Loughead Estate (Re), 2013 NSSC 236

IN THE COURT OF PROBATE FOR THE PROVINCE OF NOVA SCOTIA Citation: Loughead Estate (Re), 2013 NSSC 236 Date: 20130605 Docket: ST410673 Probate 15639 Registry: Truro IN THE ESTATE OF WILLIAM PARKER LOUGHEAD, Deceased In the matter of an application by Kenda Harris DECISION Judge: The Honourable Justice Patrick Duncan Heard: June 5, 2013 in Truro, Nova Scotia Written Decision: July 19, 2013 Counsel: Ann Levangie, Solicitor for Applicant Peter Lederman, Q.C., Solictor for Respondent By the Court : Introduction [ 1 ] William Parker Loughead executed a Will on April 17, 2012 naming his nephew, Mark Loughead, as alternate personal representative to act in the event that the named executor, the testator's wife, Helen Loughead, was unable or unwilling to act. [ 2 ] On June 12, 2012 the testator died and on June 18, 2012 Helen Loughead, by her lawful attorney, Kenda Harris, renounced in

favour of Mark Loughead. [ 3 ] On June 22, 2012 Mark Loughead was granted Probate and on September 17, 2012 the inventory of the Estate was filed. The gross value of the Estate was set at $185,106.44. [ 4 ] On October 5, 2012 counsel for Kenda Harris wrote to the Estate Proctor, lawyer Stephen Topshee, expressing Ms. Harris' concerns with respect to possible conduct of the executor that placed him in direct or indirect conflict with the interests of the Estate. Financial disclosure was requested. [ 5 ] On November 6, 2012 Mr.

Topshee advised the court that he was no longer acting as Proctor for the Estate and that the personal representative, Mark Loughead, would be acting for the Estate. [ 6 ] On November 12, 2012 the personal representative replied, giving an accounting of Estate monies spent, to Ms. Harris which caused her further concern with respect to the manner in which the Estate assets were being managed. [ 7 ] On December 21, 2012, Ms.

Harris applied to the Registrar of the Probate Court of Nova Scotia for an order to remove Mark Loughead from the role of personal representative of the Estate of William Parker Loughead, pursuant to

Section 61 of the Probate Act . She seeks to be named as the personal representative in his stead. In this respect, I note that Ms. Harris is the further alternate personal representative of the Estate in the event that Mark Loughead is unable or unwilling to continue. [ 8 ] The matter was brought before Justice Scanlan of this court on an expedited basis and on January 22, 2013 Justice Scanlan ordered that: 1. All bank accounts of the Estate of William Parker Loughead shall be frozen and no withdrawals shall occur in relation to these accounts until further court order. 2.

Mark Loughead shall forthwith obtain and provide to counsel for the applicant, statements for all accounts held by William Parker Loughead at his death (and after his death) for the period June 12, 2011 to the present date. [ 9 ] This matter has come on for hearing today. I have reviewed the affidavit evidence of Mark Loughead and Kenda Harris; and heard their in-person testimony. I also have a number of documents relative to the management of the Estate assets. Law [ 10 ]

Section 61 of the Probate Act sets out the basis upon which a personal representative can be removed from their position. The relevant portions to the argument being presented by the applicant are as follows: 1

(1) On the application of any person, the court may remove a personal representative where the court is satisfied that removal of the personal representative would be in the best interests of those persons interested in the Estate and, without limiting the generality of the foregoing, if the court is satisfied that (a) …

b) the personal representative

(

i) is neglecting to administer or settle the Estate, (ii) is wasting the Estate, (iii) … (iv) is insolvent, [11] If successful in the application, then subsection 61 (3) requires the court to appoint a new personal representative, who willtake on all of the same powers and responsibilities as the representative discharged. [12] The discharged personal representative is still required by section 61 (6) to: make an accounting of the administration of the Estate up to the time of the removal or discharge. [13] As indicated, the applicant takes the position that certain conduct of the personal representative amounts to: (

i) neglect in the administration or settlement of the Estate, and (ii) wasting of the Estate. [14] Given certain other conduct of the personal representative the applicant is concerned that he may also be insolvent. Common Law [15] Letterstedt v. Broers (1884) 9 App Case 377, cited with approval in Re: Winter Estate 2001 NSSC 121, affirmed (2002) 2002NSCA 23 , 202 N.S.R. (2d) 5 ( NSCA), directs the court to ask the following questions in relation to an assessment of thePersonal Representative's conduct: 1. Does the conduct endanger the trust property? 2. Does the conduct show a want of honesty? 3.

Does the conduct show incapacity to execute the duties? 4. Does the conduct show a want of reasonable fidelity? Conflict of Interest [16] The personal representative has a fiduciary duty of a trustee in relation to his or her conduct and management of the Estate. Where there is evidence of a

conflict of interest between the personal interests of the personal representative and those of the beneficiaries it may amount to a ground for removal. [ 17 ] Stadelmire v. Hoffman (1986) 25 ETR 174 , at paragraph 13 states: One duty of an executor is to bring in the Estate for distribution among the beneficiaries.

If it is perceived on good grounds, that that important duty is compromised by personal conflict of interest because the executor will be asked to sue himself to recover what may be a large part of the Estate property, he must be passed over. [ 18 ] Ultimately the question that the court must answer is: "what is in the best interest of the beneficiary?" [ 19 ] The following concerns have been identified in evidence as support for the application. I am including the response of the personal representative to these concerns. 1.

In June, 2012, two payments totalling $8500 were made from the Estate to the personal representative after the testator died, which the personal representative says was compensation promised to him by the deceased in furtherance of an oral agreement to assist the deceased during his lifetime; Response : The personal representative submits that there is evidence of the existence of this agreement found in payments made prior to death by the testator in furtherance of this agreement and that an oral contract is valid.

He submits then that this is a matter that the applicant can raise at the Estate closing and seek a ruling by the Registrar of Probate 2. In November, 2012 the personal representative extended a loan in the amount of $2,000 from the Estate to a company owned by the personal representative. The term of the loan is for one year (due November, 2013) with interest payable at the rate of 10% per annum. 3. In November, 2012 the personal representative extended a loan in the amount of $15,000 from the Estate to his stepfather, Paul Graham.

The term of the loan is for one year (due November, 2013) with interest payable at 10% per annum. Response: The personal representative takes the position that the Estate is earning a better rate of return on these loans than may be achieved elsewhere in the marketplace and so therefore it is a good investment. The personal representative also accepts personal responsibility to the Estate if the monies are not repaid. 4. The personal representative has pre-taken the sum of $6642.55 to be charged against compensation to be paid to him for acting as a personal representative of the Estate.

Response: The personal representative points out that the Will irrevocably guarantees him 5% of the gross value of the Estate in lieu of commission. Based upon an Estate value of $185,406.44 he says that paragraph 2.4 of the Will guarantees him the amount of $9270.32. Therefore, there is still an unpaid balance that he will be entitled to. 5. There are a number of examples of monies being paid to, or on behalf of, the personal representative by the deceased, prior to his death, which the applicant believes are questionable transactions the validity of which needs to be independently investigated for the Estate.

Response : The personal representative takes the position that any other charges made by him to the Estate, either directly or

indirectly, or charged to the testator's account prior to death, are more properly addressed at the passing of accounts. General Position of the Personal Representative [ 20 ] The personal representative says that “ every penny ” spent can be accounted for. He says that 95% of the work has been completed and that the only things remaining to do are: 1. Resolve the interest of the Estate as a tenant in common in a piece of real Estate; 2. Resolve an Investors Group account; 3. Obtain an income tax clearance certificate; 4.

Close the Estate. [ 21 ] Further, the personal representative draws attention to good faith efforts made to maximize the value stated by negotiating a reduction in balances owed on credit cards which saved the Estate some $20,000. Conflict of interest [ 22 ] It is understood that a high degree of fidelity is owed by the personal representative to the Estate. Personal conflict of interest is a grave concern. [ 23 ] Decisions that are made for the benefit of non-beneficiaries that cause the deferral of the distribution of the Estate to the beneficiaries gives rise to such concern.

Where those decisions benefit the personal representative, his family or his personal business interests, the question arises as to who will scrutinize these transactions on behalf of the beneficiary. If they are questionable, it is not reasonable to expect that the personal representative is going to act against his own personal interest. It is not sufficient, in my opinion, to simply say that these are matters that can be dealt with on the passing of accounts. [ 24 ] In this case, there are three clear instances of acting in potential conflict between Mr.

Loughhead's personal interest and that as the personal representative of the Estate. [ 25 ] The first is paying himself as a creditor of the Estate for care of the testator. The amount of the payments made after death exceeded, on an average monthly basis, the amount that was being paid prior to April of 2012. i.e., April, May and half of June totalling $8,500 averages $3,400 per month, at a time when I am told that the testator was in hospital. It is a legitimate question to ask what services was Mark Loughead providing to a person in hospital that were worth $3,400 per month?

The terms of the agreement were, to put it mildly, very loose: whatever Mark Loughead decided he needed he received. He says that the consideration he gave was withdrawing from travel to Ontario and Quebec on business, so he was to be compensated for loss. But today he says that his $80,000 income in 2011 was offset by $90,000 in expenses. So what loss was he incurring that he was being compensated for? It is not my task to decide that, only to look at the reasonableness of it to determine whether this is an issue that needs to be looked at by more objective eyes than his own.

[ 26 ] The claim of an “ agreement ” appears to be based solely on the evidence of Mark Loughead, a creditor of the Estate. The Nova Scotia Evidence Act at

section 45 states: 45 On the trial of any action, matter or proceeding in any court, the parties thereto, and the persons in whose behalf any such action, matter or proceeding is brought or instituted, or opposed, or defended, and the husbands and wives of such parties and persons, shall, except as hereinafter provided, be competent and compellable to give evidence, according to the practice of the court, on behalf of either or any of the parties to the action, matter or proceeding provided that in any action or proceeding in any court, by or against the heirs, executors, administrators or assigns of a deceased person, an opposite or interested party to the action shall not obtain a verdict, judgment, award or decision therein on his own testimony, or that of his wife, or of both of them, with respect to any dealing, transaction or agreement with the deceased, or with respect to any act, statement, acknowledgement or admission of the deceased, unless such testimony is corroborated by other material evidence.

R.S., c. 154, s. 45. [ 27 ] Mark Loughead was in fact a claimant against the Estate and the basis of his claim is an oral agreement that would be subject to this special rule of evidence. Again should he be left in the position to assess the validity of his own claim against the Estate when there are legal requirements to be met in showing that the amount was actually owing? [ 28 ] I am pointed to evidence to support the conclusion that some payments were made prior to the death of the testator and I am left to infer that may be such corroborating evidence.

The problem is that by the nature of this provision it demonstrates the inherent conflict between claiming as a creditor of the Estate and approving the payment to yourself on behalf of the Estate. This is a question better resolved with an independent party acting for the Estate.

The Loans [ 29 ] The authority in the Will that was relied upon by the personal representative to advance loans to himself and his stepfather, while seeming to be unconditional, are in fact to be measured against whether they are in the best interests of the beneficiary of the Estate. [ 30 ] The effect of these loans is to redirect Estate funds from the beneficiary for a period of a year, to the personal representative ’ s benefit and to the benefit of his mother and stepfather. [ 31 ] It is not sufficient to say that if everything is paid off according to the agreement that the Estate makes a better return.

That is a decision the beneficiary should make when they have funds in hand. They should not have to wait for payment where there is no reason for the Estate to be investing for profit. [ 32 ] Were these good investments or do they endanger the trust property? These notes are unsecured. No payments are due until the end of the one year term. The loan to Mark Loughead ’ s company was made because he did not have, nor was he apparently able to borrow the money personally. The company is a Wyoming based company. If it defaults there is no reasonable expectation of pursuing it in court.

I note however that the Promissory Note appears to be issued by him in his personal capacity. Mr. Loughead does not appear to be a good credit risk if his only option is to use the Estate to act as his bank and loan him money – and not even a large amount at that. What will he do if he hasn ’ t got the money when it comes due? Write himself a new loan? Forgive it? He should not be in a position to make that kind of determination. He should not have put himself in this situation to begin with. [ 33 ] The loan to his stepfather is as notable for the motive, as the actual making of the loan.

It too is unsecured with no payments due for a year. Mark Loughead ’ s motive was to favour his mother and stepfather, over the timely distribution of the Estate to the beneficiary. He didn ’ t want them to have to dip into their retirement monies to buy a house. This shows that he has his priorities backwards. He says that they have the money to cover this loan. Why did he not get some security in the way of a second mortgage? What will he do if they don ’ t pay on time?

[ 34 ] The Estate is owed $17,000 that has been put beyond its reach for a year for reasons that had nothing to do with the best interests of the beneficiary. The monies have been put at risk in unsecured “ investments ” . This is not acting in the best interests of the beneficiary. Pretaking of Commission [ 35 ] If Mark Loughead is personally responsible for taking monies from the Estate that he was not entitled to, the pre-taking of commission has reduced the ability to recover those funds from commission.

He has taken the equivalent of 71% of his expected commission, but with a fair bit of work to do yet. [ 36 ] There was affidavit evidence that Mr. Loughead has a good income and assets, but on closer examination today, his creditworthiness, especially since the death of Parker Loughead is very suspect. After the testator ’ s death one would expect that Mark Loughead, being freed from the agreement to stay close, would be able to get his financial house in order. Instead he was unable to pay basic bills and appears to have had insufficient credit to pay for personal expenditures.

The concern is that when faced with these difficulties he defaulted to the Estate account to pay for some of his needs. [ 37 ] If Commission was the sole concern it would not justify removal but seen in the overall context of taking monies to his own benefit and that of other non-beneficiaries, it causes more concern that it might otherwise. [ 38 ] Let me respond to Mr. Loughead ’ s view that in negotiating a reduction in the credit card debts he has earned some trust as it evidences his good faith dealings with the Estate. His view demonstrates his lack of understanding of his role as personal representative.

Acting in the best interests of the beneficiary to maximize the Estate value is expected – that is part of the duty, there is no extra credit given for doing what you are supposed to do. That is why the personal representative gets the 5% - to compensate for the proper management of the Estate. Delay/ Neglect [ 39 ] The loans have the added effect of unnecessarily delaying the closing of the Estate and so delaying the distribution to the beneficiary. These loans do not come due until November 2013.

Income tax consequences for the interest earned will need to be accounted for before a clearance certificate will be issued since the Estate is actively engaged in investing monies. Conclusion [ 40 ] Removal of a personal representative should not be done lightly or without good reason based on evidence. I find that such evidence does exist.

Section 61 makes the best interest of the beneficiary paramount and the conduct of Mr. Mark Loughead has been inconsistent with that duty. [ 41 ] Trust property has been put at risk, and to advance his personal interests. The Estate has been engaging in investments that it has no apparent need of, causing unnecessary delay. Payments made to Mr. Loughead need proper scrutiny by the Estate under the charge of someone who is not personally interested in the outcome. [ 42 ] Ms. Harris has been proposed as a new personal representative. The testator saw fit to name her and there is no suggestion of taint.

Whether her motivation is out of jealousy for the relationship of the deceased and Mark Loughead is irrelevant. It is Mark Loughead ’ s own conduct which has created the problem. If he had not acted as he has, then we would not be here on this application. He cannot make this her problem. It is of his own doing. As well, he should remember that if he was as close to his uncle as he believes, and that it was his uncle ’ s wish that he should receive part of the Estate over the testator ’ s wife, Helen, that might have been found in the bequests as something more than one of five alternate residual beneficiaries.

It was not. [ 43 ] It may very well be that Mr. Loughead did not understand how his conduct would look to the objective person viewing it. It seems like his closeness to the deceased during his lifetime became a rationalization for using the deceased ’ s funds in a way that was inappropriate and without proper regard for the interest of Helen Loughead, who though now unable to look after her own affairs should

have all of the funds put in her control for her benefit at the earliest opportunity. I am not confident that Mr. Loughead will do that as promptly or as completely as the duty requires. [ 44 ] In fact, in view of the evidence that he feels the beneficiary doesn ’ t need the money, and his expression that he wished she had previously passed away so that he could have benefitted from the Estate causes me to question his commitment to her well-being as a beneficiary.

His views are exactly opposite to what they should be as a personal representative. [ 45 ] I order that Mark Loughead be removed as executor and that Kenda Harris be named as personal representative of the Estate of Parker Loughead. J.