2005 BCSC 1814 Thompson v. Gollan et al

Before: The Honourable Mr. Justice Melnick

Reasons for Judgment

Counsel for the plaintiff, Diana Lynn Thompson	None appearing
Counsel for the defendant, Heiderose Thompson	John C. Zimmer
Counsel for the defendants, Debra Phillips and Marianne Hart	Larry G. Schafer
Counsel for the defendant, Robert Gollan	None appearing
Date and Place of Hearing:	December 12, 2005
	Cranbrook, B.C.

I. INTRODUCTION

[1] This judgment concerns an application for this Court’s direction with respect to the estate of Arthur Melvin Thompson (the “Deceased”) who died on August 5, 2001, at Wynndel, British Columbia.

[2] By way of a Last Will and Testament dated September 18, 1999 (the “Will”), the Deceased directed his estate to be divided between his second wife, Heiderose Thompson (“Ms. Thompson”), and his daughters, Debra Phillips and Marianne Hart. His third daughter, Diana Lynn Thompson (“Diana Thompson”), was not provided for in the Will. An action was brought on behalf of Diana Thompson by the Public Trustee for variation of the Will. Subsequently, Ms. Thompson made an application under Rule 18A for the dismissal of the Public Trustee’s action and for an order that the Deceased’s estate be distributed in accordance with the terms of the Will.

[3] Within these proceedings, Ms. Phillips and Ms. Hart have brought an interlocutory application for this Court to give directions with respect to the manner by which the debts of the Deceased are to be paid out of the Deceased’s estate, and the order of the priority of the distribution of the testamentary wishes of the Deceased. They rely on section 86 of the Trustee Act, R.S.B.C. 1996, c. 464; however, it should be noted that Ms. Phillips and Ms. Hart, neither being a trustee, an administrator or an executor of the Deceased’s estate, do not have standing to make such an application under the Trustee Act. Further, such an application should be made by petition. Nonetheless, I have decided to provide the Court’s opinion in any event. This judgment only answers the questions posed by Ms. Phillips and Ms. Hart on their application for directions. Ms. Thompson’s application for dismissal of the Public Trustee’s action pursuant to Rule 18A will be dealt with in a future proceeding as will Diana Thompson’s entitlement to any portions of the Deceased’s estate. None of my findings in this judgment should be understood to decide Diana Thompson’s entitlement to any portion of the Deceased’s estate.

[4] It is important to note that although the Public Trustee takes no position on this application, the action for variation of the Will is still pending and as such, the Will may not be in its final form. Therefore, this application may be premature because the following analysis may not be applicable to a varied version of the Will; it is only applicable to the Will as it currently reads.

II. FACTS

a) Background Facts

[5] Ms. Thompson and the Deceased met in November 1991. Both were married at the time, and each of their spouses was terminally ill. On May 1, 1992, shortly after the Deceased’s first wife was admitted into a long-term care facility, the Deceased and Ms. Thompson began living together at the Deceased’s property in Wynndel, legally described as PID 008-468-541, Lot 1 District Lot 279, Kootenay District Plan 1356 (the “Property”). Both of their first spouses died in August 1992.

[6] The Deceased and Ms. Thompson were married in Oregon on February 14, 1995, and continued to live together at the Property. On June 28, 1999, the Deceased submitted a preliminary application to the Ministry of Transportation and Highways for subdivision of the Property into three lots. The subdivision proposal was accepted on January 4, 2000. However, the subdivision did not immediately complete, and two extensions were granted to afford the Deceased more time to complete it; the last extension being granted on April 3, 2001, for 180 days. The subdivision was eventually registered in the Land Title Office on February 26, 2003. As a result, the Property was divided into three lots as envisioned by the Deceased: “Lot 1” consists of 3.45 acres and contains the Deceased’s house and shop; “Lot 2” consists of 3.04 acres; and “Lot 3” consists of 3.5 acres.

b) The Deceased’s Will

[7] Before the subdivision was approved, but after he submitted the proposal, the Deceased signed the one-page Will on September 18, 1999. The Deceased died on August 5, 2001, and on July 8, 2002, a grant of Letters Probate was issued to Robert Gollan (“Mr. Gollan”), the executor named under the Will. In the Will, the Deceased makes provisions for his wife, Ms. Thompson, and two of his daughters, Ms. Phillips and Ms. Hart. No provision was made for his third daughter, Diana Thompson, who at the time of the Deceased’s death resided in a care facility for the disabled.

[8] According to Ms. Thompson’s affidavit, Diana Thompson is severely handicapped and has resided at the care facility since she was seven years old. Ms. Thompson deposes that Diana Thompson was deliberately excluded from the Will because the Deceased believed the government benefits she was receiving were more than enough to support her and that she was being adequately cared for at the residential care facility.

[9] The Will contained the following provision for the Property:

I give, devise, and bequeath unto my wife Heiderose Thompson all my personal effects plus that portion of Lot 1, Plan 1356, District Lot 279 as described below.

Lot 1 of the subdivision application dated June 28 1999 and consisting of 3.45 ac. And the existing house and shop.

_________________________________________________________

Lot 2 consisting of 3.04 ac. and Lot 3 consisting of 3.5ac. shall be sold on the open market at the present market value and the proceeds divided as follows.

Heiderose Thompson wife 34%

Debra Phillips, Daughter 33%

Mairanne [sic] Hart, Daughter 33%

c) The Deceased’s Estate

[10] The Property formed the largest part of the Deceased’s estate. As of the date of this hearing, legal title of Lot 1 remains with Mr. Gollan as executor for the estate. Both Lots 2 and 3 were sold in accordance with the Deceased’s wishes. Lot 3 was sold in March 2003, and proceeds of the sale in the amount of $39,000 were received by the estate on June 3, 2003. Lot 2 was sold July 31, 2004, and proceeds of that sale in the amount of $24,000 were subsequently received by the estate.

[11] According to an accounting statement prepared on December 9, 2005, in addition to the Property, at his date of death the Deceased had $7,583.28 in various bank accounts. The total funds received by the estate, including the proceeds from the sale of Lots 2 and 3 and various other funds received after the Deceased’s death, are shown on the statement as $74,840.07. This does not include the value of Lot 1 which was assessed as having a value of $116,200 as at November 22, 2005. The estate also includes a 1995 Ford pick-up truck and an 18 ½ foot Road Runner boat which have yet to be sold.

[12] The estate owed significant debts, which were paid out of the funds it received. The accounting statement shows that payments were made totalling $54,111.45. The balance of funds remaining in trust in the estate is $20,728.62. The accounting statement notes that there is $5,304.71 of outstanding debts still owed by the estate as of November 30, 2005. There are also further expenses anticipated for legal fees for the eventual transfer of Lot 1, and other legal and accounting fees to wind up the estate.

III. DISCUSSION AND ANALYSIS

[13] The Deceased’s estate is solvent because sufficient funds exist to pay its creditors in full; however, as is evident from the facts, there is not enough in the estate to pay all the gifts made in the Will. In particular, a large portion of the proceeds of the sale of Lots 2 and 3, which totalled $63,000, has been used to pay the debts of the estate. Because there is not enough in the estate to pay all the gifts after the creditors have been satisfied, some or all of the gifts made in the Will may have to abate and be reduced pro rata. What is at issue in this case is the order in which the assets of the estate are liable to pay its debts.

a) Order of Liability for the Debts of the Estate

[14] Ms. Phillips and Ms. Hart argue that the estate’s debts should be shared pro rata among Lots 1, 2 and 3. Ms. Thompson takes the position that the estate’s debts should first be paid from the proceeds of the sale of Lots 2 and 3 before Lot 1 becomes liable. Because the estate’s debts can be fully satisfied with part of the proceeds of Lots 2 and 3, if Ms. Thompson is correct, then she will take Lot 1 in its entirety and the amount of the proceeds available to her and the two daughters from the sale of Lots 2 and 3 will be reduced.

[15] Unless there is a contrary intention in the Will, “the order in which assets are liable to pay debts is determined by well defined rules” (A.H. Oosterhoff, Oosterhoff on Wills and Succession, 5^th ed. (Scarborough: Carswell, 2001) at 499). The rules are described in James Mackenzie, Feeney’s Canadian Law of Wills, 4^th ed. looseleaf, (Markham: Butterworths, 2000) at para. 8.52:

In the payment of debts the residuary estate must first be exhausted and residuary personalty and realty are liable rateably for the debts. After the residuary estate has been exhausted, general legacies abate pro rata¸ then demonstrative and specific rateably after that, and finally devises. Devises abate last because of the general rule that personalty is primarily liable for the payment of debts. [Citations omitted, emphasis added.]

[16] In Re Smith Estate, [2004] 7 W.W.R. 516, 3 E.T.R. (3d) 312, 2003 SKQB 361 at para. 15, the court set out the order of abatement as follows:

First, residuary personalty;

Second, residuary real property;

Third, general legacies, which include pecuniary bequests from the residue;

Fourth, demonstrative legacies, that is bequests from the proceeds of a specific asset or fund not forming part of the residue; [See Re Culbertson (1967), 62 D.L.R. (2d) 134 (Sask. C.A.)

Fifth, specific bequests of personalty.

Sixth, specific devises of real property.

[17] The only way in which Ms. Phillips and Ms. Hart can succeed in their argument that Lot 1, 2 and 3 should share the estate’s debts rateably is if they establish that the gift of Lot 1 to Ms. Thompson belongs in the same category as the gift of the proceeds of Lots 2 and 3. If the gifts are not of the same type, then according to the above authorities, either Lot 1 or Lots 2 and 3 must bear the burden of the estate’s liabilities before the other. For reasons that will become evident, Ms. Phillips and Ms. Hart’s argument must fail. Lots 2 and 3 are liable for the estate’s debts before Lot 1.

b) Classification of the Testamentary Gifts

[18] Ms. Thompson provided many cases in support of her argument that the gift of Lots 2 and 3 to Ms. Phillips and Ms. Hart was a demonstrative legacy. It is her position that the gift of Lot 1 to Ms. Thompson is a specific legacy, and therefore the order of abatement mandates that Lots 2 and 3 share the liability of the estate’s debts before Lot 1.

[19] Although I agree with this conclusion, in my view, it is not necessary to determine if the gift of Lots 2 and 3 is a specific or demonstrative legacy because the gift to Ms. Thompson of Lot 1 is clearly a devise of real property and is therefore last in line for liability of the estate’s debts.

[20] I also cannot agree with the argument put forth on behalf of Ms. Phillips and Ms. Hart that the gift of Lots 1, 2 and 3 are a class gift in the nature of a devise of real property and therefore share the liability rateably. The gift of Lot 1 to Ms. Thompson is a specific devise of real property. The Will contemplated the completion of the subdivision and identified Lot 1 as going to Ms. Thompson. No direction is made for the property to be sold; Ms. Thompson is to take Lot 1 absolutely. However, that is not the case with Lots 2 and 3. The words of the Will make it clear that Lots 2 and 3 are to be sold and the proceeds are to be split between the Deceased’s wife and two daughters proportionally according to the Will. The gift is not Lots 2 and 3 themselves; the gift is the money that is realized on their sale. As such, the gift is a legacy. Because the gift of Lot 1 to Ms. Thompson is a devise it abates last. The legacy of the proceeds of Lots 2 and 3 is liable for the debts of the estate before Lot 1.

c) Other Assets of the Estate

[21] The funds received by the estate after the Deceased’s death and the contents of the bank accounts are not provided for in the Will and therefore form the residue of the estate. Because the Will contains no residuary clause, the residue will pass according to the law applicable to intestate succession. However, before the residue devolves, it is first liable to pay the debts of the estate.

[22] According to the accounting statement dated December 9, 2005, the estate currently consists of $20,728.62, the 1995 Ford pick-up truck and the 18 ½ foot power boat. In my view, the truck and the boat were both gifted to Ms. Thompson under the Will by the clause which stated:

I give, devise, and bequeath unto my wife… all my personal effects…

These gifts are general legacies and should be liable to pay the debts of the estate after the residue is abated but prior to Lots 1, 2 and 3.

IV. CONCLUSION

[23] The assets of the estate, namely the pick-up truck, the boat, the contents of the bank accounts upon the Deceased’s death and the funds subsequently received by the estate, are first liable for the debts of the estate as either funds of the residue or general legacies as the case may be.

[24] The gift of the proceeds of Lots 2 and 3 to the Deceased’s wife and two daughters is a legacy. The gift of Lot 1 to Ms. Thompson is a specific devise of real property. It is not necessary to decide if the gift of Lots 2 and 3 is a specific or demonstrative legacy because either way, the proceeds from their sale will be liable for the estate’s debts before the specific devise of Lot 1. It is not clear from the materials if there is a mortgage on Lot 1 but if there is then by virtue of section 30 of the Wills Act, R.S.B.C. 1996, c. 489, the interest in that lot will be entirely liable for the mortgage debt. Because the estate’s debts fully exhaust the general legacies and the residue, and partially exhaust the proceeds from the sale of Lots 2 and 3, what cash remains in the estate after payment of the debts can be solely attributed to the sale of Lots 2 and 3. Therefore, the remaining cash should be divided in accordance with the Will: 34% to Ms. Thompson and 33% to Ms. Phillips and 33% to Ms. Hart.

V. COSTS

[25] Given that I have provided the directions sought despite the parties not having standing in the application as framed, I make no award as to costs.

“T.J. Melnick, J.”
The Honourable Mr. Justice T.J. Melnick