Date: 20011101
Docket: Probate No. 10, 330
PROVINCE OF NOVA SCOTIA )
IN THE COURT OF PROBATE
COUNTY OF KINGS )
[CITE: Legge Estate(Re), 2001 NSSC 156]
IN THE MATTER OF: THE ESTATE OF THE LATE HAROLD B. LEGGE, LATE OF PORT WILLIAMS, KINGS COUNTY, NOVA SCOTIA
D E C I S I O N
HEARD: At Kentville, Nova Scotia, before the Honourable Justice C. Richard Coughlan, on June 29th, 2001
DECISION: November 1st, 2001
COUNSEL: Trinda L. Ernst, Q.C., Proctor
James E. Dewar, Q.C., for Sharon Legge
Peter M. S. Bryson, Q.C., for Carl K. Miller, Executor and Trustee
Walter O. Newton, Q.C., Executor and Trustee
Heather Hill and Dan Oulton (articled clerk), for Robert P. Legge
Lawrence E. Legge, unrepresented
COUGHLAN, J.:
[1] This application deals with two issues in the Estate of Harold B. Legge. First, the amount due to Sharon Legge as income from the trust in which she has a life interest, and second, the manner in which the anticipated shortfall of funds is to be allocated among the beneficiaries.
[2] The late Harold B. Legge died in July, 1993. At the time of his death, the major asset in Mr. Legge’s estate was his shares of the common stock of Harold B. Legge Transport Company Limited (the “Company”) which comprised over eighty percent of the assets shown on the Inventory dated October 7th, 1993. Mr. Legge provided in his Last Will and Testament the shares of the Company be dealt with as follows:
7. I GIVE, DEVISE AND BEQUEATH all the rest and residue of my estate, both real and personal, of whatsoever kind and nature and wheresoever situate, to my Trustees upon trust for the following uses and purposes:
...
(c) To hold seventy percent (70%) of my shares in common stock of Harold B. Legge Transport Company Limited in trust for the benefit of my wife, SHARON LEGGE, and to pay over and deliver to my said wife for her sole use and benefit all dividends paid by Harold B. Legge Transport Company Limited during the remainder of her natural life. On the death of my said wife, I DIRECT my Trustees to transfer such shares to my sons, ROBERT LEGGE, LAWRENCE LEGGE and DAVID LEGGE, share and share alike to be theirs absolutely. I DIRECT my Trustees to hold in trust thirty percent (30%) of my shares in the common stock of Harold B. Legge Transport Company Limited for my sons, ROBERT LEGGE, LAWRENCE LEGGE and DAVID LEGGE and as each of them attains the age of twenty-seven (27) years, I DIRECT my Trustees to transfer to each one-third (1/3) of the shares so held in trust to be his absolutely. I FURTHER DIRECT my Trustees to pay over and deliver to my said sons, share and share alike to be theirs absolutely, all dividends paid by Harold B. Legge Transport Company Limited with respect to such shares; PROVIDED, HOWEVER, that any dividends payable to any son who has not attained the age of majority, shall be paid by my Trustees to the parent or guardian of such child for the benefit and education of such child during his minority, the receipt of which guardian shall be a sufficient discharge to my Trustees. Nothing herein contained shall be deemed to in any way restrict any power or discretion otherwise granted herein to my Trustees with regard to the sale of any shares of corporations which I may own at my death. ...
[3] The will deals with the sale of shares of companies owned by Mr. Legge:
9. SUBJECT TO THE OTHER PROVISIONS of this my Will, my Trustees may sell at such prices and upon such terms and conditions as they deem fit all or any part of my real or personal property and may execute such deeds of grant, conveyances, and assurances as are required, and no purchaser shall be concerned to inquire as to the propriety of any sale.
7. (c) ... Nothing herein contained shall be deemed to in any way restrict any power or discretion otherwise granted herein to my Trustees with regard to the sale of any shares of corporations which I may own at my death. ...
[4] The Company had a $1,000,000.00 life insurance policy on Mr. Legge’s life, and the directors of the Company used the proceeds to declare a capital dividend in the amount of $602,400.00 in October, 1993. The estate’s share of the dividend was $373,800.00. In June, 1997 the shares of the Company were sold, at which time the balance of the capital dividend account was declared in the amount of $379,034.00 but not paid and is secured by a note and debenture on the assets and equipment of the Company. The estate’s share of the second capital dividend was $235,197.39.
[5] Justice Hall has issued previous orders in this estate dated June 22nd, 1995 and November 7th, 2000. They have not been appealed.
[6] In dealing with the capital dividend declared in October, 1993, Justice Hall provided in the order dated June 22nd, 1995:
3. The executors were authorized, together with the other directors of H.B. Legge Transport Limited, to declare a capital dividend from that corporation; all parties interested in the estate apparently sanctioned the declaring of the dividend.
4. Such portion of the capital created from the declaration of the capital dividend from the corporation as is attributable to the 70% of the deceased’s shares of the corporation is to remain a part of the capital of the estate and any income derived from that sum of money is to be paid to Mrs. Legge as the income that she is entitled to receive under paragraph 6(c) of the Will.
[7] This order of Justice Hall was not appealed. The issues were fully argued before him. Hall, J. dealt with the issue of the capital dividend in his decision and order. The issue of the capital dividend is res judicata. The principle of res judicata is defined in Res Judicata (2nd ed., 1969) by Spencer-Bower and Turner at p. 9:
The rule of estoppel by res judicata, which, like that of estoppel by representation, is a rule of evidence, may thus be stated: where a final judicial decision has been pronounced by either an English, or (with certain exceptions) a foreign, judicial tribunal of competent jurisdiction over the parties to, and the subject-matter of, the litigation, any party or privy to such litigation, as against any other party or privy thereto, and, in the case of a decision in rem, any person whatsoever, as against any other person, is estopped in any subsequent litigation from disputing or questioning such decision on the merits, whether it be used as the foundation of an action, or relied upon as a bar to any claim, indictment or complaint, or to any affirmative defence, case, or allegation, if, but not unless, the party interested raises the point of estoppel at the proper time and in the proper manner.
[8] Mr. Legge gave his trustees power to sell his shares, including his shares in the Company. In his will, Mr. Legge set up the life trust by which his wife received the dividends from seventy percent of his shares in the Company. No provision was made for the proceeds of the sale of the shares or capital distributions, e.g. capital dividends. The shares of the Company comprised the majority of Mr. Legge’s assets. In devising his residence to his wife and establishing the trust by which his wife received the dividends from seventy percent of his shares of the Company, he structured his will so that his wife would have an income for her life, while maintaining the capital for his sons after his wife’s death.
[9] In interpreting a will, the intention of the testator is to be ascertained. To determine Mr. Legge’s intention concerning the proceeds of the sale of the shares of the Company and capital distribution, the surrounding circumstances may be examined.
[10] Surrounding circumstances is dealt with in The Canadian Law of Wills (3rd ed., 1987) (vol. 2) by Thomas G. Feeney at p. 13:
... If, in the first instance, the testator’s intention cannot be discerned from the will itself, then, since the testator must be taken to have used the language of the will in view of the surrounding circumstances known to him when he made his will, evidence of such circumstances is necessarily admissible, at least insofar as it corresponds to the facts and circumstances referred to in the will. ...
[11] And at p. 65:
Therefore, in summary of the armchair rule in Canada, it can be said that if Canadian law has not yet fully adopted the subjective approach to construction, it at least favours such an approach. Under the subjective approach the ordinary meaning of words is not to be regarded as the objective or dictionary meaning; it is to be regarded as the meaning the words had for the testator. In the first instance, a Canadian court is thus at least allowed, if not duty bound, to interpret a word or words in the light of all the facts and circumstances of the case, so as to select from among two or more meanings in ordinary use the meaning that makes the most common sense of the testator’s will.
[12] When considering the provisions of Mr. Legge’s will and the assets which made up his estate, it is clear his intention was to provide his wife with income during her life and upon her death the capital go to his sons. He also gave his trustees power to sell his shares in the Company. Mr. Legge intended the shares of the Company provide the capital from which the income to support his wife would be derived.
[13] In considering the terms of the will and the surrounding circumstances, I find the testator intended the shares or the proceeds of the sale of the shares or capital dividends be dealt with as set out in para. 7(c) of his will. The capital dividends declared in June, 1997 will be dealt with in the same manner as the capital dividend dealt with in Justice Hall’s order of June 22nd, 1995.
[14] In dealing with the income payable to a beneficiary entitled to income, the will provides in para. 11:
... and where my estate or any part thereof is enjoyed by a beneficiary as to income only, the income shall be deemed to be and shall be the income actually arising from my estate as it is held in specie and shall not be deemed to be the income that would have been produced by trustee investments or otherwise howsoever, and my Trustees in their discretion may retain any asset or assets not producing income, and so long as my Trustees do so, no beneficiary under this my Will may claim income that that asset or those assets would or might have produced had it or they been converted into income-producing assets or securities; ...
[15] The will is clear. Sharon Legge is entitled to income actually earned on the funds held in trust pursuant to para. 7(c) of the will.
[16] Are the obligations of the estate to be paid out of income or capital? The “even hand” rule provides both the life tenant and the remainderman are to be treated equally. The rule is described in Waters, Law of Trusts in Canada, (2nd ed., 1984) at p. 787:
It is a primary duty upon trustees that in all their dealings with trust affairs they act in such a way that, if there are two or more beneficiaries, each beneficiary receives exactly what the terms of the trust confer upon him and otherwise receives no advantage and suffers no burden which other beneficiaries do not share. In this way the trustees act impartially; they hold an even hand. The settlor or testator may choose to give disproportionate interests to various beneficiaries, and he very often does so in practice, but that is his privilege. It is still the duty of the trustees to carry out the terms of the trust as they find them, and to ensure that in the administration of the trust they do not give advantage or impose burden when that advantage or burden is not to be found in the terms of the trust.
[17] In this estate, in addition to wide powers to realize, postpone and retain any portion of the estate, the trustees are given power to make division of the estate as follows:
8. MY TRUSTEES may make any division of my estate or set aside any share or interest therein, either wholly or in part, in the assets forming my estate at the time of my death or at the time that division, setting aside, or payment, and my Trustees in their discretion shall fix the value of my estate or of any part thereof for the purposes of making any such division, setting aside, or payment, and the decision of my Trustees shall be final and binding upon all persons concerned.
11. MY TRUSTEES MAY retain the whole or any part of my estate (whether real or personal) in the form in which it exists at the time of my death, for as long as my Trustees in their discretion deem advisable, without being in any way restricted by the provisions of the Trustee Act of Nova Scotia or any other law or statute governing the kinds or quality of property that executors and trustees may retain, and whenever in the opinion of my Trustees it becomes desirable to invest any money, funds, or property forming the whole or any part of my estate or held in connection therewise, my Trustees may invest in such seasoned securities or other property as my Trustees in their discretion consider to be a sound investment for the funds of my estate, without being in any way restricted by the provisions of the Trustee Act of Nova Scotia or any other law or statute restricting the investment of trust funds, and may sell, reinvest, vary, and transpose all such investments at pleasure, and the decision of my Trustees as to the retention, disposition, and acquisition of any and all such property, assets, investments, and securities shall be final and binding upon all persons interested in my estate; and where my estate or any part thereof is enjoyed by any beneficiary as to income only, the income shall be deemed to be and shall be the income actually arising from my estate as it is held in specie and shall not be deemed to be the income that would have been produced by trustee investments or otherwise howsoever, and my Trustees in their discretion may retain any asset or assets not producing income, and so long as my Trustees do so, no beneficiary under this my Will may claim income that that asset or those assets would or might have produced had it or they been converted into income-producing assets or securities; and my estate shall indemnify my Trustees against everything but willful misconduct in retaining, disposing, selling, investing, or reinvesting the whole or any part of my estate, and my Trustees shall not be responsible for any loss occasioned by the exercise in good faith of the powers and discretions herein conferred upon them.
[18] The “even hand” rule is based on sound policy. However, the duty to act with an even hand is subject to the terms of the will. As McIntyre, J. stated in giving the judgment of the Supreme Court of Canada in Lottman et al. v. Stanford et al. (1980), 107 D.L.R. (3d) 28 at p. 33:
The rule in Howe v. Lord Dartmouth, as has been pointed out, is a rule requiring the trustee of an estate settled in succession to deal even handedly between the life tenant and the remaindermen. It operates to compel, where its operation is not excluded by the testator, a conversion of wasting or unproductive personalty and the investment of the proceeds of such conversion in trustee investments. ... (Emphasis Added)
....
It will be observed that cl. III(d) of the will contains a direction to convert the personal estate at the discretion of the trustees. Clause III(g) directs the investment of the residue. There is therefore no room for the operation of the rule which is wholly unnecessary where a specific direction to convert is given ...
[19] Here, the trustees have broad discretionary powers. The terms of the will give the trustees the power to apportion payment of expenses between income or capital. The trustees have a duty to exercise the power to apportion in good faith.
[20] The second question the court has been asked to determine is the manner in which the anticipated shortfall of funds is to be allocated among the beneficiaries.
[21] Absent instructions to the contrary in a will, the payment of debts and expenses are to be paid as follows: first, out of the residuary personalty; second, out of the residuary (not specifically devised) real property; third, out of general bequests; fourth, out of demonstrative bequests; fifth, out of specific bequests; and finally, out of specific devises of real property.
[22] The burden of abatement is to be born on a pro-rata basis within each class. The order of abatement is dealt with in The Canadian Law of Wills, supra, (vol. 1) at p. 251:
When the estate is solvent, the creditors must be paid in full, but if there are insufficient assets to pay all beneficiaries, it is the duty of the personal representative to decide on the contesting claims between the beneficiaries inter se. The rules for the application of the available assets are well fixed. He must, under the rules, decide first as to the order in which resort is to be had to the various assets of the estate to pay debts and other liabilities and, second, decide what parts of the estate are charged with the payment of pecuniary legacies and in what order. The order of abatement depends on the nature of the legacy or devise. A general legacy is a gift out of the residuary estate after the payment of debts and specific legacies. The most usual kind of a general legacy is a pecuniary legacy. A specific legacy is one which the testator has separated from his residuary estate in favour of a particular legatee and since the testator has shown that he intends that the legatee shall take the specific thing unconditionally, while it may have to be sold to pay debts, it will not abate to meet debts until the residuary estate and general legacies have been exhausted. There is a third kind of legacy known as a demonstrative legacy - rather halfway between a specific legacy and a general one - which is a pecuniary legacy that makes reference to a particular fund out of which it is to be paid.
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 legacies rateably after that, and finally devises. Devises abate last because of the general rule that personalty is primarily liable for the payment of debts.
[23] The classification of real property was considered in The Law of Wills (7th ed.) by S. J. Bailey, at p. 112:
The foregoing classification of legacies is not usually applied to devises of land. Indeed, a demonstrative devise is probably an impossible conception, for, though money may be bequeathed from a certain fund for the purchase of land, a devise of land itself can hardly be made out of a particular fund. However, there appears to be no logical objection to classifying devises of land as general or specific. It is true that a well-worn maxim states that “all devises are specific”; but, whatever historical justification exists for this statement, it is of little importance at the present day. Modern usage undoubtedly reserves the phrase “specific devise” for a devise which specifies and describes the land concerned, and opposes to it the phrases “general devise” and “residuary devise”. A “general devise” signifies a devise by general description - e.g. “all my realty to X.” A “residuary devise” is a devise by general description of such lands as have not been otherwise devised by the will - e.g. “all the rest of my real property to X.” Thus, a residuary devise is normally a variety of general devise. We may, therefore, ignore niceties of nomenclature and state that “all devises are either general or specific.”
The rules as to abatement and ademption are as applicable here as to legacies. A specific devise (e.g. of Blackacre) is adeemed if the testator parts with the specified land before his death; whereas a general or residuary devise operates upon whatever land (within the general description) he has at his death, whether or not it is the land which he held at the time of making his will. On the other hand, a specific devise does not abate for the payment of debts until all general devises and bequests have been exhausted.
[24] In this estate any shortfall will be paid, first, out of the residuary personalty; second, out of the residuary real property; third, out of general bequests; fourth, out of specific bequests, including the proceeds of the capital distributions and proceeds of the sale of the shares of the Company; and finally, out of the specifically devised real property.
[25] In the case of the capital distributions and proceeds of the sale of the Company shares, a proportionate allocation is seventy percent from the trust in which Sharon Legge has a life interest and thirty percent from the shares divided between Lawrence Legge, Robert Legge and David Legge.
[26] I will receive written submissions from the parties as to costs.
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C. Richard Coughlan, J.