Estate Litigation

Addressing the Problem Child: The Efficacy of Placing Limits on Testamentary Bequests

By June 7, 2021 No Comments
Estate Litigation

Addressing the Problem Child: The Efficacy of Placing Limits on Testamentary Bequests

A recent case decided by the Court of Queen’s Bench of Alberta dealt with a rare, yet not unheard of, set of circumstances where a beneficiary survives the testator but passes away before a grant of probate is obtained. What made this case especially unique, however, is that the beneficiary in question (one of the testator’s four children) was designated to receive only a monthly income from an annuity that the trustee was directed to purchase with the beneficiary’s share of the estate. A dispute resulted about what, if anything, the deceased beneficiary’s estate was entitled to from her late father’s estate.

Background Facts

The testator, Dr. Barrie Strafford, had four adult children: Roxanne Sissons, Sherrie Strafford Whyte, Lisa Strafford, and Miles Strafford. The evidence established that Dr. Strafford harboured a particular concern about his daughter Sherrie. It was his view, as expressed to others including the lawyer who prepared his will, that Sherrie could not be trusted with money due to her history of drug abuse, checkered employment, and profligacy.

In his will, Dr. Strafford divided half of the residue of his estate amongst his four children, but stipulated in regard to Sherrie’s share:

I direct that the Share that is to be transferred to my daughter Sherrie Strafford Whyte be used to purchase an annuity giving her a monthly income of at least $3,500, said amount to be indexed to and increase with the rate of inflation as reported by the Bank of Canada.

Dr. Strafford died on April 26, 2016. Dr. Strafford’s will contained a clause commonly found in wills defining a 20-day period following his death, beyond which all living beneficiaries are deemed to have survived him. Tragically, Sherrie Strafford Whyte died of a drug overdose on August 31, 2016, after the 20-day period but before a grant of probate was issued.

Issues

The Court was asked to resolve the question of whether Sherrie’s estate was entitled to a 1/8th share in Dr. Strafford’s estate or whether Sherrie was entitled only to a stream of income during her lifetime.

In deciding this question, the Court was required to consider Dr. Strafford’s intent in choosing the words he did and the effect of his direction to convert Sherrie’s share to an annuity.

Testator’s Intent

The Court confirmed that the “cardinal principle” guiding a court’s interpretation of a will is to do so “in a manner that gives effect to the intention of the testator”. To assist in this endeavour, the Court may consider evidence about a range of matters, including the meaning of words, the testator’s circumstances at the time of the making of the will, and even the testator’s intent with regard to the matters referred to in the will.

In this case, the matter was heard as a mini-trial, with affidavit and oral evidence. The Court considered, among other things, an affidavit from the lawyer who prepared Dr. Strafford’s will, two of Dr. Strafford’s daughters, a long-time friend and business associate of Dr. Strafford’s, and a financial planner who was qualified as an expert in annuities and financial planning.

The totality of the evidence, including the lawyer’s file, email correspondence from Dr. Strafford, and the other daughters’ recollections, established that Dr. Strafford had a strained relationship with Sherrie and that he disapproved of her lifestyle. That said, he remained compassionate towards her and wished to provide some means of support for her upon his death but was clear in that he did not want her to have the benefit/burden of a lump sum. On that basis, the Court found there was a clear intent on Dr. Strafford’s part to treat Sherrie differently from her siblings when it came to her inheritance.

Effect of Annuity

Notwithstanding the Court’s finding on Dr. Strafford’s intent, the question remained whether the vehicle chosen to carry out those wishes would have the intended practical effect.

Sherrie’s estate argued that it was entitled to the entirety of Sherrie’s 1/8th share in Dr. Strafford’s estate, relying on a line of cases dating back to 1907 that stand for the proposition that the recipient of an annuity has a right to take its value in cash and is not bound by the testator’s wish that he or she only receives the periodic payments.

The Court distinguished this line of cases on the bases that:

  • Strafford clearly expressed his intent that the trustee was to purchase a non-commutable, non-assignable annuity for Sherrie’s benefit; and
  • Unlike many of the cases cited by Sherrie’s estate, the trustee was not vested with broad discretion in relation to the purchase of the annuity.

Accordingly, the Court held:

Dr. Strafford allocated a share of the residue for the purchase of an annuity, but did not give Ms. Strafford-Bliss an absolute interest in that share of the residue; this was not a circumstance in which I find the Trustee was authorized to give or Ms. Strafford-Bliss was authorized to take that share in a lump sum. There is, in the result, nothing repugnant in finding that the Strafford-Bliss Estate has no entitlement to the sum that would have purchased the annuity.

Instead, I find that the only interest that possibly could have vested in Ms. Strafford-Bliss when Dr. Strafford died and the Condition of Survival was met was an interest in the income that a non-commutable, non-assignable annuity would provide during her lifetime.

Sherrie’s estate was therefore not entitled to anything more than to retain some interim payments that the trustee had made following Dr. Strafford’s death.

Discussion

This case highlights a number of important points for the interpretation of wills in Alberta. First and foremost is the great importance the Court places on establishing and giving effect to the intentions of the testator. Here, since Dr. Strafford’s state of mind and intent could be determined with relative precision, the Court had a very strong guide in the interpretive exercise.

A second takeaway is the importance of careful drafting. While it may not have necessarily been on purpose, the fact that the trustee was not vested with discretion as it related to the purchasing of an annuity helped support the Court’s finding that the true ‘gift’ to Sherrie was a stream of income, not necessarily a discrete share in the estate. Many times, discretion is given to trustees as a matter of course, but drafters must always be careful of unintended consequences.

A final thought is that circumstances matter. The Court noted, and this likely played a role in coming to the ultimate result, that Sherrie did not have any children or dependents. The only person that stood to benefit from Sherrie’s estate was the mother of her second husband (who she was not in a relationship with at the time Dr. Strafford made his will and who had himself also died 3 months after Sherrie did). Had Sherrie left children or a dependent who would have been reliant on the expected income, it is possible the Court may have found its way to a different outcome.

Full text of the decision can be found here.

Invitation for Discussion:

If you would like to discuss this blog in greater detail, or any other estate litigation matter, please do not hesitate to contact Judd Blitt.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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