Gifts by will can be a great source of funds for charities, and are an area that charities would do well to explore. However, wills can also cause intense and personal arguments between surviving beneficiaries and family members, sometimes resulting in heated estate litigation.

Where a charity is a beneficiary of an estate, it may be very tempting to become involved in litigation to protect its claim to estate assets. Charities should be aware of the risks that can attend this kind of litigation, especially when it comes to court costs.

Recent case law

A recent judgment from the Ontario Court of Appeal provides a good reminder to charities when weighing in the risk of paying costs before deciding to litigate a matter. In Sawdon Estate v Watch Tower Bible and Tract Society of Canada et al., the court awarded a type of ‘blended’ costs that are outside the usual rules of estate litigation cost awards. The judgment is also a good lesson of the types of considerations a judge may take into account when deciding costs.

The facts of the case are fairly straightforward. The testator’s will entitled each of his five children to a fixed amount of money and left the residue to the Watch Tower, an organization representing the interests of Jehovah’s Witnesses. Before his death, the testator transferred a significant amount of money into joint accounts with two of his children. When it came time to execute the will, Watch Tower claimed the money in these accounts was part of the estate and should therefore go to them. The estate trustee, one of the testator’s sons, argued that the testator had instructed his children to split the money evenly among themselves.

The trial judge found that the accounts were not part of the estate, and ordered Watch Tower to pay the estate trustee’s trial costs on a partial indemnity basis. However, that judge also refused the trustee’s request for an order that the estate indemnify him for the balance of the costs. When Watch Tower appealed the substantive ruling, the estate trustee cross-appealed to have the estate indemnify his unrecovered portion of the trial costs. The appeal judgment dismissed Watch Tower’s appeal regarding the accounts and allowed the estate trustee’s cross-appeal regarding the costs.

There is a longstanding principle that estate trustees are entitled to be indemnified for all reasonably-incurred costs, including legal ones. This is to avoid discouraging estate trustees from bringing the legal proceedings necessary for the proper administration of the estate. The appeal judge considered that the estate trustee had acted reasonably throughout and for the benefit of the estate, so he should receive full indemnification; he was doing his fiduciary duty to defend the testator’s intentions as he understood them. Additionally, the difficulties were caused by the testator not clearly spelling out his intentions, so the estate should bear part of the costs of sorting these difficulties out.

Blended costs

Taking everything into account, the Court of Appeal decided to balance modern policy considerations by awarding a blend of costs from the estate and from Watch Tower. Watch Tower was liable for full indemnity for the trial costs and partial indemnity for the appeal costs, and the estate was liable for the rest.

It seems unlikely that Watch Tower foresaw this kind of outcome. Beyond paying their own legal costs, they became liable for a very large portion of the estate trustee’s costs. This kind of risk is obviously something that must be carefully considered before launching any kind of estate litigation. On the other hand, estate trustees can take comfort in this case as it proves they may not be out of pocket for defending litigation so long as their motives and conduct are above board throughout.