Personal Liability of Estate Trustees in Dependant Support Claims

Personal Liability of Estate Trustees in Dependant Support Claims

As a fiduciary for an estate, an estate trustee must comply with various legislation including the Succession Law Reform Act (SLRA) when disbursing estate assets and managing the estate. When dealing with a person who may be a dependant of the estate, and who may bring a Dependant Support Claim, estate trustees must adhere to s. 60 of the SLRA, failing which, they could be held personally liable. This article will consider the extent of an executor’s personal liability under s. 67(3) and remedies available to dependents should an executor disburse estate assets before a claim is heard.

What is a Dependant Support Claim?

A Dependant Support Claim is a claim initiated by an application against the estate of the deceased with whom the applicant is a legally recognized dependant of pursuant to s. 57 of the SLRA. A legally recognized dependant is defined as a spouse (common law or ex-spouse), parent, child/grandchild, or sibling of the deceased to whom the deceased was providing support to or was under a legal obligation to provide support to, immediately before their death. A Dependent Support Claim can be used in the following situations:

  1. If the deceased died with a will and did not leave adequate support for the dependant; or,
  2. If the deceased died without a will and the dependent is: a) not entitled to relief from the laws of intestacy (i.e. common law spouses); b) the dependant is further down the line of succession and requires support from the estate.

Limitation periods under SLRA: Six months

 It’s important to remember that the general limitation period of two years does not apply to the timing of bringing a Dependant Support Claims.

Section 61 of the SLRA contains the limitation period. A claimant has six months from the granting of probate to bring a claim. The exception to this period is that a court may consider an application made at any time as to any portion of the estate which remains undistributed at the date of the application (61(1)).

An estate trustee must then comply with s. 67(1) which stays the distribution of the estate after service of notice upon them, until the court has disposed with the Dependant Support Application. The exception here is that an estate trustee may continue to make reasonable advances for support to dependants who are beneficiaries of the estate (67(2)).

Now, this is where things get interesting. Pursuant to s. 67(3), if an estate trustee distributes any portion of the estate in violation of ss. (1), and support is ordered by the court to be made out of the estate, the estate trustee is personally liable to pay the amount of the distribution.

Awareness of an impending claim can initiate personal liability

Executors can be held personally liable if they distribute the estate, to the dependant’s detriment, before the expiry of the six-month limitation period.

In Dentinger (Re), [1981] O.J. No. 303, the executors were aware that the dependant intended to make a claim under the SLRA, yet distributed nearly all of the estate’s assets shortly after probate and before the application was made. The executrices were advised within six weeks of probate being granted that the dependant intended to make a claim for relief under the SLRA. Within a further three weeks, the executrices rapidly conveyed all the real property in the estate to themselves and two other residuary beneficiaries. The Ontario Superior Court held the executors personally liable and ordered them to make a payment directly to the dependant.

Estate trustees can be held personally liable

Executors have a duty not to distribute the estate before the expiry of the limitation period if there is a possibility of a Dependant Support Claim, and if they do so, they do so at their own peril.

The leading authority on this issue is Gilles v. Althouse et al., [1976] 1 S.C.R. 353, where the Supreme Court of Canada considered Saskatchewan’s mirror legislation to the SLRA, The Dependants’ Relief Act of Saskatchewan. The estate had been fully distributed, and the Saskatchewan Court of Appeal had concluded for that reason that no order for maintenance could be made. The Supreme Court rejected the argument that executors were free to proceed with distribution until they had notice of an application for relief.

They unanimously found that at least until expiry of the six-month period, the applicant was a potential applicant under The Dependants’ Relief Act. She did not effectively disclaim any rights which she might have under that Act. The court opined that the true meaning and effect of the SLRA is to afford an applicant the opportunity to obtain an order against the entire estate, but if they delay and make an application after the six-month limitation period, the claim can only be against the portion of the estate which remains undistributed. However, if the executors have “distributed the estate in a manner contrary to the terms of the will as so varied, they will be under a duty to account.” (54).

The SLRA creates a “temporal window” which is commenced by the granting of probate. It is within this temporal window that the applicant must apply. Estate assets distributed after the temporal window has closed will not be subject to the applicant’s claim.

Should an executor distribute estate assets before a claim is heard, dependents may apply for relief through the clawback provision. Section 72 of the SLRA permits the court to “claw back” certain assets deemed to be part of the estate and subject to the application for support.

Non-arm’s length party can still incur personal liability

 Executors will be held personally liable even if the estate trustee and dependant are non-arm’s length parties. In Gefen v. Gefen 2015 ONSC 7577, the estate trustee, the deceased’s spouse, distributed the estate to herself before the expiry of the six-month limitation period in the SLRA. The Superior Court found that the deceased’s son qualified as a dependant and was entitled to monthly payments. He was entitled to claim against the entirety of the estate as he brought his claim within the limitation period. However, the estate trustee had already distributed the estate assets. The court ruled that the estate trustee had distributed the estate at her own peril since she had not waited for the limitation period and that she was responsible for making the payments that otherwise would have been payable out of the estate itself, had she not made those distributions.

Responsibility for estate practitioners

 Estate practitioners must be prudent in advising estate trustees of their personal liability in mishandling estate assets by distributing assets before the expiry of a limitation period. If an estate trustee has knowledge of a possible dependant and/or an impending Dependant Support Claim, they could be held personally liable to repay these funds in addition to other potential penalties if they distribute estate assets within the six-month limitation period following probate. They must also be aware that estate assets may be clawed back should a judge deem them to be a part of the estate.

Decision Underlines Power of Testamentary Wishes

Decision Underlines Power of Testamentary Wishes

The decision in Walters v. Walters 2022 ONCA 38 outlines the circumstances under which a court in Ontario can intervene with the absolute discretion given to estate trustees, particularly their decision not to exercise their discretionary powers. The Ontario Court of Appeal held that the refusal to exercise discretion in discretionary trusts due to extraneous matters is actionable.

Three important takeaways estates lawyers can learn from this case, mainly:

  1. Estate planners must be wary of drafting wills that put the estate trustees in a conflict of interest;
  2. Estate administration requires the utmost impartiality to execute the testamentary wishes of an individual; and
  3. Testamentary wishes remain paramount in Ontario.

Summary of Walters v. Walters

 In Walters, the deceased set up a testamentary trust in her will which included a provision permitting the estate trustees, her children, to encroach on capital as needed in their absolute discretion to maintain the “comfort and well-being” of her husband, the children’s father. The residue of the estate, less the capital provided to the father, went to the children.

She appointed her three children as estate trustees, but one of the children ultimately renounced himself. The father asked the remaining estate trustees to encroach on capital to pay a large sum of his living expenses. The estate trustees disliked and mistrusted their father and declined to use their discretionary powers to distribute funds to him.

The father applied for an order to compel the trustees to encroach on capital by arguing that they were required to do so. The trustees argued, inter alia, that the testator left absolute discretion to the trustees. The lower courts found that the trustees were being influenced by extraneous matters (mainly, their distrust and dislike of their father) and ordered the trustees to pay the father. The trustees appealed, and for the most part, the Appeal Court upheld the lower court’s decision (but reduced the amount of total arrears).

Background on trusts

 There are two general categories of trusts: inter vivos and testamentary trusts. An inter vivos is a living trust, which means it is established when the grantor is alive. A testamentary trust is established by a testator in their will and takes effect upon their passing. A discretionary trust is a trust that is flexible and determined by the criteria set out in the trust instrument by the testator, meaning that the beneficiaries and/or their entitlements are not fixed. As seen in Walters, a discretionary trust generally gives trustees absolute discretion in determining distributions to beneficiaries.

Lesson 1: Reduce the conflicts of interest

The conflict in Walters may have been easily avoided if the will of the deceased was not drafted as such. In this case, the deceased appointed the residual beneficiaries as estate trustees. The will gave the estate trustees absolute discretion to encroach on capital (the estate trustees’ inheritance) to ensure the “comfort and well-being” of the deceased’s spouse.

While a will may grant a trustee absolute discretion to encroach on capital, one should be careful in using ambiguous terms in this context. “Comfort and well-being” is a qualitative term meaning that there could be a range of acceptable living situations. Positing a qualitative term to the estate trustees who have the discretionary power to place their personal interests above their father’s interests creates an enormous potential for conflict. A more practical suggestion could have been to include in the will a provision for a lump-sum or a monthly sum to the father.

Conflicts of interest in estates law may not escalate to the Ontario Court of Appeal, but in this case it did.

Lesson 2: Remind estate trustees of fiduciary duty

This second point follows the first. Estate administration requires the utmost impartiality to execute the testamentary wishes of an individual. In our previous article “Estate trustee checklist” we wrote about the duties and responsibilities of an estate trustee. It is important that the following point is echoed:

The estate trustee should know that they have a fiduciary duty to administer the estate, meaning that the estate trustee must do their utmost to act in the best interest of the estate and follow the wishes of the deceased.

It would be difficult to follow the wishes of the deceased when there is a bad relationship between the estate trustees and a beneficiary, and where an estate trustee stands to inherit more by not distributing funds to the beneficiary (despite it being against the deceased’s wishes). In this case, the estate trustees’ distrust and dislike of their father may have clouded their judgment as the court ruled at paragraph 76 that “no reasonable trustees would refuse to exercise their discretion in favour of a monthly encroachment that reflected the $3,875 monthly cost of Gerald’s residence at Rural Roots Retirement.”

Practically, for estates practitioners, a trust company may have brought their impartial perspective and eliminated any conflict of interest fulfilling the impartial duty owed the estate.

Estate practitioners must advise estate trustees to carefully read the wording of the will or the trust instrument. They should also advise clients that testamentary wishes remain paramount in Ontario and that courts may intervene with a trustee’s discretionary powers if “extraneous matters influence the trustee’s decision,” or in other words, if there is a breach of fiduciary duty.

The decision in Walters highlights the importance of estate trustees acting in the “best interests of the estate” — had the estate trustees been able to put aside their feelings about their father, they would have been able to preserve more money.

Lesson 3: Testamentary wishes remain paramount in Ontario

The personal feelings of the estate trustees are secondary to the wishes of the deceased. We have written multiple articles that speak about testamentary freedom in Ontario such as “Decision highlights major difference between B.C., Ontario estate laws” and “The problem of racist wills in Ontario.”

In this case, a discretionary power was expressly permitted under the terms of the deceased’s will to pay for the father’s living expenses. The trial judge found that the trustees refused to exercise their discretion mainly based on their dislike and distrust of their father. The Appeal Court stated that the personal feelings of the estate trustee had “nothing to do with their obligation to ensure his well- being and comfort” as determined by the testator’s intentions, and that “their refusal to encroach on capital to provide for his comfort and well-being was an abuse of their discretionary powers granted under the will.”

Ultimately, the litigation in Walters was decided in favour of the father because of the estate trustees’ failure to follow the deceased’s will. The wishes of a deceased need to be followed as after all, they are the last decision(s) someone makes during their lifetime.

Kim Gale is an estate litigation lawyer and principal of Gale Law, an estate litigation firm in Toronto. She can be reached at 416-868-3263 or kgale@galelaw.ca. She is the author and creator of the blog Law for Millennials — The Complete Beginners Guide to Law and is co-founder of diversity and inclusion group NCA Network. Priyanka Bahl holds a J.D. from the University of Ottawa (2021) and is currently articling at Gale Law in the area of estate litigation. She can be reached at (416) 868-3263 or via e-mail at pbahl@galelaw.ca.

What is Estate Administration Tax, Part One

 

Tax planning in our daily lives can be frustrating, annoying and complicated. Tax planning for estates can feel even more onerous, complex and unimportant in our busy lives. With the emergence of COVID-19 however, estate planning has become more on the forefront of our minds. Understanding the tax implications of estate planning is pivotal to ensure that our loved one’s belongings are carefully considered and planned for.

In part one of this series, we will be providing the fundamentals of the estate administration tax.

Who applies?

The applicant is the executor or administrator of the deceased’s estate. The estate tax is a tax paid by the estate to “probate” a will, or in other words, to receive an order from the Superior Court of Justice granting an individual an estate certificate. This court order certifies and confirms that:

  • the deceased’s will is valid, and;
  • the applicant (either named in a will, or appointed without a will) has the legal authority to act as a representative.

Who pays?

The estate tax is not paid from the estate representatives, but rather, from the accounts of the estate. The estate tax need not to be paid for the following certificates: Succeeding Estate Trustee with a Will, Succeeding Estate Trustee with a Will Limited to the Assets Referred to in the Will, Succeeding Estate Trustee Without a Will and Estate Trustee During Litigation.

How is it calculated?

 As of Jan. 1, 2020, the estate tax is calculated as follows:

  • The first $50,000 of the estate or less is exempt from estate tax;
  • Value exceeding $50,000: $15 per $1,000 (or any part thereof) for the estate value exceeding
  • $50,000.
  • Valuation of assets should be determined on the fair market value of the assets at the time of death. Estate representatives must be able to prove the value of assets through supporting documents (i.e., a statement of appraisal, financial statements, etc.). This can get quite complicated and may require the professional services of an appraiser.

How is it paid?

The estate tax is paid in the form of a deposit and is calculated based on the value of the assets of the estate on the date of death. The value of the estate is all the property that belonged to the deceased person at the time of his or her death as explained below. Practitioners can also refer to s. 1(1) of the Estate Administration Act (Act).

So, which assets make up the value of the estate?

The following assets are included in the calculation of the estate tax:

  • Real estate in Ontario, less the actual value of any encumbrance on real property (for example, mortgages and/or liens). The value used in this calculation is the appraised value at the date of death;
  • Bank accounts (including foreign accounts);
  • Investments (such as stocks, bonds, mutual funds, TFSAs, RRSPs); All property of the deceased held in another person’s name; Vehicles and vessels (for example cars, boats, ATVs, trailers, etc.);

All other property including goods, intangible property, business interests; and, Insurance if proceeds are left to the estate.

It excludes:

  • Assets passing on survivorship;
  • Real estate situated outside Ontario;
  • Insurance proceeds or registered funds passing to a named beneficiary or assigned for value; and
  • Debts owing by deceased, including credit card debts, car loans, etc.

Exceptions to paying the estate tax

While the estate tax must be paid when the court issues an estate certificate, there are two exceptions to this rule:

  1. The applicant must file an affidavit as to the estimated value, and the tax is based on the Additionally, the applicant must give an undertaking to file a sworn statement as to the value of the estate and to pay the tax within six months of that undertaking (Rule 74.13(2));
  2. If the court is satisfied, based upon the applicant’s affidavit and upon other material that the court requires:
      • That the estate certificate is urgently required;
      • That financial hardship would result from not issuing the estate certificate before the deposit is made; and
      • That sufficient security for the payment of the estate administration tax has been furnished to the court.

While holding various types of assets can prove to be tricky in calculating the estate tax (even for estate lawyers) this helpful guide can serve as a starting point for estate representatives to consider which assets need to be ascertained, whether they need to pay the estate tax or not, and if they need to engage the services of an experienced estates lawyer. In part two of this series, we will move on to how to maximize tax savings.

Decision highlights major difference between B.C., Ontario estate laws

Decision highlights major difference between B.C.,

Ontario estate laws

On April 7, 2021, the British Columbia case of Jung v.  Poole Estate  2021 BCSC 623  was released. In  this decision, the testator who had disinherited his daughters in his last will and testament, had his will varied by the court which resulted in the adult daughters being awarded 70 per cent of his estate .

As wills, trusts and estates practitioners it is interesting to see the different approaches in succession law from other jurisdictions. It is unlikely that the same decision would have been reached in Ontario as finality and testamentary freedom are key aspects of Ontario's succession laws.

Wills, Estates and Succession Act, s. 60

Section 60 of B.C.'s Wills, Estates and Succession Act (WESA) gives the court discretion to vary a will if the court believes it to be adequate, just and equitable to do so if the court is of the opinion that the will does not provide proper support for the testator's spouse and/or children:

Despite any law or enactment to the contrary, if a will-maker dies leaving a will that does not, in the court's opinion, make adequate  provision  for the proper maintenance and support of the will-maker's  spouse or children, the court may, in a proceeding by or on behalf of the spouse or children, order that the provision that it  thinks adequate,  just and equitable in the circumstances be made out of the will.

Section 60 was applied in Jung v. Poole Estate. The testator fathered twin daughters that he did not want. The mother took full custody of the twins from birth until they were 4 years old - when she passed away. The mother's will stipulated that a couple that she was close friends with should become the daughters' guardians. A custody battle ensued, and custody was awarded to the couple, but the testator was given a generous amount of parenting time.

After the order for custody was made, the testator "dropped out of the twins' lives and disappeared ." The testator was never prevented by the couple from seeing the twins, nor did he provide any financial  assistance.  The testator  never  made  an effort  to reach  out  to  the twins, even though he had the couple's contact information . The twins  could not  reach  out  to  him  as the testator never  provided  the  couple  with  his contact  information.  The twins  were  34  years  old when the testator died.

Rules and case law

 For Ontario estates litigators, the rules and case law that the court relied on in Jung may shock you.

The court asked if the testator owed a moral obligation to the twins to provide for them in his last will and if so, what provision would the court consider adequate, just, and equitable for the twins in the circumstances to be paid out of the testator's estate. This is where the two jurisdictions start to differ. In terms of varying a will with these facts at hand, the closest that Ontario's Succession Law Reform Act comes to this, is a dependant support claim which would likely have failed here. Ontario allows for more testamentary freedom and as such, does not have a section like s. 60 where an applicant can rely on moral obligation to further their case.

The court in Jung relied on the Supreme Court of Canada case of Tataryn v. Tataryn Estate [1994] 2 S.C.R. 807 for its principles to guide it on its determination of any moral obligations. The test for determining what is "adequate, just and equitable" is grounded in "society's reasonable expectations of what a judicious person would do in the circumstances, by reference to contemporary community standards." [emphasis added] "Only where the testator has chosen an option which falls below his or her obligations as defined by reference to legal and moral norms, should the court make an order which achieves the justice the testator failed to achieve." Societal expectations may allow a court to vary a will, which gives British Columbia courts more power to vary wills than in Ontario.

The court cited McBride v. Voth 2010 BCSC 443 (at paras. 129-142), which sets out six factors for s. 60 of the WESA. The court relied on the two factors of estrangement/neglect and the testator's reasons for disinheritance. The factor of estrangement and neglect asked if it was the testator's fault that he and the twins were estranged, and the reasons for disinheritance asked if the reasons for disinheritance was logical based on facts and the act of disinheritance.

Conclusion of Jung

 In regards to the factor of estrangement and neglect, the court concluded that the deceased abandoned the twins from the outset and he had a strong moral obligation to attempt to make up for his desertion of them. He owed a moral obligation to them and failed to meet it during his lifetime .

In regards to the factor of testator's reasons for  disinheritance, the court concluded  that the testator's rationale for disinheriting the twins was invalid, irrational and not based on what a reasonable testator judged by contemporary community standards would or should have done. The court concluded that the testator failed in his last opportunity to behave like a judicious father and recognize his moral obligations to the twins .

The case turned on moral obligations, a B.C. principle, and the court varied the will to make adequate, just and equitable provisions for the twins. This included adding the non-estate assets (Tax Free Savings Account with a beneficiary designation) into the estate assets. The twins were each awarded 35  per cent of the  estate and this meant that  the decision  directly  went against the testator's intention to disinherit them.

Applying Jung to Spence v. BMO Trust Company

 Spence v. BMO Trust Company 2016 ONCA 196 is an Ontario Court of Appeal case that stands for testamentary freedom . You can read more about the case and its analysis in our previous article in previous article, The problem of racist wills in Ontario. Essentially,  it  is not  open to  courts to scrutinize an unambiguous and unequivocal disposition in a will, with no discriminatory conditions or stipulations.

In Spence, the father ceased communicating with his daughter during the final 11 years of his life and updated his will to exclude her because she, as a Black woman, married a white man. The daughter's claim that the will made by her father was discriminatory and undermined public policy was initially successful but overturned at the Ontario Court of Appeal, even with strong third-party extrinsic evidence.

Had a similar provision to s. 60 of the WESA been in place in Ontario, or had Spence occurred in British Columbia, applying the factors and rationale from Jung, there may have been a different outcome for this landmark Ontario case. Perhaps Jung can start the discussion on how Ontario can review and reconsider the balance Spence struck between testamentary freedom and discrimination .

British Columbia's strong belief in moral obligations directly contrasts Ontario's love of testamentary freedom. Yet both ideas are foundational to each province's understanding of succession law. Both have its positives, and both have its drawbacks. It is difficult to say if one set of laws  is better than the other. However, what is certain is the evolution of the law. B.C. and Ontario can learn from each other's succession laws and move towards justice for all.

Big changes for small estates

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

Big changes for small estates

On April 1, 2021, the estates law changes from the Smarter and Stronger Justice Act came into effect in Ontario. The result of the bill raised the limit for a small estate to $150,000 and introduced Rule 74.1 in the Rules of Civil Procedure pertaining to the administration of small estates.

This is similar to the increased limit in the Children’s Law Reform Act in instances where there is no Will or there is a Will but no trust provisions, the estate trustee can only pay $35,000 to the minors parent. Anything above that must be paid into court. The parent or guardian can then apply to be guardians of property their child. The amount was $10,000 previously.

As wills, trusts and estates practitioners it is important to note these changes to the legislation – in particular, estate administrators should be aware of the rules relating to small estates and how it affects the estates administration practice.

Small estates bond requirements

Pursuant to s. 35 of the Estates Act, there is a general requirement that requires every person to whom a grant of administration, including administration with the will annexed, shall give a bond to the judge of the court by which the grant is made. Generally, the administration bond that needs to be obtained is required to be double the amount of the assets of the estate. Pursuant to s. 36(3), an administration bond shall not be required in respect of a small estate, now up to $150,000 (unless a beneficiary is a minor or incapable).

Rule 74.1 small estates forms and procedures: What is the difference?

 The major difference of Rule 74.1 is the probate process for small estates

  • mainly the less stringent requirements to  be appointed  an estate trustee of a small Rule 74.1.02(2), states that Rule 74 continues to apply  with respect  to the  small estates except for Rules 74.04 to 74.11 and 74.14 .

The following demonstrates the requirements under Rule 74.04 in comparison to the requirements under Rule 74.1 (italic emphasis added):

Rule 74.04 Requirements for Probate Application

  • the original of the will and of every codicil; (a.l) proof of death;
  • Form 74. 6 an affidavit attesting that notice of the application, and Form 7 has been served in accordance with subrules (2) to (7);
  • if the will or a codicil is not in holograph form,
  • Form 8 an affidavit of execution of the will and of every codicil or, Form 74.10 an affidavit as to the condition of the will or codicil at the time of execution, or
  • such other evidence of due execution as the court may require;
  • Form 74.9 if the will or a codicil is in holograph form, an affidavit attesting that the handwriting and signature in the will or codicil are those of the deceased;
  • a renunciation (Form 11) from every living person who is named in the will or codicil as estate trustee who has not joined in the application and is entitled to do so;
  • if the applicant is not named as an estate trustee in the will or codicil, a consent to the applicant’s appointment (Form 74.12 or, if the application is for a certificate limited to the assets referred to in the will, Form 12.1) by persons who are entitled to share in the distribution of the estate and who together  have a majority  interest in the value of the assets of the estate at the date of death;

(g.1 ) Form 74.13.2 in the case of an application for a certificate of appointment of estate trustee with a will limited to the assets referred to in the will, a draft order granting the certificate of appointment;

  • the security required by the Estates Act; and
  • such additional or other material as the court

Small Estates Rule 74.1.03 Requirements for Probate Application

  • Form 74, 1B, a request to file an application for a small estate certificate or an amended small estate certificate form;
  • proof of death;
  • Form 74. l C, a draft small estate certificate;
  • if there is a will, the original of the will and of any codicils, together with the following evidence of due execution of the will and each codicil, similar to the requirements in Rule 74;
  • any security required by the Estates Act, which should be nil; and
  • such additional or other material as the court

Small estates have a less formal notice equivalent under Rule 74.1.03(3) that requires the applicant to send a copy of the application for a small estate certificate, any attachments and copies of the wills or codicils to the beneficiaries. It acts very similar to a Notice of Application for estates over $150,000.

As the highlighted passages above indicate, there are more requirements for probate under Rule 74.04 . There are up to six less forms required under Rule 74.1 and generally, there is no security required pursuant to s. 36 of the Estates Act, in comparison to a traditional Certificate of Appointment of Estate Trustee. Forms require time and time is money.

Comparison of forms 

The small estate forms themselves are newer and easier for an administrator of a small estate to complete.

On an analysis of the Small Estate Certificate Form (Form 74. lA) in comparison to the Certificate of Appointment of Estate Trustee Form (Form 74.4) as downloaded from the Ontario Court forms website, at first glance, there are colour indicators in Form 74. lA that easily guide an administrator on where to fill in the forms as compared to the monochromatic Form 74.4. The spacing and larger text in Form 74. lA is placed in a way where it is more intuitive and user friendly than Form 74.4.

In terms of guiding  language, the small estate form is clearer than its “traditional”  counterpart,  and as a snippet, the Personal Property section of Form 74. lA has a more in-depth definition of Personal Property as compared to Form 74.4 .

One interesting note from Form 74. lA, is that this form asks for the beneficiaries to be listed, whereas in 74.4, the beneficiaries are to be provided in another court form.

Who benefits?

According to Attorney General Doug Downey, raising the small estate limit was a part of the changes made “to ease the burden on grieving loved ones and ensure fairness for everyone regardless of the size of an estate, the government is making the process to claim a small estate faster, easier and less costly for Ontarians.”

Overall, the new changes make it easier for administrators of any estate under $150,000.

As some administrators may utilize legal counsel for the administration of their estate, having a process where there are potentially six less legal documents to complete, and a process that requires less correspondence with other parties will drastically help small estates by reducing time and legal fees paid from the small estates.

For the administrators who wish to administer a small estate by themselves, the new process is more simplified. Overall, it is faster, easier, and less costly in comparison to the process for estates over $150,000.

Do changes ensure fairness for everyone regardless of size of an estate?

For there to be winners, there must be losers borne from these changes . In terms of fairness for everyone, regardless of the size of the estate, it is puzzling how the line was arbitrarily drawn at $150,000.

What happens to the still relatively modest estates valued between $150,000 to $200,000? Should there be a system in place that is less onerous and less expensive than obtaining an administrative bond to compel an administrator to fulfil their duties?

The changes are a good start, but there are still questions that need to be answered.

Bill 245 and predatory marriages in estate law

Bill 245 and predatory marriages in estate law

On March 2, 2021, Bill 245, the Accelerating Access  to  Justice  Act, passed  its  second  reading  in the Ontario legislature. There remains to be a third reading before the Act can receive royal assent, but from reading the Hansard debates, it is optimistic that Bill 245 will become law.

As wills, trusts and estates practitioners it is important to note these changes to the legislation – in particular, the change in legislation regarding wills and the marital status of the testator.

Marital status and the SLRA

Schedule 9 of Bill 245 has proposed amendments to the Succession Law Reform Act (SLRA).

The following are the proposed changes to be made to the sections in the SLRA relating to marital status:

  • It is proposed that 16, where a will is revoked by the marriage of the testator, is repealed.
  • An addition is proposed for 17 to add other instances  where  a  testator’s will shall be construed  as if  the  former  spouse had predeceased  the testator. Most notably, the proposal  for  s.  17  is to  include  spousal separation between married spouses to be construed as if the spouse had predeceased the testat or.
  • Following the theme of separation, the proposed addition of 43. 1 adds that intestacy rules do not apply in respect of any or all property if the person and the spouse are separated at the time of the person’s death.

The changes reflect the name of the bill as accessibility to justice is accelerated through the proposed amendments. This accessibility to justice is most notable in the proposed s. 16 revocation .

How changes promote accelerated access to justice

 Current Section 16:

Revocation by marriage 16 A will is revoked by the marriage of the testator except where,

  • there is a declaration in the will that it is made in contemplation of the marriage;
  • the spouse of the testator elects to take under the will, by an instrument in writing signed by the spouse and filed within one year after the testator’s death in the office of the Estate Registrar for Ontario; or
  • the will is made in exercise of a power of appointment of property which would not in default of the appointment pass to the heir, executor or administrator of the testator or to the persons entitled to the estate of the testator if he or she died intest ate .

As some estate litigation practitioners may have experienced, an unfortunate situation can occur

when an elderly testator marries a significantly younger spouse. Unless there was a declaration in contemplation of marriage, the elderly testator’s previous will is revoked, leaving the beneficiaries a difficult journey to regain their inheritance, and almost always at a cost. Unless a new will is created, the new younger spouse jumps to the front of the line and if a new will is actually created, it may be the case that the new will is borne from coercion or undue influence. This was the case in Banton v. Banton [1998] O.J. No. 3528.

Problems with current law as in Banton v. Banton

Banton is a classic example of predatory marriage. In Banton, 88-year-old George Banton met a 31- year-old woman named Muna Yassin, and they had”… formed a friendship, which quickly developed into a close attachment … .” After surgery for one of his many physical ailments, Banton’s doctor assessed and issued a Certificate of I ncompetence. Shortly after the declaration of incompetence, Banton, with Yassin, withdrew $10,000 from his bank account and attempted to cash more of his cheques.

When his children discovered the withdrawal and attempted withdrawals, they, as Banton’s attorneys for property, put everything  in a trust to protect his assets. The trust was created similar to Banton’s will executed in 1991. After the withdrawals were stopped, Yassin married Banton and he made a will that left everything to her.

Based on the evidence, the court found Banton’s will that left everything to Yassin to be invalid because he was incapable and it was procured through undue influence. Unfortunately for the children, the court found that the marriage was valid.

Predatory marriages

A problem with respect to capacity  is the  lower standard  required  for the  capacity  to  marry  as compared to the capacity to make a will or appoint a power  of attorney.  The act of marriage  may  be simple to understand and carry a lower bar for capacity (although when is love ever that simple), but there are still consequences to  marriage  that invoke  financial  repercussions  in  some  instances,  as seen above.

For individuals with less time – such as the elderly – marriage is extremely problematic as marriage more than likely revokes a will. For people with more time in their lives to  make a new  will, this is not as big of a problem as compared to older individuals (but everyone should endeavour to have a will

– see our previous article: Estate COVID problems part two: The importance of a will).

It is because of the revocation in s. 16 that makes the elderly extremely vulnerable to predatory marriages due to factors that include, but are not  limited to,  the deterioration  of the mind and body and loneliness . The elderly become likely targets  for  parasites  that  need to  only  come into a  senior’s life for a short period of time to steal a large amount of money from rightful beneficiaries. Yassin was married to Banton for just over a year and a half.

Why the new law is better than status quo

If the revocation by marriage is repealed, then the Banton estate would not have lost money to a predatory marriage. They would have been successful in the will challenge, and Banton would not have died intestate. He would have died subject to his true testamentary intention as in his previous will where he was capable. His five children and 18 grandchildren would not have given up a part of their inheritance to an outsider.

From the Hansard, MPP Robert Bailey addressed the floor and advocated for Bill 245. He stated the bill’s intent to combat predatory marriages through the s. 16 amendment “the proposed changes in Bill 245 that will benefit seniors who may enter predatory marriages.”

This amendment may not rid Ontario of predatory marriages, but it is a good place to start .

Estate COVID problems part two: The importance of a will

Estate COVID problems part two: The importance of a will

A common  theme executors  and loved ones are faced with is when their loved one dies without a will, also called dying intestate. In the first article in this series we wrote regarding the intestate succession process when a person dies without a will. Many issues arise when one dies intestate and family members may find themselves in litigation.

As of today, COVID-19 has killed over 2.35 million people worldwide. In these unprecedented times, it is imperative to consider estate planning so loved ones are left with a clear plan as to the administration of an estate and can take advantage of any tax savings. A will is a crucial aspect of estate planning.

COVID-19: Remote execution of will

Prior to the COVID-19 pandemic, a testator was required to have their will witnessed in the physical presence of two people. The government of Ontario responded to the COVID-19 pandemic with the regulation for Signatures in Wills and Powers of Att orn ey. This regulation allowed for the use of videoconferencing for witnessing and allowed for signatures to be signed in counterpart .

It is important to note that virtual  witnessing  is only  permitted  for a specific time period, which has been extended numerous times. Currently, the use of virtual witnessing has been extended to March 21, 2021 and it will likely be made permanent with the new legislation brought by the Attorney General, Doug Downey.

Affidavit of Execution

The Affidavit of Execution of Will or Codicil Form 74. 08 has also been amended effective Jan. 1, 2021. Here is the new form.

Advantages of a will: Estate trustee appointed

The advantage of drafting a will, other than having a clear roadmap of how assets should be handled and distributed, is the appointment of an estate trustee. In fact, the will itself (considered a ” living document “) bestows the power to the estate trustee to administer the estate.

Is probate required? 

It is a misconception that probate (applying for a Certificate of Appointment of Estate Trustee)  is always required. There are many scenarios where probate becomes necessary, for example, to deal with real property (depending on how title is held). Another example is when a person dies without a will, and therefore, there is no document giving them the authority to administer the estate.

Depending on the scenario, probate may not be necessary to administer an estate. There is a notable savings in both legal fees and the Estate Administration Tax (EAT) if probate is not needed.

If  an estate trustee decides to  apply for probate (with or without a will), they  will be required to pay an EAT which is 1.5  per cent of the value of the estate (defined as “all assets owned by the estate”). It is calculated as $15 for every $1,000 of the value of the estate for estates over $50,000.

As of Jan. 1, 2020, there is no EAT for estates valued at less than $50,000.

Exceptions: Primary/secondary will

 There are a few exceptions to the EAT encompassing the value of the estate –   which is when having an estate planner is an asset. As per the government website: “If the deceased had multiple wills and the court issues  a Certificate  of Appointment  of Estate Trustee  with a  Will Limited  to  the  Assets Referred to in the Will, only assets included in that specific will can be included in the value of the  estate .”

There are instances when a person dies  with  more than one  will, known as a  primary  and secondary will. This is done  so that the primary  will may  be probated  (and taxes paid on these  assets)  whereas the secondary will is not probated (taxes are not paid on these assets).

This is usually done when there is a large estate and certain assets require probate to be dealt with upon death, such as real property, and others do not require probate but require direction as to who should inherit them, such as artwork, vehicles, Royal Daulton collectibles.

Not taxed: Real property outside Ontario

 There are assets that are not subject to EAT such as: real properties outside Ontario, a beneficiary designation in a life insurance policy, RRIF, RRSP, TFSA (this is because it passes outside of the estate) and debts owed by the deceased.

This is a general overview of some key takeaways regarding the importance of an estate plan and the benefits of a will. These issues are even more important during COVID-19 and individuals may wish to take advantage of virtual options while they last.

There are some certainties in life and, while no one likes to think about them, they remain: death and taxes.

This is the second of a two-part series.

PART 2: Gap in the law: Exposure to your ex even when you have a will

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

Gap in the law: Exposure to your ex even when you have a will

In part one of this series we discussed the significant and often unexpected problems that can arise when a separated spouse dies without a will. We noted how such discussions are important given the significant proportion  of  Ontarians who simply have not executed a will.

In part two, we would like to talk about another “cohort” of separated Ontarian spouses – those who have a will but have yet to update their estate plan following separation. As you can imagine, this situation, too, is one that can produce unintended and frankly messy results if such   spouses were to die while separated.

The period of spousal separation is a difficult one for innumerable reasons

  • emotional, familial, financial and legal (to mention just a few). What’s more is that separated spouses become stressfully encumbered with the discussions and responsibilities surrounding the agreement to separate and the effect this will have on their lives, families and assets. Suffice it to say that ideas about “What will happen when I die?” are not always high  on the mind in such tough circumstances.

And yet, the effects of dying during a period of separation without having updated your estate plan can create immense and unintended problems.

Many Canadians assume that the act of separation in itself triggers legal changes to their will and estate plan. This is incorrect. In Ontario, the Succession Law Reform Act (SLRA) automatically revokes gifts in a will to former spouses upon a subsequent divorce, and such former spouses are deemed to have predeceased the testator who made the will. But, again, they apply to married couples who have formally divorced , and not separated spouses. A couple choosing to separate is distinct from the obtaining of a formal divorce and will have no impact on your will .

Notably, any gifts in your will to married-but-separated spouses or to former common law spouses remain valid after separation.

Generally, such gifts can only be revoked: by executing a new will removing the gi ; by executing a separation agreement which clearly and cogently addresses rights regarding  each other’s estates;  or the obtaining  of a final divorce. Of these options, the most effective (and very likely the quickest) way to prevent your separated spouse from taking under your now outdated will is to make a new one.

What to do

You can change your will really at any time following separation – you do not have to wait for a separation agreement to be executed and/or for property claims by your former spouse to be finally resolved.

That said, updating your will to remove your spouse may not completely disentitle him/her from making claims against your estate upon your death. You should be aware that:

  • In Ontario, your separated spouse may continue to have a claim against your estate if you have not yet come to a settlement regarding your family property. If you are still technically married to your spouse upon death, he/she may, for instance, make an equalization claim against your estate under the Family Law Act. Generally, this would entitle him/her to receive from your estate as if you had been divorced immediately prior to your death by using the net family property calculation, which generally aims to give the surviving spouse one-half of the “value of the marri ag e.”
  • If your updated will leaves your estate to beneficiaries other than your spouse, your spouse may still have a claim against your estate for any amount owing under an executed family property settlement, such as any divorce orders, separation agreements and other related agreements affecting property rights/claims (including claims for unpaid child/spousal support). In this case, your spouse effectively becomes a creditor of your estate, and any amounts remaining after the family property claim has been paid can then be paid out to estate
  • Separate from and/or in addition to the above, note as well that if your spouse is still financially dependent upon you at the time of your death, then under the SLRA, they may be entitled to bring a court application for a claim as a “dependant” by making a dependant’s support claim. Ontario law recognizes that you may continue to have financial responsibilities vis-a-vis your “dependents,” which can include spouses and former spouses not provided for (adequately or at all) in your will. Note that there exist clawback  provisions at s. 72 of the  SLRA to satisfy claims for dependant support, meaning that, suddenly, assets that had previously fallen “outside” of a deceased’s estate – like a life insurance policy –  may be “clawed back” for the purposes of support .

So, while it is critical to update your will upon separation, such an action does not “wash your hands” of existing or future (court-ordered) obligations  found to be owing to  your spouse after you have   died. These potential obligations should be discussed with your estate planners so that you may be better informed about how to plan for them (e.g. through such things as insurance products which  may be available to cover such obligations).

Of course, your will is but one component of your entire estate plan, which may likely include, among other things, beneficiary designations (e.g. RRSPs, TFSAs, life insurance), jointly held property with embedded rights of survivorship, powers of attorney and family trusts.

As with your will, the act of separation has no automatic legal effect upon how these other significant components of your estate plan are structured/designated, and separation agreements and family property settlements tend to deal  with some, but  not  all, of these  will substitutes. They  therefore also require immediate and individual consideration from you and your estate planner.

In many cases, addressing other components of your estate plan is just as critical as updating your will.

To provide one example, in study and in practice, we have come across too many unfortunate cases  in which someone dies with several beneficiary  designations still in favour of his/her separated spouse. Generally, court cases on point have consistently held that these existing designations will mean that the subject accounts/policies will pass to the separated  spouse –  something that is likely not in line with the deceased’s intentions . Even if you have signed a separation agreement that is intended as a full release of any and all claims that either spouse has against the other, as it may not contemplate or otherwise may not be enough to deny your spouse proceeds of an account/policy for which he/she is the designated beneficiary.

If you are going through a period of spousal separation – and this pandemic has unfortunately been host to an uptick of such relationship breakdowns –  it  is important to consider the meaning and effects of separation in the context of your estate plan. Separation is an especially tricky time, and  you and your family law lawyer should always work with an estate planner during this time to ensure your intentions are fully met – in life and in death.

This is part two of a two-part series.

Part 1: Gap in the Law: Exposure to your Ex when you Don’t have a Will

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

Gap in the Law: Exposure to your Ex when you Don’t have a Will

The pandemic has put relationships to the test – and not all seems to be passing. Spousal separations are expected to increase, with a likely spike in divorces when things get back to “normal”. What most may not realize is that between the time when couples say “its complicated” to the time they divorce, their spouses are still entitled to substantial portions of their property on death if they do not prepare a will.

Now that we are reflecting on our mortality (and if you’re reading this, perhaps your relationships), we must look at how we may be able to protect our assets in that thorny stage between separation and divorce, if we were to die. This is especially important to discuss when it is also recalled that, quite unfortunately, most Canadians either do not have an executed will, or have not updated their existing will in light of new life circumstances.

Separation and Intestacy

Many Ontarian spouses considering or in the midst of a separation may be surprised to learn that such separation has no legal impact for the purposes of Ontario’s intestacy rules as outlined in the Succession Law Reform Act (SLRA). The SLRA defines a spouse as “either of two persons who… are married to each other”, and does not contain any provisions which contemplate separate treatment for spouses who are still married but living in separation. This is significant when it is kept in mind that, per Canada’s Divorce Act, spouses are generally granted a formal divorce after at least one year of separation. In effect, this means that, during this sizable period of time, separated spouses are given no special treatment under the SLRA.

As a result, if one of the spouses were to die without a will during separation, the surviving spouse retains significant entitlements to the deceased spouse’s estate. When an individual dies without a will in Ontario, the surviving spouse is entitled to the first $200,000 of the value of the deceased’s estate (this is called the spouse’s “preferential share”). Beyond the preferential share, the surviving spouse is also potential entitled to a “distributive share” of the remainder of the estate, if any. This amount varies depending on the number of children or remoter issue who have survived the deceased. Generally, though:

  • If the deceased had no descendants, the surviving spouse receives the remainder of the estate absolutely. 
  • If the deceased had one child (or descendents of a deceased child), one-half of the remainder of the estate will go to the surviving spouse, and the other half will go to the child (or the descendents, as the case may be).
  • If the deceased had more than one child (or descendents of deceased children), one-third of the remainder of the estate will go to the surviving spouse, and two-thirds will be divided between / among the deceased’s children (or their descendants if a given child is deceased, as the case may be).

The intestacy rule in the SLRA are both well meaning and much needed. They are there to provide Ontarians with a “statutory will” for situations – of which there are unfortunately many – where one dies without a will, or where a valid will does not include provisions regarding the distribution of the residue of the deceased’s estate (“partial intestacy”). While the rules apply a one-size-fits-all approach, it is reasonable for the legislature to provide significant entitlements to surviving spouse in this way, as this is roughly in line with how a deceased spouse would have preferred and indeed desired to provide for the person to whom they have been happily married.

However, these preferences or desires do not hold so well in situations of separation, where spouses may be likely to want more substantial portions of their estate to be distributed to other parties. In such circumstances, the one-size-fits-all intestacy rules can significantly undermine whatever the deceased spouse’s intentions may have been and increase the likelihood of estate litigation among actual or potential beneficiaries.

What to do?

In light of the above, the most obvious step for a separated spouse to take is to execute a will outlining their specific intentions regarding the distribution of their estate. However, the unfortunate reality is often that a spouse may die during a period of separation before they have had the opportunity to take this step. Situations like this may have indeed arisen during the COVID-19 pandemic.

Another step – and one which is very common – is for spouses to execute a separation agreement in which they release or vary their entitlements to one another’s estate. While this seems straightforward, and while courts tend to construe such provisions narrowly and accept them as valid releases only when they are “clear and ambiguous.” it somewhat goes without saying that such provisions do often lead to litigation. If you are contemplating entering a separation agreement, then, it is highly advisable that you do so in consultation with a lawyer. We have unfortunately come across too many circumstances in which separation agreements are drafted without any provisions regarding rights to a spouse’s estate upon an intestacy or include estate-related provisions which are too broad or ambiguous.

Contemplating and planning for one’s death is uncomfortable and often feels less immediate than so many other life obligations. To make matters worse, there are not enough effective and easily accessible resources for Ontarians to use to inform themselves about the importance of proper estate planning, even while they remain young. This article is meant to serve as a reminder that there are certain life situations in which these unfortunate trends can lead to great problems.

This is part one of a two-part series.

The Problem of Racist Wills in Ontario

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

The Problem of Racist Wills in Ontario

The common law affords immensely protects testamentary freedom—the ability of testators to dispose of their property upon death as they please. Indeed, the current state of Ontario law is that testators may dispose of property in their will in a given fashion for racist, xenophobic, or prejudiced reasons. This is why it is often colloquially noted that “racist wills” are possible in Ontario.

It has been several years since Ontario’s highest court reaffirmed the sanctity of testamentary freedom along the above lines in Spence v BMO Trust Company.[1] Nevertheless, in this current period of societal unrest in which many groups are seeking ways to better identify and address systemic racism, it perhaps becomes an ideal moment to re-discuss the ruling in Spence and the balance that the common law has thus far struck between testamentary freedom and discrimination. And, while the Ontario courts have so far rejected undermining the protection the common law affords to testamentary freedom in the context of private dispositions in a will, should there be legislative action in this sphere?

In Spence, the Ontario Court of Appeal (“ONCA”) delivered a strong statement in support of testamentary freedom.

The case stands for the proposition that:

 

  • It is not open to courts to scrutinize an unambiguous and unequivocal disposition in a will, with no discriminatory conditions or stipulations;
  • Even if a beneficiary (or a third party) claims that the underlying (discriminatory) motives of the testator undermine public policy; and
  • Third-party extrinsic evidence of the testator’s purportedly discriminatory motives are inadmissible in such circumstances.

 

Spence involved two key parties: the testator who is Eric Spence, and his daughter, Verolin, both of whom were black. Eric Spence had left his estate to his other daughter, Donna, and her two sons. A dispute arose when Verolin had a child with a white man. He ceased communicating with Verolin during the final 11 years of his life and also updated his will to completely exclude her.In his will, Eric specifically excluded Verolin, stating in it that “she has had no communication with me for several years and has shown no interest in me as a father.” Yet, Verolin and her father had in earlier times been quite close, while Eric and Donna had virtually no contact over many years.

Verolin brought an application urging the court to look deeper into the Spence family affairs. She argued that her exclusion from the will was for racist reasons and should therefore be void for public policy. A lifelong friend of Mr. Spence even testified that his true reason for excluding Verolin from his Estate was that the father of her son was white. Mr. Spence had apparently raged that he had no further use for Verolin and her “bastard white son”, and that he intended to exclude her from his will because of her life choice. These racist intentions were reported also by other family and friends who had knowledge of them from personal conversations with Mr. Spence. However, as the above suggests, they were not detailed in his will.

The Superior Court of Justice agreed with Verolin, finding that Mr. Spence’s reasons for disinheriting his daughter were based on clear racist principles, and that the provisions of the will offended “not only human sensibilities but also public policy”. The will was invalidated at first instance on this public-policy basis.

The case, though, was successfully appealed to the ONCA in 2016. Mr. Spence’s will of course did not contain any clauses that were expressly racist. As the will was unambiguous, the Court of Appeal held that there was no reason to consider any other, “extrinsic” evidence about Mr. Spence’s motivations. Mr. Spence’s testamentary freedom in such circumstances dictated that, when the will demonstrates clear and unambiguous intentions, these intentions should be respected during the distribution of the estate, even if their underlying motivations had been distasteful.

Practitioners in this sphere often mention that there are practical reasons why protecting testamentary freedom in this fashion can be described as necessary. For one, if arguments like Verolin’s were to succeed, estate litigation would surge because third-party extrinsic evidence about a testator’s underlying motivations would increasingly be admitted and scrutinized. Further, consider this hypothetical: What if a parent did not leave a gift … for an independent adult child because the child struggled with a drug addiction and was liable to squander his inheritance? Addiction is a mental illness and therefore the will may be found to be discriminatory on the basis of disability. Indeed, such situations may prove frustrating to testators and could constrain testamentary freedom in awkward ways.

Legislative action or investigation in this area would help to spur further advancements in Ontario’s ongoing battle to better identify and address systemic racism. A major reason why testamentary freedom is so assiduously protected in the courts is because of the centrality of property ownership in our society. We view the freedom to use and dispose of our property as a core fundament of our liberal democracy. And yet, maybe this is what makes legislative change in this area so desirable to consider.

If inroads could be made in this area so that such things as “racist wills” received less legal protection, then it could introduce major changes in the ways that property owners dispose of their property. In other words, introducing progressive improvements or recalibrations to some of the core foundations of our society, while difficult, may be a means of introducing the most impactful change.

In this current period, where we find ourselves as keen as ever to identify the various ways in which systemic racism is caused and perpetuated in our society, perhaps it is high time for our legislatures to review and reconsider the balance Spence struck between testamentary freedom and discrimination.

[1] 2016 ONCA 196 [Spence].

[2] Robin Spurr, “Spence v. BMO Trust Company: the case of the racist father”, Estate Litigation Blog (February 27, 2015).