Here’s a slightly convoluted tale, but it’s an interesting one involving a dispute between the estranged wife and sister of a deceased man over his estate. Here is the cast of players:
1) Paul, who died in 2013.
2) His wife Pauline, from whom he separated in 2002.
3) Paul’s sister Rita, to whom he left half his estate, and who was also his Estate Trustee.
When Paul and Pauline separated, Paul agreed under their separation agreement to designate Pauline as beneficiary of a $150,000 insurance policy and keep up the premium payments. If Paul failed to maintain the insurance, it was agreed that Pauline would have “first dibs” against his estate for $150,000, in the role of a creditor.
In fact, Paul did not maintain the life insurance as agreed, and it lapsed before he died.
But there was a problem: Paul’s estate was too small to pay Pauline the $150,000 he owed, since his assets at death totaled only about $100,000.
Enter Paul’s sister Rita. As a beneficiary under his Will – and but for Pauline’s $150,000 claim – she stood to inherit 50% of Paul’s estate. In the role of Estate Trustee, she had obligations to all estate creditors, including Pauline. These duties These duties included ascertaining the debts and liabilities of Paul’s estate, and paying them. So Rita essentially wore “two hats”.
Pauline’s asserted first-dibs claim against Paul’s estate became a contentious issue, and the matter went to court for resolution. In an earlier application, the court rejected Rita’s argument that Pauline had missed the deadline for bringing her claim against Paul’s estate, which she did in 2015, more than two years after Paul’s death.
On appeal, the Court of Appeal confirmed that finding. The reason for Pauline’s delay was actually Rita’s own obfuscating conduct, and it would be unfair to hold her to that deadline in the circumstances.
As Estate Trustee, Rita had control over the information Pauline needed to ascertain whether Paul held any insurance policy for her benefit, as the separation agreement required. Pauline could not obtain the information from the insurer directly, so she was understandably beholden to Rita to provide it. Only Rita knew whether Pauline’s debt claim against the estate even existed; this put her in a unique and privileged position.
The problem was, Rita was not forthright with Pauline, and withheld the information she needed.
Initially, she had her lawyer advise (inaccurately) that Paul had maintained the life insurance, and later had the lawyer advise that the policy “may have lapsed”. Neither of these statements were true: Rita had known early on that Paul had let the life insurance lapse despite his obligations under the separation agreement, knew Pauline had a valid claim against his estate as a creditor. Yet she kept the information from Pauline and caused her to delay taking timely steps in pursuit of it.
From a legal standpoint the Appeal Court found that – wholly unrelated to their family connection – Rita and Pauline had a “special relationship”, and that Rita’s withholding of information made her guilty of fraudulent concealment, and made her conduct “unconscionable”.
The Appeal Court referred to and endorsed the findings of the application judge, who had written:
By withholding material facts, the estate trustee [the sister, Rita] concealed from [Pauline, the wife] that she had a legitimate debt against the estate as a creditor. In my view, given the special relationship between the estate trustee [Rita] and [Pauline], it was unconscionable for the estate trustee [Rita] to initially suggest that insurance was in place, then delay matters by promising to bring an application for directions, and then later take the position (a position which provided a direct material benefit to her as a beneficiary of the estate), that the time for claiming against the estate had expired.
The court accordingly found that the usual deadline for Pauline to claim for $150,000 against Paul’s estate did not expire in this case, and could proceed.
For the full text of the decision, see: