written on behalf of Feigenbaum Law
When people plan their estate, one of the goals they likely have is to ensure that their estate is distributed in a way they desire. Unfortunately, no amount of estate planning can completely eliminate the possibility of litigation. Litigation can be costly for the estate as well as others involved.
When a valuable asset like a house is the subject of estate litigation, steps can be taken to prevent its sale. One of these is by registering a certificate of pending litigation. Although a certificate of pending litigation does not prevent the sale of a house, it does warn any would-be purchasers that someone has a claim against the property and may be entitled to the property if they are successful.
In the decision we want to review today, two siblings registered a certificate of pending litigation against property that was left to their other sibling by their stepfather. They later recalled each certificate of pending litigation in exchange for security from the proceeds of the sale. However, this led to another dispute around how much should be held back as security. Read on to understand the facts that led to this situation.
Deceased leaves home to one of four children
The primary players in the matter are four siblings who were the stepchildren of the deceased: KW, BW, RF, and SK. KW moved into the deceased’s home while he was still living in 1994. KW began caring for his stepfather in 2010, including taking him to medical appointments and assisting with shopping, paying bills, and maintaining his property. The deceased’s wife died in 2015 and the deceased received full interest in the home following her death. In 2016, he transferred his interest in the property between himself and KW as joint tenants. When he did this, he signed a gift letter which stated that his intention was for his interest in the home to eventually pass to KW when he died.
When the deceased passed away on November 22, 2017, the property was transferred to KW, but his three siblings contested the gift, and BW and RF each filed a certificate of pending litigation against it. Their position was that the property should form part of their stepfather’s estate because the deceased’s interest in it was held in trust, or because it was procured as a result of undue influence.
Family accepts an offer on the house
Despite the certificates of pending litigation being in place, KW wished to sell the home. He accepted an offer of $1,425,000 on August 7, 2021. The offer was $225,000 above the asking price. One of the conditions of the sale was that the certificates of pending litigation be removed by September 30 of that year. KW applied to cancel the certificates of pending litigation. Both BW and RF agreed to cancel them on the condition that security be provided in the event that the court determined the home belonged to the estate. If the court determined that the home was the estate’s, proceeds from the sale would be distributed equally amongst the children of the deceased.
The issue arose because KW proposed that security be set somewhere between $200,000 and $400,000 while BW and RF wanted the entire net sale proceeds to be held. During the initial trial, the judge decided it was too early in the proceedings to make a determination of whether to grant KW a portion of the sale. So the judge instead granted an order permitting the sale, but only on the condition that the entire proceeds from the sale be held as security.
KW appealed the trial judge’s decision, taking the position that the amount set aside as security exceeds the collective interests of his brothers, and that the trial judge failed to consider the risk of an adverse outcome for him.
How much of the sale proceeds should be held as security?
The court began its analysis by looking at the Land Title Act, under which security for property can be registered. The person seeking to register a certificate of pending litigation must have an interest in the land that is subject to the certificate. In this case, BW and RF had claimed an interest in the home based on their position that the home was wrongfully taken by their brother. Their interest was tied to the entitlement they felt they are owed as equal beneficiaries to the estate. At the same time, KW was successful in requesting that the certificates of pending litigation be cancelled after demonstrating hardship and inconvenience.
The court found that, while the Land Title Act allows the court to set aside money “in an amount satisfactory to the court,” there should be an attempt to make sure that any security set aside will be adequate to address any damages that will have to be paid out. In this case, the security had to be enough to cover equal shares from the proceeds of the sale of the house. The court agreed with KW that “the security the court may order when cancelling a certificate of pending litigation should be tied to the claim to the interest in land that grounds the certificate of pending litigation, whether that claim forms all or part of an action.”
The court was careful to point out that this does not mean the amount of security must never exceed a party’s interest in land. Instead, courts should exercise proper discretion in making a determination on adequate security and consider relevant factors. One factor the court called out is the probability of a party’s success in a claim to land.
Ultimately, the amount of security will be decided on a case-by-case basis
In this case, while the step-siblings had issues outside of the home to resolve, the court did not find it appropriate to hold all of the proceeds from the sale of the house because of the possibility that damages may be ordered following a trial on separate issues. The court said it was clear that each of the siblings, should the respondents be successful in grouping the home into the estate, would receive 25% of the proceeds from the sale of the home. As such, their individual interests were all that were needed to be secured.
Feigenbaum Consulting Can Help Families Prepare for Estate Litigation
At Feigenbaum Consulting, our team, led by Mark Feigenbaum, knows effective estate planning and addressing estate tax issues requires guidance from a deeply knowledgeable and experienced lawyers and tax professional. We regularly help clients avoid the biggest legal and financial risks that can arise in planning their financial future, and also serve as skilled advocates when litigation arises. Contact the firm online or call (416) 777-8433 or toll-free at (877) 275-4792 for a consultation on your estate matter.