Estate Claims Following the Appeal Court Decisions in Duncan and Brooks

by Derek Aldridge

This article was originally published in the Spring 2001 issue of the Expert Witness.


In October 2000 the Alberta Court of Appeal released its decisions in Duncan Estate v. Baddeley (2000 ABCA 277) and Brooks v. Stefura (2000 ABCA 276). These decisions helped clarify a number of questions that had arisen concerning the calculation of loss of future earning capacity under the Survival of Actions Act. Although these clarifications will be of great assistance to counsel, a number of questions remain outstanding. I consider some of these here.

Calculation of the deduction for “living expenses” (the “lost-years deduction”)

The October 2000 decision in Duncan was the second Court of Appeal decision in that case. In that decision, the Court confirmed its 1997 ruling that five principles were to be applied when calculating loss of future earning capacity for a deceased individual who had no dependants. These are:

  1. The loss of earning capacity is to be calculated net of income tax.
  2. The Court should deduct from after-tax income an allowance for “living expenses,” which are defined as “the expenses that the victim would have incurred in the course of earning the living we predict he would earn.” (Duncan v. Baddeley [1997], 196 A.R. 161 at 172.)
  3. “The ingredients that go to make up ‘living expenses’ are the same whether the victim be young or old, single or married, with or without dependants.” (Harris v. Empress Motors, [1983] 3 All E.R. 561 at 575.)
  4. “A deduction of expenditures made for the benefit of dependants, however strong the bond and obligation to support them, is not permitted.” (Duncan [2000], at para. [21].)
  5. “[T]he deceased’s proportionate share of joint family expenses are included in personal living expenses.” (Duncan [2000], at para. [22].)

The Court then “concluded” that the appropriate living expenses deduction in the case of Dean Duncan was 35 percent (but noted the defendant had not submitted an alternative approach which followed the correct principles). I have two concerns with the latter result.

First, there are two components to the living expenses deduction – the portion of the deceased’s after-tax income that he would have spent on himself; and the deceased’s share of joint family expenses. We cannot find that these two factors add to 35 percent under normal assumptions.

When calculating losses in fatal accident claims, it is usually assumed that, in a family of two adults and two children (it was found that Dean Duncan would have had such a family), family income is divided approximately: 22 percent to each of the husband and wife, 26 percent to the children (together), and 30 percent to joint family expenditures. Under these assumptions, the living expenses deduction would have been, at most, 29.5 percent (22 percent plus one-quarter of 30 percent).

Second, there is reason to believe that the 22 percent figure used in fatal accident actions exceeds the figure that the Court of Appeal wishes to apply in estate claims. In fatal accident claims, the 22 percent figure represents the percentage of family income that is spent on (all) items that benefited the deceased alone. Thus, that percentage includes many “discretionary” or “luxury” items. It is clear from both Duncan and Brooks, however, that discretionary expenses and expenses on pleasure are not to be included in “living expenses”:

  1. In its 1997 decision in Duncan, the Appeal Court rejected the so-called “lost saving” approach to the calculation of living expenses because “[m]y life-savings would not tell one what I spent during my life on pleasure, as opposed to what I had to spend in connection with the earning of my income.” (Duncan [1997], emphasis added.) That is, the Court distinguished “pleasure” from living expenses.
  2. In its 2000 decision in Duncan, the Appeal Court again rejected the lost saving approach, in large part because it did “not differentiate between expenses incurred in order to earn a living, and discretionary spending.” (Duncan [2000] at para. [12], emphasis added.) That is, the Court ruled that expenses to earn a living do not include discretionary expenses.
  3. In Brooks, the Court of Appeal explicitly excluded the deceased’s expenditures on a motorcycle and electronic equipment from his living expenses because they were “discretionary items that were not necessary to maintain Brooks in order to earn his anticipated level of income” (Brooks [2000] at para. [29]).
  4. If the courts were to apply the reasoning used to construct the 35 percent figure in Duncan to a case of an individual who could have been expected to remain single, they would find that the living expenses deduction would approach 100 percent. That is, the “Duncan” method would approach the “lost saving” method. (A single individual spends all but his savings on his own consumption.) But the Court has explicitly rejected the lost saving method.

If the living expenses deduction is not to include discretionary or luxury expenses, that deduction could be expected to be somewhat less than 22 percent commonly used in fatal accident cases. If we select 15 percent as a “reasonable” estimate of non-discretionary expenses that (would have) benefited the deceased alone, then the living expense deduction becomes approximately 22.5 percent (15 percent personal expenses plus one-quarter of joint family expenses). Even this figure may be too high, because some of the joint family expenditures (30 percent of the deceased’s income) would have been discretionary expenses.

Varying the “living expenses” deduction over the deceased’s lifetime

The loss of income claim by the estate of Dean Duncan was 65 percent of the present value of his lifetime net employment income. Recall that Dean Duncan was 16 when he died, with no dependants – although the Court found that he would have eventually married and had two children. It remains unclear to what extent the 35 percent living expenses deduction might differ for people who were at a different stage of life. For example, would a 35 percent deduction also apply for a woman who was 45 years-old and single (without prospects of marriage or children) at the time of her death?

In the most recent decision in Duncan, the Court implied that the correct approach is to tie the living expenses deduction to the size of the deceased’s (without-accident) family at different stages of his life. Using this approach, the size of the living expenses deduction would be less in periods in which there is a large number of people in the household than in those in which there are few people in the household. (As the household size increases, less of the deceased’s income would have been spent on himself, leaving a larger portion to be claimed by the estate). For example:

…Duncan bore a one-fourth share of joint family expenses based on the trial judge’s finding that had Duncan lived, he would have had a wife and two children; had it been four children, only one-sixth of the shared family expenses would have been deducted. (Duncan [2000] at para. [22].)

This statement clearly suggests that the lost-years deduction will depend on the deceased’s family size. However, the message is mixed. One problem with tying the lost-years deduction to family size is that that approach does not appear to have been used in Duncan. As noted, in Duncan, the lost-years deduction was set at 35 percent and it was applied to Dean Duncan’s lifetime income. Employing the same reasoning that the Court used to obtain the 35 percent deduction, it is my understanding that a deduction of approximately 50 percent would have been appropriate for the period when Dean Duncan would have been married without children, 44 percent when he was married with one child in the home, and 35 percent when he was married with two children in the home. Since the Court did not use this approach in Duncan, it is not clear whether the Court has specified that a flat deduction should be used over the deceased’s entire (without-accident) life, or whether the deduction should vary over time. If the deduction should vary over time (with family size), then why did the Court not use that approach?

One might argue that, in Duncan, the Court chose a single unvarying deduction as a simple approach that would produce roughly the same result as using the slightly more complicated approach of varying the deduction over time. This argument fails, however, if it is found that the Court intended that the “conventional” deductions discussed above should be used as, in that case, the single deduction would have been much higher than 35 percent. Note that the “conventional” deductions are 50 percent for a one- or two-member family, 44 percent for a three-member family, and 35 percent for a four-member family. Given the findings of fact concerning Dean Duncan, if the Court had wanted to apply a flat lost-years deduction as a proxy for the time-varying deduction, it would have used a deduction close to 42 or 43 percent. If a 35 percent deduction applies to a four-person household, and the deductions are greater for households with fewer than four people, then the equivalent flat deduction must be greater than 35 percent. Since the Court used a flat 35 percent deduction, it is difficult to justify using a different approach, without contradicting the Duncan decision.

There is a circumstance in which a fixed 35 percent deduction might be justified, however. Earlier in this article, I argued that the appropriate deduction in a four person family was no more than approximately 22.5 percent, not 35 percent as is commonly argued. The equivalent figure for a three person family would be approximately 37.7 percent and for a two person family would be approximately 50 percent. It is possible that these figures could average 35 percent over the family’s life cycle.

If it is found that the living expenses deduction is to reflect non-discretionary expenses, then I believe that this would support a deduction that does not vary with family size. Although it is normally assumed that expenses on a spouse and children are “non-discretionary” (suggesting that the deduction would vary with family size), I believe that a case can be made for the supposition that they are discretionary.

Consider the example of a young couple that is deciding whether or not to have children. If they choose to have, say, two children, it is usually assumed that the children will create a new category of “non-discretionary” expenses. However, remember that the couple chose to have their children – in that sense, therefore, their expenses on those children are discretionary. That is, if one takes a short-run view, it appears that the parents have no choice but to spend a portion of their income on their children. But if one takes a lifetime view, it is apparent that the parents had a choice whether or not to spend that money, as they could have chosen not to have children. In this sense, expenditures on one’s spouse are also discretionary, in the sense that one could have chosen to remain single. According to this view, the portion of an individual’s income that would have been spent on truly non-discretionary expenses does not depend on whether he would have chosen to remain single, to marry, or to have children.

If the above rationale is ultimately rejected, and it is found that the size of the deduction does vary with family size, then in some cases great importance will be placed on the Court’s finding concerning a (deceased) young person’s without-accident lifestyle decisions. Suppose there is a case involving a deceased 17 year-old boy, who would have earned the income of an average university graduate. And suppose the Court is weighing two (drastically) alternative without-accident lifestyle scenarios for the boy: He would have remained single all his life, or he would have married and had five children. A finding for the latter scenario would lead to a loss probably more than double the result from the former scenario. And as noted above, I believe that (taking a long-term view) the deceased’s discretionary expenses would have been the same for either scenario (since he would have chosen to have zero or five children). Furthermore, although an “heir-centred” approach was explicitly rejected in Duncan in favour of a victim-centred approach, an approach which depends on without-accident family size is necessarily dependent on without-accident heirs.

Given the victim-centred approach, is it the case that a young victim who dies with (unfulfilled) plans to have a large family has lost more than if he planned to be forever single?

The choice between an award for loss of dependency and an estate-claim award

The Brooks v. Stefura appeal decision addresses the situation in which an heir to the estate (who is a potential recipient of the estate-claim award) is also one of the deceased’s dependants (and therefore is a potential recipient of an award for loss of dependency). Brooks offers the following guidelines at para. [14]:

  1. calculate the dependency award for each dependant, including prejudgment interest if it is granted;
  2. calculate the lost years’ award, including prejudgment interest if it is granted;
  3. allocate the lost years’ award to each beneficiary in accordance with the deceased’s will, or if the deceased died intestate, in accordance with the ISA;
  4. compare the dependency award with the allocated lost years’ award for each claimant, and reduce the dependency award by the amount of the lost years’ award, which represents an accelerated inheritance;
  5. if the lost years’ award is greater, the claimant receives only that amount; and
  6. if the dependency award is greater, the claimant receives the full lost years’ award together with the difference between the two as the dependency award.

In other words, each surviving dependant is entitled to receive either his/her share of the estate claim or his/her loss of dependency claim, whichever is greater. This seems fairly straightforward, but there are at least two important difficulties.

First, when comparing an heir/dependant’s losses under the Fatal Accidents Act (FAA) and the Survival of Actions Act (SAA), it is not clear from Brooks whether the loss of household services is to be considered separate from or together with the loss of dependency on income. Thus, suppose the heir’s share of the estate claim (from the SAA) is greater than her loss of dependency on the deceased’s income (from the FAA), but less than her loss of dependency on the deceased’s income and household services combined. Should she receive an award amounting to her loss of dependency on income and household services? Or can she instead receive her share of the lost-years claim and her loss of dependency on the deceased’s household services?

One possibility is that the heir/dependant has an “all or nothing” choice. Either she claims under SAA and takes her share of the estate claim, giving up any FAA claim (dependency on income or household services); or she takes her full claim under FAA and forgoes her share of the SAA claim. Another possibility is that the deceased’s without-accident income and household services are claimable separately, with the income claimable either under SAA or FAA. The spouse would then be entitled to her household services claim (under FAA), as well as either her dependency on his income (FFA) or her share of the estate claim (SAA).

The second difficulty is that strict application of Brooks could lead to total compensation that exceeds 100 percent of the deceased’s lifetime income. Consider the case of a deceased man who leaves behind a dependant wife and two children. Suppose both children are 17 at the date of their father’s death and they will only experience a loss of dependency for one year. And suppose the wife and two children are each entitled to one-third of the deceased’s estate (which would roughly be the case if the deceased died intestate). In almost all cases the children will have a larger estate claim (SAA) than a dependency claim (FAA). (This is because their dependency claim extends for only one year of their father’s without-accident work-life, but their share of the estate claim extends for their father’s entire work-life.) However, if the children receive awards representing their share of the estate claim, and the wife receives an award representing her loss of dependency on the husband’s income, it is quite possible that more than 100 percent of the deceased without-accident income will be allocated to the survivors.

There are at least three possible approaches that the Court could ultimately approve to resolve this difficulty. First, it is possible that the Court will allow this potential “overclaiming” of the deceased’s potential income. This seems unlikely, given the Court’s concern with “double-damages” in Brooks (see Brooks [2000] at para. [19]). Note however, that in a loss of dependency claim where there is no household services loss, the tax gross-up could also lead to more than 100 percent of the deceased’s income being allocated, and the Court has not taken steps to prevent this. Second, the Court might impose a constraint, such that the total awards allocated as estate claims and as losses of income dependency cannot exceed the total present value of the deceased’s after-tax income. A third possibility is that the Court could decide that the heirs/dependants as a group must choose between claiming under FAA or SAA. So in the example above (surviving wife and two 17 year-old children), it would be decided whether to claim under SAA or FAA and each heir would make his/her claim under that head. This could lead to some difficult situations since in many cases one heir might prefer a claim under SAA while another prefers to claim under FAA.

This is an issue that we will deal with in greater detail in the next issue of The Expert Witness.

Single individual

A question that the courts have not faced is how they should deal with individuals who would have been expected to remain single for the remainder of their lives. This might reasonably be the case, for example, if the deceased had been a confirmed bachelor in his or her 50s or 60s.

In that case, the approach favoured by the Court would have calculated the living expenses deduction by adding the deceased’s expenditures on personal expenses to the deceased’s “share of joint family expenditures.” But in a one person “family” the individual’s share of joint family expenditures is 100 percent. Hence, the method favoured by the Court would find that the deceased had spent 100 percent of his or her income on “living expenses” and the deduction would be 100 percent (or close to 100 percent). But this is just the “lost savings” approach that the Court has explicitly rejected. In short, the method favoured by the Court produces a result that the Court itself does not support.

This is not a result that the Court could reasonably have been expected to recognise without expert advice. However, as far as I know, it has not been addressed by any other economist. Nonetheless, it will need to be considered in order to establish a defensible approach.

Further issues

There are two additional issues that warrant further consideration. I mention them here briefly.

Could household services play a part in estate claims? Clearly the estate claim is one for lost earning capacity, but consider the case of a person who would not have earned any income, but would have performed valuable services. Could his estate make a claim under SAA? For example, suppose a young female lawyer is killed, but had she lived, she would have been a stay-at-home mother for five years. Is the estate’s loss over those five years zero? Negative? Of course in such a case the primary claim would be for loss of dependency, but in light of Brooks it is probably necessary to compare the size of the estate claim to the dependency claim.

Should the living expense deduction be a percentage deduction or a dollar deduction? Given that 35 percent was used in Duncan, would that same percentage have applied if the Court had found that he would have worked as a specialist physician (earning far more than the $35,000 per year that Dean Duncan would have earned)? A flat dollar deduction might be more appropriate, but it would also lead to more complicated calculations than a simple percentage deduction. And we would still be left with the problem of how (or whether) to vary the deduction with a person’s age, income, occupation, and so on.


Derek Aldridge is a consultant with Economica and has a Master of Arts degree (in economics) from the University of Victoria.