The gift to the Shriners: a case of Abatement
Being an Executor in an Estate is hard work. He/she might have to organize the funeral. They may then be involved in cleaning (or fumigating) the residence of the deceased. Then there is the financial aspect, which is often a balancing act between the requirements of the Canada Revenue Agency and the patience of the beneficiaries.
On occasion, there are problems with the Will. Since the Executor must be neutral (that is, not favour one beneficiary over another, among other things), interpretation problems often lead the Executor to a Court application to interpret part (or all) of the Will.One of the main problems an Executor will ever have to deal with comes when the Estate is not large enough to pay all the gifts/bequests stated in the Will. This situation can result from many factors, such as a drop in the value of real estate or of investments made after the Will was signed.
An Executor faced with such a situation should, in my opinion, get legal advice on the concept of Abatement. If the Will itself does not spell out what happens if the Estate has insufficient assets to complete all the bequests – which is common – the rules of Abatement will determine how the Estate assets gets distributed.
The case
In January, reasons for judgement were released in the case Celantano Estate v. Ross, in which the Executor of the Estate brought an application for directions from the Court to interpret the deceased’s Will. The deceased made a Will in June 2000, and passed away in January 2011. A grant of Probate was issued in July 2011.
The Will contained several gifts, including one of $50,000 to the Shriners Portland Hospital and a second, in the same amount, to the Shriners Spokane Hospital. The Will directed that the funds for those gifts be taken from the deceased’s U.S. bank accounts.
The Will also directed that a property she owned be sold, and the sale proceeds used to buy equipment for a hospital. However, at the time of death, the deceased no longer owned the property. What she did own were funds in U.S. bank accounts, which were insufficient to pay all the gifts described in the Will.
The question for the Court, then, was how to allocate the funds among all the named beneficiaries in the Will. Put another way, how did the rules of Abatement apply to this Estate?
In interpreting a Will, the Court’s main purpose is to determine what the Will maker intended to do in the Will. The Court looks at the ordinary meaning of the Will as a whole. If the wording as a whole is unclear to the Court, it will consider the rules of construction.
Here, the problem was a lack of funds, and so the Court considered the rules of Abatement. There is legally an order of Abatement (meaning certain types of gifts will be nullified or reduced before others, where there is a shortage of funds in the Estate), and that is based partly on the type of gifts described in the Will.
There are also three types of gifts legally recognized in a Will: general, demonstrative and specific. In this case, the Court had to classify the two gifts to the Shriners, and held them to be “demonstrative.”
The reason was that the Will specified a bank account from which the gifts were to be paid. Also, no other gift in the Will was specified to come from that account. Nor was there indication in the Will that the gifts would fail if the account did not have enough funds.
The Court held that the gifts to the two Shriners Hospitals had priority to the funds in the U.S. bank accounts. Therefore, the other gifts mentioned in the Will would have to be reduced or nullified.
Summary
A person making a Will could live many years after signing it. In that time, anything can happen to that person’s assets. Bank accounts may close or change, property may be sold, and other assets may be gifted during the person’s lifetime.
People should therefore review their Wills every few years, to make sure the Will is still appropriate as an expression of their wishes. A gift to a friend might not be able to be made if the assets are no longer in the Estate, having been sold off before death.
Courts, in an effort to give effect to what the Will maker wanted to do in light of insufficient assets, are forced to resort to rules, which invariably will leave a beneficiary without the gift they thought they might receive, or perhaps with a smaller gift than they expected.
The Will maker may wish that their Will remain effective until they die, but since a Will does not prevent a person from disposing of or changing their assets after they sign, it is best to review it regularly.
This column ran in the Richmond Review on March 5, 2014.