As many people know, in addition to being expensive, litigation is often slow-moving and lengthy. In an estate with significant or contested issues, litigation can continue for several years. Even in estates without significant disputes, applying for a certificate of appointment and administering an estate can take many months. Further, once a certificate of appointment is obtained and much of the estate administration completed, it often takes several more months for the estate trustee to receive a clearance certificate from the Canada Revenue Agency. Lawyers are frequently asked by clients that are beneficiaries of an estate for an estimate of when they will receive their entitlement, and if it is possible to either speed up the pace of litigation or receive some of their share prior to the matter being fully resolved.
In many cases, it is possible for a beneficiary to receive a portion of his or her share of the estate prior to the resolution of the litigation. This process is known as an interim distribution. The concept of the interim distribution is rooted in the principle that beneficiaries ought to receive their share as early as practicable: if the distribution is delayed, the beneficiaries may fall on hard times without the inheritance they were counting on, or even pass away prior to receiving it.
It is the responsibility of the estate trustee to determine if it is the appropriate choice for an interim distribution to be made, and he or she has a high level of discretion to determine whether this is the appropriate step in the circumstances. This is articulated in the well-known case Parson v. McGovern, 2014 ONSC 1785, which also provides an estate trustee with a 5-part test to assist him or her in determining if an interim distribution should be made. An interim distribution allows an estate trustee to ensure that this duty is complied with sooner rather than later, at least in part. In some cases an interim distribution can be made before a clearance certificate is obtained from the CRA, which often takes up to 8 months, and certainly before all issues being litigated are resolved, as long as the necessary steps are taken and sufficient information is available.
In addition to the factors noted in McGovern, some other relevant factors are listed below, than an trustee should consider:
– The value of the estate
– How the estate assets are held (e.g. is the estate’s value tied up in real property or held as investments that have to be liquidated, as opposed to cash that can be easily distributed)
– The nature of the claims being made within the litigation – for example if one party is claiming an entitlement to the estate, interim distributions to beneficiaries prior to the matter being resolved may not be the appropriate choice
– Outstanding estate debts and liabilities
– Estate taxes
An important note for estate trustees to keep in mind is that they can be held personally liable for unpaid debts and taxes of the estate. An issue can arise, for example, if the estate trustee overlooked or ignored taxes owing by the estate, and instead distributed the money to the beneficiaries. In a case such as this, if the estate trustee is unable to have the funds returned to the estate, he or she could be forced to pay the outstanding tax bill personally. One way to deal with this issue is by ensuring a sufficient ‘holdback’ is maintained to pay any further taxes and debts. Although this can limit the amount of money available for an interim distribution, it is an important tool for an estate trustee to carry out his or her duties, while also protecting him- or herself from liability.
Additionally, interim distributions can serve as a helpful tool in the hands of an estate trustee or estate trustee during litigation in cases of disputes or conflict. An interim distribution can go a long way to keep the peace between warring or hostile beneficiaries, and head off threats of legal action by one or more parties. Even once litigation has been commenced, coming to an agreement on an interim distribution may assist in resolving some of the issues at hand, and narrowing the scope of the litigation. It can also achieve a measure of good will between the beneficiaries in some cases.
Lastly, although the estate trustee has wide discretion to decide whether to make an interim distribution, when and in what quantity, it is possible for a beneficiary to seek a court order mandating him or her to do so. Given the cost and effort required to do so, however, this option is not preferred, if there is any possibility of coming to an agreement on the interim distribution outside the courtroom.
