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.