmut, and the Stittsville property given to Elke — were explicitly given for their “own use”. Elke cites caselaw from other common law courts for the proposition that, where an estate does not have sufficient funds to satisfy its creditors, estate trustees should exhaust the value of all other assets before abating or reducing the value of “specific devises of real property”. She relies in particular on Baxevanidis Estate v. Kennell, 2007 BCSC 165, a case where B.C. Supreme Court directed that a specific gift of real estate in a will did not have to be sold to satisfy a tax debt where the residue was insufficient. Baxevanidis is factually distinguishable from the case at bar in two respects: the beneficiary in Baxevanidis was willing to pay an amount equal to the tax debt to avoid the sale of the real property bequeathed to her, and there was no competing specific bequest to another beneficiary at risk of abatement. Elke has not presented any decision on all fours with the case bar. I cannot therefore conclude that Murray’s opinion about the allocation of the Estate’s debts was clearly wrong, or that Helmut was unreasonable in accepting it.
[46] On the issue of potential recovery against Helmut, I declined to determine whether Elke met the threshold test set out in Neuberger v. York, 2016 ONCA 191 in my decision on the motion on directions. Based on Murray’s affidavit evidence, however, he actively assessed whether the Estate had viable claims against Helmut. He concluded that it did not, given the history of the dealings between Alfonso and Helmut and the limitations issue. This was a reasonable conclusion on the information before him.
[47] More importantly, I do not find that Helmut’s position on the issues in dispute has prevented him from acting appropriately as Estate trustee. On the evidence before me, Helmut has attempted to carry out his duties notwithstanding the dispute that arose in July 2019. On the advice of the Estate’s accountant and the Estate’s lawyer, he agreed to file the amended 2018 tax return or to authorize payment of taxes owed. Through his own lawyer, he repeatedly attempted to persuade Elke to authorize the CRA payment. He engaged Denis Chainé, at his own expense, to provide an opinion. This was necessary because of Elke’s unreasonable position exposed the Estate, and the trustees personally, to interest and penalties. When additional taxes and interest were assessed, Helmut personally paid 10% of them, consistent with Murray’s 2019 opinion. He did this even though, unlike Elke, he has not received any interim distribution.
[48] Elke herself accepted the statement of the Estate’s assets produced by Murray in support of the application for a certificate of appointment. It did not include any claims against Helmut. It was only when Murray expressed the view that Elke would have to cover some of the Estate’s liabilities that she raised, for the first time, the possibility that Helmut owed the Estate money. Her objection to the proposed allocation of liabilities appears to be rooted in her longstanding conviction that she has not received her fair share of her parents’ wealth. There is nothing in law or equity, however, that requires a parent to distribute their assets equally to their children, either during their lifetime or in a will.
[49] Elke contends that Helmut disregarded his fiduciary duties by refusing to authorize the payment of Murray’s legal fees and executor’s compensation from the Trust Account. These amounts were paid personally by Elke pursuant to a settlement reached between Murray and Elke without Helmut. Helmut has not refused to authorize reimbursement from the Trust Account. He has rather said that he would need to get an accounting from Murray to confirm that the amounts paid were reasonable, in particular given the insufficiency of the Estate’s funds to cover its liabilities. Helmut’s position on this issue is consistent with his fiduciary duty to ensure that the Estate only pays debts that are due. There is no basis for Elke’s allegation that Helmut has refused to reimburse these amounts to the Joint Account in order to “punish” her.
[50] Elke cites Justice Meyer’s statement, in Mayer v. Rubin, 2017 ONSC 3498, at para. 36, that it is “a simple inference that a trustee who is in an adversarial position towards a co-trustee or a beneficiary should not normally be left in charge of trust property”. Mayer involved a motion to appoint an estate trustee during litigation, not the proposed removal of a trustee appointed by a testator in their will. A testator’s choice of estate trustee shall not be lightly displaced, and trustees are often beneficiaries. Both Elke and Helmut are beneficiaries as well as appointed trustees. The question is not whether they stand to benefit from the will but rather whether they are able to comply with their fiduciary duties despite this.
[51] Elke also contends that Helmut’s evidence in his affidavits and on cross-examination shows that he cannot tell a consistent and truthful version of events. I do not agree that Helmut’s failure to recollect details of transactions in 1995 and any payments made at that time shows that he lacks credibility, or that I should infer that he is unfit to act as an Estate trustee based on his understanding, as a non-lawyer, of the legal effects of the mortgage and promissory note. Helmut has refused to answer some questions on his cross-examination, which lasted a day and a half. Given my direction limiting the scope of the issues to be adjudicated at this stage, the refusals were appropriate.
Helmut Has Not Acted Unreasonably in Agreeing with Murray’s Assessment of the Estate’s Claim Based on the 1995 Mortgage
[52] Elke argues that Helmut has breached his fiduciary duty as Estate trustee by refusing to accept her position that the Estate has a claim on the mortgage he executed in Alfonso’s favour in 1995. She also contends that his failure to file an updated statement of assets, to include a claim on the mortgage, is contrary to the Estate Administration Act, S.O. 1998, c. 18.
[53] I need not spend much time on this alleged ground for removal, which covers much of the same terrain already discussed.
[54] Elke criticizes Helmut’s failure to disclose the mortgage when the application for a certificate of appointment was prepared. I infer that Murray knew about the mortgage. He has affirmed that he did not list the mortgage as an Estate asset not because he was unaware of it, but because he thought that a claim based on it would be time-barred.
[55] Elke argues that Murray may have reached the wrong conclusion on the limitations issue. As already noted, however, the question is whether Helmut acted unreasonably by accepting Murray’s opinion, in the circumstances. I find he did not.
[56] Beatrice Watson-Acheson Foundation v. Polk, 2006 ONSC 21061, a case relied upon by Elke, is readily distinguishable. Although the court granted an application to remove an executor who arguably owed a debt to the estate, it is apparent from the reasons in the case and in the courts subsequence decision in Watson Estate v. Beatrice Watson-Acheson Foundation, 2010 ONSC 5043, that the grounds for disqualification went far beyond the existence of a potential conflict of interest. The trustee who was removed acted with such extreme disregard for her fiduciary duties that she was ordered to repay the executor’s compensation “pre-paid” to her before her removal.
[57] Elke argues that Helmut should be removed because, if left as the sole Estate trustee, he will take steps to discharge the mortgage. His refusal to pursue a claim based on the mortgage is not a disqualifying act. Murray shares his view. If they are correct, then it would be a waste of the Estate’s resources to pursue a claim.
[58] If Elke’s application to remove Helmut is dismissed, it will remain open to her to seek a direction for a trial with respect to the claims that she believes the Estate has against Helmut. I am by no means encouraging her to do this. If she does, however, there is no reason to think that Helmut will not comply with the court’s direction.
[59] In her argument on this ground, Elke reiterates that she has been shortchanged because Helmut received greater financial support from Alfonso than she did, and that this is so fundamentally unfair that it dictates an administration of the Will that favours her interests. In paragraph 81 of her factum, she asserts that: “As a matter of equity, it is respectfully submitted that Helmut could have agreed to assume all Estate’s expenses considering the value received from [Alfonso’s garden ornament] business at no personal expense, the monies he received from his father while he was alive and in light of the Will in which the Deceased intended to divide the Estate equally. Instead, Helmut has steadfastly maintained that Elke should pay for everything.”
[60] This argument is factually and legally incorrect. On the record before me, Helmut has not insisted that Elke “should pay for everything”. On the contrary, Elke has so far received an interim distribution of $200,000 from the Estate and rental income on the Stittsville property before it was sold. Helmut, meanwhile, has not been reimbursed for any expenses, including Alfonso’s funeral expenses and medical bills, has incurred the cost of Chainé’s retainer, and has paid a portion of the CRA debt personally. As already mentioned, neither equity nor the law dictate that children receive the same financial benefits from their parents. An Estate trustee is not permitted to disregard the terms of a will or the law to obtain redress for past inequities.
Has Helmut Shown That He Is Not Competent to Act as Estate Trustee?
[61] Elke argues that Helmut “defers to others with respect to all major decisions, cannot exercise any degree of critical thinking and appears to be a puppet”. She contends that, by contrast, she is the only Estate trustee who has “demonstrated the ability to comprehend how to fairly administer the affairs of the Estate”.
[62] This argument is unfounded. A competent trustee relies on subject-matter experts where necessary. Helmut’s deferral to the opinions of the lawyer and accountants retained by the Estate is appropriate. It shows a responsible and intelligent approach to the duties conferred to him in Alfonso’s Will. I reject Elke’s assertion that Helmut has accepted advice that is “clearly wrong” or that he has demonstrated a lack of aptitude for his duties.
[63] On cross-examination, Helmut has been honest about the limits of his knowledge and expertise. This is not disqualifying conduct. He admitted that he opposed the minutes of settlement between Murray and Elke and responded to some affidavits without reading them. I infer that he has relied on his lawyer’s assistance with respect to these tasks. This is not ideal. It does not, however, suggest that Alfonso’s decision to appoint him as trustee, based on his knowledge of him throughout his lifetime, should be displaced.
Should Elke be Removed as Estate Trustee?
[64] I find that Elke’s personal interests and grievances have prevented her from acting in an impartial and objective manner as Estate trustee. Based on her administration to date and the positions she has taken on these applications, this conduct will continue. She must therefore be removed as Estate trustee.
[65] The best example of Elke’s refusal to comply with her fiduciary duties is her obstruction of the filing of an amended 2018 tax return for Alfonso and the payment of taxes owed to the CRA. In August 2019, the trustees were advised by Eoin Ruane, the accountant retained by the Estate at Elke’s insistence, that an amended return should be filed and additional taxes of $22,985 would have to be remitted. Helmut and Murray each confirmed their agreement. Elke refused to authorize the filing or the payment, despite repeated attempts to persuade her to do so, for three years. She then unilaterally filed the amended 2018 return, without notice to her co-trustees.
[66] Elke’s evolving justifications for her failure to authorize the CRA payment do not withstand scrutiny. In September 2019, she said that she needed more time to review his calculations. It is not clear why this was necessary, as she had no information or expertise to second-guess her accountant’s conclusions. She did not provide her authorization in response to further follow ups. In her May 2022 affidavit, Elke expressed the extraordinary view that the Estate owed no taxes and had no exposure for interest or penalties because no amended return had been filed. This is obviously wrong. It is, in fact, inconsistent with Elke’s 2021 notice of application, which recognized that the Estate owed “significant tax debts”. As later confirmed by Chainé, Canadian taxpayers have a positive obligation to report income, and a failure to do so attracts interest from the date that tax liability should have been reported, as well as possible penalties. In June 2022, Elke took the position that she was prepared to approve the amended return (and had in fact signed it), but that Helmut should contribute $15,000 towards the CRA payment, even though sufficient funds remained in the Trust Account to cover it.
[67] Elke now takes the position that she was never asked to sign the amended 2018 return and that there was no need to obtain her signature in order for the other trustees to file it. She contends that she should be given credit for unilaterally filing it in late 2022. She does not acknowledge or accept any responsibility for the late filing or interest charges. On the contrary, she apparently believes that her handling of this issue makes her the most suitable Estate trustee.
[68] Elke’s lawyer cross-examined Chainé for a half-day on his five page affidavit. Chainé repeatedly rejected Ms. Vale Peters’ suggestion that the CRA was extremely unlikely to impose penalties or prosecute the trustees for tax evasion simply because they waited three years before filing an amended return. He also pointed out that an application for a clearance certificate could trigger an audit. I accept his evidence on this point. Chainé further testified that, as an accountant, he would not have filed an amended tax return without the consent of all Estate trustees. I agree, as this is consistent with the principles that trustees must act jointly.
[69] There was no valid justification for Elke’s refusal to authorize the filing of the amended 2018 return and the Estate’s payment of taxes owed between August 2019 and August 2022. Her obstruction stalled the administration of the Estate, caused it to be liable for interest, and exposed both the Estate and the trustees personally to potential penalties. It increased and duplicated legal costs for the trustees and the Estate. Helmut incurred the cost of Chainé’s retainer, a step necessitated by Elke’s untenable position.
[70] This case has some parallels to the situation in Dewaele v. Roobroeck. In that case, as here, estate trustees refused to direct the Estate to pay taxes and disregarded professional advice, leading to a halt in the Estate’s administration for three years. The court granted an application to remove them.
[71] Elke’s obstruction on the CRA issue and disregard of professional advice is sufficient to warrant her removal, in my view. There are, however, other ways in which Elke has demonstrated her disregard for or lack of understanding of her fiduciary duties.
[72] As mentioned earlier, Elke contends that Helmut has acted unreasonably by refusing to authorize the payment of Murray’s legal fees and executor’s compensation from the Trust Account. On the contrary, Elke disregarded her fiduciary duty to the Estate by agreeing to set fees and compensation to Murray without any assessment of his accounts and a waiver of any right to ever require an accounting. Her insistence that Helmut must now take the same approach shows her ongoing misunderstanding of the duties as Estate trustee.
[73] I also accept Helmut’s submission that Elke, through her actions, pressured Murray into resigning as Estate trustee. [3] In her original notice of application, Elke sought Murray’s removal without alleging any misconduct that would warrant this relief. She did not allege that Murray has breached any statutory or common law duties, or that he was in a conflict of interest. Her only allegation was that he maintained that the Estate had no viable claim against Helmut. By starting an obviously unmeritorious legal proceeding against a co-trustee, Elke acted strategically in pursuit of her own interests rather than in the interests of the Estate.
[74] Murray managed much of the Estate’s administration prior to the dispute that arose in July 2019. Given his legal expertise and history with Alfonso, he played a valuable role. Murray now seeks to resign, because he does not wish to be involved in a hotly contested estates dispute. On the evidence before me, the conflicts that have arisen between the trustees were generated by Elke. Based on the terms of the settlement reached with her, Murray was also concerned about his personal exposure to potential CRA penalties. This exposure was once again the result of Elke’s obstructive behaviour. She stands to benefit personally from Murray’s removal, as he did not accede to her wish to have the Estate pursue claims against Helmut. His resignation does not benefit the Estate, as it will make it more difficult and costly to complete its administration.
[75] Elke argues that she has shown good will by suggesting, in a December 2022 affidavit, that Helmut to pay half of the taxes owed to the CRA. This only demonstrates good will only if Murray’s opinion about the allocation of the Estate’s debts was wrong. If he was right, this proposal would result in Helmut paying far more than his share, despite having received nothing from the Estate to date.
[76] Earlier in these reasons, I have excerpted passages from Elke’s affidavits and written argument in which she contends that she is entitled, as a matter of fairness, to benefit disproportionately from Alfonso’s Estate as she believes her brother benefitted disproportionately during their father’s lifetime. Elke is focussed on her belief that she has been treated inequitably. She has accused Helmut, in various affidavits, of misfeasance that has been actively disproved, and yet has not withdrawn the accusations. I find that Elke has not acted, and is unable to act, in an objective way.
[77] I conclude that Elke should not remain as Estate trustee. She has consistently refused to act on professional advice. Her conduct has generated unnecessary conflict and expense for the Estate. She does not recognize the need for trustees to act jointly. She prefers her own interests over her fiduciary duties to the Estate and to the Estate’s interests. I find that her continued role as Estate trustee would hamper the administration of the Estate and further reduce the amounts available to its creditors and beneficiaries.
Disposition
[78] Elke’s application to remove Helmut as Estate trustee is dismissed. Helmut’s application to remove Elke as Estate trustee is granted.
[79] Both parties have filed voluminous cost submissions. I have not reviewed them as they appear to contain details of settlement offers that may not be relevant to the assessment of costs on these applications. I direct the parties to obtain a date for an appearance before me to make submissions on costs payable on the motion for directions and the removal applications.
Justice Sally Gomery
Released: July 28, 2023
Footnotes:
[1] To avoid confusion, I will refer to members of the Sartarelli family by their first names. I will refer to Scott Murray as “Murray”.
[2] In these reasons, all money amounts are rounded to the nearest dollar.
[3] This allegation was not included in Helmut’s application, but I granted him leave to add it at the hearing.