James Steele and Sarah Grieve, Robertson Stromberg LLP

The Saskatchewan decision in Krell Estate v Knoch, 2026 SKKB 51 is a useful reminder that small drafting choices can have significant consequences in estate administration, particularly where a will creates a life interest in royalty-producing mineral interests.

The dispute turned on whether William Krell’s direction that his wife Ruth receive royalties “being received by me at the time of my death” entitled her to royalties from a new well that had been shut in before his death and later resumed production under a new lease.  The Court held that it did not, and that Ruth’s entitlement was limited to benefits that William was actually receiving when he died.  

The decision offers practical lessons on drafting mineral-interest clauses, and the respect that Courts will give to a testator’s precise words even where the result may appear commercially or personally harsh.

Due to the length of the decision in Krell Estate, this case comment only discusses certain issues which were raised in Krell Estate.

Factual Background:

1. William Krell (“William”) died on June 1, 2016, leaving a substantial estate valued at approximately $8.8 million. The estate included several mineral interests, including the mines and minerals beneath SE 17-8-8 W2M (the “Mineral Parcel”);
2. William’s will dated March 16, 2013 (“Will”) granted to his wife, Ruth, a life interest in the Mineral Parcel. Paragraph (h) of the will directed the trustees:

“… to pay to her during her lifetime all royalty or other benefits being received by me at the time of my death…”

3. Upon Ruth’s death, the Mineral Parcel was to pass to William’s son, Thom, together with William’s nieces and nephews in equal shares;
4. At the specific time that the Will was executed in 2013, an existing oil well on the Mineral Parcel (the “Old Well”) was producing royalties under a petroleum and natural gas lease;
5. In 2015, Crescent Point drilled a second well on another portion of the Mineral Parcel (the “New Well”). Crescent Point drilled the New Well under the mistaken assumption that it continued to hold valid lease rights. After William Krell advised the company that its lease rights over LSD 2&7 had expired, the New Well was shut in while the parties negotiated a new lease;
6. William died on June 1, 2016, before any new lease was finalized;
7. Thus, at the specific moment of William’s death (on June 1, 2016) there was no production under the New Well on the Mineral Parcel, as Crescent Point had shut in the New Well. The Old Well on LSD 1&8 of the same Mineral Parcel remained in continuous production, and William Krell was receiving royalties from that well at his death;
8. In November 2017, the executors entered into a new lease with Crescent Point. That lease provided a $50,000 bonus and a 19% royalty. Production from the New Well resumed in February 2018;
9. A dispute arose between the executors and certain beneficiaries over whether Ruth was entitled to receive all royalties generated by the New Well during her lifetime;
10. Certain remainder beneficiaries (the “Knoch Beneficiaries”) argued that the wording of the Will entitled Ruth only to royalties William was tangibly receiving when he died. Thus, they argued that the royalties generated by the New Well (that went into production under the 2017 lease) were not given under the Will to Ruth;
11. The Knoch beneficiaries represented a minority of the remainder-beneficiary class. It appears that most of the other remainder beneficiaries had accepted the legal advice that Ruth Krell was entitled to the New Well payments;

Issue:

This case comment considers the below issues addressed in Krell Estate:

1. Issue 1: Did William intend Ruth to receive royalties and other benefits resulting from the New Well?
2. Issue 2: Who was entitled to the royalties generated under the New Well?

Determination in Krell Estate:

Issue 1: Did William intend Ruth to receive royalties and other benefits resulting from the New Well?

The Court found that Ruth was not entitled to royalties generated by the New Well. The Court considered the wording of the clause, the Will as a whole, and the surrounding circumstances known to William when he made the Will.

After so doing, the Court found that paragraph (h) of the Will was unambiguous. The important language was William’s direction that Ruth receive:

“… all royalties or other benefits being received by me at the time of my death” [emphasis added]

Every word in a will is presumed to have meaning. If William had intended to grant Ruth an unrestricted life interest in the Mineral Parcel, or royalties generated after his death, then William could easily have directed that she receive all royalties generated during her lifetime. Instead, he expressly limited her entitlement to royalties that he was receiving “at the time of” his death.

The Court determined that evidence from lawyers and family members about what William supposedly intended could not be used to rewrite the words used in the Will. The Court held that such evidence was not admissible:

[86]    …Evidence of William’s instructions to the solicitors who drafted his Will is not admissible because it is not probative of his expressed intentions found in the Will. Speculation about what William’s intentions would have been if he had turned his mind to particular circumstances is inadmissible. I have considered some hearsay, consisting of Violet’s account of statements William made to her about the New Well and various individuals’ dealings with Crescent Point, because it provides context and is corroborated by contemporaneous records. Ignatiuk’s evidence of William’s testamentary intentions, Mr. Billesberger’s opinion regarding paragraph (h), and opinions expressed by representatives of Crescent Point to Violet about the Will are inadmissible.  Thom’s opinions about what his father wanted Ruth to inherit are inadmissible.

[emphasis added]

The Court emphasized that the task of interpretation is to ascertain the testator’s intention as expressed in the words of the Will, not to speculate about what the testator might have intended in circumstances that were not addressed. The Court noted as follows:

[106]       Finally, the Court cannot speculate about what William would have wanted if he had asked himself in May 2013 whether Ruth should receive the royalties from any new drilling activity and production that might occur on the Mineral Parcel either during his lifetime or after his death but before Ruth’s. The task of the Court is to ascertain the testator’s actual intention, not hypothesize as to what he would have intended if he had turned his mind to a speculative and unanticipated circumstance:Gilchristat para 25.     

[emphasis added]

Although the New Well briefly produced oil in 2015 and generated royalty payments, it had been shut in before William’s death, and remained shut in as of the precise moment of death. No royalties were being paid from the New Well at the moment when William died.

The Court therefore rejected the executors’ submissions. The Court held that if William had “intended to give her an unqualified life interest, he would not have limited her entitlement to receiving only the royalties and other benefits he was receiving at the time of his death:”

[101] William’s intention when he made the Will in 2013 was to give Ruth a limited life interest in the Mineral Parcel, so that she would be paid the royalties and other benefits he was receiving when he died. If he had intended to give her an unqualified life interest, he would not have limited her entitlement to receiving only the royalties and other benefits he was receiving at the time of his death.

The Court also noted that Crescent Point lacked a valid lease at William’s death:

[103] … Crescent Point was not producing, saving, and selling natural gas and petroleum from the New Well on June 1, 2016. Further, Crescent Point did not have a valid and subsisting lease regarding LSD 2&7. This was not a mere clerical error and William did not treat it as such.

Thus, the Court concluded that Ruth was not entitled to any royalties generated by the New Well.

Issue 2: Who was entitled to the royalties generated under the 2017 lease?

The executors argued that if Ruth was not entitled to the New Well royalties, those funds should instead be distributed as part of the residue of the estate. Under the Will, the residue was to be distributed as follows, assuming the applicable 30-day survival conditions were satisfied.

The Court rejected the argument that the New Well royalties should be distributed under the residue. The Court relied upon prior authorities indicating that a life tenant (i.e. Ruth) was not permitted to diminish the “corpus” of the estate for the benefit of the life tenant at the expense of the remainder beneficiaries, unless the testator clearly expresses a contrary intention.

The court held:

[115]           The general principle in Campbelland in Moffat Estateis applicable to the present facts:  Ruth, the life tenant, is not entitled to receive the royalties generated from the New Well, since the oil is a capital asset and the proceeds are a capital receipt:  see Finnell v Schumacher Estate (C.A.), 1990 CanLII 6766 at para 14, 74 OR (2d) 583 (ONCA)….

[emphasis added]

Here, the Will provided that the remainder beneficiaries of SE 17-8-8 W2 were the below persons:

1. Thom; and
2. The 19 nieces and nephews.

This was as per clause (h) of the Will, which reads as follows:

(h) To hold during my wife’s lifetime my estate and interest in and to the mineral parcel for the mines and minerals beneath the South East Quarter of Section 17, in Township 8, in Range 8, W2M and to pay to her during her lifetime all royalty or other benefits being received by me at the time of my death and upon her death to transfer the said interest to THOM WILLIAM SWANSON, each of my nieces and each of my nephews in equal shares, share and share alike;

The Court determined that, in the circumstances, the oil and gas constituted part of the capital of the mineral interest and the royalties generated by the New Well were capital receipts, rather than income payable to Ruth Krell as life tenant.

The Court found that the remainder interests vested in the remainder beneficiaries on William Krell’s death, and postponement of possession because of a life estate does not postpone vesting. The Court held as follows:

[120]            …Where the postponement is to permit the enjoyment of the prior life interest and not for reasons personal to the remainder beneficiaries, a gift of the remainder interest vests on the death of the testator, not on the death of the tenant for life: Browne v Moody, 1936 CanLII 119, [1936] 3 WWR 59 (UKJCPC) [Browne]; see also Kohlman Estate, 2018 SKQB 133at para 29. In Browne, the testator granted to her son a life interest in a fund, with the income to go to him during his life; on his death, the fund would be divided among others. The Privy Council observed that the death of the son would in the course of nature occur sooner or later and the direction to divide the capital among the named beneficiaries upon the son’s death did not depend on any condition personal to them, such as their attaining the age of majority. Accordingly, the mere postponement of distribution to the remainder beneficiaries did not preclude vesting of the capital in them. 

[122]             Like the situations in Browneand Lasby Estate, William’s intention in postponing the gift to the remainder beneficiaries was to permit Ruth to receive certain royalties from the Mineral Parcel during her lifetime. No conditions personal to the remainder beneficiaries attach to the gift of the Mineral Parcel to them. I conclude that the remainder interest in the Mineral Parcel vested in Thom and William’s nieces and nephews, in equal shares, share and share alike, on William’s death.

[emphasis added]

The Court concluded that Ruth was not entitled to the New Well royalties. Because the remainder interest in the Mineral Parcel vested in Thom and the nieces and nephews upon William’s death, no proprietary rights associated with the Mineral Parcel were left undisposed of, and the New Well royalties formed part of the vested remainder interest rather than the residue of the estate. The Court wrote:

[125]          William’s testamentary intention was that the trustees would, during Ruth’s lifetime, hold his estate and interest in the Mineral Parcel, and transfer this interest to the remainder beneficiaries (Thom and the 19 nieces and nephews) upon Ruth’s death. William intended the remainder beneficiaries to enjoy their interest in the Mineral Parcel after Ruth’s death. The direction most in keeping with this intention is that the executors must invest all royalties and other benefits (including the bonus consideration) paid by Crescent Point for production of the New Well, with the accumulated capital and income to be distributed to the remainder beneficiaries upon termination of the life estate. Unlike the outcome in Campbelland Moffat Estate, Ruth is not entitled to the income from the fund because her life interest is more limited.

[emphasis added]

The accumulated capital and income were to be distributed when the life interest terminated, unless an alternate arrangement was agreed upon.

Unlike the outcomes in certain earlier cases, Krell Estate held that Ruth was not entitled even to the income earned on the invested royalty fund. The Court reasoned that her life interest was narrower than those considered in Campbell and Moffat Estate:

[118] … the life interest granted to Ruth was more limited than the interests granted in Campbell and Moffat Estate; it entitles Ruth only to receive the royalties and other benefits that William was receiving at his death. Investing the royalties from the New Well and paying Ruth the income therefrom would not be in keeping with William’s testamentary intention.

Conclusion in Krell Estate:

Krell Estate offers various lessons for practitioners. These include:

1. Careful drafting is especially important where life interests are granted over mineral interests. Here, the dispute turned on the phrase “being received by me at the time of my death.” Had William’s Will instead expressly provided that Ruth was to receive payments from future wells and post-death development, including receipts otherwise characterized as capital, the wording would have offered stronger support for her entitlement and may have avoided the dispute.;
2. Similarly, Krell Estate is also a reminder to think about future wells, and not just current wells, when drafting language. Courts will closely examine the wording used to define a life tenant’s entitlement and will generally give effect to any limitations expressly included by the testator. Practitioners drafting wills involving mineral interests, royalty-producing property, or other income-producing assets should consider whether future income streams are intended to form part of a life interest;
3. The Court also explained that the executors should have obtained either the consent of all interested beneficiaries or court approval before entering into the 2017 Lease. Seeking the necessary approvals in advance may help avoid later disputes regarding the executor’s authority and the validity of transactions affecting estate assets.

The above is for general information only, and not legal advice. Parties should always seek legal advice prior to taking action in specific situations.