Leith v. Eccles: Equalization Payments vs. Estate Distribution

The recent Ontario Superior Court of Justice decision in Leith v. Eccles, 2024 ONSC 4769, provides important guidance on the intersection of family law and estates law, particularly regarding equalization payments to surviving spouses under the Family Law Act (FLA). This case highlights critical considerations for family law practitioners advising clients on estate planning or representing surviving spouses seeking equalization payments from estates.

Case Summary

After 46 years of marriage, William Leith died leaving a Will that gave his wife Linda Leith half of his bank accounts, pension, and RRSP accounts. The Will specifically bequeathed properties to his three children: the matrimonial home (the “Home Farm”) valued at $2.4 million to son Jason, along with farm equipment and a share in a 60-acre lot; the Southgate Farm valued at $1.6 million to son Scott; and a Durham house valued at $350,000 to daughter Melissa. Two additional vacant lots were to be divided equally, with the balance of the estate to be divided equally among the children.

Linda elected to receive an equalization payment from the estate (estimated between $2.1-2.4 million) rather than taking under the Will. The central dispute involved Linda’s request to apply her equalization payment toward purchasing the matrimonial home from the estate, where she continued to live with her daughter Melissa.

Court’s Analysis of Key Issues

Justice Wilkinson identified six main issues to be determined:

1. Whether the Estate had been unjustly enriched by Linda’s contributions to the Home Farm, warranting a constructive trust remedy;
2. Whether Linda could obtain relief under the Succession Law Reform Act;
3. Whether Linda’s equalization payment could be determined without selling all Estate properties;
4. Whether Linda could buy the Home Farm from the Estate using her equalization payment;
5. What disposition costs should be deducted when calculating Net Family Property; and
6. How the remainder of the Estate should be divided among the three children.

Constructive Trust Claim

The Court declined to consider Linda’s claim for a constructive trust in the Home Farm, stating: “If Ms. Leith wished to claim a constructive trust in the Home Farm, her Application ought to have been amended to claim that relief long before this motion was argued.” [para. 19]

Equalization Payment vs. Vesting Order

Justice Wilkinson ruled against Linda’s request to purchase the Home Farm using her equalization payment, relying on the Ontario Court of Appeal’s decision in Thibodeau v. Thibodeau, which established strict criteria for vesting orders:

“The onus is on the party seeking such an order, and as a general rule the Court’s discretion will only be exercised in favour of a s. 9(1) order where it is established – based on the targeted spouse’s previous actions and reasonably anticipated future behaviour – that the equalization payment order granted will not likely be complied with in the absence of additional, more intrusive provisions.” [para. 24]

The Court emphasized that a vesting order “is essentially an equitable remedy designed to work as an enforcement mechanism” and not appropriate where “there are sufficient funds n the Estate to pay the equalization payment owed to Linda Leith once the properties are sold.” [paras. 26-27]

Significantly, Justice Wilkinson gave weight to the testator’s intentions: “For his own reasons, Mr. Leith specifically chose not to bequeath the Home Farm, or any other property, to Linda Leith… The fact that Mr. Leith specifically chose not to bequeath a property to Ms. Leith is a significant factor that I must consider…” [para. 28]

Distribution of Remaining Estate Assets

With no explicit guidance in the Family Law Act on how beneficiaries should share liability for an equalization payment, Justice Wilkinson applied the principle from the Succession Law Reform Act that support orders fall rateably upon all beneficiaries. The Court cited Re Nalywayko (1984), which held that a reasonable testator would not exempt specific legacies from bearing their share of the burden of a support order. [para. 32]

The Court ordered prorated distribution based on the sale values of specifically bequeathed properties, explaining: “Mr. Leith’s Will does not treat his children equally, and that is his right. Once the equalization payment and all other debts of the Estate are paid, the net proceeds of sale from the equipment and the four specifically bequeathed properties may be distributed to the children.” [para. 34]

Practical Implications for Family Law Practitioners

For Estate Planning

1. Anticipate Equalization Claims: The case starkly demonstrates how a surviving spouse’s election can fundamentally disrupt a testator’s intentions. Justice Wilkinson acknowledged this reality: “I acknowledge that it was Mr. Leith’s intention for each of his children to receive specific properties and gifts under his Will. Unfortunately, there are insufficient assets in the Estate apart from the real property holdings to satisfy the Estate’s debt of an equalization payment owed to Linda Leith.” [para. 37]
2. Alternative Structures: Consider structures like inter vivos gifts, joint ownership, or trusts that might address a client’s wishes while recognizing potential equalization claims. The Court noted that “the failure of the testator to account for an equalization payment owing to Ms. Leith has created this situation, where the specific property bequests he made cannot be honoured.” [para. 38]
3. Sufficient Liquid Assets: Advise clients to maintain sufficient liquid assets to satisfy potential equalization claims without necessitating the sale of properties intended for specific beneficiaries. The parties agreed that “the assets of the Estate that are not real properties are insufficient to provide the quantum of the equalization payment that is owed to Ms. Leith.” [para. 22]

For Representing Surviving Spouses

1. Proper Pleading: Justice Wilkinson clearly stated: “If Ms. Leith wished to claim a constructive trust in the Home Farm, her Application ought to have been amended to claim that relief long before this motion was argued.” [para. 19] Similarly, when Linda attempted to raise a claim under the Succession Law Reform Act, the Court declined to consider it as “this issue is not pleaded in her Application.” [para. 20]
2. Realistic Expectations: The Court emphasized that vesting orders are not routine: “The remedy of a vesting order should not be imposed routinely or indiscriminately and should be ordered only if there is a real need, after all relevant considerations have been taken into account.” [para. 25] Courts will give weight to testator intentions: “For his own reasons, Mr. Leith specifically chose not to bequeath the Home Farm, or any other property, to Linda Leith.” [para. 28]
3. Valuation Issues: The Court confirmed that “the disposition costs related to the sales will be known and considered prior to calculating the equalization payment owed to Ms. Leith.” [para. 31] This highlights the importance of accounting for all potential costs when advising clients about the likely value of their equalization entitlement.

For Representing Estate Beneficiaries

1. Prorated Distribution: The Court applied the principle that “the gifts within each category abate rateably” [para. 33], meaning that when equalization claims deplete estate assets, beneficiaries share the burden proportionally. However, note that Justice Wilkinson respected the testator’s unequal treatment of children: “Mr. Leith’s Will does not treat his children equally, and that is his right.” [para. 34]
2. Market Realities: The Court determined that appraised values were insufficient, ordering that “all property owned by the Estate shall be listed for sale.” [para. 39] Distribution was to be based on “the sale values of the properties and equipment,” not appraised values, highlighting the inherent uncertainty of estate distribution when properties must be sold.

The Court’s Remedy and Disposition

Justice Wilkinson’s final order provides a template for resolving similar cases:

“All property owned by the Estate shall be listed for sale. The net proceeds of sale from the Home Farm, the equipment on the Home Farm, the Southgate Farm and the Durham property shall be divided between the three children on a prorated basis based on the sale values of the properties and equipment once all of the debts of the Estate have been paid. Any residual liquid assets owed by the Estate shall be divided equally between the three children as per the terms of the Will.” [para. 39]

The Court provided a practical example of how prorated distribution would work: “By way of example, the current appraised values for the specific properties bequeathed under the Will are $2,400,000 (Home Farm) + $498,702.37 (half of 60-acre lot) + $124,800 farm equipment = $3,023,502.37 (to Jason) + $1,600,000 (Southgate farm to Scott) + $350,000 (Durham property to Melissa) = $4,973,502.37.” [para. 35]

Based on these values, Jason would receive 60.79% of the net proceeds, Scott 32.17%, and Melissa 7.04%, reflecting proportionally what each would have received had the specific bequests been possible.

Conclusion

Leith v. Eccles demonstrates the tension between testamentary freedom and a surviving spouse’s statutory rights to equalization. Justice Wilkinson’s ruling provides a practical framework for balancing these competing interests, with several key takeaways:

1. A surviving spouse’s right to equalization takes precedence over specific bequests, but courts will not grant equitable remedies like vesting orders or constructive trusts without proper pleading and compelling circumstances.
2. When equalization claims necessitate property sales, courts aim to distribute the remaining assets in a manner that proportionally respects the testator’s intentions.
3. The testator’s expressed intentions carry significant weight, even when they cannot be fulfilled exactly as written.
4. Precise pleading is critical; claims for constructive trusts or relief under the Succession Law Reform Act must be properly included in initial applications.
5. Accurate valuation requires actual sales rather than appraisals when property values are central to equalization calculations.

As family law practitioners, we must counsel clients on both sides of these disputes with clarity about how equalization claims can fundamentally alter estate distribution, while helping them navigate the procedural requirements to effectively assert or defend their interests within this complex intersection of family and estates law.

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Disclaimer: The information provided in this blog post is intended for general informational purposes only and should not be considered as legal advice. Consult with a qualified family law attorney for advice regarding your specific situation. Goldhart Mediation & Arbitration is not responsible for any actions taken based on the information presented in this blog.