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).

Capacity for a Will: The Banks Test

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

By Kimberly Gale and Matt McEnery

The test for testamentary capacity was established in Banks v. Goodfellow L.R., [1870] C.C.S. NO. 69, and has survived until the present day. While the case has endured as the benchmark of testamentary capacity,  much  due to the judicial foresight of Chief Justice Alexander James Edmund Cockburn, it has not been without criticism. It is hard to imagine Justice Cockburn foreseeing the depth of medical research into diseases such as Alzheimer’s, which we now rely upon in the present day, but the considerations he included in  his test remain.

The practitioner will inevitably be faced with clients whose capacity will be in question and a thorough reading of this case is important while considering instruction. With that said, a concise capacity checklist based on the case should be well versed in every practitioner’s mind.

Prior to Banks, under English statute, all testators were required to be of sound mind and the courts would interpret as such. Banks changed this interpretation that capacity could not be an automatic assumption from a diagnosis. Justice Cockburn formulated his test not on the fact that an assumption was “diagnosis-bound” but that no assumption would be based on a diagnosis.

While Mr. Banks had frequented the “country lunatics asylum,” he had managed his financial affairs carefully and shown himself to be capable in his business dealings. After the passing of his sister, he had changed his will in favour of the daughter of his deceased sister, which the court deemed as a rational change. The court will always try and respect the testator’s wishes.

Checklist

As stated in Banks:

  1. The testator understands the nature of making a will and its effects;
  2. The testator understands the extend of the property bring disposed of;
  3. The testator understands the nature of the act and its effects;
  4. The testator appreciated the claims to which he or she ought to give full effect;
  5. No delusion influences his or her will in disposing of property and brings about a disposal of which, if the mind is sound, would not have been

 

Evidently, the ability to provide instruction for a will is not enough. The testator must understand what they are saying while giving instructions. If a practitioner feels uncomfortable with instructions, it is best to immediately stop work and carefully note all the issues or request a capacity assessment.

While a capacity assessment is persuasive evidence, it is not always determinative. In the British Columbia’s Supreme Court 2002 decision Fuller Estate v. Flurry 2002 BCSC 1703, the testator had   a falling out with his children and went to a lawyer to change his will and disinherit them. The solicitor was concerned over this radical change and asked the testator to seek a medical opinion      as to his capacity. The testator obtained this medical evidence and a new will was made.

The court decided that his delusions were not easily recognized and despite his medical record, the will was invalid due to his delusions. Evidently, a doctor’s note is not the only piece of evidence the court will consider when determining capacity of a testator.

In Sweetnam v. Williamson Estate 2017 ONCA 991 the testator, who was suffering from terminal illness, made two separate wills on separate dates leaving different portions of his estate.

Applying the test from Banks and following the leading jurisprudence, the Ontario Court of Appeal found that the trial judge had been correct in finding that the testator lacked capacity.

It can be argued that Banks should be updated to address the modern complexities of medical science pertaining to capacity. For example, Justice Cockburn’s test could not have envisioned the medical difference between dementia and Alzheimer’s disease and was more narrowly focused on psychosis.

However, it appears that Banks remains the test for capacity which takes a holistic approach as medical evidence, if available, is not the only evidence that will be relied upon.

 

Pour Over Clauses: Why You Should Care

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

By Kimberly Gale and Aradhna Mahajan

A clause that is valid in some U.S. jurisdictions is being disputed in Canada as seen in the recent decision

Quinn Estate 2018 BCSC 365

This case discusses pour-over clauses in a will. A pour-over clause makes a gift under a will to an existing trust. The terms of that trust is not defined in the will. While in several the U.S. states the pour-over clauses have been held to be valid, case law in Canada suggests otherwise.

In this case, former NHL coach Pat Quinn passed away. Quinn was a Canadian and American citizen and his wife, Sandra Quinn, held a U.S green card and was a Canadian citizen. Pat and Sandra lived in British Columbia and the value of his estate was either nil or $750,000. His will was prepared by a U.S. attorney, executed in British Columbia, and stated that the residue of his estate would pour-over into the Quinn Family Trust. The Quinn Family Trust was settled prior to his execution of the will and could be amended and was revocable.

Issues with Pour-Over Clauses

The case Kellogg Estate 2013 BCSC 2292, summarizes issues with the pour-over clauses. In this case, the will was to “pour over” into a trust which was amended after the will was executed. The amendment removed one of the primary beneficiaries of the trust. Justice Victoria Gray held that a gift cannot “pour over” on terms which did not exist at the time the will was executed (para. 70) and that a pour-over clause to a revocable, amendable, inter vivos trust is to be invalid.

In Quinn Estate, Justice Gordon Funt held that assets could not “pour- over” into a trust that could be revoked or amended because this violates the testamentary compliance rules provided in B.C.’s Wills, Estate and Succession Act (WESA). The definition of a will is testamentary disposition (s. 1 of the WESA) and the possible use of a revocable or amenable trust creates “uncertainty the Legislature sought to avoid” (Para 49).

The court pondered whether s. 58 of WESA, which allows the court to cure deficiencies in a will, can save the pour-over clause.

Can the clause be saved?

According to Justice Funt, the answer was no. The pour-over clause was invalid and could not be cured by s.58. The residue of the estate was to be distributed on intestacy.

The policy reason behind s. 58 was to enable the court to step in where there is “formal invalidity” in circumstances where a person has taken steps to a “deliberate or fixed and final intention” to dispose of his or her property. This legislation does not exist to enable the court to permit structures that circumvent the formalities all together. In this case, the pour-over clause attached to an amendable trust which was designed to be flexible and “left matters in flux” (para. 62). This arrangement made the very structure of the will inconsistent with the formal requirements of a will and could not be cured by application of s. 58.

Practitioners should be aware that pour-over trust clauses may not be valid in Canada and should not be employed without further consideration of the legal issues involved. That is not to say that estate planners must avoid pour-over clauses altogether. For example, if the Quinn Family Trust was irrevocable, there would have been more likelihood that the pour-over clause would be valid.

A will must be final and certain.

If a pour-over clause is able to defeat a testator’s wishes by having a trust whose terms can be later amended, it will be deemed invalid.

 

Aradhna Mahajan is a recent master of law graduate from University of Toronto.

Gifts: When One Sibling is Favoured

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.
By Kimberly Gale and Aradhna Mahajan

Gifts are given as a token of affection and care to a loved one and are viewed as an attractive estate planning tool. According to Black’s Law Dictionary (7th ed.), a “gift” is a voluntary and gratuitous transfer of property without seeking any direct or indirect benefits in consideration for the transfer. It is legally effective only when the donor of the gift had a donative intention, the gift was delivered to the donee and accepted by him/her.

Such gifts could be made and delivered in the donor’s lifetime (inter vivos) or made on a person’s deathbed and become effective only when the person dies (mortis causa). These gifts could also be remunerative in nature when they compensate for the services rendered to the donor.

It is important that gifts are properly planned to avoid unintended consequences after the donor’s death. Gifts in many instances can lead to family feuds or worsen the already strained relations in some families.

Take Fica v. Dmytryshyn 2018 ONSC 2034, for example.

In this case, there was a long-standing feud between two brothers Bryan Fica and Taras Demerson, their uncle Ned Dmytryshyn and their deceased mother Nadia Dmytryshyn. Nadia favoured and financially supported Taras, including in the last six months of her life when he had the power of attorney. Bryan has had no contact with his family for approximately 15 years. When he came to know about this fact, it made him jealous and resentful. He sued his younger brother Taras and uncle Ned for misappropriating funds from Nadia while they were acting as attorneys for her property and as estate trustees.

When deciding the case, Justice Paul Perell of the Ontario Superior Court took note of the fact that Bryan had no communication with his family for almost 15 years. This is compared to Taras and Uncle Ned who had a close relationship with Nadia. Taras spoke to his mother several times a week and visited her once a week. In return, Nadia was always extremely generous to Taras and continued to indulge him even after she became terminally ill.

Even though Bryan is entitled to be upset that his mother favoured the unworthy Taras, from the legal perspective Nadia was free to make her decision. Justice Perell determined in paragraph 21, that Nadia was “competent to make the decisions that she did. … Bryan may not have liked it, but this was Nadia’s prerogative and her choice.”

There were two main points that can be gleaned from this case. First, a person who is mentally competent is free to favour one child over the other. Second, a proper accounting of the estate is a duty of the estate trustees. While the facts of the case present a messy and complicated family dynamic, the law remains clear.

So, what to do instead of “Gift first and ask later”?

One important lesson we can learn from this case is to document the intention behind a gift through a Declaration of Intention or a Deed of Gift. Documenting your gifts can help ensure that the donor’s wishes are met and can avoid arguments among family members at the time of or after the actual transfer. Gift of Deed also serves as evidence to the Canada Revenue Agency that probate need not be paid where assets were passed outside an estate.

Intention and competency to make gifts is paramount. If Nadia had documented her intention to make gifts to Taras and her brother Ned in this case, it might have saved the family six years of rigorous litigation after her death.

 

Aradhna Mahajan is a recent master of law graduate from University of Toronto.