In assessing whether to pursue estate litigation, parties must always consider who will pay the resulting legal costs.
Traditionally, in estate litigation involving the interpretation or validity of a will, costs were payable on a full indemnity basis from the estate. More recently, the trend has been to award costs to the successful litigants on a partial indemnity basis. Neither approach has been wholly satisfactory. Two recent decisions address this issue and also address whether more sophisticated estate plans, involving multiple wills and Henson trusts, effectively limit the source available within estates to pay cost awards.
In Re Kaptyn Estate, the deceased left a Primary and a Secondary Will. The Secondary Will had a codicil the validity of which was at issue in the litigation.
The Court considered whether costs should be paid on a full indemnity scale to the estate trustees and whether costs should be paid from the Primary or Secondary estate. Reasoning that the Trustees were not before the Court by choice (a family member had challenged the validity of the codicil) the Court concluded that the litigation arose because of the “actions, omissions, instructions and decisions of the testator” and awarded full indemnity costs. Although the dispute related to the Secondary Will Codicil, the Court concluded that the entire estate plan was in issue because if the Codicil failed it would effect the overall distribution plan. The Court went on to order costs payable from the Primary Estate in order to preserve the testator’s intent, evidenced in the Secondary Will, that certain real property should devolve without debt attached. This suggests that, in situations with multiple wills, preservation of a testator’s intent is now a factor to be considered when deciding from what source a costs award should be paid. It may therefore be possible to provide guidance in a will to the Court about which estate or legacy should be primarily liable for the payment of a costs award.
In the Estate of Gordon Bigelow, Deceased, the estate trustee (who was also the deceased’s power of attorney) applied to pass the Estate accounts. One of the deceased’s four children objected. He suffered from anxiety and depression. Under the terms of the Will his bequest of one third of the residue was payable to a Henson Trust. After a two day hearing, the Court concluded that the Estate Trustee had provided an accurate accounting of the Estate’s finances from the date of death to the passing of accounts, and for the deceased’s financial affairs throughout the period of the power of attorney. The Court found the Estate was completely successful in the litigation. The Estate was awarded its costs from the capital of the Estate on a full indemnity basis. The Estate Trustee sought costs against the Objector given the unreasonable character of the objections and the written warning the Estate had given him. The Court held the Objector and his Henson Trust should be bear at least some responsibility for the Estate’s costs. The Court ordered that the share of the remaining Estate assets that was payable to the Objector’s Henson Trust under the Will, would be forfeit and paid to the Estate. The Court held that “Having agreed to sponsor the litigation, the Trust cannot shun responsibility for [the Objector’s] actions”. Given the Objector’s depression and limited means and “to shield him from the full consequences of his actions” the Judge ordered an additional $5,000 contribution from the Henson Trust towards the Estate’s costs. These cost payments were to supplement the balance in the Estate which the Court stipulated was then to be distributed among the residuary beneficiaries other than the Objector. Query therefore whether a Henson Trust can any longer safeguard funds from a costs award. The decision is under appeal.
Both Kaptyn and Bigelow, draw attention to the need for estate planning professionals to consider with care from where litigation costs may be paid in the event post mortem litigation ensues.