Duhn Estate and the Testator’s Right to Privacy

The Court of Appeal affirmed^[1] the Alberta Court of King’s Bench (the “Court”) decision in Duhn Estate, 2021 ABQB 35 (“Duhn Estate”), which dismissed an application for further documentary production of accounting information for four years prior to Alice Jean Duhn’s (the “Testator”) death.

Facts:

The Testator had seven children and lived on a successful farm with her late husband, Robert Larsen Duhn. The family farm was sold in 2009 and several million were transferred to the Testator, her late husband, and two of the children who had had interests. When Robert Duhn died in 2014, he left his whole estate to the Testator. Over the next four years, the Testator spent several million on her children and grandchildren. By the time of her death, her estate was worth approximately $4.5 M (several million less than it had been in 2014).

Issues:

In this case, the Court was called upon to decide whether the Personal Representative should disclose to the Applicants, children of the Testator, financial information for the period of four years before the death of the Testator.

The Applicants sought a full financial disclosure regarding inter vivos transfers of money and real and personal property during the last four years of the Testator's life. In this case, the value of her estate had decreased significantly in the four years preceding her death, raising prime facie concerns. Accordingly, the Applicants alleged that the Testator may have lacked capacity, was unduly influenced, and that certain transactions may have been made without her knowledge.

However, the evidence showed that the Testator was competent throughout her life, and no evidence of undue influence was ever found. Additionally, although she had executed an Enduring Power of Attorney, it was never invoked, and the Testator lived independently and was never isolated. Moreover, the Testator was actively involved in her financial affairs and kept meticulous notes of her financial transactions. Furthermore, the Testator had declared to her family her intention to gift her estate before her passing, and the large gifts made prior to her death were consistent with that intention. Similarly, she wrote cheques and visited the bank, her doctor, and her lawyer frequently. Finally, she was fully aware of what she wanted to do with her estate and went to great lengths to try to protect her wishes with regards to who and why she gifted to any one party.

Analysis and Decision:

The Court of King’s Bench reviewed the Personal Representative’s duty to account for the administration of a testator’s estate, set out in the Estate Administration Act^[2] and the Alberta Surrogate Rules^[3].

Rule 1(k) of the Surrogate Rules defines “a person interested in the estate” as ‘a person referred to in Rule 57.” Rule 57 lists various persons who qualify, including “residuary beneficiaries” (para 57(b)). Further, Rule 1(m) defines a “residuary beneficiary” as meaning “a person receiving a part or all of the residue of [an] estate.” Moreover, Rule 97 states the following:

1. A personal representative must give an accounting of the administration of the estate at regular intervals

(a) by preparing financial statements showing the property and money received and the property distributed and the money paid out respecting the administration of the estate, and

(b) by giving the financial statements to the beneficiaries.

2. Unless the court orders a longer or shorter period, a personal representative must give an accounting of the administration of the estate every 2 years after the date of death or the date of the end of the latest period for which an accounting is given.
3. The court may require, or a person interested in the estate may apply to the court for an order requiring, the personal representative to give an accounting of the administration of the estate at any time. [emphasis added]

Rule 98 outlines the required contents of the financial statements:

1. The financial statements respecting an estate must include the following:

(a) an inventory of property and debts at the beginning and end of the accounting period;

(b) a statement of all property and money received during the accounting period showing whether it is capital or income;

(c) a statement of all property distributed and money paid out during the accounting period showing whether it is capital or income;

(d) a statement of all changes to property made and all debts of the estate paid or incurred by the personal representative during the accounting period;

(e) a statement of all expenses incurred or paid during the accounting period;

(f) in the case of a final passing of accounts, a statement of anticipated receipts and disbursements;

(g) a reconciliation, where necessary, showing the items required to balance the opening net value of the estate with the closing net value of the estate;

(h) a distribution schedule, including interim distributions and the proposed final distribution, if appropriate; and,

(i) a proposed compensation schedule for the personal representative showing the basis on which it is calculated and its allocation to income or capital.

2. The financial statements may be separate or combined as long as they can be followed clearly.
3. The financial statements may be in any format, and each entry may be numbered consecutively.
4. If the will or other trust instrument specifies separate capital and income interests, the financial statements must distinguish entries respecting capital from entries respecting income.
5. The court, at any time, may require further financial statements or more particulars with respect to the financial statements presented.

The Court affirmed that in specific circumstances, a personal representative may be required to account for pre-death financial transactions of a competent testator to administer the estate properly. However, these circumstances are rare and should only be allowed with an evidentiary threshold that raises a "significant concern" that there has been some potential abuse that needs to be investigated further, and then only after considering a testator's privacy rights^[4].

After considering both parties' arguments, the Court concluded that, although it has the authority to order further production of accounting information for the period before the Testator's death, it was not appropriate to do so in this case. The Court concluded that the Applicants had not met the minimum evidentiary threshold to displace this Testator's rights to keep her pre-death financial life private and confidential as she desired^[5].

The Court reiterated the Personal Representative's duty to review certain financial information of a testator in order to list their assets properly, and may in certain circumstances, have to account for pre-death financial transactions of a competent testator. However, these circumstances should be extremely limited (i.e., where there is sufficient evidence of the need to do so) and allowed only when also balancing the Testator's rights to privacy and control over their estate^[6].

Finally, the Court affirmed that a joint account holder with a competent testator does not necessarily need to account to the personal representative, although in some limited circumstances, it may be warranted.

Main Takeaway:

The Court's decision in Duhn Estate, as affirmed by the Court of Appeal, suggests that competent testators are allowed to keep their financial affairs private and confidential. A testator's death does not authorize beneficiaries to review their pre-death financial affairs unless there is sufficient evidence for potential abuse, undue influence, or incapacity. Testators are entitled to privacy regarding their financial decisions, and a competent testator is generally permitted to arrange their affairs and dispose of their estate according to their wishes.

If you would like to discuss the above please contact any of the members of our Estates & Trusts Team. We would be happy to talk through your estate planning needs with you.