BRIEF LEGAL OVERVIEW

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Brief Legal Overview

In general terms, when a person dies in BC, the deceased’s personal representative gathers up the deceased’s assets, pays the deceased’s debts, and distributes the rest of the deceased’s estate to the beneficiaries. For small estates, that may be quite simple. For most estates, however, it can get complicated quickly, so a lawyer can help.

This section is for people who have some legal knowledge and want to understand the different legal processes and options. As with the other sections of this manual, it is not intended to be a substitute for legal advice. If you are handling a complicated estate, or there is estate litigation, you should seek legal help.

Wills, Estates and Succession Act

The Wills, Estates and Succession Act, S.B.C. 2009, c. 13 (“WESA”) and accompanying Probate Rules (Part 25 of the Supreme Court Civil Rules) became law on March 31, 2014. WESA sets out the current law about when a will is valid, what happens if there is no will, and how the estate is distributed.

If there is a will, the personal representative is an executor. The executor is a trustee, bound to act for the good of the estate, even though the executor may also be a beneficiary or have a personal interest in the estate assets.

If there is no will, the deceased is said to have died intestate. The personal representative must distribute the estate to specific relatives of the deceased following the order of intestate succession as set out in WESA (sections 19-25).

Transition

WESA does not apply to the estate of a will-maker who died before March 31, 2014. In that case, the older laws apply, such as the Estate Administration Act, R.S.B.C. 1996, c. 122, the Probate Recognition Act, R.S.B.C. 1996, c. 376, the Wills Act, R.S.B.C. 1996, c. 489, and the Wills Variation Act, R.S.B.C. 1996, c. 490.

Generally, WESA applies to estates where the will-maker died on or after March 31, 2014, even if the will was drafted when the older laws were in effect.

In applying for probate, it is the date of application not the date of death that matters. In applying for probate on or after March 31, 2014, use the new forms.

New Probate Rules

The Probate Rules set out the steps in bringing estates matters before the court. The Rules identify who must be given notice of any particular claim, how the claim will proceed when it is before the court, and what the possible outcomes are.

These Probate Rules also prescribe which form must be used in any particular claim, and provide templates for the forms:

  • For a User Guide to the forms, with links to fillable .pdf versions, click here.
  • For a list of forms in .html, click here.

The Supreme Court of BC has posted online resources to help you with a proceeding in court:

Trusts

In general, a trust is created when the person who owns assets gives them to another person to be held and used for a particular purpose or by a particular beneficiary. The person who gives the assets is the settlor of the trust, and the person who holds and manages the assets is the trustee.

An express trust is created when three things are certain: the intention to create a trust, the assets that comprise the trust, and the beneficiary of the trust.

Express trusts can be set up for many purposes:

  • To invest a lump sum to provide ongoing interest for a beneficiary who might not have the interest or ability to handle investing it,
  • To give a gift to a beneficiary during the will-maker’s lifetime without the will-maker losing all ownership and control over the asset,
  • To control how the beneficiary receives the income,
  • To control how the capital is managed on behalf of the beneficiary,
  • For effective tax planning, or
  • For a combination of these purposes.

There are different types of trusts, and they can have different tax treatments. They can be effective for tax planning, but there were significant changes to taxation of trusts affecting the 2016 and later taxation years. You should get advice from a lawyer or financial planner about setting up or managing a trust.

There are resources to help set up trusts for persons with disabilities:

Inter Vivos Trust

An inter vivos trust is set up during the will-maker’s lifetime. The will-maker might not want to give up control of the assets, but might want the beneficiary to receive some income. So the will-maker transfers the assets to the trust, and may continue to act as a trustee. The trust pays income to the beneficiary.

This might be a helpful way to provide regular income to a beneficiary who is not able to handle a large amount of money.

When the will-maker dies, this trust is treated as an individual for tax purposes. In other words, the trust must file a return and pay taxes on its income. [Tax changes] in force January 1, 2017 affect the tax rates applicable to inter vivos trusts for 2016 and later taxation years. Inter vivos trusts are now taxed at the highest personal rate. For advice about taxation of trusts, consult a lawyer.

Testamentary Trust

In making a will, the will-maker may create an express trust specifically for the benefit of an individual, such as a minor child or a person who is not capable of managing finances. The will-maker creates the trust by naming a trustee and specifying the assets to be set aside for the trust. The trust is created when the will-maker dies. This is called a testamentary trust. It is also sometimes called a “will trust.”

If there are questions about how the trust is being handled, that dispute could end up in court. Avoid making costly mistakes, particularly concerning trusts, by getting legal advice.

Assets held in trust are protected and managed by the trustee for the beneficiaries of the trust. WESA (s. 143) identifies an executor as a trustee in holding and managing the estate assets on behalf of the beneficiaries of the will. A personal representative administering the estate with will annexed is the trustee of a trust created under the will, unless the will names another trustee (WESA, s. 156).

Tax changes to the tax rates applicable to trusts, effective for the 2016 taxation year and later, placed testamentary trusts at the highest personal tax rate, but also created a new Graduated Rate Estate. This GRE is a type of testamentary trust that could exist for up to 36 months following death, potentially providing reduced tax rates over this 3-year period. For advice about taxation of trusts, consult a lawyer or financial planner.

Constructive Trust

Sometimes assets owned in the name of the deceased are actually subject to a constructive trust. A constructive trust may arise if the deceased owns an asset that has increased in value due (at least in part) to the unpaid contribution of someone else. For example, a constructive trust sometimes arises where one spouse was the legal owner but the asset was actually for the benefit of both spouses, and they both contributed to its growth. It can also arise where a child contributed to the upkeep of the family home, expecting to inherit it, but the parent leaves the home to someone else in the will and disinherits the child.

Claims of constructive trust can be complicated. If you think there may be a constructive trust affecting any estate assets, you should get legal advice.

Legal Basis of Constructive Trust

Constructive trust may arise if the deceased owned an asset that increased in value thanks to the unpaid contributions of other people, who spent time or money on improving the asset under the mistaken assumption that it was for their shared benefit. The asset owner may have been “unjustly enriched” by the unpaid contributions. Unjust enrichment is a legal concept that depends on the existence of three things:

  1. The owner was enriched by the contributions of others,
  2. The others were deprived of, or lost the gains that the owner made, and
  3. There was no legal reason to justify the enrichment.

The leading Supreme Court of Canada case on unjust enrichment and constructive trust is Pettkus v. Becker, [1980] 2 S.C.R. 834. It dealt with a family business and property that was legally owned by Mr. Pettkus, who had lived with his spouse Ms. Becker for nearly twenty years, while she contributed to the family business. The Court found that Pettkus had been unjustly enriched by Becker’s contributions and that she too was entitled to half ownership of the business.

For more information, see “Unjust Enrichment and Constructive Trusts” in the chapter “Property and Debt in Family Matters” of the Clicklaw wikibook JP Boyd on Family Law.

Dependants’ Relief

Spouses and children of the deceased may be named as designated beneficiaries in government benefit plans, private insurance, or workplace pensions and benefits.

  • There may be benefits available from the federal government, such as through the Canada Pension Plan or veterans’ benefits
  • There may be benefits available from the BC government, such as through a housing subsidy
  • If the deceased was a Indigenous person, the federal government may assist in handling the estate
  • If the deceased had a workplace benefit plan, there may be insurance, a pension, or benefits available for the surviving dependants

Click for more about various benefits or pensions.

Go carefully through the Checklist of tasks to do when someone has died to remind you to contact Service Canada, or Service BC, the employer’s plan administrator, or the agencies that may be able to help.

If the deceased died without providing adequately for dependants such as a spouse or children, there may be a dispute and even possibly a lawsuit seeking to vary the terms of the will. For more, click here.

Family Compensation Act

Depending on how the deceased died, the dependants might be able to sue in court to receive money to compensate them for their loss. The Family Compensation Act (R.S.B.C. 1996., c. 126) sets out how to bring this action, and a lawyer can advise you if it applies.

The Family Compensation Act (s. 5) also allows the family members of a deceased person to sue an estate. If an action is launched against the estate you are administering, consult a lawyer.

If the deceased died in an accident while travelling outside BC, and someone in that other jurisdiction was injured or died in that same accident, laws from that other jurisdiction might be relevant. This can be complicated, so you should not try to handle it yourself. You will need legal advice, and you might need to hire a lawyer in the other jurisdiction.

Estate Litigation

If a legal claim is made against the deceased person, the claim is brought against the estate and names the personal representative. The personal representative defending the claim has the same rights that would have been available to the deceased (WESA, s. 50(2)).

If the claim succeeds and the estate is ordered to pay the claimant, the executor would not be liable for any loss that exceeds the estate assets.

WESA s. 149 says,

Liability of personal representatives 149 (1) A personal representative is liable, to the extent of the assets belonging to the estate that come into the personal representative's possession or control, for the wrongful acts and omissions or breaches of legal duty of the deceased person, subject to this or any other enactment to the contrary.

Executors may also bring claims in the name of the estate (WESA, s. 150).

Expenses paid by executors in representing the estate in court will generally be reimbursed by the estate (Re: Tomlinson Estate 2015 BCSC 1223).

Limitation Periods

Creditor of the Estate: A person the estate owes money to has 180 days after receiving a Notice to Creditors, or 180 days after the debt falls due, to file a claim (WESA s. 146(3)).

Fraud or Recovery of Trust Property: Under the Limitation Act, a person will have two years after discovery of the fraud to bring a claim. However, a claim involving a life estate or for possession of real property by a residuary beneficiary is exempt from this limitation period (Limitation Act, s. 3(c)).

Rectification of Will: If a person believes the will contains an error or is unclear and needs correction, an action to rectify the will must be started within 180 days from the date of the grant of probate (WESA, s. 59(3)).

Revocation of Grant: A probate grant may have to be revoked and the executor replaced if the executor dies, goes missing, or becomes incapacitated. Revocation may also be necessary if it turns out that the earlier grant was made in error. A person must start an action for revocation within two years of discovering the circumstances that call for revocation (Limitation Act, s. 6).

Wills Variation: The limitation period to commence an action for variation of a will is 180 days after the grant of probate (WESA s. 61(1)).

Fiduciary Duty

An executor or trustee is in the legal role of fiduciary and has a duty to act in the best interests of the estate beneficiaries.

If the will creates an express trust, it may specify or limit the trustee’s role. The will might create a non-discretionary trust where the trustee has no say in how the beneficiaries receive income. Such a non-discretionary trust might be used to guarantee a fixed payment of income or interest to the beneficiary, or the trust might specify that the trustee has sole discretion over payments and investments of the trust.

Standard of Care

The estate may include investments held by the will-maker, or the executor might consider it would be prudent to invest estate assets before they can be distributed. When the executor or trustee makes decisions about investing estate assets, there are legal standards for how careful the trustee must be.

The Trustee Act, (ss. 15.1-15.6) sets out the basic guidelines for investment by a trustee or an executor. A trustee is expected to exercise the care and skill that a prudent investor would exercise. A trustee is not personally liable if the investment suffers a loss so long as the investment strategy was reasonable and one that a prudent investor would follow. A trustee may delegate investment authority to an advisor where doing so is reasonable and prudent.

If you are an executor reinvesting before you can distribute estate assets, be careful to choose prudent investments. You may be personally liable if you make imprudent or unreasonable choices and the estate loses money or incurs unnecessary penalties.

Click for more about investing estate assets.

Devolution of Assets at Death

Assets that Pass to Personal Representative by Will or Intestacy

At the time of death, all the deceased’s property becomes part of the estate and passes to the custody of the personal representative, except for specific assets that pass directly to a joint owner or pass outside the will. Assets that pass outside a will, and so do not pass to the personal representative, might include jointly held accounts or real estate, insurance, or benefit plans for which a beneficiary is designated.

Assets that Do Not Pass to Personal Representative

Joint Tenancies

Joint tenancy includes what is called a right of survivorship, meaning that if one joint tenant dies then the property continues to be fully owned by the surviving joint tenants. In the case of joint tenancy, the title passes outside any will, and the asset is not part of the estate for probate purposes.

Often spouses will own a home as joint tenants, so that if one dies the other spouse becomes the sole owner of the entire property. Sometimes a parent and child will own a home together as joint tenants, so that the child continues to own the home after the death of the parent, without any sale or transfer of title.

To pass title to a joint tenant, fill out Form 17 and present it at the Land Title Office with the death certificate.

Real property that is not owned in joint tenancy passes into the deceased’s estate and is treated like any other asset of the estate. The executor as trustee will “own” the property (WESA, s. 162) until it passes to the beneficiary.

Life Insurance

Contracts of life insurance permit the insured to designate a beneficiary who will receive the insurance proceeds when the insured dies. The insurance proceeds do not become part of the deceased’s estate and are not included in the assets calculated for probate.

Pensions and Registered Plans

Some benefit plans allow the plan holder to designate a beneficiary of that plan:

If the deceased had such a plan, the deceased may have already named who would inherit the assets in that plan by completing a form and submitting it to the plan administrator. The deceased may also use the will to designate a beneficiary (WESA, s. 85) who will receive the benefit of the plan.

Such plans could include workplace benefit or pension plans, TFSAs, RRSPs, or RRIFs.

Check with the deceased's employer about any workplace pension benefits or insurance that may include death benefits. If the deceased had such a plan at work, or held such a plan privately through a financial institution, the plan administrator can arrange to pay the plan benefit to the designated beneficiary.

Benefit plans that have designated beneficiaries pay benefits directly to those beneficiaries, and creditors of the estate have no access to payments made from benefit plans (WESA, s. 95).

If the deceased paid into the Canada Pension Plan, there may be benefits payable. Advise your local Service Canada office of the pensioner’s death. There may be CPP death benefits, survivor benefits, orphan benefits, or death benefits payable to the deceased’s spouse or children.

Others

The wages owing to a deceased worker will be payable to the surviving spouse. If the employer is uncertain about whether a person claiming to be the spouse is entitled, that spouse can provide an affidavit saying that he or she is the only one entitled (WESA, ss. 176-178).

Resources

Online Resources

Legislation

Regulation and Forms