Conflict of interest arises when trustee seeks larger estate share for herself, ruling says
The Superior Court of Justice of Ontario recently authorized two brothers to administer their mother’s estate according to her will and removed their sister as an executor and trustee in an effort to resolve the deadlock plaguing the estate.
In 2021, the parties’ mother passed away. She left behind a will that named her three children as executors and trustees of her estate. The will directed the equal division of her estate among them, with a specific provision that the first brother could exercise a right of first refusal to purchase the family home at King’s Forest Drive, Hamilton, Ontario at fair market value.
When the first brother expressed interest in purchasing the home, the siblings initially agreed on a sale price of $660,000. This agreement would allow the first brother to use his share of the estate as a down payment, with the remaining amount to be financed through a mortgage, so that the other two siblings could receive their share.
However, disagreements soon arose, particularly regarding the handling of the estate taxes and expenses.
The sister demanded the payment of her one-third share of the home’s value minus any taxes. This proposal effectively shifted the tax burden to her brothers and contradicted the terms of the will, which required the payment of the estate debts, taxes, and expenses before the distribution of the residue.
Competing court applications followed. The estate administration fell into a state of deadlock. The sister wanted to sell the house immediately and to remove the first brother from the home. On the other hand, the brothers wanted to remove her as executor and trustee due to her actions, which were allegedly contrary to the will’s terms and detrimental to the estate’s administration.
In Rizzo v. Farruggia, 2024 ONSC 4615, the Ontario Superior Court of Justice ordered the removal of the sister as executor and trustee of the estate and authorized the brothers to administer the estate in line with the mother’s will.
The court ruled that the brothers should be the estate’s sole executors and trustees, responsible for administering the estate according to their mother’s wishes, including obtaining an appraisal of the home and completing its sale to the first brother at a fair market value.
The court agreed with the brothers’ position, which was that their sister’s actions of repeatedly changing her demands and reneging on agreements primarily caused the deadlock and delay of the estate administration. The court found that the sister placed herself in a conflict of interest by attempting to secure a greater share of the estate for herself while acting as a trustee.
The court noted that the sister unreasonably insisted on receiving a larger share of the estate’s residue than her brothers, which contradicted the will’s instructions and prevented the administration of the estate as intended.
The court also found no merit in the sister’s application seeking to force the sale of the house and to claim occupation rent from the first brother as she lacked the standing to make such claims.
The court cited DiMichele v. DiMichele, 2014 ONCA 271, a ruling which stated that beneficiaries with a contingent interest in the estate residue lacked a property interest in specific assets, such as the house in the present case.
The court left other issues to be determined at a later date. These issues included the passing of accounts and the proper date for the appraisal of the house – whether the property should be appraised at current market value, as the sister argued, or as of the date of the mother’s death, as the brothers wanted.
