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.