Sunday, November 11, 2018

Re Milne Estate

I suspect that a recent decision from the Ontario Superior Court of Justice is causing some consternation among the Ontario estate planning bar. In Re Milne Estate, 2018 ONSC 4174, the Court held that a will was void for uncertainty of subject matter and could not be admitted to probate. The effect of the decision was to frustrate a two-will estate planning strategy to minimize probate fees. In understand that the decision is under the appeal, and I would argue that the reasoning is fundamentally flawed. But it does highlight the risks of using a multiple-will strategy to reduce probate fees.

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.

In Re Milne Estate, the Court considered wills made by two spouses, John Douglas Milne, and Sheilah Marlyn Milne, who both died on October 2, 2017. Their wills are described in the reasons for judgment as follows:

[2]           In the present case, each testator created two materially identical wills. The Primary Will settled upon the executors “all property owned by me at the time of my death EXCEPT…. [certain named assets and] any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for a transfer or realization thereof” [emphasis added].  The Secondary Will, expressly not revoking the first, settled upon the executors “all property owned by me at the time of my death INCLUDING … [certain named assets and] 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”. 

After their deaths, the Primary Wills, the ones dealing with assets for which probate would be required, were submitted for probate.

The Court determined that in each case the Secondary Will is valid, and the Primary Will is invalid.

The Court’s reasoning is based on the proposition that a “will is a from of a trust.” No authority is cited, and I have never read or heard that before. A will may be used to create a trust, but I don’t think that is the same thing as saying that a will is a form of a trust.

The Court then reasons that trust must meet the three certainties of intention, subject matter, and objects. In this case, the Court found that the primary wills were void for uncertainty of subject matter. As set out in paragraphs 21 through 23:

[21]        The Estate Trustees urge me to find that there is no uncertainty arising from clause (f) of each of the Primary Wills because the “excluded assets are sufficiently defined in the Primary Will to permit their identification by the Estate Trustees”. They submit that there is no discretion of the Estate Trustees involved because they must determine which assets do not require a Certificate and “[t]hose assets are then not governed by the Primary Wills”.
[22]        The three certainties necessary for a valid trust must be satisfied at the time the trust is created – in this case, at the time of death. It is not enough to say that the assets subject to the trust will be determined later and will then be governed by one will or the other. There is no requirement to probate a will. Whether the trustees decide that a Certificate is necessary or desirable to dispose of a particular asset is a matter of their discretion and is not ascertainable by objective criteria ascertainable in advance. Bank X may decide not to accept anything less than a Certificate in order to authorize the Estate Trustees to deal with a bank account of the deceased, for example, while Bank Y may be satisfied with a certified copy of the will appointing them. 
[23]        The Estate Trustees in this case urge me to find valid a will that confers upon them the discretion to determine retroactively whether any particular assets are included in it. Inclusion of all assets in a trust subject to the power to exclude all of them – as has been attempted here – is no different than conferring the power upon the Estate Trustees to determine which if any assets will be subject to the trust. The testator must settle upon the Estate Trustees assets that are specifically identified or are objectively identifiable by reference to the intention of the testator and not the subsequent decision of the Estate Trustees.
I don’t take issue with the assertion that the subject matter of a trust must be certain as at the time of the trust’s creation. However, it does not follow that the assets must be known at the date of death. They must be ascertainable by objective criteria, but that is not the same thing as saying that the assets must be ascertained on death. An executor must often investigate to determine what assets are part of an estate. In this case the estate trustees might not immediately know if an asset fell under the primary will, but it is still ascertainable.

Nor do I agree that conferring a power of appointment on an executor to select assets to comprise a trust renders a trust void for uncertainty of subject matter. Wills commonly contain provisions allowing an executor to allocate the specific assets among beneficiaries, which may include a portion of the estate to be held in trust. 

Most fundamentally, the Court conflated the functions of a court of probate and a court of construction, although this was brought to the Court’s attention. The Court addressed this issue as follows:

[18]        The applicants submit that I needn’t concern myself with construction of the will and that any ambiguities regarding the property subject to the will can be dealt with in due course by way of application by the executors for directions. Citing Feeney’s Canadian Law of Wills, (James MacKenzie, Feeney’s Canadian Law of Wills (Toronto: LexisNexis Canada, 2000)) and Oosterhoff on Wills (Albert J. Ooserhoff, C. David Freedman, Mitchell McInnes and Adam Parachin, Oosterhoff on Wills, 8th ed. (Toronto: Thomson Reuters Canada, 2016)), the applicants urge upon me that the probate function of the court is a separate and distinct function from the construction function. The former is concerned with the question of whether there is a will, the fact of its contents and the validity of the process of its execution. The latter concerns the interpretation of the contents of the will and the intentions of the testator with respect to his or her property.
[19]        The Court of Appeal has recently reviewed and succinctly summarized the role of the court in relation to probate proceedings in the case of Neuberger v. York2016 ONCA 191 (CanLII). The jurisdiction of the court is not simply to adjudicate a dispute between parties. The court’s role is inquisitorial and the court’s function and obligation is to ascertain and pronounce what documents constitute the testator’s last will and testament:  Neuberger at para. 68. 
[20]        It follows from this that I am both required and entitled to examine the validity of the will where questions as to same arise from an ex facie examination of the will itself or the evidence filed in support of the application for a Certificate. If the will is invalid on its face, a Certificate may not issue. In the present case, questions as to certainty of subject-matter are raised by the language of the will itself. These are questions that go to the essential validity of the will in question. Such questions, should they arise, are appropriately examined at the probate stage.

The distinct functions are well established, and I fail to see how the Neuberger decisions assist. Yes, the courts have an inquisitorial role, but they are still required to follow and apply the principles of probate law. If a will-maker has capacity, the will meets the formal signing and witnessing requirements of validity, and the will-maker acted freely, and knew and approved of the contents of the will, then the will is admitted to probate. The will might create trusts or may contain gifts that are invalid, but that does not affect the ability of the executor to obtain a grant of probate. Even if all of the gifts in a will were determined to be invalid, the executor would still be entitled to a grant. In such a case, there might seem to be little point to obtaining the grant of probate, but in some cases it would still make sense for the executor to do so in order to confirm her authority to deal with the estate.

I hope this decision will never be followed in British Columbia. But I do think it worthwhile for planners to be a bit more conservative. First, I think a two-will strategy requires a great deal of care and attention. I am concerned that the multiple-will strategy to reduce probate fees has become a bit of the flavour of the day in British Columbia, and is sometimes used when the amount involved does not warrant the complexity. Secondly, I suggest that where it is used, it would be wise to specifically identify the assets that are subject to the will that is not intended to be probated. The will that is not intended to be probated can identify the closely-held companies to which it applies, and use language to include successor companies. The other will, which will be probated, may then exclude those assets.

Tuesday, October 09, 2018

CLEBC Estate Litigation Update Course

I am going to be speaking at the Estate Litigation Update course on Friday, November 16 at the Pan Pacific Hotel in Vancouver. My topic will be on the Curing Deficiencies and Rectification section of the Wills, Estates and Succession Act. This is the second day of a two-day Wills, Estates and Trusts Conference. The first day focuses on planning issues.

Registration information and the full agenda is available at the CLEBC website here.

Sunday, August 05, 2018

Sharma v. Sharma

Prem Lata Sharma is suing her sisters Raj Rani Sharma and Simmi Sharma. She is seeking to vary their mother Rama Rani Sharma’s will, pursuant to which she was disinherited, and she is also asking the court to declare that they hold title to their mother’s house in trust for the estate. Raj Rani Sharma is both a beneficiary and also the executor of the will. Their mother had gratuitously transferred the house into a joint tenancy with them, and their position is that they received the house by right-of-survivorship. The house is worth about $1.5 million, and the other assets are worth only about $100,000. The plaintiff’s claim that her sister’s hold the house in trust for their mother’s estate is important, because if they are entitled to it by right-of-survivorship, it will not be subject to the plaintiff’s wills variation claim.

The defendant sisters applied to court to dismiss the claim that they hold the house in trust for their mother’s estate. They argued that the plaintiff was attempting to make a claim on behalf of their mother’s estate, and that she could not do so without first applying under section 151 of the Wills, Estates and Succession Act for leave from the court to make a claim on behalf of the estate. She had not done so in this case.

Section 151 (1 provides that
… a beneficiary or an intestate successor may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of the deceased person
(a)        to recover property or to enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or
(b)        to obtain damages for breach of a right, duty or obligation owed to the deceased person.
The plaintiff argued that she did not have to bring an application under section 151 for two reasons. First, she argued that she was not making a claim on behalf of the estate, but in her personal capacity for a declaration. Secondly, because she is not a beneficiary of the will nor an intestate successor (she would be only if there was not a will disposing of all of the estate), she does not have standing to apply under section 151.

In Sharma v. Sharma, 2018 BCSC 1262, Mr. Justice Punnett agreed with the plaintiff that she did not need to apply under section 151, and that she had standing to ask the court to declare that her sisters held the house in trust for their mother’s estate.

Mr. Justice Punnett noted that section 151 was enacted to overcome a gap in the law to allow beneficiaries to bring or defend a claim when the personal representative declined to do so.

Mr. Justice Punnett agreed that in this case the plaintiff could not apply under section 151. She is not a beneficiary of the will. Nor is she an intestate successor. Mr. Justice Punnett noted that the wording of section 151 refers to “intestate successor” in contrast to the notice provisions of the Supreme Court Civil Rules which refer to a person who “would have been an intestate successor if the deceased did not leave a will.” Accordingly, the language in section 151 is not broad enough to allow the plaintiff to apply pursuant to section 151.

Mr. Justice Punnett also held that the plaintiff as a person making a claim to vary the will had a sufficient interest to ask the court to declare that assets are estate assets. He cited several cases decided prior to section 151 coming into effect in which the courts had considered trust claims concurrently with will variation claims. He wrote:
[36]        In Doucette [v. McInnes 2007 BCSC 289] the court found a non-executor had standing to seek a declaration of trust alongside a will variation claim. The court noted that in Mordo v.Nitting, 2006 BCSC 1761, a Wills Variation Act action, the plaintiff was not a beneficiary and was completely excluded by the will and all of the estate passed by jointure to the deceased’s daughter. Justice Wedge permitted the plaintiff’s arguments respecting the jointures to go forward. There was no challenge to the plaintiff’s standing to advance that argument. A person then with an interest in an estate is entitled to inquire about assets that may form part of the estate. See also: Drummond v. Moore, 2012 BCSC 496 at paras. 29 to 35, Kuo v. Kuo, 2014 BCSC 519 at paras. 202-208, and Kurmis v. Zilinski, 2011 BCSC 1433 at paras. 22-24.
[37]        As a result, the plaintiff, who has an interest in the estate and its potential assets is entitled to seek declaratory relief. Were that not the case and given her lack of ability to apply under s. 151 of WESA, the plaintiff and the court would be denied access to a consideration of the assets that may properly form part of the estate.
[38]        As a result, the plaintiff is not required to obtain leave from the court pursuant to s. 151 of WESA before commencing her action.

Would the plaintiff have been required to seek leave of the court under section 151 to ask for a declaration that her sisters held title to the house in a joint tenancy if she were a beneficiary of the will? I would argue that it should not be necessary to apply under section 151 even if she were a beneficiary with standing to apply under that section. The same reasoning should apply that she would have a personal claim for declaratory relief against the personal representative and another beneficiary, in contrast to a claim against a third party. Section 151 should be applied in accordance with its remedial intent to facilitate claims on behalf of estates when the conditions of section 151 are met, and not to prohibit claims that could have been brought before section 151 came into effect. To require a beneficiary to apply under section 151 before making a claim that the personal representative holds assets in trust for the estate would be to needlessly add expense. It also results in the absurdity that the personal representative’s name will appear as both plaintiff and defendant in view of the fact that the beneficiary may “commence proceedings in the name of and on behalf of the personal representative of the deceased person….”

Saturday, July 28, 2018

Court of Appeal Upholds Decision in Sato v. Sato

In Sato v. Sato, 2018 BCCA 287, the British Columbia Court of Appeal upheld Mr. Justice Funt’s decision that Hiroyuki Rex Sato was domiciled in British Columbia when he married Makiko Sato on April 30, 2013, although he was living and working in Luxemburg at the time and had not lived in British Columbia since 1999. Mr. Sato’s domicile was significant because he had made a will before he was married in which he left most of his estate to his sisters, and if he were domiciled in Luxembourg, pursuant to that country’s law, the marriage would not have revoked the will. However, because he was domiciled in British Columbia, under British Columbia law, the will was revoked and his estate will go to his wife on the basis that he died without a valid will. I wrote about Mr. Justice Funt’s decision here.

It is worth noting that British Columbia law has now changed, and marriages on or after March 31, 2014 do not revoke wills.

It was agreed that Mr. Sato at one time was domiciled in British Columbia, where he had moved to as a child, but the question was whether he changed domiciled. To change domicile, one has to both physically move to another jurisdiction and intend to live there permanently. Mr. Justice Funt found that Mr. Sato did not have the intent to live in Luxembourg permanently, in part, on the basis that Mr. Sato had indicated he intended to retire in Canada.

Helen Sato, one of Mr. Sato’s sisters, appealed the decision, arguing that Mr. Justice Funt had placed to much emphasis on a document that Mr. Sato had signed years previously indicating that he intended to retire in Canada. She argued that Mr. Justice Funt effectively required proof that Mr. Sato intended to retire in Luxembourg to show that he was domiciled there.

In the Court of Appeal, Chief Justice Bauman rejected Helen Sato’s arguments. He wrote:
[50]         The deceased’s retirement plans were clearly a relevant consideration in the context of demonstrating his new intention to live in Luxembourg indefinitely and make it his permanent home “unless and until something (which is unexpected or the happening of which is uncertain) shall occur to induce him to adopt [some] other permanent home”: Osvath-Latkoczy at 753. The deceased’s intention to retire to Canada was an important factor in finding that his domicile of choice remained British Columbia. To prove the abandonment of that domicile in favour of Luxembourg it clearly became relevant to show a change in the deceased’s retirement plans.
[51]         It is not the case that, as a matter of law, a person must show they intend to retire where they reside to establish domicile in that place. But, if, as a fact, the person intends to retire somewhere other than where they reside, that may be sufficient to defeat the argument that they are domiciled where they reside since they do not intend to reside in that place permanently. The case at bar is an example of the latter.
[52]         Further, it was not the only factor considered by the judge. He also considered the fact that the deceased did not speak fluent French “a principal language used in Luxembourg”, the fact that the plaintiff was also Japanese, not a citizen of Luxembourg, and the fact that the deceased still had family in British Columbia (at para. 157).
[53]         In my view, the judge correctly stated the law for determining domicile and he made the necessary findings of fact to come to his conclusion based on an extensive record that he carefully reviewed (and edited as necessary based on his admissibility findings).
Chief Justice Bauman did allow Helen Sato’s appeal of the award of court costs against her. The usual rule in litigation in British Columbia is that the unsuccessful party pays court costs to the successful party. These costs usually do not fully cover the legal expenses. But in some cases, the courts will depart from that rule, where the court determines that the litigation was brought about because of the conduct of the deceased person whose estate is disputed.

In this case the Court of Appeal determined that it was appropriate to award all parties costs as special costs (which generally covers nearly all of the actual legal expenses). The Chief Justice wrote:
[56]         It is true that the modern approach to estate litigation is that the normal costs rules generally apply: Hollander v. Mooney, 2017 BCCA 238 at paras. 39–40. However, in McDougald Estate v. Gooderham (2005), 255 D.L.R. (4th) 435 at para. 78 (Ont. C.A.), in a passage cited in Hollander, the Court of Appeal acknowledged that costs may be awarded against the estate “[w]here the difficulties or ambiguities that give rise to the litigation are caused, in whole or in part, by the testator”. The principles are similar with respect to appeal costs: Maddess v. Estate of Johane Gidney, 2011 BCCA 165 at para. 15.
[57]         The judge gave no reasons for his costs order, and in my view it was an error in principle not to have considered whether “the difficulties or ambiguities that [gave] rise to the litigation [were] caused, in whole or in part, by the testator”: McDougald Estate at para. 78.
[58]         Cases where costs are awarded out of the estate generally involve questions of the construction of an ambiguous provision of a will or the testator’s capacity at the time the will was created, and I would similarly here conclude that the conduct of the deceased raised the dispute as to the validity of the will. The deceased drafted his will in 2011, while living abroad, and took no action after he was married to draw up a new one by the time he died in 2015. He was also diagnosed with cancer approximately a year before he died, yet took no steps to update his will. The evidence in this case shows that there was a good faith dispute as to whether the deceased had an intention to reside in Luxembourg permanently at the time he was married such that his 2011 Will might still have been valid. Therefore I would set aside the order with respect to costs, and award the parties special costs of both the trial and appeal against the estate.
Because Mr. Sato’s widow is the beneficiary of the estate, the effect of this order is that she bears the burden of both her own legal expenses and those of Mr. Sato’s sister.

Monday, July 02, 2018

Land Owner Transparency Act White Paper

The Government of British Columbia has published a White Paper  setting out draft legislation that would require registration of interests  in land in land that do not appear on title. You can read the White Paper here.

Comments are due by August 19, 2018, and you may send your comments as follows:
or mailed to: Financial and Corporate Sector Policy Branch Ministry of Finance PO Box 9418 Stn Prov Govt Victoria BC V8W 9V1 

On my initial reading of this legislation, it does not appear well thought out, or well drafted. The introduction by the Minister of Finance includes the following Trumpian rhetoric:

For too long, people have used legal entities to hide the true ownership of real estate in B.C. The use of entities such as numbered companies, offshore and domestic trusts, and corporations has made it difficult to expose tax frauds and those engaged in money laundering. 
This problem is well documented. In 2016, Transparency International Canada released a report indicating that of the 100 most valuable residential properties in Greater Vancouver, nearly one-third were owned by shell companies. Furthermore, data leaks such as the Panama Papers and the Paradise Papers have provided examples of Canada’s reputation as an attractive place to create anonymous companies and hide wealth.  

The reality is that the vast majority of corporations and trusts that have an interest in land have nothing to do with tax evasion or money laundering.  I rather doubt anyone engaged in money laundering is going to register if this legislation is passed. It will primarily affect ordinary business persons who legitimately incorporate their businesses, and  ordinary people who use trusts for estate planning to provide for their spouses, children and grandchildren. It is unnecessarily intrusive and bureaucratic.

Saturday, June 30, 2018

Rosas v. Toca

In Rosas v. Toca, 2018 BCCA 191, the British Columbia Court of Appeal held that a borrower’s promises to repay a loan modified the original loan agreement, and thereby extended the time during which the lender could file a lawsuit to collect the loan. The reasons in this decision have far-reaching implications for the law of contract in British Columbia. The Court of Appeal has held that it is no longer necessary for a party to provide fresh consideration to modify a contract.

After winning the lottery, Ms. Rosas lent her friend Ms. Toca $600,000 to buy a home. Ms. Toca agreed to repay the loan in a year without interest. Each year until 2013, Ms. Toca asked for an extension to repay the loan. She said she would repay the following year. Finally, on July 17, 2014, Ms. Rosas filed a notice of civil claim in the Supreme Court of British Columbia to collect the loan.

The trial judge found that Ms. Rosas was too late in filing her notice of claim. The limitation period was six years from the date of default, which was when the loan was originally due. (The limitation legislation has undergone a significant legislative overhaul, but under the transition rules the six-year period applied as opposed to a two-year period under the current legislation).

Ms. Rosas appealed the decision to the Court of Appeal.

One of her arguments was that the agreement was modified each time Ms. Toca asked for an extension to repay the loan. Because the last extension was in 2013, Ms. Rosas was well within the limitation period. The problem with this argument is that Ms. Toca was already under a duty to repay the loan. Under traditional contract rules there had to be new consideration, in other words, some benefit flowing to Ms. Rosas in exchange for her forbearance in collecting the loan.

There was some evidence that might support the view that there was consideration for the extensions, in that Ms. Toca’s husband provided Ms. Rosas with assistance including driving her places, and volunteering in her store.

However, Chief Justice Bauman approached this case on the basis that the rule that fresh consideration is required to modify a contract needs to be reconsidered. In the reasons, he considered authorities both in Canada and England, as well as academic articles on this issue. He concluded that the absence of fresh consideration should not be a bar to enforcing a modification of a contract. There may be other reasons for refusing to give effect to modification, such as when one party pressures another to the point of duress or unfairly takes advantage of the other.

The Chief Justice wrote:

[176]    In the final analysis, I am persuaded that the legitimate expectations of the parties in the case of a modification to a going transaction should be protected. This is the motivating premise in the many cases where courts have struggled to find “consideration” so as to do justice between the litigants. It is but an incremental evolution of the law to say that in these cases, in the absence of duress, unconscionability or other proper policy considerations, such modifications should be enforceable. I would modify the pre‑existing duty rule to the extent necessary to accomplish this in the vein of the thesis advanced by Professors Waddams and Reiter. In my view, it is not necessary to justify such enforcement on the imaginative bases advanced by some—whether it be the theory of practical benefits or otherwise, which themselves amount to changes in the doctrine of consideration. Classic consideration is, as the cases have shown, something that the law recognizes as a legal right that can be enforced or compensated for in damages, but as Professor Chen-Wishart discussed, practical benefits cannot be so enforced or compensated. I agree with Professor Waddams when he says of the jurisprudence in this area of the law (The Law of Contracts, at para. 136):In view of this wide assortment of enforcement devices, all, on occasion employed by the courts, there is a strong case for assuming prima facie enforceability of such promises and for concentrating attention on what Professor Reiter called the only substantive issue, namely unconscionability.
Chief Justice Bauman wrote further:

[179]     Still in the search for consideration mode, one could also turn the pre‑existing duty rule on its head and preserve a semblance of the bargain theory of contract by concluding that in these types of cases performance in accordance with a pre‑existing contract (i.e., duty) is legally operative as consideration absent duress or other appropriate considerations to the contrary. It could be said that what motivates the additional promise is the return promise of the original consideration, which is still something that the promisor is capable of putting to their use, (i.e., something the promisor is capable of exercising an ownership interest in) since it was enough to ground the original contract. But are such machinations necessary?
[180]     Enforcement of the modification in cases like this reflects the notion in a going transaction situation that the parties are already in a contractual relationship and are simply adapting it to changed circumstances. This is not the case of the “unwary signor or the casual promisor” being “hooked” too easily into a contractual relationship as feared by Professor Chen-Wishart. Surely the fact of the existing contractual relationship in the going transaction scenario attenuates much of such concern. Further, as with any bargain, certainty of terms and proof of mutual intention to be bound will have to be proved by the party seeking to rely on the variation agreement. In any event, the bargain theory of contracts—the notion that contracts are enforced and expectation damages justified because the promisor has been paid the value of the thing promised—is inconsistent with the longstanding enforcement of contracts under seal, or based on nominal consideration of $1.00 or a peppercorn.
[181]     While the rationale for the enforcement of going transaction modifications is often based on the realities facing commercial actors in business transactions, friends and neighbours who make significant loans and agreements face similar realities: circumstances change and contractual modifications may be desirable and beneficial to both parties.
[182]     As the Court in Antons said, “[t]he importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself” (at para. 93).
[183]     In my view, that is the case before this Court. When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable. A variation supported by valid consideration may continue to be enforceable for that reason, but a lack of fresh consideration will no longer be determinative.
The Court of Appeal held that the loan agreement was modified each time Ms. Rosas accepted Ms. Toca’s promise to pay the following year. In the result, the claim was not barred by the limitation period and Ms. Toca will have to repay the loan.

Tuesday, June 26, 2018

Waterloo Region Courthouse, Ontario

I took this photo of the Waterloo Region Courthouse in April, 2018.