Section 9 of the Estates Administration Act allows for real property to automatically vest in the beneficiaries of an estate if the estate trustee has not sold, conveyed, or otherwise divided the property among the beneficiaries within three years after the date of death of the deceased. The beneficiaries of the estate in Di Michele tried to use this provision as a defence against having to pay the mortgage placed on an the estate property by the estate trustee.
In Di Michele, three brothers were the residual beneficiaries of an estate. One of the brothers was also the estate trustee. He used an estate property (a farmhouse) to secure a personal debt via a mortgage. The farmhouse was the estate’s only asset. The estate trustee’s brother and wife lived in the farmhouse and had done so for the last 50 years.
The estate trustee’s creditor sought to recover his debt through the sale of the farmhouse. The estate beneficiaries, especially the brother living in the farmhouse, objected.
The trial judge held that section 9 of the Estates Administration Act applied and the farmhouse had automatically vested in the three beneficiaries three years after the testator’s death. This meant that the estate trustee was unable to secure the mortgage against more than his 1/3 interest in the property inherited under the will.
The Court of Appeal overturned the trial judge’s decision. It found that the estate trustee had the legal right to grant a mortgage over the entire property since he stood in the shoes of the deceased. The estate trustee was also the registered owner of the property (in his capacity as estate trustee). The Court further held that the provisions of a will and the testator’s intentions were paramount and could not be superseded by s. 9 of the Estates Administration Act. In this case, the will provisions expressly allowed the estate trustee to postpone selling the house. It also gave him the power to mortgage the entire property. Section 9 could not be used to limit the scope of the estate trustee’s power to mortage or sell property at such time and in such manner as he saw fit. Having exercised his power to delay selling the house, no property interest vested in the beneficiaries pursuant to s. 9 of the Estates Administration Act. In addition, the beneficiaries’ interest was in the residue of the estate, not the farmhouse itself. For all these reasons, the court found that the farmhouse could be sold in order to repay the mortgage.
The result of this finding was that the beneficiaries were deprived of their inheritance – the entire amount of the proceeds from the sale of the house were likely used up in repaying the mortgage. However, the beneficiaries were not left without a remedy. The court noted that they could bring an action against the estate trustee for breach of trust. Unfortunately, any victory was likely to be hollow – the estate trustee had no money.