Not all estate litigation is contentious. Sometimes parties come to court intending to settle a dispute amicably. Moreover, the court is usually interested in helping resolve disputes without unnecessary expense.
Beneficiaries went to court to address unanticipated issue in disability trust
The testator died in November 2010 and was survived by her three children. However, only one of the testator’s children was still alive at the hearing (Angela). Her only other surviving relative was her grandchild, Nicholas, who was 17 years old by the time of the hearing.
The parties started estate litigation to help interpret the testator’s Will. In the testator’s Will, she created a disability trust for her daughter, Nicole. The testator named her friend, Jim (an applicant in this litigation), as estate trustee. For the disability trust, she appointed two friends as trustees, Deborah and Joyce (also applicants in this case).
A paragraph in the Will explained that upon Nicole’s death, whatever remained in the disability trust would be divided equally between Angela, Michael (the testator’s son and father of Nicholas) and Nicholas. Under the same paragraph, if any of these beneficiaries predecease the testator, their share would be divided among their issue (descendants/heirs). However, there was no mention of what should occur if one of the beneficiaries predeceased Nicole, as was the case with Michael.
What is a disability trust?
Depending on their needs, there are many different types of trusts an individual can make. A qualified disability trust is created to help ensure that the testator’s loved ones are taken care of after the testator’s death. Specifically, it is intended for testators who have children with disabilities. Without a disability trust in place, the beneficiary otherwise may lose disability benefits.
Although the disability trust in this matter was a testamentary trust that arose upon the testator’s death, it can also be created during one’s lifetime (inter vivos trust). They can also be discretionary or non-discretionary. Discretionary trusts, or Henson Trusts, allow the trustee who is not a beneficiary to have full decision-making responsibility to decide how the money in the disability trust should be distributed. Non-discretionary trusts do not give the beneficiary or trustee(s) power to manage the disability trust. Non-discretionary trusts arise when the testator has set clear instructions for payments from the trust.
Court approved moving forward without involvement of son’s estate to avoid expense and delay
The first issue considered by the Court in O’Connor was whether the application should continue without Michael’s estate. To do this, the Court had to assess whether the estate had an interest in the litigation. In a previous decision by the same Court, the absence of an estate’s representative was permitted based on the added expense of appointing an estate trustee. Unlike that case, the other parties in this matter were not insolvent. However, the similarity between the cases was that there were no facts in dispute by the parties to the hearing.
In the end, the application judge determined that it was acceptable to move forward with the application without a representative for Michael’s estate. As the Court explained, “there is only expense and delay if the matter does not continue in its absence given the practical challenges caused by the intestacy combined with Michael’s insolvent Estate.”
Next, the Court considered how to interpret the paragraph in the Will concerning the disability trust. The paragraph explains how the disability trust is to be distributed after Nicole’s death, and her remaining illness and funeral expenses have been paid:
“ … my Disability Trustee(s) for Nicole Charlane Dell shall then deliver the remainder of the trust property to Angela Dell, Michael Dell and Nicholas Dell in equal shares. If any of my said beneficiaries shall have predeceased me, having issue at the time of my death, such beneficiary shall be considered alive for the purpose of such division and the share of the deceased beneficiary shall be divided among his or her issue then alive, in equal shares and delivered accordingly. If any of my said beneficiaries shall have predeceased me, without leaving issue alive at the time of death, such deceased beneficiary’s share shall be paid to the survivors of said beneficiaries in equal shares.”
In interpreting this section, the Court applied the “armchair rule.” The armchair rule is used in Will interpretation when a situation occurs that is not accounted for in the Will. The judge employing this rule must sit in the place of the testator “with regard to the nature and extent of the assets, the makeup of the family, and her relationship with its members.”
In employing the “armchair rule”, the Court felt that the testator was careful in creating the disability trust for Nicole. Her close friends were to administer that trust. Additionally, she intended that Nicholas reap his own share of the residue of that trust as he was explicitly identified as a beneficiary. It also provided instructions for what should occur if one of the beneficiaries predeceased the testator.
Given the circumstances, the Court reasoned that it would not make sense for Michael’s share of the disability trust to go to his estate, which was facing financial difficulties. As the Court explained, “[t]his would not make any sense are there are no other family members on the scene, and that would be a more expensive and unnecessary route.” The Court decided that the impugned paragraph should have read “if any of my said beneficiaries shall have predeceased me or Nicole.”
In the end, the Court determined that Nicholas’s share of the disability trust should be deposited into the Court so that the estate trustee could be relieved of his duties.
Contact Derfel Estate Law for Assistance with Will and Trust Interpretation
At Derfel Estate Law, we understand how overwhelming it can be to handle the affairs of a loved one’s estate after their passing. Our experienced team of estate lawyers is always up to date on probate and estate administration requirements and can assist with Will challenges. We also provide trusted guidance to executors, trustees, and attorneys for property and personal care to ensure they meet their legal obligations and reduce risk. Contact us by phone at 416-847-3580 or reach us online to discuss your estate needs.