Court of Appeal Finds an Estate Trustee to be the True Owner of Property

In April 2014, the Ontario Court of Appeal (“ONCA”) established the scope of an estate trustee’s power to mortgage property governed by the Land Titles Act.

In Di Michele v Di Michele, [2014] ONCA 261, the testator directed that her property be divided equally between her three children: Roberto, Michele and Antonio. Antonio, the estate trustee, put the property up as security in favour of his opponents in a personal litigation proceeding. Ultimately, Antonio’s opponents obtained a $1.5 million judgment against him and subsequently brought an application to enforce their mortgage and have the property sold.

The trial judge held that the opponents’ claim against Antonio was limited to Antonio’s one-third share of the property that he was entitled to receive as a beneficiary under the Will. The trial judge relied on s. 9 of the Estates Administration Act which provides that:

‘Real property not distributed among the persons beneficially entitled thereto within three years after the death of the deceased is thenceforth vested in the persons beneficially entitled thereto under the will.’

The trial judge found that the property vested in the beneficiaries three years after the death of the testator. On this view, since the vesting occurred after the mortgage was granted, the mortgage could only attach to Antonio’s share of the Property.

On appeal, the ONCA held that the mortgage was binding on the whole property. As a result, Antonio’s opponents had a claim to the entire home. In coming to this decision, the ONCA found the following:

1. Section 63 of the Land Titles Actprovides that the person registered in the place of a deceased owner is in the same position as if that person had taken the land under a transfer for valuable consideration. Thus, Antonio had the legal right to grant the mortgage.
2. Section 9 of the Estates Administration Actdoes not apply in the circumstances of this case. Section 9 was intended to give estate trustees additional powers, but only to extent that the additional powers do not conflict with the provisions of the will. Since the will gave the estate trustee the power to sell the property at such times and in such a manner that the estate trustee saw fit, s. 9 of the Estates Administration Act did not limit the scope of that power by requiring that the property vest after a specific period of time.
3. The beneficiaries’ entitlement under the will did not amount to property interest in the property. The beneficiaries had a contingent interest in the residue of the estate. Since the estate had not distributed the assets of the estate at the time the mortgage was granted, the beneficiaries’ contingent interest in the residue had not vested.
4. Pursuant to s. 93(3) of the Land Titles Act, the mortgage was registered free from any unregistered interest of the beneficiaries. The Ontario land titles system sets out that the rights of a bona fide purchaser for value who has registered its interest in the property trump any prior unregistered interests in the property.

Di Michele v Di Michele, established that an estate trustee can act like a true owner of the testators property. In light of this decision and the other powers designated to estate trustees pursuant to the Estate Administration Act, it is essential the testators carefully select their estate trustee otherwise the beneficiaries of their estate may not receive all that they are ‘entitled’ to. As this decision opens the door to abuse, it is crucial that youtrust your estate trustee.