Kuliska Estate (Re), 2011 ABQB 528

Court of Queen ’ s Bench of Alberta Citation: Kuliska Estate (Re), 2011 ABQB 528 Date: 20110901 Docket: ES06 07319 Registry: Lethbridge Court File Number ES06 07319 Court Court of Queen’s Bench of Alberta (Surrogate Matter) Judicial Centre Lethbridge Estate Name Steven A. Kuliska Applicant (Plaintiff) Victor Kuliska Respondent (Defendant) John Kuliska and Lydia Sych _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice W.V. Hembroff _______________________________________________________ Introduction [ 1 ] On November 18, 1993, Steven A. Kuliska died.

Letters Probate were applied for expeditiously and Probate was granted to his son, the Applicant herein, Victor Kuliska, on December 16, 1993. [ 2 ] Fourteen years later, on September 14, 2007, one of the other beneficiaries, John Kuliska, filed an Application before this Court on the ground the Executor had failed to account and had failed to distribute the Estate in accord with the Will of the Deceased Steven Kuliska. The Executor, in turn, on September 20, 2007, applied for an Informal Passing of Accounts.

These Applications were the first formal step taken by any of the parties, and in particular the Executor, since 1993. [ 3 ] There were some significant quarrels among family members as to the manner in which the Estate was to be distributed with particular reference to one piece of land, the SE 1/4 of 33-11-22-W4 (referred to as “SE 33"). The Executor took the position that the land was to be transferred to him pursuant to the terms of his father’s Will. As that particular portion had not been owned by the

Deceased prior to the execution of his Will, the land was not specifically dealt with in the Will. Subject to the argument of Victor, the land would have fallen into the residue of the Estate pursuant to Clause 5(

h) in the Will, where it was to be distributed among “my issue per stirpes”. [ 4 ] The Deceased had four children. His sons are Victor Kuliska and John Kuliska, the Applicant and Respondent. He has a daughter, Lydia Sych, who received a specific bequest to some of the estate land and is also a residual beneficiary. Beatrice Ann Fast is an estranged daughter who was left the sum of $1.00. She is not included as a residual beneficiary, for while the Will directs that the residue of the estate be distributed “among my issue per stirpes”, clause 2(

c) of the Will states, “The expression ‘my issue’ in this Will shall be taken to exclude Beatrice Linda Fast and her issue”. [ 5 ] The two Applications mentioned above were followed by further litigation. Orders were granted directing the sale of four of the five quarters owned by the Deceased at the time of his death. These sales resulted in an increase in value of the Estate, as land prices escalated significantly in the 14 years between the death of the Deceased and the sales. In the Application for Probate all of the estate land including SE 33 was valued at $400,000.00.

When the land was sold pursuant to Court Order, the sale price for all of the land, excluding SE 33, was $1,625,000.00. SE 33 remains unsold. [ 6 ] After the sale of the land but before resolution of the Deceased’s estate matters, John passed away. [ 7 ] As a result of the two Applications in 2007, and after numerous delays, a further Order was granted by Justice E.C. Wilson, resulting in this matter coming before the Court. In his Order Justice E.C. Wilson directed: 1. The passing of the accounts of Victor Kuliska shall be set down for a Special Chambers hearing to be held on July 5, 2011 at 1:30 p.m. 2.

Representations at the Special hearing shall be limited to those objections set forth on the Notice of Objection filed by John Kuliska on October 16, 2009, and the additional issue of the matters set forth in notes 5 and 6 of the applicant’s accounts dated April 30, 2009. 3. Affidavits filed in support of or in opposition to the application shall be filed and served no later than May 9, 2011. 4. Examinations on affidavits and undertakings arising shall be completed on or before June 3, 2011. [ 8 ] The procedural requirements were met and finally this Special Application was heard before me on July 5 th .

Facts [ 9 ] As indicated above, Victor interprets two clauses in his father’s Will to suit himself, alleging they clearly indicate the intention of his father that he, the Executor, was to have SE 33. The relevant clauses are as follows: 7. GENERAL POWERS OF TRUSTEE

a) The Trustee shall have the authority to call in and convert into money any portion of my estate, or to postpone such conversion, or to retain, value and distribute in specie any portion of my estate, but my Trustee is directed to take any reasonable steps necessary to avoid the sale of any farm property to a person other than one of my descendants. ...

STATEMENT OF INTENTION : It is my intention and wish that any person who accepts an inheritance of any of my interests in farmland as a result of my death should accept with that inheritance a moral obligation not to sell such property to any person who is not a member of my family, such family to include sons-in-law and daughters-in-law, unless none of my family is willing and able to purchase and farm the said property at the time sale is contemplated. [ 10 ] Although Victor now takes the position that SE 33 is his pursuant to an agreement with his father and under the terms of the Will, in his Application for Probate he swore that SE 33 was an asset of the estate with no encumbrance on it.

He also swore the estate was indebted to him for $52,000.00 and to his brother John for $33,500.00 for personal loans. There is no mention in the Application for Probate of Victor’s alleged interest in SE 33. [ 11 ] A fairly extensive Settlement Agreement, dated September 29, 1994, was drafted between Victor and John. The contents of the Agreement imply quite clearly that Victor did not claim SE 33 as his own but did indicate that he had some interest in it as a result of money advanced to the Estate. The relevant provisions of the Agreement read as follows: 3.

For Estate purposes the said residue will be transferred to Victor and John jointly, to apply on the settlement of their loans to the Estate. 4. Victor agrees to transfer to John Kuliska and Lydia Sych jointly the Fairmont Condo time share approximate value $9,000.00. 5. As between Victor Kuliska and John Kuliska it is agreed as follows: (

a) The entire SE 1/4-33-11-22-4 will be transferred to Victor Kuliska to compensate him for the sum of $52,000.00 loaned or advanced to the Estate plus the additional consideration in lieu of probable interest and contributions towards the Estate to preserve Steve Kuliska’s farming operations prior to his death. (

b) As a result of the above transactions, John Kuliska’s loans in the sum of $35,500.00 to the Estate will have been deemed to have been settled in full . (

c) The Royal Bank T-Bill will be transferred to John and Victor Kuliska jointly. [ 12 ] It is interesting to note that in the Agreement Executor’s fees had been agreed to as between Victor and John in the amount of $20,000.00, to be pro-rated among the beneficiaries: 45% by Victor, 45% by John and 10% by Lydia. The Agreement indicated these fees should be paid from the Estate land revenues. [ 13 ] The Agreement was signed by both brothers but the final clause stated that the proposals were based on the approval of their sister, Lydia Sych.

That consent was never given. [ 14 ] Apparently in 1994 and 1995 there was a good deal of friction among the two sons and the daughter concerning the disposition of the Estate. This is demonstrated in the Questioning of the Executor on his Affidavit. Numbers of his answers are of interest. One relates to the falling out between he, his brother, and sister. Q Now, in 1995 you said that, you used the words, John ‘walked out’? A Stomped out. Q Okay. Was there a particular issue at that meeting that prompted the disagreement as far as you could tell? A Lydia was very upset.

She was not in the mood for negotiating; she was very hostile. The meeting was very short. John sat back watched the action going on between Lydia and myself. Lydia made a comment that you want all the estate, you want all of the farm,

you can have it. I said, I beg your pardon? What’d you mean? Show me the evidence for that. Wouldn’t answer the question, and that’s when she got angry, stomped out, and John said yep, I’m going to. He had his bag packed and left. It was already packed because he just went to the bedroom and got it and left. Q Were there any estate negotiations after that meeting ever? A No. Q And I just want to ask you, I don’t want to ask you to read the minds of your brother and sister, but I want to ask you was your impression after the 1995 meeting that it was unlikely that the estate would settle?

A No, I still held out hope that we could get together and negotiate. I’ve mentioned to them a number of times that we have two choices. We can either go to court or we can try to get together to settle this. I had some letters that I wrote to John; in fact, that 1994 letter which is in the exhibit here, I mentioned there then John told me he was not interested in going to litigation, going to court. He wanted to settle it outside of court. Lydia never told me, so I don’t know. She wouldn’t talk to me; in fact, she told John to tell me not to write her or phone her or talk to her, so I honor that. Mr.

Higa, again, wrote letters to John and Lydia asking to get proposals to try and settle this, because I went through Mr. Higa, to try to get a meeting together. To my knowledge, I never got any copies of any proposals from them, whether Mr. Higa did or not, I don’t know. He never informed me, so I’m assuming he didn’t get any. After, probably, 1996 I realized, began to realize, that chances were slim. [ 15 ] At that time, in 1995, it ought to have been obvious to Victor that no settlement was going to be achieved. He should have taken action immediately to resolve the problem.

Had he done so, the matters that were brought before me with particular reference to the accounting and the enormous executor’s fees that Victor is seeking would never even have arisen. He is the one that was in charge of the Estate. He is the one that should have taken the steps to bring the matter to a conclusion. [ 16 ] The ownership of SE 33 appears to have been the focal point for the dispute and could easily have been dealt with by an application in 1995 which should have sought, among other things, to determine the terms of the Will. Had that been done, regardless of the manner of the

interpretation, the Estate could then have been distributed. [ 17 ] From 1995 onwards, I find that Victor Kuliska as beneficiary in his father’s estate was in a very significant conflict with Victor Kuliska as the Executor of his father. The interest of the Estate and the interest of the beneficiary were quite different. Unfortunately, Victor did not seem to recognize this conflict. [ 18 ] In his Questioning on his Affidavit, there are further comments relating to what should have been an obvious concern about a conflict between his duties as Executor and his rights as beneficiary.

In his Questioning on this matter he said as follows: Q Now, you understand that one of the things an executor does is evaluates and deals with claims against the estate; is that right? A Yes. Q And I guess I’m curious as to how you propose to evaluate objectively your own claims? A I feel very comfortable with being removed, armslengths removed, and at looking at these amounts. And if I was a negotiator at a table and someone else brought this to me, I would say that those are legitimate claims; those are legitimate interests. That’s the way I look at it.

So I’m doing a split personality, I guess, here, looking at it as negotiator on that portion. [ 19 ] If I have ever seen such an obvious conflict of interest it is found in the management of this estate by this Executor. [ 20 ] I find there was clearly a conflict of interest that should have been recognized and should have been dealt with by bringing the matter forward into the Courts in 1995.

Instead Victor simply marched forward, deciding on his own method of continuing the estate and creating an enormous problem which should have been settled much sooner. [ 21 ] After the failure of the proposed settlement, Victor testified: 7 ...I took over complete control of all operations (Paragraph 7, Line 16 of Questioning on Affidavit)

[ 22 ] Rather than seeking the advice and direction of the Court, Victor chose to create a partnership called SKS Farms which continued farming operations and used almost entirely all the assets of the estate. He deemed himself to hold a 55% partnership interest, with John holding the remaining 45%. He deemed that the equipment, produce, and three estate quarters left to himself and John pursuant to the Will were to be treated as assets of the partnership, and that the quarter left to Victor, John and Lydia, and SE 33, were to be rented by the partnership.

There is no information on how he determined the yearly rental amount for either quarter. [ 23 ] Of the rented two quarters, one being NE 1/4 17-11-22-W4, the terms of the Will left it to Lydia, Victor and John as tenants in common. From 1994 to 2001 John and Lydia received rental payments from their interest in this quarter, but after 2001, Victor stopped paying them and merely recorded the rental amounts as a debt owing by the estate.

Even though the land was sold and the partnership ceased farming operations in 2008, the debt to the beneficiaries remains unpaid. [ 24 ] The other quarter is SE 33, which subject to the unresolved argument of Victor that it be transferred to him, forms part of the residue of the estate, in which Lydia has an interest. Rental payments for this quarter were never distributed or paid into the estate, but from 1994 to 2007, were recorded as a debt owing to the estate. Even though the partnership ceased farming operations in 2008, the debt to the estate remains unpaid. [ 25 ] SE 33 remains unsold.

It was rented out from 2008 to 2010 on a crop share basis, but the rental amounts were not deposited with the estate; as deposed to by Victor, “all of the income has been credited to the partnership”.

While Victor chose to constitute the partnership and not give Lydia any interest, there is a very real possibility, of which Victor ought to have been aware, that she does have an interest in SE 33. [ 26 ] Also in 2001, Victor ceased providing John and Lydia with payment of their shares of third party surface leases, and simply accumulated these funds in the estate. [ 27 ] From the SKS Farms income tax records, which Victor produced only after being compelled to do so by Order of the Court, it appears he split the SKS Farms net profit or loss with John on a yearly basis.

However, before calculating the net profit or loss, Victor allocated himself an hourly wage for maintaining the farming operation, and has withdrawn $267,905.50 from 1995 to 2011. He claims this is insufficient for his management of SKS Farms, and seeks an additional $110,000.00. [ 28 ] There is no indication as to how long this practice would have continued had John not filed an application to remove Victor as executor in 2007. [ 29 ] When four of the five estate quarters were sold in 2008, Victor also took advances totalling $170,000.00.

This was done without authorization of Court Order or the consent of all or any beneficiaries. [ 30 ] In

summary, around 1995 when relations between three children of Steven deteriorated and it appeared that the other siblings would not agree to Victor receiving SE 33, Victor chose to remove nearly all estate assets from the control of the estate and use them, largely to his benefit, in a partnership in which he gave himself a majority interest. He refused to account for the use of the estate assets in the partnership until 2008, when after a contested Court application, he was directed to produce the raw accounting data of SKS Farms.

When the data was reviewed, it revealed that most lease payments owing from the partnership to the estate were never made, and that Victor has taken fees and/or advances of several hundred thousand dollars over the last 15 years, a practice that continued even while an application to remove him as executor was outstanding. [ 31 ] There are other examples of Victor not recognizing that he was in a conflict, and failing in his duties as an executor and trustee:

a) Victor stated he put forth settlement proposals, but the reason he could not settle the estate was because his siblings would not accept any of his proposals. However, at his Questioning on Affidavit, Victor agreed that all the proposals he ever put forward included him receiving title to SE 33.

b) Victor acknowledged at the Questioning that after an incident in 1995 he and Lydia were no longer on speaking terms, and that after 1996, he realized the chances of settling the estate were slim. Despite this, he did nothing, even when his siblings sought Court direction to finalize their mother’s estate.

c) Victor acknowledged that in November of 2001, he sent an E-mail to John which stated, “I am not willing to sign any legal documents pertaining to Mother’s Estate until Father’s Estate is settled.” In Questioning, he agreed that the two estates had nothing to do with one another, and denied he was making any “threat”. Instead, he reasoned that he was trying to use a “tactic” that he thought could settle their father’s estate.

This “tactic”, which I find to be more in the nature of a threat, appears to be the same type of strategy Victor was using to force settlement of the estate in 1996, when he wrote to Lydia and stated he would not consider a buy-out of her share in the NE 1/4 of 17-11-22-W4 without a complete resolution of all debts owed to himself and John.

d) When Victor finally did present accounts to be passed in 2007, the balance sheet for the estate shows an accumulation of interest only on Victor’s debt, not John’s. No explanation is given as to why Victor’s debt was owed interest by the estate, but John’s was not.

e) There are significantly less funds in the estate GIC in the accounting of December 31, 2010, than there were in the accounting of April 30, 2009, ($17,480), with no explanation for the decrease.

f) In Questioning, Victor stated he has been discussing the disposition of SE 33 with Beatrice, the estranged daughter of Steve, and he stated at pages 27-28: 24 I made it quite clear to her that if southeast 33 is 25 going to go into the residue of the estate, and I’m not 26 entitled, the title of that or the rent from that income 27 from the land, then I will be quite insistent on it 1 being split four ways. [ 32 ] This latter example from Victor’s questioning in 2011 illustrates how, 18 years after he was appointed executor, Victor still fails to recognize that his role as executor is not to determine the disposition of the estate based on his own self-interest.

Analysis - SE 33 [ 33 ] Victor continually alleged that his father had indicated that SE 33 was to be his, and he attempts to take support for his position from the provisions of

Section 7 and 8 of his father’s Will, quoted above. [ 34 ] There is no merit in this claim. Firstly I cannot read the Will to suggest there is a specific bequest of SE 33 to Victor.

At best, Victor’s argument stems from clause 7, which contains the following statement: ...my Trustee is directed to take any reasonable steps to avoid the sale of any farm property to a person other than one of my descendants. [ 35 ] Certainly, reasonable steps aren’t delaying the distribution of the Estate to suit the Executor’s own purposes. [ 36 ] As well, Clause 8 speaks to persons accepting any inheritance of farmland having a “moral obligation” not to sell any farm property to a person who is not a family member as defined in the Will. “Moral obligation” and “intention and wish” do not impose an obligation on the Executor, and he cannot use any such intention to refuse to dispose of the land other than as is specifically directed. [ 37 ] Whatever Clause 8 was intended to mean by the Deceased Steven, Victor later ignored it when he applied to this Court to

have the other lands sold. [ 38 ] In all events the Statute of Frauds and the limitations legislation have in no way been complied with. [ 39 ] In the result SE 33 shall be sold and the proceeds of the sale shall be held as part of the residue of the Estate and distributed in accordance with the Will. Victor’s claims for lost income from SE 33 and lost capital appreciation from SE 33 are dismissed. Analysis - Fees and Approval of Accounts [ 40 ] Victor seeks Court approval of executor compensation in the amount of $171,251.00, and approval of his accounts dated December 31, 2010.

With respect to the accounts, in particular, Victor seeks approval for advances totalling $170,000.00 which he took in 2008 and 2009 from the farming partnership without any accounting to the beneficiaries. [ 41 ] In his affidavit filed May 11, 2011, Victor deposes that the purpose of the $170,000.00.00, characterized as a “loan”, was to “assist with the tax liability I incurred as a result of the disposition of the farm lands in 2008.” In Questioning, however, he agreed that title to the lands was never held in the name of the partnership, and that he understood that the titles were held in his name as executor until the lands were sold to third parties. [ 42 ] In his brief, Victor’s counsel characterizes the withdrawal of the $170,000.00 as “the advance made to the executor against unpaid salary”, a characterization completely unsupported by the sworn testimony of his own client. [ 43 ] Regardless of the characterization of the advance, as is pointed out by counsel for John, any such taking without the consent of the residual beneficiaries is inappropriate.

Counsel further correctly argues that there is no evidence to support this or any amount other than the self-serving assertions of Victor. As well, this amount was not accounted for until Victor was ordered to do so by this Court. [ 44 ] The $170,000.00 pre-taken by Victor is to be returned to the accounts of the partnership. Repayment will include interest at a rate of 1.10%, which is the amount proposed from Victor’s own accounting records. This amount should be used to pay the debts owing by the partnership to the estate.

To be clear, the term “debt” includes not only the rental amounts owing for SE 33 as shown on the December 31, 2010 balance sheet for the estate, but also all revenue from 2008 to 2010, when SE 33 was rented out on a crop share basis. [ 45 ] With respect to the claim for executor compensation, counsel for John asserts that by the delay in finalizing the Estate, Victor is improperly attempting to increase his share.

Victor argues he is entitled to be compensated by a substantial payment for his work done to maintain the farm. [ 46 ] In addition to the amount taken from the partnership, allegedly charged for the work done, Victor claims Executor’s fees in the amount of $171,251.00. These two amounts are only slightly less than the amount stated as the gross value of the estate in the Application for Probate. [ 47 ] The Applicant wants to be paid for every step taken as Executor right up to the present.

One is left to wonder what in the estate he should be paid for administering when the overwhelming majority of the estate assets were being used by the partnership and Victor was paying himself for that. [ 48 ] The executor’s fees also apparently include costs of a completely useless accounting the Executor attempted to prepare and pass himself. This was turned away by the Court and the Executor was instructed to get a proper accounting. All of this work was totally unnecessary. [ 49 ] Counsel for John argues in his Brief:

The only reason that this matter became prolonged and extended was that the Executor insisted on his entitlement to the SE 1/4 -33-11- 22-W4th when he was in a conflict position in doing so. There was no reason for lengthy administration times and the Executor should be denied any fees pertaining to such lengthy administration times.

The Executor failed to carry out his duties and should be denied any Executor’s fees. [ 50 ] I agree with John’s counsel that allowing the executor fees claimed by Victor would be to reward Victor for his delay. [ 51 ] Much of these same problems and the same arguments were made before Madam Justice Shelley in the Estate of Robin Steven Grant Gibbons , 2009 ABQB 587 , 487 AR 125. The decision was approved by the Court of Appeal and again represents an example of the cost of delay and the penalties to be paid by those causing the delay.

Here, the entire delay was caused by the inactivity of the Executor until he was finally prompted by beneficiaries who were more than ordinarily patient in awaiting the settlement of the Estate. [ 52 ] As I have found, the Estate should have been wound up by proper Court applications when it became clear, as acknowledged by Victor, that the parties had reached an impasse. I find Victor is not entitled to any further Executor’s compensation after 1996. [ 53 ] Victor might be ordinarily entitled to some compensation for the Executor’s work up to the end of 1996.

In the settlement agreement of September, 1994, Victor agreed to accept executor fees in the sum of $20,000.00. I would have credited that amount of fees to him. Other than this amount, he has been more than amply and fairly compensated by the $267,905.50 he took, on his own initiative, from the farming operation. Had the Respondents asked for the replacement of some or all of those amounts, they may well have met with some success. [ 54 ] There will be no further payment to Victor. Costs [ 55 ] I find Victor did not, as he alleged, faithfully administer the estate. Nor did he act responsibly as a trustee.

In fact, the opposite is true - he demonstrated self-serving bad faith against the interests of the other beneficiaries. I am satisfied that an award of solicitor- client costs is appropriate. [ 56 ] Victor shall personally pay all costs, on a solicitor-client basis, for all applications arising from the original application to remove Victor as executor, filed September 14, 2007, and for all applications arising from the original application, filed September 20, 2007, to pass the accounts. Result [ 57 ] I order as follows: 1. The SE 1/4 of

Section 33-11-22-W4 shall be sold with the proceeds divided equally among Victor Kuliska, John Kuliska, and Lydia Sych pursuant to the residue clause in the Will. 2. The $170,000.00 pre-taken by Victor shall be returned to the partnership with interest at 1.10%, as in paragraph 44. The partnership shall pay its debts forthwith. 3. The current liabilities shown on the December 31, 2010 balance sheet for the Estate of Steven Kuliska shall be paid. No interest is payable to Victor Kuliska or to John Kuliska for their respective loans of $52,000.00 and $33,500.00.

4. The money in trust should be divided in accord with the Will based on the split of each of the varying dispositions as described in the Will. 5. Victor Kuliska is entitled to no additional payment for compensation for administration of the farm partnership, SKS Farms, or for executor compensation for the administration of the estate of Steven Kuliska. 6. Victor Kuliska shall personally pay the Respondents solicitor-client costs, as detailed above. Heard on the 05 th day of July, 2011. Dated at Lethbridge, Alberta this 27 th day of August, 2011. W.V. Hembroff J.C.Q.B.A. Appearances: F.

Murray Pritchard Milne Pritchard for the Applicant James Farrington Krushel Farrington for the Respondents