Using Two Wills to Minimize British Columbia Probate Tax

 In British Columbia when a will is probated, or in other words proved, the personal representative is required to pay probate tax. The legislation imposing this tax is called the Probate Fee Act, but the fees are really a tax. The tax is calculated on the value of the estate, at a rate of approximately 1.4 percent (I am simplifying a little). If the will maker was ordinarily resident in British Columbia at his death, then the tax applies to real estate and tangible property in British Columbia (such as cars, furniture and art), and his worldwide intangible assets (such as money, stocks and bonds).

There are various techniques used to avoid or minimize probate fees, some of which are well thought out, and some of which are ill advised. Many of these techniques centre around minimizing the wealth that is dealt with under a will, so that the value of the estate is small. For example, spouses may hold their house, bank accounts and investment accounts jointly with a right of survivorship, so that on the death of one, the survivor becomes the sole owner, and the will of the first to die either does not need to be probated, or if the will is probated, the jointly held assets do not need to be listed as part of the estate, and may be excluded form the calculation of probate tax. Trusts are also employed to minimize probate tax.

One technique that has become more popular in British Columbia since changes in our succession legislation in 2014 is the use of two wills dealing with British Columbia. The idea is for the will maker to have two wills, one governing assets for which a grant of probate is necessary for the will-maker’s executor to deal the assets, and the other governing assets for which no grant of probate is required.

For example, supposing the will-maker’s main assets are a house owned solely by the will-maker, which is worth $2 million, and shares in a company that are worth $10 million. If he has a will dealing with all of the assets, on his death when the will is probated, the probate tax will be approximately $168,000. The executor will need to probate the will in order to obtain title to the house to either transfer it to a beneficiary or sell it to pay debts and expenses, and distribute the balance of the proceeds to the beneficiaries. But it might not be necessary to obtain probate to deal with the shares of the company if the will-maker is the only shareholder, or if there is a small group of shareholders and the company’s directors will agree to transfer the shares to the executor without a grant of probate. I am assuming that the shares are not traded on a stock exchange. The difficulty is that the executor cannot pick and choose which assets to disclose when applying for probate: the executor must swear an affidavit setting out all of the assets that pass to her as the executor.

The two-will strategy involves making a separate will that deals only with the shares of the company, or perhaps including some other assets which can be dealt with by the executor without a grant of probate. The other will deals with the other assets, for which a grant of probate is or may be required. Different terminology may be used, such as “primary will” and “secondary will,” or “general will” and “restricted will,” but for simplicity I will refer to the will dealing with shares as the “corporate will,” and the other will I refer to as the “general will.” In this example, if the shares are dealt with in the corporate will, and only the general will needs to be probated, the probate fees will be approximately $28,000, a saving of $140,000.

This two-will technique has been popular in Ontario longer than in British Columbia. In British Columbia we rely on the wording of section 122 of the Wills, Estates and Succession Act, which says that an applicant for a grant of probate or administration must disclose information about the property of the deceased person and the value of the property “that passes to the applicant in his or her capacity as the deceased person’s personal representative….” The probate tax is then calculated on the basis of the value of those assets. For this to work, the executor of the general will must be a different person from the executor of the corporate will, so that the executor of the general will may swear an affidavit that excludes the shares in the corporate will. Otherwise, the property in the corporate will also pass to the same personal representative, and she will have to list the shares of the company, which defeats the purpose.

One downside is that the will-maker needs to name more people to act as executors and alternate executors to ensure that the same person is not the executor of both wills.

I find drafting two wills to be challenging, and there are a number of pitfalls that need to be avoided.

First, the order in which the wills are signed is important. The corporate will should be signed first and this needs to be documented either in the will or a memorandum, or better yet both. This is because the executor of the probated will need to swear that it is the last will.

Second, the standard revocation clause in the general will must be modified so that it does not revoke the corporate will.

Third, the assets in each will must be carefully defined so that it is apparent which assets are governed by which will, and that assets for which a grant of probate is required are clearly excluded from the corporate will so that it does not become necessary to also probate the corporate will.

Fourth, consideration should be given to which debts are to be paid out of the assets governed by the general will, and which debts are to be paid out of the corporate will. This is less tricky if the beneficiaries of each will are identical, but is more complex if there are different beneficiaries in each will. For example, if the will-maker wishes for one child who is expected to take over the business to receive all or most of the assets in the corporate will, while other children receive more under the general will, the will-maker will likely want to ensure that taxes and other expenses attributable to the property governed by the corporate will is ultimately borne by the beneficiary or beneficiaries of the corporate will, and not the beneficiaries of the general will.

Fifth, while the executors of the two wills must be different persons, they must also be able to work well together to deal with such issues as filing tax returns.

There are not many reported cases in British Columba dealing with the use of two wills to minimize probate tax at the time I am writing this post, but in one case Master Wilson (now Mr. Justice Wilson) held that it is permissible to apply to probate only one of two wills, which lends support to this strategy. The case is Berkner (Estate), 2017 BCSC 619.

Powers of Attorney: Consider Allowing the Person You Appoint to Use Your Wealth to Support Your Spouse and Family

 

When acting as an attorney under an enduring power of attorney in British Columbia for someone who has lost the capacity to make her own decisions, the attorney must act in the best interest of the person who appointed her. The word “attorney,” in this context does not mean a lawyer, but rather the person appointed in the power of attorney. (If I may digress a little, although some refer to the attorney as the “power of attorney,” a power of attorney is actually the document, rather than the person appointed.) But whether you call her an “attorney” or “power of attorney,” the principle that she must act in the best interest of the person who appointed her generally makes sense. You don’t want to give someone the power of sell your house, or withdraw your investments to someone who is going to take your money or give it to someone else, leaving you impoverished. But as we will see, it is not always that straight forward.

 You may want to allow your attorney to use your funds to benefit others particularly your spouse, minor children and perhaps adult children. If you have a history of charitable giving, you may want to allow your attorney to continue to make donations if you are not longer capacitated. When spouses make powers of attorney, they often appoint each other. It is also common for spouses to pool at least some of their financial resources for their benefit as a couple, even when they keep many of their assets separate. When one spouse loses capacity, the other when acting as attorney may be placed in a conflict of interest by virtue of the fact that the management of the now incapacitated spouse’s assets may benefit the capacitated spouse who is the attorney.

This issue can and should be addressed in the power of attorney. In your power of attorney, you may relax the rule the the attorney must act in your best interest by expressly allowing the attorney to use some of your assets to benefit your spouse or others. You can include a clause allowing for gifts, which can be unlimited, or restricted to a certain amount or percentage of your assets annually. You can expressly provide that your attorney may make decisions to benefit himself, especially if the attorney is your spouse. When I take instructions to draft a power of attorney, I ask clients if they want to allow their assets to be used to benefit their spouses, and most do.

Unfortunately, most of the powers of attorney I have seen over the years do not address this issue. Many are simple one-page documents with no provisions allowing the attorney to use the power of attorney to support other family or to make any gifts. In some cases this may work just fine, but the difficulties for a spouse in a financially interdependent marriage or common-law relationship when the power of attorney is silent on this issue is illustrated in the case of Sommerville v. Sommerville, 2014 BCSC 1848.

Richard Craig Sommerville (referred to in the decision as “Craig”) appointed both his spouse, Isabel Sommerville, and his daughter Janet Sommerville as his attorneys. Either could act separately. His marriage to Isabel was his second marriage, and Janet was his daughter from a previous marriage.

Craig and Isabel Sommerville had a marriage agreement, which provided that each would have his and her separate assets, but the agreement also contemplated that they would have joint assets. Craig Sommerville owned the house they were living in, had larger investments and larger pensions. The agreement initially provided that if Craig Sommerville had to move out of the house because of ill health, Isabel would have to move out after a year, but they amended the agreement so that she would be able to stay in the house. Craig’s will provided that Isabel would be able to remain in the house after his death until she remarried or died. He left the residue of his estate to his four children.

Craig Sommerville had arranged for his pensions to go into a joint account with Isabel, who contributed a portion of her pension to the joint account. They used the joint account for their expenses. Craig also had investment income, including RRIFs, most of which was reinvested.

After Craig became ill, Janet Sommerville redirected his pensions into an account in his sole name, in contemplation that he may have to go into a care facility, which he subsequently did following a stroke. She did so without consulting Isabel first. Not surprisingly, Isabel disagreed, and Janet then brought a petition to court to seeking directions.

Janet Sommerville’s position was that the pension funds should be used first to pay for her father’s personal and care expenses, then expenses necessary to preserve the home, and then only to the extent that there is pension income left, the pension income could go into the joint account for Isabel’s use. Janet also sought to be mainly responsible for the management of Craig’s finances.

 Madam Justice Fisher summarized the duties of an attorney as set out in the legislation as follows:

 

[39]         An attorney’s duties are now enunciated in s. 19 of the Power of Attorney Act. Section 19 (1) essentially codifies the duties of a fiduciary to act honestly and in good faith, to exercise reasonable care, and to account to the donor, within the authority granted in the power of attorney. Section 19(2) specifies that an attorney making decisions about the donor’s financial affairs must act in the donor’s best interests, taking into account the donor’s “current wishes, known beliefs and values” and any directions contained in the instrument, and s. 19(3) requires an attorney to give priority “to the extent reasonable” to meeting the personal care and health needs of the donor.

Madam Justice Fisher rejected the argument made on Isabel’s behalf that an attorney could use the power of attorney for the benefit of the donor’s family in a manner analogous to a court appointed committee. She noted that the ability for an attorney to make gifts is set out in seciton 20 of the Power of Attorney Act is limited.

However, in exercising a power of attorney, you may consider the donor’s wishes including making provision for a spouse or other family member. She wrote:

[45]         In my view, s. 19 does not alter the attorney’s common law duty to act only for the benefit of the donor. However, the best interests of the donor are not to be considered in a vacuum. His “current wishes, known beliefs and values” may permit the attorney to continue to provide for a spouse or family member if there is clear and convincing evidence of an intention to do so, and it can be done without compromising the donor’s interests.

 Madam Justice Fisher found on the basis of Craig’s conduct in directing the pension income into the joint account, the terms of the marriage agreement and Craig’s will that he wished for Isabel to manage their family finances and he intended to share his pension income for their joint expenses.

At paragraph 72, Madam Justice Fisher issued directions under section 36 (1) of the Power of Attorney Act as follows:

1.       All of Craig’s pension funds should be deposited into a bank account in the joint names of both Isabel and Janet as attorneys for Craig. The funds currently held by Janet as attorney are to be deposited into such an account. The pension funds that are still being deposited into Isabel’s joint bank account should be re-directed into this new account. 

2.       Isabel is to continue to manage Craig’s finances and will responsible for running the bank account referred to in (1) and paying for Craig’s personal and health care expenses. Janet will be able to monitor the use of the account as a joint attorney. 

3.       In using the pension funds, Isabel is to give priority to Craig’s monthly personal and health care expenses. She may use pension funds that are not required for Craig’s personal and health care expenses in her discretion and for her own expenses. 

4.       While she continues to live in the Lochside residence, Isabel may use Craig’s investment income to pay expenses associated with the ownership of the home, which will include property taxes, insurance, utilities, repairs and maintenance. Otherwise, Isabel may not use Craig’s investment income for any purpose other than to supplement his personal and health care expenses if this becomes necessary. 

5.       If Janet has any concerns about how Craig’s income is being used, she is to consult with Isabel and is not to take any steps or make any directions without Isabel’s concurrence unless she considers it necessary to prevent Craig’s assets from being used improperly.

 

Proposed Legislation Recognizes Electronic Wills in British Columbia

The British Columbia Government has introduced legislation to allow digital wills. There are two main components of Bill 21 – 2020: Wills,Estates and Succession Amendment Act, 2020. First, if passed and brought into effect the legislation will provide that a will-maker may make a will digitally, and the witnesses may also sign digitally. Secondly, the legislation will allow the will to be witnessed remotely, in a manner similar to that provided by the emergency order during the Covid – 19 state of emergency.

The legislation amends section 37 of the Will, Estates and Succession Act, which sets out the formal signing and witnessing requirements for a valid will to recognized wills in electronic form by adding the following subsections:

(3) The requirement under subsection (1) (a) that a will be in writing is satisfied if the will is in electronic form.

(4) An electronic will is a will for all purposes of this Act and any other enactment.

A new section 35.3 recognizes electronic signatures:

35.3 (1) For the purposes of sections 37, 40, 43, 62 and 77,

(a) a reference to a signature includes an electronic signature and a reference to a statement being signed includes the statement being signed electronically, and

(b) a requirement for the signature of a person is satisfied by an electronic signature.

(2) Section 39 (1) [clarification of doubt about signature placement] does not apply to an electronic will.

(3) An electronic will is conclusively deemed to be signed if the electronic signature is in, attached to or associated with the will so that it is apparent the will-maker intended to give effect to the entire will.

Section 54.1 provides that to alter an electronic will, the will-maker must make a new will.

There is also a new section providing for how an electronic will is revoked (you don’t have to smash your computer):

55.1 (1) An electronic will or part of an electronic will is revoked only in one or more of the following circumstances:

(a) by the will-maker, or a person in the presence of the will-maker and by the will-maker's direction, deleting one or more electronic versions of the will or of part of the will with the intention of revoking it;

(b) by the will-maker, or a person in the presence of the will-maker and by the will-maker's direction, burning, tearing or destroying all or part of a paper copy of the will in some manner, in the presence of a witness, with the intention of revoking all or part of the will;

(c) the circumstances described in section 55 (1) (a) and (b) [how to revoke will];

(d) by any other act of the will-maker, or another person in the presence of the will-maker and by the will-maker's direction, if the court determines under section 58 [court order curing deficiencies] that

(i) the consequence of the act of the will-maker or the other person is apparent, and

(ii) the act was done with the intent of the will-maker to revoke the will in whole or in part.

(2) A written declaration made in accordance with section 55 (1) (b) may be in electronic form and signed with an electronic signature.

(3) For certainty, an inadvertent deletion of one or more electronic versions of a will or part of a will is not evidence of an intention to revoke the will.

Section 35.2 is the section that will allow remote witnessing of wills. It says:

35.2 (1) In this Part, except in section 38, a requirement that a person take an action in the presence of another person, or while other persons are present at the same time, is satisfied while the persons are in each other's electronic presence.

(2) For certainty, nothing in this section prevents some of the persons described in subsection (1) from being physically present and others from being electronically present when the action is taken.

(3) If a will-maker and witnesses are in each other's electronic presence when the will-maker makes a will, the will may be made by signing complete and identical copies of the will in counterpart.

(4) Copies of a will in counterpart are deemed to be identical even if there are non-substantive differences in the format of the copies.

Section 35.2 will be retrospective to March 18, 2020.  

British Columbia Now Allows Electronic Witnessing of Wills During Covid-19 Emergency

On May 19, 2020, Mike Farnworth, the Minister of Public Safety and Solicitor General,  signed Ministerial Order No. M161 which allows wills to be witnessed electronically during the current state of emergency. If the process set out in the Order is complied with, a will made during the state of emergency will comply with the formal requirements for a valid will. 

It is important for readers of this post to keep in mind that this only applies during the Covid 19 state of emergency, and not to wills made after the state of emergency ceases.

Two witnesses are still required, and if the will is electronically witnessed, at least on of the witnesses must be a B.C. lawyer or B.C. notary.

The requirements are set out in  section 3 of the Order as follows:

3 (1) If a will is made in accordance with this order, the requirements in section 37 (1) (b) and (c) of the Wills, Estates and Succession Act in relation to a will-maker and the witnesses signing and witnessing the will in the presence of each other are satisfied. 

(2) When making a will, the will may be signed and witnessed while the will-maker and the witnesses to the will are in each other’s electronic presence. 

(3) For certainty, nothing in this section prevents some of the individuals described in subsection (2) from being physically present and others from being electronically present when signing and witnessing a will. 

(4) At least one of the witnesses to a will must be a lawyer or a notary public. 

(5) A will may be made by signing complete and identical copies of the will in counterpart. 

(6) Copies of a will are identical even if there are non-substantive differences in the format between the copies. 

(7) A will made in accordance with this order must include a statement that it was signed and witnessed in accordance with this order.

Making a Will in British Columbia if in Isolation During the Covid-19 Pandemic

[Since I wrote this post, the British Columbia government has made an Order permitting electronic witnessing of wills during the Covid-19 emergency, rather than the process I have set out below. See my more recent post. However, the discussion below may still be relevant after the Covid-19  state of emergency ceases in certain (although rare) circumstances.]

Although I much prefer to meet in person with clients to discuss their estate plans, I am getting used to video conferencing or taking instructions by telephone during this covid-19 pandemic. It seems to work well enough most of the time, but what about signing wills?

British Columbia has certain formal requirements for making a valid will. These are set out in section 37 (1) of the Wills, Estates and Succession Act:

37  (1)To be valid, a will must be

(a)in writing,
(b)signed at its end by the will-maker, or the signature at the end must be acknowledged by the will-maker as his or hers, in the presence of 2 or more witnesses present at the same time, and
(c)signed by 2 or more of the witnesses in the presence of the will-maker.

 As at the date of this post, in contrast to some other places, British Columbia has not made any law providing for virtual witnessing of wills, by audio-visual communication, such as skype or zoom. It is necessary to for the two both witnesses to be in the same room when the will-maker either signs or acknowledges her signature. Alternatively, all three could be outdoors within sight of each other.

There is no requirement that the lawyer who drew the will be one of the witnesses. Accordingly, if the lawyer cannot practically attend to witness the will, either because of distance, or because of social distancing during the covid-19 pandemic, the lawyer may provide instructions on how to sign the will, and two others may witness the will. It is important, however, that neither a beneficiary or the spouse of a beneficiary witness the will, because that may invalidate the gift in the will to the beneficiary.

There may be situations where someone is in isolation and cannot get two people to witness the will. What should she do?

I suggest the following:

First, the lawyer should go through the will by audio-visual technology or by phone. The lawyer should confirm that the will reflects the will-maker’s intentions, and make good notes. The lawyer should also make a statutory declaration setting out the circumstances and the fact that the will-maker stated that the document reflects her intentions.

Second, the document itself should contain language indicating that the will-maker intends the document to be effective. I suggest something along the lines of “I am signing this document without any witnesses because I am in isolation during the covid-19 pandemic. This document reflects my deliberate, fixed and final intentions in respect of my appointment of executors and the disposition of my assets. I ask the court to give effect to this document pursuant to section 58 of the Wills, Estates and Succession Act.”

Third, the will-maker should sign and date the will at the end, and initial the bottom of each of the other pages.

Fourth, the will-maker should keep the document in a prominent place where it can be easily found, and advise the lawyer and her executors where she is keeping it.

Fifth, as soon as practical, the will-maker should sign another will in the presence of two witnesses in compliance with section 37 (1) of the Wills, Estates and Succession Act.

But if the will-maker passes away before she is able to complete a will in the presence of two witnesses, her named executor, or another person, may apply under section 58 of the Wills, Estates and Succession Act to the Supreme Court of British Columbia to give effect to the document as the last will despite the fact that it does not comply with section 37(1). Although the applicant seeking approval of the document would have good evidence in support of the application, this is a much more costly process than probating a will that complies with section 37 (1). Accordingly, this approach should be used as a stop-gap and the will-maker should sign a will in the presence of the two witnesses as soon as she is able.

Minor Beneficiaries

Yes, I know the title is ambiguous. I don’t mean beneficiaries who receive a small share of an estate, but rather those who are under the age of majority in British Columbia, which is a person under the age of 19. If a minor is entitled to an inheritance and no trustee has been appointed for her, those funds must be paid to the Public Guardian and Trustee of British Columbia. This happens most frequently when a minor’s parent dies without a will. It may also apply in the case where a minor is left an inheritance by will, but the will does not have a clause appointing a trustee to hold the inheritance for the minor.

Section 153 (1) of the Wills, Estates and Succession Act says:

153 (1)Subject to subsections (2) and (3), if

(a)a minor is a beneficiary or an intestate successor, and

(b)there is no trustee or no trust created for the minor's interest in the estate,

the personal representative, on distribution of the estate, must pay or transfer the minor's interest in the estate to the Public Guardian and Trustee in trust for the minor.

In a recent decision, British Columbia (Public Guardian andTrustee) v. Child 3, 2019 BCCA 171, the Court of Appeal held that it was an error for a Supreme Court of British Columbia judge to order an administrator of the estate of a person who died without a will to order interim distributions directly to a minor’s parent to reimburse her for the child’s expenses and for funds she borrowed to pay expenses. Madam Justice Fisher wrote:

[8]             The language of s. 153(1) is unambiguous. It requires the administrators to pay any distribution of Mr. Yuan’s estate to the PGT on behalf of the minor beneficiaries, as there is no trustee in place.

[9]             There is good reason for this requirement. The PGT is the only trustee for these minor beneficiaries. As the PGT submitted before the chambers judge, it would not be truly acting as trustee if the distribution went directly to Mother 3. For example, in respect of past expenses, the PGT submitted that Mother 3 would be entitled to reimbursement for funds she used to pay Child 3’s expenses but not for funds she borrowed from others; in that case, the PGT would ensure that funds legitimately borrowed for Child 3’s expenses would be repaid to the lenders directly. Given the state of the materials in the record, it is difficult to understand the judge’s outright rejection of the PGT’s submissions.

[10]         It is also difficult to understand the judge’s failure to put his mind to s. 153 of WESA. Ordering specific funds to be paid to Mother 3 for specified purposes is insufficient, in my view, as it is the trustee’s duty to act in the best interests of Child 3 to ensure that the distributions are appropriate for his needs. I agree with the PGT’s submission that the judge’s order created a situation in which the interim distribution of Child 3’s interest was made without an assurance that the funds would be used in a manner consistent with the overall value of his interest in the estate (which is currently uncertain) or his projected needs.

Professionally drafted wills usually contain an “infant’s clause,” which provides that the executor or hold funds in trust for any minor beneficiaries. Alternatively, a will-make may appoint other trustees for minor beneficiaries in the will. Section 153(1) does not apply if a trustee is appointed in the will.

The court may also appoint a trustee for a minor beneficiary. Section 153 (3) provides:

(3) Subsection (1) does not apply if, before distribution of the assets of the estate, the court, on application and with notice to the Public Guardian and Trustee, appoints a trustee to hold and administer the minor's interest in the estate until the minor reaches 19 years of age.

The Family Law Act also has provisions for the appointment of a trustee for minors, which are not limited to inheritance, but may apply anytime a minor is entitled to property. This is set out in section 179:

179 (1) Subject to subsection (2), the Supreme Court on application may appoint one or more persons as trustees over

(a)particular property to which the child is entitled, including any property derived from the property or from the disposition of the property, or

(b)all property to which the child is entitled at the time the order is made and to which the child becomes entitled while the order is in effect, except property

(i)identified in the order, or
(ii)over which a trustee already has authority.

(2)The Supreme Court may appoint a trustee only if satisfied that it is in the best interests of the child to do so, on consideration of all of the following:

(a)the apparent ability of the proposed trustee to administer the property;

(b)the merits of the proposed trustee's plan for administering the property;

(c)the views of the child, unless it would be inappropriate to consider them;

(d)the personal relationship between the proposed trustee and the child;

(e)the wishes of the child's guardians;

(f)the written comments of the Public Guardian and Trustee;

(g)the potential benefits and risks of appointing the proposed trustee to administer the property compared to other available options for administering the property;

(h)if the Supreme Court is considering making an order under subsection (1) (b), that the interests of the child are likely better served by an order made under that subsection than by an order made under subsection (1) (a).

(3) An order made under this section to appoint a trustee may do one or more of the following:

(a)require the trustee to deliver the trustee's accounts at specified intervals for the examination and approval of the court;

(b)limit the duration of the trusteeship;

(c)specify or limit the types of investment in which the trustee may invest the property;

(d)provide for compensation of the trustee including, without limitation, setting rates and specifying when the compensation may be taken;

(e)require the trustee to give security in any form the court directs;

(f)make any other order the court considers appropriate.

(4)Except as provided for in an order made under this section, the Trustee Act applies to the trustee and the trust.

I should note also that a small amount, currently up to $10,000, may be paid to a child’s guardian with parental responsibilities without a court order. This is set out in section 178 of the Family Law Act.

Quinn Estate Appeal

In Quinn Estate v. Rydland, the British Columbia Court of Appeal had held that a pour-over clause in former NHL coach Pat Quinn’s will is invalid. As I wrote in my post about the British Columbia Supreme Court decision in this case,

Mr. Quinn and his wife Sandra Quinn settled a trust in the United States which dealt with assets in the United States. Mr. Quinn was an American citizen, and Mrs. Quinn had U.S. Green Card, but they lived in British Columbia. Their U.S. lawyer also draft a will for Mr. Quinn dealing with his assets in Canada. The will provided that the residue of his Canadian Estate would “pour over” into a U.S. trust, referred to as the Quinn Family Trust. 

The issue in this case was whether the distributive provision of the Canadian will is valid under British Columbia law. The will was signed by Mr. Quinn in the presence of two witness in accordance with the requirements of section 37 of the Wills, Estates and Succession Act. The will itself was formally valid. The difficulty was the “pour over” clause, which I understand is valid in at least some states. The terms of the Quinn Family Trust allowed Mr. and Mrs. Quinn to amend it. Because they could amend the trust, the beneficiaries could be changed without compliance with the requirements of section 37.

The Trust was amended, but the amendment was a relatively small administrative change that did not change the beneficiaries. But the fact that it could be amended was sufficient for Mr. Justice Funt in the Supreme Court to find that the clause is invalid.

On appeal, Chief Justice Bauman considered whether the clause could be saved on any of three grounds: the doctrine of incorporation by reference, the doctrine of facts of independent significance or section 58 of the Wills, Estates and Succession Act (the “WESA”).

In a will, the will-maker may incorporate another document. The Chief Justice set out the criteria as follows:

[19]         Incorporation by reference simply contemplates that the terms of the trust are deemed to be incorporated into the will. There are five prerequisites to applying the test, per Leal, A. “Testamentary Additions to Trusts” in Proceedings of the Forty-Ninth Annual Meeting of the Conference of Commissioners on Uniformity of Legislation in Canada (St. John’s: 1967) 207 at 208:

(1) that the reference in the will must show that the testator intended to incorporate the extrinsic document into the will; (2) the language of the will must be such that it refers to the extrinsic document as one already in existence at the time of the execution of the will; (3) the reference in the will must be sufficiently specific that it identifies the extrinsic document with reasonable certainty; (4) the document offered must be proven satisfactorily to be the one referred to in the will; and (5) there must be satisfactory proof that the document was actually in existence at the time of the execution of the will: see Allen v. Maddock (1858), 11 Moore P.C. 427.

The Chief Justice found that the will did not refer to a document, and Mr. Quinn did not intend to incorporate the trust by reference. Rather Mr. Quinn intended to make a gift “to the trust.” The trust c could not be incorporated by reference “because as of the date of that will, the trust, being amendable and revocable, was not a ‘presently existing document’ and the testator cannot, by his will, create for himself a power to dispose of his property by an instrument not duly executed as a will or codicil.”

The doctrine of facts of independent significance refers to facts that are independent of the will that may affect the disposition of the will-maker’s property. For example, if the will-maker leaves his property to those of his children who survive him, the birth of a child after the will affect how is property is divided upon death. 

Chief Justice Bauman described the doctrine as follows:

That doctrine purports to resolve the issue of potential uncertainty in a will. In the Anglo-Canadian cases it would typically respond to resolve the uncertainty inherent in a bequest: “my car to my partner at the time of my death”. Certainty is achieved by reference to a fact of independent significance (i.e., independent of simply testamentary significance), such as the fact of who the testator’s partner was at the time of his death. So too could the fact of the make and model of the testator’s car have independent significance.

In some jurisdictions in the United States, the doctrine of facts of independent significance has been applied to similar pour-over clauses, but the Court of Appeal rejected the application of the doctrine to pour-over clauses in British Columbia. Chief Justice Bauman wrote:

[31]         In my view, this doctrine should not be seen as a device to validate a pour-over clause like that at bar both as a matter of statutory interpretation and as a matter of principle. When WESA came into force in 2014, it heralded a significant overhaul of the wills, estates and trusts law of the province. Nothing in WESA addresses pour-over clauses. Were the doctrine of facts of independent significance applied to pour-over clauses, it would allow a will-maker to avoid the formalities and the necessity of testamentary intent embodied in WESA so long as the will-maker had sufficient assets in the trust at the time of amending the trust (at least on the American authorities). Had the Legislature intended to allow amendments to a will so long as the amendment presently affected significant assets, the legislature could have provided for it. Extending this doctrine to apply to an amendable, revocable trust would permit a testator to avoid the strictures of WESA and thus defeat the legislature’s intent.

[32]         Applying the doctrine to validate a pour-over clause would also differ in character to the existing applications recognized in the Anglo-Canadian jurisprudence. The traditional applications of the doctrine validate de facto amendments to the will only with regard to limited “facts”. The terms “partner” and “car” are inherently limited. A trust document recognizes no such limit. Extending the doctrine to pour-over clauses would grant testators unlimited power to amend the disposition of their estate without following the strictures of WESA. In my view, this is not an extension the common law should permit

Finally, the Court of Appeal considered whether the curative provision in section 58 of the WESA could save the pour-over clause. Section 58 allows the court to give effect to a document or record that does not comply with the formal signing and witnessing requirements for a valid will if the court finds the document or record reflects the deceased person’s testamentary intentions. (I have co- written a paper on section 58, which you can find here.)

The Court held that section 58 has no application. The will met all of the formal requirements, and Mr. Quinn did not intend for the trust to be a will. Chief Justice Bauman wrote at paragraph 37,

That s. 58 is inapplicable here is made stark when we ask what “record or document or writing or marking on a will…” is to be ordered “fully effective” under WESA per s. 58(3). Ms. Rydland does not seek probate of the QFT; rather, she seeks to validate the sixth clause. That clause is part of a will that complies with the formalities. It seeks to create a vehicle — the QFT — that would allow the will-maker to circumvent the formalities altogether. Section 58 simply has no application to that circumstance. The chambers judge did not err in declining to apply s. 58 here.

What is my own view? From a practical perspective, I think it unfortunate that a pour-over clause to an amendable trust is invalid. In some circumstances, it might be a useful tool. Family trusts appear to be quite popular in some U.S. states, such as California. I don’t see any harm from a policy perspective in, for example, allowing someone with a trust in California with California resident beneficiaries to create a will for his British Columbia assets that pours over to his California trust.

I also think this case illustrates an incoherence in our succession law. Supposing that Mr. Quinn’s will made no reference to the trust, but he simply named his wife as the beneficiary of his estate. Suppose he also told her that she was to distribute his estate in accordance with the trust, and she agreed. Supposing further that he decided to amend the trust after he made the will, and he communicated the changes to her and she agreed to deal with the estate in accordance with those changes. Provided that the will did not itself refer to the fact that she would receive his estate as a trustee, this arrangement would be a valid secret trust under British Columbia law, and he would be able to change the terms right up to his death, without complying with the formal requirements for a valid will. I am not advocating the use of secret trusts in this manner as a good estate-planning tool, but merely highlighting the inconsistency.

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.  

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.

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.

Re Milne Estate

[The decision I discuss below had been overturned on appeal. Please see my post on the appeal here.]

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, 8^th 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. York, 2016 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.