Estate Trustee's Failure To Disclose Absence Of Insurance Policy Prevents Expiry Of Limitation P

Being an estate trustee can be much more of a headache than a honour. I have written before that if you accept the responsibility of being an estate trustee, you are expected to put your personal feelings aside and act in the interest of the estate's beneficiaries. A recent case illustrates that an estate trustee is also obligated to act honestly and with integrity in its dealings with creditors and potential creditors of the estate.

Prior to his death, Paul Penner entered into a separation agreement with his former wife. Included among that agreement's terms was the provision that he would maintain a life insurance policy in the amount of $150,000 with his former wife as named beneficiary. If he failed to do so, the former wife would receive that amount as a first charge against the estate. Mr. Penner was only obligated to maintain the insurance until he was 50. After that, he owed nothing.

Mr. Penner died before his 50th birthday without the requisite insurance and with an estate valued at only $100,000. His sister was named as estate trustee. About two and a half years after his death, his former wife brought a claim against the estate and the estate trustee claiming a first charge against the estate.

The sister defended asserting that since the claim was being made more than two years after the decease, the claim was statute barred as the limitation period had run.

Both the court, and the appeal court, rejected this assertion. The record showed that the former wife had contacted the estate trustee within the limitation period and requested information about the insurance policy. She had been advised that the estate trustee was looking into the matter. It was only after the expiry of the limitation period, that the former wife was advised that the deceased had failed to maintain the necessary insurance. The court stated:

"By withholding material facts, the estate trustee concealed from Ms. McKenny that she had a legitimate debt against the estate as a creditor. In my view, given the special relationship between the estate trustee and Ms. McKenny, it was unconscionable for the estate trustee to initially suggest that insurance was in place, then delay matters by promising to bring an application for directions, and then later take the position (a position which provided a direct material benefit to her as a beneficiary of the estate), that the time for claiming against the estate had expired."

The Lesson for Estate Trustees: You are obligated to provide accurate and timely information to both estate creditors and potential creditors. Failure to do so will not give you a pass but will likely subject the estate to expensive litigation. Moreover, as an estate trustee, you could be personally responsible for the costs of defending such litigation should any beneficiary challenge the expense when the estate accounts are passed.

The Lesson for Creditors: Follow up regarding the status of any potential claims and document that follow up in writing. Had the former wife merely telephoned the estate trustee, it would have been substantially more difficult for her to assert her claim. The fact that she had copies of relevant correspondence was a significant part of her success.

Roulston v McKenny, 2017 ONCA 9 (ONCA) https://www.canlii.org/en/on/onca/doc/2017/2017onca9/2017onca9.pdf

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