The case involves the wills of a married couple who each had children from previous marriages
In a recent case, the Ontario Superior Court of Justice denied the use of estate funds for the estate trustees’ litigation costs.
In Santos et al. v. Coghlan et al., 2023 ONSC 4862, Hans and Colleen Luettge were married in 1987, and each had children from previous marriages. In January 2005, the Luettges created wills stating that the surviving partner would inherit the deceased's estate upon either spouse's death. After the surviving spouse's passing, the estate would be equally shared among their seven children.
Colleen passed away in August 2011, transferring many of her assets to Hans before her death. Hans passed away in May 2021, and this was where the legal dispute began. After Hans's death, Colleen's children learned of changes to his will. His most recent will from November 2020 departed from the equitable distribution among all seven children. Instead, Hans designated his four children as primary beneficiaries, giving $30,000 each to two of Colleen's children and excluding one of her children, Terry, from any inheritance.
The applicants, Hans' children, initiated an application for a certificate of appointment of estate trustee with a will. The respondents, Colleen's children, filed a notice of objection, claiming Hans lacked the mental capacity to formulate the 2020 will. Although the applicants initially sought to strike the respondents' objection, they eventually abandoned this request. The case continued to evolve with various motions and legal maneuvers. The parties eventually obtained an order for directions, which deferred the issue of costs.
The respondents presented a further motion for directions, seeking two orders. First, they sought costs related to the applicants' abandoned application to strike their notice of objection. Second, they sought an order preventing the applicants from using estate assets to cover their legal expenses.
Costs for abandoned application
The respondents argued that they successfully opposed the applicants' request for an order to strike their objection and validate Hans's November 2020 will. They claimed their costs on a substantial indemnity basis, totalling $21,174.75.
The applicants contended that a cost order was inappropriate in these circumstances. They argued that their application went beyond striking the respondents' notice of objection. However, the court ruled in favour of the respondents, stating that striking a notice of objection was an extraordinary remedy that required the respondents to put forward evidence.
The court noted that the respondents extended an offer to the applicants, allowing them to withdraw their request to strike with no cost implications until a specified deadline. The applicants accepted the respondents' offer after the deadline, triggering the respondents' entitlement to their partial indemnity costs, which were fixed at $14,000.
Paying litigation costs from estate funds
The applicants were appointed as trustees of the estate during litigation. They provided the respondents with a statement of assets and liabilities of the estate. Upon review, the respondents discovered that approximately $80,000 had been withdrawn from the estate for administrative taxes and legal fees.
The respondents argued that the applicants should not be allowed to fund their litigation costs from the estate. The applicants claimed they had a right to be indemnified from the estate for legal fees incurred in connection with the estate.
The court acknowledged the general right of estate trustees to be indemnified from the estate for legal fees incurred in connection with the estate. However, the court ruled that the order for directions in this case precluded them from using estate funds for litigation fees.
The court explained that a trust is not a legal entity capable of suing or being sued. Trustees own trust assets, and legal actions may be taken in their name. The court emphasized that lawyers engaged by estate trustees represent the trustee, not the estate itself.
While estate trustees are entitled to be indemnified for expenses incurred in administering the estate, the court ruled that using estate funds for litigation expenses was not permitted under the specific terms of the order for directions.
The court further said that when a conflict arises between estate trustees involved in litigation and other parties within the litigation, the court should maintain a level playing field. Accordingly, the court concluded that equity calls for each party to cover their respective litigation costs until the litigation ends. As a result, the Superior Court of Justice ordered the applicants to reimburse the estate for the legal expenses funded by the estate.