How to Properly Document a Transfer into Joint Tenancy

I have preached caution about the use of joint tenancies as an estate-planning tool to transfer wealth often from a parent to a child, or sometimes to some other relative or friend,. One of the first blog posts I wrote back in September, 2005, was entitled “Six PotentialPitfalls Parents Should Consider Before Transferring Real Estate Into a JointTenancy with Their Children.” There are in fact more than six, and I won’trepeat them all here. Instead I want to focus on how to properly document atransfer into a joint tenancy when the transfer is done as part of an estateplan.

Usually when I write about lawsuits concerning either land held in a joint tenancy, or joint bank or investment accounts, the problem is that the person who made the transfer or contributed the funds did not clearly document her intent at the time of the transfer. There is a presumption that when Mary transfers to her house into a joint tenancy with her daughter Jane for free, she does not intend to make a gift, and that Jane holds her interest on trust for Mary, and for Mary’s estate when Mary dies. This is called the presumption of resulting trust. But it is just a presumption, and there may be evidence that Mary intended to make a gift, rebutting the presumption. Disputes may arise in at least a couple of different circumstances. Mary and Jane have a falling out, Mary sues Jane for the title back, and Jane claims ownership of a half interest on the basis that Mary did intend a gift when she transferred the title. The second, and more common, kind of dispute occurs after Mary’s death. Jane claims the house by right of survivorship as the surviving joint tenant. Her brother Mark, who is also a beneficiary of Mary’s will says that Mary intended for Jane to share the house with Mark in accordance with the distribution in Mary’s will. Mark sues, claiming that Jane holds title to the house on trust for Mary’s estate.

The cases come down to a search for Mary’s actual intent. All too often in those cases that go to trial, the lawyer or notary has not documented his or her meeting with Mary very well. This is not to suggest that the majority of lawyers and notaries do a poor job documenting their files, but usually when the file is well documented, the dispute is resolved well before trial. In the case of joint accounts, lawyers are generally not involved in setting up the account, and unfortunately legal advice is sometimes given by well intentioned, but ill-informed employees of financial institutions without legal training. The only documentation is often the financial institution’s forms which do not illuminate the issue well.

Because disputes involving well-documented transfers of title into joint tenancy usually do not make it to trial, it is rare, but refreshing to see a case in which the lawyer handling the transfer did an excellent job of documenting the transaction and the transferor’s intentions.

Carvel Weaver transferred most of his financial assets into joint accounts with his cousin Vivian Storey and transferred title to his home on Hornby Island into a joint tenancy with her. He made a will in which he left his three surviving children, $5000 each, and Ms. Storey the residue of his estate.

After his death on July 24, 2014, two of his children sued to vary his will on the basis that he had not made adequate provision for them. They also made other claims in respect of his assets, including a claim that Ms. Storey holds the Hornby Island property and other assets on a resulting trust for their father’s estate. This is important because if they were successful and the assets form part of his estate, then the court may award them a share if they are successful in their wills variation claim. But if Ms. Storey is entitled to retain the assets as the surviving joint tenant, then British Columbia’s wills variation legislation does not permit the court to vary the disposition of assets that are not part of the estate, and do not pass under the will.

Ms. Storey brought an application to court to determine whether Carvel Weaver intended to make a gift of the right of survivorship of the Hornby property and other assets to her, or whether she does hold these assets on trust for his estate. In Weaver v. Weaver Estate, 2019 BCSC 132, Madam Justice Horsman held that Carvel Weaver did intend to make a gift of the right of survivorship, and that Ms. Storey does not hold the assets in trust for his estate. The key to the decision was the evidence of Carvel Weaver’s estate-planning lawyer, Andrea Rowe, and the documents she created to implement his estate plan.

Ms. Rowe met with Carvel Weaver alone to take his estate-planning instructions. He told her that he wanted to leave each of his children $5000 and the rest of his wealth to Ms. Storey. Ms. Rowe explained to him that his children could apply to vary his will. He decided to use jointures as a method for passing his wealth to Ms. Storey outside of his estate. Ms. Rowe prepared a transfer document to transfer the Hornby property into both Mr. Weaver and Ms. Storey’s names as joint tenants. Ms. Rowe registered the transfer at the Land Title Office. Fortunately for Ms. Storey, Ms. Rowe also created a number of other documents setting out the intention. These include, a Deed of Gift and Statutory Declaration, as well as a power of attorney for Ms. Storey to sign allowing Carvel Weaver to deal with the title to the Hornby property as well as a transfer of the title back to him.

I will quote from some of the documents below, but the essential nature of the plan was that on the one hand, Carvel Weaver retained control over the Horny property during his lifetime. It was clear that for as long as he lived, Ms. Storey’s interest was limited to the title, and the right of survivorship. If he wanted to take back title or sell the property, he could do so without Ms. Storey having to sign anything further. Because her interest was limited, he could change his mind. On the other hand, it was also clear that he intended to give her the right of survivorship so that if he died before her, she became the full owner of the property, and did not hold it on a resulting trust for his estate.

Madam Justice Horseman quoted parts of the Deed of Gift and Statutory Declaration in her decision. The recitals from the Deed of Gift are as follows:

1.         Carvel hereby transfers the Land to himself and Vivian as joint tenants and in so doing makes a gift of the right of survivorship but no transfer of the beneficial ownership. 

2.         Carvel will sign all further documents and instruments as may be required to effect this transfer (including a Form A Transfer and Property Transfer Tax Form). 

3.         Carvel and Vivian will sign a Power of Attorney by Vivian in favour of Carvel so that Carvel may deal with the Land, unilaterally. 

4.         Vivian will sign a Form A Transfer transferring the Land to Carvel to be held by Carvel.

5.         This Deed of Gift constitutes the legal transfer of the Land by Carvel to Carvel and Vivian as joint tenants. By signing this Deed of Gift, Vivian acknowledges the limited interest being transferred to her.

The Statutory Declaration included the following paragraphs:

3.         Prior to making this decision, I was advised about the difference between an outright gift, creating a tenancy in common, creating a joint tenancy to transfer the right of survivorship (only) and making a gift under my Will.

4.         I chose joint tenancy to grant the right of survivorship because I want Vivian to be able to deal with my Home immediately after my death and I do not want my Home to form part of my estate. Still, I do not intend to grant any present beneficial interest in my Home to Vivian (other than the right of survivorship). 

. . . .
6.         I have required, as a condition of the transfers described above, that Vivian:

a.         grant me a limited enduring Power of Attorney so that I may deal with my Home as I decide in my absolute discretion and without interference from Vivian; and

b.         enter into a Bare Trust Agreement setting out that any interest Vivian may have in the home during my lifetime, other than the right of survivorship, is held by Vivian for my benefit.

Ms. Rowe also drafted a provision for Carvel Weaver’s will, further confirming his intent that assets including his bank accounts held jointly with Ms. Storey were to pass absolutely to her, and that she would not hold her interest on trust for his estate. The provision reads:

I declare that I am aware of the legal significance of the Right of Survivorship as it pertains to joint assets. I declare that any real estate or other assets (for instance, bank accounts) which are owned jointly with Vivian are deliberately held as such so that the Right of Survivorship will apply in the event of my death so that if Vivian survives me, she will own such assets, absolutely, and not on any resulting trust for my estate.

There are two other points that I think important. The lawyer met alone with her client in this case, and the evidence indicates that she explained the documents to him. It is important for a lawyer to make sure that the instructions she receives reflect the client’s wishes, which is why it is important to meet alone when taking instructions, and that the client understands the nature and effect of the documents he is signing (even if not all of the technical language).

I still always urge caution in using joint ownership to transfer wealth on death, but when it makes sense to do so, then intent must be clearly documented. There is more than one way of doing so, but with a significant asset such as a house, this level of documentation is often required to protect the client and the estate plan.

I should note that the decision I have discussed only dealt with one aspect of the children’s claims. They have made other claims which were set for trial. It is possible that they may prevail on some other basis.  

Supreme Court of Canada Overturns B.C. Court of Appeal Decision in S.A. v. Metro Vancouver Housing Corp

The Supreme Court of Canada, in S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, overturned the decision of the British Columbia Court of Appeal, a decision I wrote about here. This case deals with the use of a discretionary trust to provide benefits for a person with disabilities without jeopardising other benefits that are means tested. These trusts are sometimes referred to as Henson Trusts, and in many provinces, including British Columbia, are an effective way of preserving the person’s provincial disability benefits.

S.A. is a person with disabilities who lives in a subsidized rental residence provided by the Metro Vancouver Housing Corporation. The Metro Vancouver Housing Corporation also provides additional rental assistance to some of its residents who meet certain criteria, including having assets below a certain amount.

S.A. is the beneficiary of a trust, created by court order varying her father’s will. She and her sister are co-trustees of the trust. The terms of the trust provide that the trustees have discretion to decide if and when to make payments to her. Although she is one of the trustees, she and her sister must make decisions unanimously. The terms of the trust do not permit her to collapse it and take the funds. Accordingly, she does not have the ability to unilaterally take money out of trust for herself.

To receive additional rent assistance, S.A. is required to provide verification of her income and assets. She disclosed to the Metro Vancouver Housing Corporation that she was the beneficiary of the trust, but declined to provide any information about the trust assets on the grounds that it was not relevant to her eligibility. Metro Vancouver Housing Corp refused to consider her application for additional rent assistance, without further disclosure.

She unsuccessfully sought a declaration from the Supreme Court of British Columbia that the discretionary trust was not an asset within the meaning of her tenancy agreement or the application for additional rent assistance. She was also unsuccessful in her appeal to the Court of Appeal.

The majority of the Supreme Court of Canada allowed her appeal and declared that she has the right to have her application for a rent subsidy considered by the Metro Vancouver Housing Corp., and that her interest in the trust is not “an asset” for the purpose of deciding her application.

The outcome turned on the majority’s interpretation of the word “asset” in the contracts between S.A. and the Metro Vancouver Housing Corp. and in particular the Assistance Application. The majority concluded that “asset” refers to something that can be used by the applicant to discharge her debts and liabilities. Because S.A. did not have the control over whether she receives any funds held in trust, the funds are not an asset for the purpose of the application. Madam Justice Côté wrote:

[48]                          For this reason, a reasonable person who interprets the Assistance Application objectively and without reference to the Asset Ceiling Policy would understand the word “assets” to mean an applicant’s property or interest(s) in property that can actually be used to discharge his or her debts and liabilities, including the monthly rent that the applicant owes to MVHC. Given the purpose of the Rental Assistance Program, there is no reason why MVHC would concern itself with a financial resource — like a contingent interest in a trust — that an applicant cannot use in order to pay his or her monthly rent.  

What are the implications of this case? On the one hand, it is important to keep in mind that the Court here considered a particular program and contract. It is possible to define “asset” differently and in a manner that includes an interest in a discretionary trust.  Madam Justice Côté expressly stated that her “reasons should not be taken to suggest that the interest of a person with disabilities in a properly constituted Henson trust can never be treated as an “asset” for any purpose whatsoever.”

On the other hand, the analysis is likely to affect how courts interpret the term “asset” in other contracts or legislation in similar circumstances unless the term is defined in a manner that clearly brings interests in discretionary trusts within the definition.

The majority’s analysis of a beneficiary’s interest in a discretionary trust is helpful, and may have implications on the interpretation of legislation, such as some of the recent British Columbia legislation and proposed legislation with vague, circuitous definitions of “beneficial owner.”

Madam Justice Côté characterized S.A.’s interest as follows:

[36]                          It is thus clear that, although the Trustees have an obligation to consider whether to make distributions out of the Trust for S.A.’s care and maintenance, they are not actually required to distribute any of the Trust’s assets either to her or for her benefit. Unlike the beneficiary of a fixed trust (i.e. a trust where the trustee has no discretion as to distributions to the beneficiaries), S.A. therefore does not have an enforceable right to receive anything unless and until the Trustees decide to exercise their discretion in her favour. 

….

[39]                          The foregoing analysis makes two things clear. First, the terms of the Trust provide the Trustees with exclusive discretion as to whether payments should be made to S.A. While the Trustees must periodically consider whether distributions should be made, they are not obliged to exercise this discretion in any particular manner. Second, the structure of the Trust prevents S.A. from terminating the Trust on her own under the rule in Saunders v. Vautier. As a result, S.A. has no enforceable right to receive any of the Trust’s income or capital: unless and until the Trustees exercise their discretion in her favour, S.A.’s interest in the Trust is akin to a mere hope that some or all of its property will be distributed to her at some point in the future. 

The majority also approval of the decision in Ontario (Director of Income Maintenance Branch of the Ministry of Community and Social Services) v. Henson (1987), 26 O.A.C. 332, aff’d (1989), 36 E.T.R. 192 (Ont. C.A.), from which the name “Henson trust” is derived.

Interest on Legacies

In British Columbia, if a legacy is not paid within one-year of the will-maker’s death, the beneficiary is entitled to interest at a rate of 5% per year from the first anniversary of the date of death. This rule applies unless the will provides that no interest is payable or provides for a different rate. In my experience, most will-makers do not address this issue in their wills.

The first year is sometimes referred to as the “executor’s year.” The notion is that an estate will be administered in about one year, but in practice estates often take longer to administer. The time is likely to be drawn-out much longer if there is litigation.

This rule was considered and explained in an Ontario case, Rivard v. Morris, 2018 ONCA 181 (CanlII). Alexander Rivard died on October 24, 2013. In his last will, he left legacies of $530,000 to each of his two daughters and his farm land to his son. His daughters unsuccessfully challenged the will. As a result of the dispute, the two daughters did not receive their legacies until October 24, 2016. They sought interest on the legacies but the Ontario Superior Court denied interest, reasoning that it was the daughter’s actions in challenging the will that caused the delay.

In allowing the daughters’ appeal, and awarding them interest, Mr. Justice Paciocco explained the rationale for the rule:

[22]      Centuries ago, Ecclesiastical courts in England developed a practice of giving personal representatives one year after the death of the deceased to wind up the estate. To this day, it is still presumed, including in Ontario, that estates will be wrapped up within the “executor’s year”: Carmen S. Thériault, Widdifield on Executors and Trustees, loose-leaf (2016-Rel. 11), 6th ed. (Toronto: Carswell, 2016), at pp. 5-6.3 to 5-6.4. This involves calling in the assets of the deceased, paying off the estate debts, and converting the remaining assets to enable bequests and legacies to be distributed according to the will, and then doing so.

[23]      For more than two centuries, the law of equity has recognized a related rule, often referred to as the “rule of convenience.” According to this related rule, described in more detail below, “where no special time is fixed for the payment of a legacy, it carries interest ... from the expiration of a year from the testator’s death”: Widdifield, at p. 5-6.3. See also: James MacKenzie, Feeney’s Canadian Law of Wills, loose-leaf (2016-Rel. 64-9), 4th ed. (Toronto: Lexis-Nexis, 2000), at p. 8.22. This rule was thoroughly reviewed in the 1997 article by Rosanne T. Rocchi and Michael W. Kerr, “Legacies: A Matter of some Interest” (1997), 16 E. & T.J. 305 (“Rocchi and Kerr”).

[24]      The “rule of convenience” can be easily explained, in my view. One of the maxims of equity is that it presumes as being done that which ought to be done. Since the beneficiaries should be enjoying the earning power of their legacies by at least the anniversary date of the testator’s death, where that enjoyment is postponed and the testator has not provided an alternative date for payment of the legacy, interest is to be paid: Hutcheon v. Mannington(1791), 1 Ves. Jr. 366, at p. 367, 30 E.R. 338 (Ch.); and Elwin v. Elwin (1803), 8 Ves. Jr. 547, at p. 557, 37 E.R. 467 (Ch.). This does not mean that the interest is itself a legacy: Foster v. Wyles, [1938] 1 Ch.  313, at p. 316. It does mean that equity takes steps to put the legatee in the position they would have been in had the legacy been distributed as the testator, not having set a different date for distribution, is presumed to have intended.

According to Mr. Justice Paciocco, the rule of convenience is not tied to the conduct of the personal representative or the beneficiaries. It applies even if it is not possible to pay the legacy within a year of death. Although he did  not rule out the possibility that a judge might have discretion to deny interest, he emphasized the importance of certainty in the application of the rule, and held that even if there is discretion, the Superior Court Judge erred in principle in tying interest to whether it was reasonable for the two daughters to expect payment within a year in this case.

With respect to the question of whether there is a discretion, Mr. Justice Paciocco wrote:

[53]      As explained, the “rule of convenience” is not predicated on the possibility of payment within the executor’s year. The “rule of convenience” applies even where payment within the executor’s year is impossible. It would involve a significant realignment of the rule, in my view, to permit courts to choose whether to pay interest based on how reasonable it is to expect the distribution of property within the executor’s year to occur.

[54]      No relevant Canadian cases supporting the discretion to deny interest have been found. No English cases doing so have been uncovered either. Re Allen, at para. 32, cites an unreported New Zealand decision, Cook v. Cook (20 April 2004), Greymouth, 2001-418-000004, that apparently recognizes a discretion to deny interest but Re Allen disapproves of Cook v Cook on the basis that the decision was made without supporting authority. After a close examination of the case law, the court in Re Allen, at para. 33, held that “unless the will provides otherwise, a legatee has a right to interest on the legacy as from the end of the executors’ year”.

[55]      The reason there may be no authority supporting a discretion to deny interest may simply be that discretion is seen to be undesirable in this context. In Re Beech, Saint v. Beech, [1920] 1 Ch. 40, at p. 44, quoted in Re Parry, Brown v. Parry, [1947] Ch. 23, at p. 47, Eve J. appears to explain why:

[A] departure from a salutary rule in matters of this kind – introducing as it does an element of uncertainty in practice and administration – can only be justified if the changed conditions on which it is founded continue at least as constant as those upon which the rule was itself framed.

[56]      Expressing the same sentiment in more modern language, certainty is critical to the simplicity and the efficacy of a rule that is most often applied, not by courts, but by personal representatives. It is one thing to identify fixed exceptions to the “rule of convenience”. It is another to leave the operation of the “rule of convenience” free floating. Doing so would undercut its function as a “rule of convenience”.

[57]      In addition, the “rule of convenience” is predicated on what a testator, presumed to know the law, is presumed to intend where they have not opted out of the rule. Denying discretion is arguably a better way of having testators, rather than executors or courts, determine how to distribute their property, including the payment of interest on legacies.

Mr. Justice Paciocco acknowledged that five percent is a high rate in this age of low inflation and investment returns, but the rate for the “rule of convenience,” was not argued in this case, and Mr. Justice Paciocco declined to adjust it. His discussion of the rate is also quite interesting, and I will quote part of it:

[83]      Initially interest amounts varied modestly over time - between 4% and 6% over three centuries - but the rates are now set by statute in England. The rates are regularly reviewed by the Lord Chancellor with the concurrence of the Treasury and are linked to the interest payable on money paid into court. Currently the rate of interest is negligible: 0.1%.

[84]      Conversely, as Rocchi and Kerr explain, at p. 312: “In Ontario, 5% appears to have been the accepted rate, but the cases do not demonstrate any suggestion that the rate is tied to an anticipated rate of return”. Not surprisingly, over the centuries there have been anomalous decisions where judges have applied different rates of interest close to that amount, but judges in these cases tend not to purport to be exercising a case by case consideration. Instead, they appear to have been attempting to define an appropriate general rate at the time: see for e.g. Re Nathanson, 1946 CanLII 104 (ON SC), [1946] O.R. 421 (H.C.).

[85]      Some Canadian cases that have applied a 5% rate appear simply to have been mimicking the English practice of the day, while others tie the rate of interest expressly or by implication to the legal interest rate provided for in s. 3 of the Interest Act, R.S.C., 1985, c. I-15: Lynch’s Estate; and MacIntyre Estate, Re (1989), 92 N.S.R. (2d) 110 (Prob. Ct.). In Merritt Estate, Smily J. commented, at para. 4, that “it is well established that [the rate of interest] should be the legal rate, which is 5%.” Section 3 of the Interest Act  provides:

Whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by the agreement or by law, the rate of interest shall be five per cent per annum.

[86]      It can be seen, then, that the 5% interest rate is not grounded in a uniform or compelling legal basis.  Moreover, a policy case can be made that courts should move away from the 5% rate. Arguably, the current practice of imposing an interest rate that is materially out of line with the market interest rate is not in keeping with the underlying purpose of the “rule of convenience” of ensuring that legatees enjoy the earning potential of a property right that has arisen where enjoyment has been delayed. Perhaps the English example should be followed of using a periodically adjusted but fixed statutory interest rate by analogy for the “rule of convenience”, such as the rates provided for in the prejudgment interest provisions, the postjudgment interest provisions or the rate set under r. 53 of the Rules of Civil Procedure for prejudgment interest on non- pecuniary damages.

[87]      This, however, is not the case for deciding whether such a change should be made. We have not been asked to readjust the rate used under the “rule of convenience,” and we have not been presented with argument on this issue. Even though a 5% interest rate may seem aggressive relative to the current prime rate, given the state of authority and the manner in which this case was presented before us, I see no reason to deviate from the established 5% rate in this case.

In the result, each of Alexander Rivard’s daughters is entitled to $53,000 in interest on her legacy, being two years at 5% per year.

Ontario Divisional Court Overturns Decision in Re Milne Estate

On January 24, 2019, the Ontario Superior Court of Justice, Divisional Court overturned the decision of the Application Judge in Re Milne Estate. The Divisional Court decision is reported at 2019 ONSC 579 (CanLII). The Application Judge’s refusal to provide Certificate of Appointment of Estate Trustee for two wills in the context of  the use of multiple wills in estate plans caused significant concern among estate-planning lawyer, particularly in Ontario, because if upheld the implication of the decision was that many estate plans would fail to achieve the goal of minimizing probate fees in respect of shares in private companies and other assets that could be dealt with without a grant of probate. The use of multiple wills is also becoming increasing popular in British Columbia.

In my previous post on the Application Judge’s decision, I described the use of multiple wills to minimize probate fees as follows:

Using two wills to minimize probate fees has been popular in Ontario for quite some time, and has grown more popular in British Columbia since the Wills, Estates and Succession Act came into effect. The idea is that the will-maker makes one will in which she deals with those of her assets that can be dealt with by her executor (or “estate trustee” in Ontario), without a grant of probate. The most common type of asset is shares and shareholder loans in closely held companies. There is then another will in which she deals with those assets, such as real estate, publicly traded shares and investment accounts for which probate will be required for the executor to deal with the assets. Both Ontario and British Columbia charge probate fees based on the size of the estate. By using a separate will for the closely held companies, there may be significant savings if the will does not need to be probated.

The Application Judge’s decision and reasoning is succinctly summarized by Associate Chief Justice Marrocco:

[1]               John Douglas Milne and Sheilah Marlyn Milne died on the same day. Each died testate having executed mirror Primary and Secondary Wills. Each Primary Will was submitted to the Ontario Superior Court along with applications for a Certificate of Appointment of Estate Trustee with a Will Limited to the Assets in the Will (“Certificate of Appointment”). 

[2]               After calling for and considering submissions by the Estate Trustees, the Application Judge, in Milne Estate (Re), 2018 ONSC 4174 (CanLII), held that both Applications should be denied on the following basis:

•        A will is a trust.
•        The “three certainties” required for a valid express trust are applicable to the wills, such that the Allocation Clause found in the Primary Wills results in uncertainty of subject-matter because each clause fails to identify the deceased’s property to which  it applies;
•        The inquisitorial jurisdiction of the Court in matters of probate allows for a declaration of invalidity to be made in such circumstances.

The wording of the clauses is as follows:

[8]               The Primary Wills read:

•        THIS IS THE PRIMARY WILL of me…with respect to the disposition of all property owned by me at the time of my death EXCEPT:
 (f) any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for the transfer or realization thereof
 as to which I am making my Secondary Will on the same date as this Primary Will. With the exception of the said Secondary Will, I revoke all previous wills.

 [9]               The Secondary Wills read:

•        THIS IS THE SECONDARY WILL of me…with respect to the disposition of all property owned by me at the time of my death INCLUDING:
 (f) any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for the transfer or realization thereof
 as to the remaining assets of my Estate I am making my Primary Will on the same date as this Secondary Will. With the exception of the said Primary Will, I revoke all previous wills.

Mr. Justice Marrocco discussed the use of two wills and the implications of the Application Judge’s decision:

[21]           The use of Primary and Secondary Wills is often used to reduce tax payable pursuant to the Estate Administration Tax Act, 1998, S.O. 1998, c. 34, to avoid the delay associated with obtaining a Certificate of Appointment or preserve privacy in respect of certain assets.

[22]           Because a testator often executes their Last Will and Testament several years in advance of death, it is often not practical to provide a definitive list of assets which will require or do not require a Certificate of Appointment to be transferred or realized at the time the Primary and Secondary Wills are executed. To overcome this practical problem, estate planning lawyers often provide estate trustees with the power to determine whether a particular asset requires a Certificate of Appointment upon administering the will. These clauses are often referred to as allocation clauses. The use of allocation clauses is a common estate planning technique. See Martin Rochwerg, Miller Thomson on Estate Planning, (Toronto: Thomson Reuters Canada, 2018), at p. 2-57. 

[23]           The position taken by the Application Judge in the Order therefore has a significant and wide-ranging adverse impact upon the use of such clauses in multiple wills, thereby affecting the estate plans of many individuals in Ontario.  For this reasons [sic], the Toronto Lawyers Association sought and was granted Intervenor status in these appeals.

It should be noted that in a subsequent decision, Re Panda Estate, 2018 ONSC 6734 (CanLII), Mr. Justice Penny did not follow the Application Judge’s decision in Re Milne Estate. I wrote about Re Panda Estate here.

The Division Court rejected the notion that a will is a trust. Mr. Justice Marrocco wrote,

[33]           The Application Judge cited no authority in support of the statement that a will is a trust.  I agree with Mr. Justice Penny that this is an error of law.

[34]           A will is an instrument by which a person disposes of property upon death. See Albert H. Oosterhoff et al., Oosterhoff on Wills, 8th ed. (Toronto: Thomson Reuters, 2016) at p. 107. There are of course formalities of execution, but they are not raised in this appeal. 

[35]           A will may contain a trust, but this is not a requirement for a valid will.

Even if a will is a trust requiring that the subject matter, or property, is certain, the primary will is sufficient certain, because it may be identified on an objective basis. As written by Mr. Justice Marrocco:

[49]           The property in the Primary Wills can be clearly identified because there is an objective basis to ascertain it; namely whether a grant of authority by a court of competent jurisdiction is required for transfer or realization of the property.  As a result, the Executors can allocate all the deceased person’s property between the Primary and Secondary Wills on an objective basis. 

[50]           The personal representatives are instructed to ascertain if a Certificate of Appointment is required in order to transfer or realize the asset (which can be done by consulting the institution concerned), and then categorize the asset in one of the wills according to that objective criterion. 

[51]           Finally, if the Executors mistakenly allocate property due to a misunderstanding concerning the necessity of obtaining a Certificate of Appointment, their error is unrelated to the description of the property that is to be the subject-matter of the trust.
[52]           Accordingly, I am satisfied that the subject-matter of the Primary Wills is certain.

In the result, the estate trustees are entitled to receive the Certificates of Appointment.

Valentyne Estate v. The Canada Life Assurance Company

Kevin Valentyne was driving his car in downtown Vancouver on January 7, 2013. His girlfriend was with him. After receiving a telephone call, he drove to a house, entered it, with his car engine running. He told his girlfriend he would be right back. He never returned.

His blood was found in the house, but not his body, which has not been found.

Mr. Valentyne’s mother petitioned the Supreme Court of British Columbia for an order declaring that he be presumed dead. The order was granted.

Mr. Valentyne had a life insurance policy with Canada Life to pay his mortgage if he died. His mother acting as the administrator of his estate applied to have the life insurance paid out. Canada Life denied coverage. She sued in the Supreme Court of British Columbia, and lost. She appealed to the British Columbia Court of Appeal.

Life insurance policies often have exclusion clauses that provide that if the insured dies while involved in crime, the insurer does not have to pay. In this case, the insurance policy provided that Canada Life would not pay the benefit if “· your death is a result of or while you were committing, a criminal offence [Emphasis in original.]”

There was evidence that Mr. Valentyne was a drug dealer and was associated with a gang. The house he entered was a known drug reload house. His mother’s lawyer conceded at trial that he was likely murdered by individuals at the behest of a rival gang. She had relied on this evidence when she applied for an order that he be presumed dead.

One of Mr. Valentyne’s mother’s grounds for appeal was based on the interpretation of the exclusion clause. Madam Justice Bennett, in Valentyne Estate v. The Canada Life Assurance Company, 2018 BCCA 484, considered the meaning of the phrase “your death is a result of or while you were committing, a criminal offence.” There are two ways a death can come within this exclusion. The exclusion may apply if the deceased died while committing an offence, and also if the deceased died as a result of a criminal offence.

Madam Justice Bennett found the first of these, dying while committing an offence to be clear. With respect to dying as a result of a criminal offence, she held that this clause must be interpreted to mean that the death was caused by the deceased’s criminal offence, in contrast to a death caused by another’s criminal offence. Otherwise, life insurance could be denied to the victim of someone else’s crime. The deceased must have perpetrated the crime for the exclusion to apply.

She quoted a leading text in explaining the distinction between the two ways that the clause may come in to play:

[30]         The distinction between dying while committing a criminal offence and dying as a result of committing a criminal offence is that the latter involves a causal connection. This is described by David Norwood and John P. Weir in Norwood on Life Insurance (Toronto: Carswell, 2002) at 462:

Causal connection would not seem to be required where the provision excludes death while committing or attempting to commit a criminal offence, but it would appear to be necessary where the exclusion is for death resulting from committing or attempting to commit such an offence. If a bank robber rushes onto a roadway in the course of making a get-away and is knocked down by a car, the causal connection would be established, but if he is casually strolling on the sidewalk away from the scene of the crime, and a brick falls on the robber’s head, it would seem that the claim for the accidental death insurance benefit may still be made.

Although, Madam Justice Bennett found that the trial judge made some errors in the scope of the exclusion clause and in admitting some of the evidence, the Court of Appeal held that there was sufficient evidence to infer that Mr. Valentyne died while committing a criminal offence. Madam Justice Bennett wrote:

[44]         Nevertheless, taking into account the evidence that was not contested and the admissions made, the inescapable inference is that Mr. Valentyne died while committing the criminal offence of possession, trafficking or possession for the purpose of trafficking illicit drugs, all of which are indictable offences. He was a known drug dealer, he went to a known drug reload house, he was affiliated with a criminal gang, and his intention was to go into the house and quickly return. The only logical inference from this circumstantial evidence is that he bought or sold drugs at that location, was murdered, and therefore died while committing a criminal offence, invoking the exclusion clause.

The Forum, Rome, Italy

It was in the public square of the Forum in Rome where Cicero argued cases. I took these photos last summer.

Panda Estate

I wrote about the Ontario decision in Re Milne Estate, in which Mr. Justice Dunphy refused to grant probate in respect of two wills on the grounds that in his view they were void for uncertainty of subject matter. A husband and wife each made two wills, one intended to deal with those assets for which an estate grant was required, and the other for which no grant would be required for the estate trustee to deal with the assets.

I described this two-will strategy to reduce probate as follows:

The idea is that the will-maker makes one will in which she deals with those of her assets that can be dealt with by her executor (or “estate trustee” in Ontario), without a grant of probate. The most common type of asset is shares and shareholder loans in closely held companies. There is then another will in which she deals with those assets, such as real estate, publicly traded shares and investment accounts for which probate will be required for the executor to deal with the assets. Both Ontario and British Columbia charge probate fees based on the size of the estate. By using a separate will for the closely held companies, there may be significant savings if the will does not need to be probated.

In my post, I was critical of the reasoning in Re Milne Estate.

In a subsequent decision, another Judge of the Ontario Superior Court of Justice declined to follow Re Milne Estate. In Re Panda Estate, 2018 ONSC 6734 (CanLII), Mr. Justice Penny granted a Certificate of Appointment of Estate Trustee in respect of one of two wills. In Panda Estate, the will-maker had made two wills: a primary and a secondary will. The Secondary Will defined the secondary estate to include shares in two companies, and “any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction in not required for the transfer, disposition or realization thereof.” It also permitted the secondary estate trustee to disclaim any assets, which would then be administered pursuant to the primary will. If the reasoning in Re Milne were applied, then the primary will would be void for uncertainty of subject matter.

However, Mr. Justice Penny did not agree with the reasoning in Re Milne Estate. First, Mr. Justice Penny did not consider it appropriate to the Court sitting as a court of probate to engage in “matters of broad construction.” The functions of the court in probate and interpretation are distinct. He wrote:

[17]           It seems to me, although law and equity are now fused in the Ontario Superior Court of Justice, it remains nevertheless important to keep the probate and construction functions analytically distinct, if for no other reason than to align the scope and nature of the review being undertaken with the specific judicial function being exercised at that stage of the proceedings: Oosterhoff on Wills, 8^th ed.  The distinction is also important because the rules that govern the admissibility of evidence differ in the two courts.  A probate court may admit direct evidence of the testator’s intention when proving the will.  But, apart from limited circumstances, a court of construction does not admit such evidence: see pp. 244 - 246.

[18]           In my view, the question of the validity of the conferral of the authority to decide under which of two wills (the probated will and the non-probated will) the property of the deceased will be administered, and the effect of the answer to that question on the administration of the estate, are matters of broad construction which ought not to be dealt with in the context of an application for probate per se.

Secondly, Mr. Justice Penny did not agree with the assertion that a “will is a trust.” He wrote,

[20]           Not one of the authoritative texts on wills asserts that a will is a trust.  Not one of these texts, when setting out the criteria for a valid will, cites the necessity to satisfy the requirements for the creation of a valid trust; that is, the “three certainties.”  Rather, to establish validity for purposes of probate, a will must conform to certain formal requirements (noted above), provide for distribution or administration of property and take effect upon death.  Nor am I aware of any judicial precedent which concludes that a will is invalid because it, being a trust, failed to satisfy the three certainties.

[21]           A will is a unique instrument.  A will shares some of the attributes of a contract and some of the attributes of a trust but it is neither; a will is its own, unique creature of the law.

[22]           Wills frequently create or otherwise employ trusts, to be sure.  When they do, the three certainties will no doubt be relevant to the validity of the trust.  The invalidity of the trust element of an otherwise valid will, however, is not coequal with the invalidity of that will.

Mr. Justice Penny suggested that the real issue in these cases is whether a direction to trustees to determine whether a grant is required to deal with assets is valid. Because it was unnecessary to decide this question on the application before him, he did not rule on this issue. His comments, though, suggest that it is likely valid. He wrote:

[29]           The estates bar is not of one mind on how to draft provisions that facilitate reduction of estate administration tax by placing one set of the testator’s assets under a will intended for probate and leaving another set of assets to be administered without the need for probate.  While, as some commentators argue, detailed lists are preferable in terms of certainty, they can become problematic when certain assets take on a different form between when the wills are drafted and the testator’s death.  To deal with this problem, some suggest consideration be given to adopting language of the very kind used in this case.  This would balance the desire to maximize opportunities for reducing estate administration taxes with the desire to avoid language which is “circular” or “too vague” (such as describing non-probate assets as “those not requiring probate at the time of death”).

[30]           Where the detailed list approach is used, others recommend, to deal with the situation where an asset in the non-probate will turns out to require probate, including a clause that entitles the estate trustees of the secondary will to renounce their interest in that asset, causing it to fall into the general will with respect to which probate will be sought.

[31]           In the circumstances of this case, it is not at all clear to me that a direction from the testator about how the estate trustees should decide whether or not to seek probate in respect of two or more wills dealing with particular components of the deceased’s property, is any more extreme or “uncertain” than other, well-established discretionary choices frequently conferred on and exercised by estate trustees.  Directing the estate trustees to determine whether a grant of authority by a court of competent jurisdiction is or is not required for the transfer, disposition or realization of property, and to act on that determination in their administration of the estate, arguably provides to the estate trustees an objective, ascertainable basis for the exercise of whatever “discretion” is embedded in that conferral of authority.

In my view, the reasoning in Re Panda Estate is preferable to that in Re Milne Estate. I hope that if this issue arises in British Columbia, our courts will follow Re Panda Estate.