Ketcham v. Walton - The Invalidity of an Executor's Will Defence Fund by Benjamin D. Arkin, Litigation Associate
We briefly touched on Ketcham v. Walton in a recent blog post, but the topic of the validity of conditional gifts/ Will defence funds for executors, and executor neutrality warrants a closer look. In that case, a British Columbia resident tried a novel and creative approach to punishing his disinherited children for challenging his Will. The testator decided to disregard his three adult children and instead split up his $740,000 estate between charities and friends. He expected the children, from whom he had been estranged for many years, to make a claim under the British Columbia Wills Variation Act. In anticipation of this, he directed his executor to defend the Will at all costs. He explicitly authorized the executor to pay his legal fees out of the estate and to completely deplete the assets of the estate if necessary.
The executor applied to court for directions on whether the testator's instructions to defend the Will and to pay legal fees from the estate were valid. Unlike the validity of conditions on gifts, which the courts have considered from time to time over the course of two centuries, the validity of a scorched-earth-litigation instruction to an executor seems to have been one of first impression.
The court held that the instruction was invalid on three separate grounds:
- it is void at common law as being in terrorem;
- it is contrary to public policy because it denies the children recourse to the courts; and
- it offends the rule of law that an executor is neutral as between beneficiaries and has no preference in who may be entitled to a distribution from the estate.
Conditions in terrorem
As a general principle, a testator is free to leave property to whomever and however he or she pleases. This includes the right to impose conditions on gifts made in a will. However, the law recognizes certain restrictions on the testator's freedom to direct the living from beyond the grave. One such restriction, very relevant in today's environment of far-reaching dependant's support legislation and courts willing to apply it liberally, limits the effectiveness of conditions that punish a beneficiary for challenging the will or suing the estate.
As an example of such a condition, a testator might provide that a beneficiary receive a legacy, but that the legacy be revoked if the beneficiary challenges the validity of the Will.
The condition in this example would probably be void as being in terrorem. At common law, a condition not to dispute a Will may be invalid as being in terrorem if it does nothing other than to coerce a beneficiary. However, the doctrine does not typically invalidate a condition if it also provides for a gift over. The rule, which developed in 19th century English cases, is very technical. As explained in Bellinger v. Fayers, for a gift to avoid being invalidated by the in terrorem doctrine the following must be met:
The gift must be accompanied by an effective gift over which vests in the recipient on the condition being breached. If there is no gift over, then the condition will be treated as merely in terrorem-that is a mere threat, and will be found to be void. And nothing short of a positive direction of a gift over, of vesting in another, even in the case where the forfeited legacy falls in the Residue, will suffice. There must be an express disposition made of what is to be forfeited. ... Thus the application of the general rule that a failed gift falls into Residue is insufficient for the purpose of the rule.[1]
The Court goes on to query whether a gift over always saves an otherwise in terrorem condition.[2] There is some confusion in the law about whether a conditional gift that would otherwise be void as in terrorem will necessarily be saved by the existence of a gift over, or if a gift over is merely prima facie evidence that the testator's intention was not only to coerce, but rather to fix a benefit for another person. The Court preferred the latter view and opined that extrinsic evidence is permissible to show that even where there is a gift over, the condition may still be void if it can be proved that the testator's intent was to coerce.
While the condition in a conditional gift that falls into residue is invalid as being in terrorem, a condition that explicitly directs a gift over to residue is prima facie valid.[3]
That the law distinguishes at all between coercive conditions with a gift over and ones without has been criticized, but it does seem to remain law.[4]
In Ketcham, the Court held that the testator's direction to the executor to resist his children's Wills Variation Act claims at all costs was in terrorem and therefore void.
There was little analysis on this point. The Court simply noted that the clause does not directly divest the children of an interest, but, has the same effect by denying them the fruits of their victory because the executor can spend all of the assets on the defence. The Court left open the possibility that the clause might not have been in terrorem if the testator had created a limited fund for fees; directed the executor to only take reasonable steps; or otherwise constrained the expenditure.
Public policy
The doctrine of invalidity of in terrorem conditions overlaps with the invalidity of conditions that are found to be contrary to public policy. The condition in the example above may also be viewed as void for being contrary to public policy. Conditions that incite a crime or a prohibited act; induce the separation of spouses; restrain marriage unreasonably; deprive a parent of control of their children; discriminate on prohibited grounds under provincial human rights legislation; or, violate the rule against perpetuities are usually found to be contrary to public policy.[5]
In the context of a "no contest" provision in a Will, there are two public policy grounds that may be offended:
- The public policy that individuals must not unilaterally be permitted to deprive the court of jurisdiction; and
- The public policy that dependants' of deceased persons must have recourse to the courts if the deceased did not provide proper and adequate support.
The public policy ground that keep the court's jurisdiction from being stripped will only be offended by a condition in a Will that purports to put the entire subject matter of the Will outside the court's purview.[6] A Will that curtails all actions, but, still allows a party to seek directions on interpretation from the court or one that removes only one cause of action (say, the right to challenge the validity of the Will) but not others (like, claims for support) will also not offend this ground of public policy.[7]
However, a restriction of the right to make a dependant's support claim is repugnant to public policy and will be invalid.[8] This is based on the public concern that dependants are properly supported.
To return to the example above, it likely is not void against policy because: a) it curtails only will challenges and not other recourse to the court; and, b) it does not prevent a dependant from making a claim for support from the estate.
Ketcham directly applied the rule that a restriction on a dependant's claim for support under the applicable legislation offends public policy.[9]
Executors' neutrality
Justice Wong cited the British Columbia Supreme Court decision in Quirico v. Pepper Estate for the principle that an executor is required to remain neutral and not pick sides:
The primary duty of an executor is to preserve the assets of the estate, pay the debts and distribute the balance to the beneficiaries entitled under the Will or, in accordance with any order made under the Wills Variation Act. An executor should not pick sides between the beneficiaries and use estate funds to finance litigation on their behalf under the Wills Variation Act. It is a matter of indifference to the executor as to how the estate should be divided. He or she need only comply with the terms of the Will or any variation of it made by a court.[10]
For all these reasons, the law anticipates the executor will remain impartial between the opposing beneficiaries. Where proceedings are taken under the Act, all the executor need do is appear at the trial if required, and deliver to the court the Letters Probate and financial documents showing the value of the estate. Even this may be unnecessary if the parties agree to admit copies of those documents into evidence without the attendance of the executor.
It follows that the only purpose of Mr. MacKay appearing at the trial as solicitor for the executor was to deliver up the Letters Probate and the Estate Inventory. He could not act in an adversarial capacity against the plaintiff.
The executor quite naturally seized on the apparent qualification in Quirico that:
He or she [the executor] need only comply with the terms of the will...
In Ketcham, the testator had explicitly authorized the executor, who was just following the terms of the Will. Ketcham in that respect seems to be distinguishable from every other reported case of an executor entering the fray.[11] In all of the other cases, the executors' took it upon themselves to become defenders of the Will.[12] In all of those cases, the executor was found to be offside for failing to remain neutral.
Despite the lack of precedent and express provision in the will, the Court applied the rule in Quirico that the executor must remain neutral. Justice Wong held that the statement that an executor, "need only comply with the terms of the Will...," refers only to the distributive terms of the Will.
The executor in Ketcham made two other arguments unsuccessfully: First, he argued that there would be nobody else to defend the testator's wishes. The court found this to be immaterial to the executor's duty to remain neutral. An undefended action will still be scrutinized by the court anyways. Second, the executor argued by analogy that an executor is not always required to remain neutral as illustrated by the ability of a testator to waive the 'even-hand rule' in discretionary trusts and under powers of appointment. The Court rejected this argument as being specious.
Conclusion
Ketcham is not binding outside of British Columbia; a different court might find that a testator's autonomy is broad enough to include a right to create an "executor's Will-defence fund". No matter what the rule, Ketcham still highlights the underlying principles: the courts are reluctant to encourage frivolous litigation; protective of their jurisdiction;are careful to stress the fiduciary principle that estates exist for the benefit of their beneficiaries, not their personal representatives. A Will that runs afoul of these principles, whether by creating coercive or repugnant conditional gifts or an executor's Will defence fund, is likely to be subjected to a good, hard look.
[1] 2003 BCSC 563 (CanLII) at para. 9.
[2] Ibid. at paras. 10-12.
[3] Kent v. McKay, 1982 CanLII 788 (BC SC), (1982), 139 D.L.R. (3d) 318 (B.C.S.C.)
[4] James MacKenzie, Feeney's Canadian Law of Wills, loose leaf 4th ed. (Toronto: Butterworths, 2000) at para. 16.61 [Feeney], citing Lawson, "The Rule Against 'In Terrorem' Conditions: What Is It? Where Did It Come From? Do We Really Need It?" (2007), 25 ET&PJ 71 at 94.
[5] Feeney, supra note at para. 16.57.
[6] Kent, supra note at paras. 9-10.
[8] Ibid. at paras. 15-17.
[9] Ketcham, supra at para. 22.
[10] (1999), 22 B.C.T.C. 32 at paras. 15-17
[11] Quirico, ibid., Patton, Re, 1971 CarswellOnt 816, [1971] 3 O.R. 85, 19 D.L.R. (3d) 497; Hautakoski Estate, Re, 2009 CarswellBC 1731, 2009 BCSC 868, [2010] B.C.W.L.D. 226 (B.C. Master); Wilcox v. Wilcox, 2002 BCCA 574 (CanLII); Chan v. Lee, 2003 BCSC 513 (CanLII) rev'd on other grounds at 2003 BCSC 513 (CanLII); and Doucette v. Doucette Estate, 2008 BCSC 506 (CanLII).
[12] In Quirico, Patton and Hautakoski, the executors were as executors only; in Wilcox, Chan and Doucette, they were executor-beneficiaries.
Canada Law Book, Thomson Reuters released last month the hard copy book entitled: "PROPERTY RIGHTS AND OBLIGATIONS UNDER ONTARIO FAMILY LAW". Kimberly authored together with the assistance of her former associate, Chapter 2 entitled, "ESTATES ISSUES RELATING TO ONTARIO FAMILY LAW PROPERTY RIGHTS AND OBLIGATIONS."
