by Rob Levesque, Published: October 15, 2014
In the administration of any estate, one of the estate trustee’s first jobs is to identify potential creditors who might advance claims against the estate. The general wisdom has always been that an estate trustee should make sure that he or she has held back sufficent funds from the estate to satisfy the claims of all potential creditors before making distributions to the beneficiaries, heirs and dependants of the estate. It may therefore come as a surprise to many lawyers that in a recent case, Grieco v. Grieco Estate, 2013 ONSC 2465, the Court held that dependant support claims have priority over the claims of potential creditors with pending, but unproven claims.
In the Grieco case, the deceased’s ex-wife had an outstanding equalization claim against the deceased’s estate which pre-dated his death. The deceased’s common law spouse and two of the deceased’s adult children bought dependant support claims against the estate. The parties settled their claims at mediation, and obtained a consent judgment providing for the distribution of lump sum equalization and dependant support payments.
The estate trustee was wary of making the payments pursuant to the consent judgment because a number of potential creditors had come forward with claims against the estate. While the claims of the creditors had yet to be proven, if the estate trustee proceeded with the distribution of the dependant support and equalization payments pursuant to the consent judgment, there would be no money left in the estate to satisfy a possible judgment against the estate by the creditors. Accordingly, the estate trustee sought the direction of the Court.
The Court held that the lump sum equalization payment to the ex-wife and the lump sum dependant support payment to the common law spouse took priority over the claims of the potential creditors. In doing so, the Court referred to section 4(1) of the Creditor’s Relief Act, 1990 and Section 2(3) of its successor legislation the the Creditor’s Relief Act, 2010. The Court held that both the 1990 Act and the current Act, “maintain the priority of support claims over virtually all other claims”, and that this priority extended to dependant support orders made pursuant to the Succession Law Reform Act. Accordingly the common law spouse was entitled to recieve her lump sum payment from the estate in priority to the potential creditors.
Furthermore, given that orders made for the support of dependants have priority over debts owing to creditors under section 2(3) of the Creditors’ Relief Act; and given that a spouses’ equalization entitlement has priority over orders for the support of dependants other than children of the deceased under subsection 6(12) of the Family Law Act; the Court concluded that the ex-wife’s equalization payment had priority over the claims of the potential creditors. Alternatively, the Court found that the wife was also a dependant of the estate and was entitled to receive her lump sum payment in priority to the creditors on that basis as well.
The Grieco case raises difficult issues for trustees facing competing claims by surviving spouses, dependants of the estate, and other potential creditors of the estate. While the case appears to stand for the proposition that the claims of dependants have priority over the claims of other potential creditors of the estate pursuant to the Creditor’s Relief Act, lawyers who are advising estate trustees should treat the decision with caution. There are currently no other reported cases dealing with the interaction between the Creditors’ Relief Act and equalization and support claims in the estates context.