Saturday, February 01, 2020

Trezzi v. Trezzi: Can You Leave Assets Owned by a Company in Your Will?

I have on rare occasions seen wills in which the will-maker has left assets that are owned by a corporation to beneficiaries. In each case, I have sought instructions to do a new will, leaving the shares, rather than corporate assets. The problem is that a corporation is in law a separate person than a shareholder. Its natural for people to think of say real estate owned by a company as their own, if they own all of the shares of the company, but that is not how the law works.

The problem with attempting to leave assets owned by a company to a beneficiary in your will is that the court may very well find the gift invalid, even if you own all of the shares of the company. I am not aware of cases that have decided that issue in British Columbia, but I know of cases in Alberta and Saskatchewan in which the courts have said that a will-maker cannot effectively leave assets held in a corporation to beneficiaries.

But in a recent decision, Trezzi v. Trezzi, 2019 ONCA 978, the Ontario Court of Appeal upheld a gift in a will of assets held by a company.

Peter Tezzi died on January 8, 2016. He owned all of the shares of Trezzi Construction Ltd. In his will he had clauses that left all of the assets owned to beneficiaries as follows:

·      Clause 3(d), which gave Albert “[a]ll equipment and chattels owned by Trezzi Construction Ltd.”.
·      Clause 3(e), which gave Albert “[t]he real property municipally known as 220 Regina Road, Woodbridge”, which was owned by Trezzi Construction.
·      Clause 3(m), which gave “[a]ll other assets owned by Trezzi Construction Ltd.” in equal shares to Gina, Albert, Emily, and Bianca.
Gina was Peter Tezzi’s wife, Emily and Bianca are their daughters, and Albert, his son from a previous relationship. Gina, Emily and Bianca challenged the gifts of assets in Trezzi Construction, arguing that he because the company owned the assets, and he did not, he could not gift them in a will.

The application judge who heard the argument upheld the provisions of the will, and the Ontario Court of Appeal agreed. Justice M. Jamal, writing for the Court of Appeal, noted under both the terms of the will and Ontario’s Business Corporations Act, Peter Trezzi’s estate trustees had the power to wind-up the company and distribute its assets. Although he did not expressly say that the trustees should wind-up the company, his intent to gift the assets was clear, and they had authority to wind-up the company to carry out his intentions. As set out in paragraphs 20-22 of the reasons for judgment:

[20]       While this clause does not refer expressly to a power to wind-up Trezzi Construction, but rather refers only to converting the estate’s assets into money, I conclude that the gifts do not fail on this basis. As the application judge correctly noted, the executors’ power to wind-up the corporation already exists under corporate law. I also agree with him that the executors implicitly have this authority in their discretionary power to convert the estate’s assets into money. Because Peter’s shares in Trezzi Construction were part of his estate “not consisting of money”, clause 3(a) of his will authorizes his executors to take any steps that may be needed to sell, call in, and convert those shares into money. This would include winding-up the corporation. As such, I agree with the application judge that Peter’s will conferred on his executors the authority to wind-up Trezzi Construction.
[21]       Because of these two independent sources of authority for Peter’s executors to wind-up Trezzi Construction, I would reject Gina’s contentions that the gifts of the assets of Trezzi Construction fail because Peter did not directly own those assets and that upholding these gifts would disregard Trezzi Construction’s separate corporate personality. While it is true that Peter, as the sole shareholder of Trezzi Construction, did not directly own the corporation’s assets, that does not complete the analysis. In substance, Peter’s shares in Trezzi Construction became part of the estate, and Peter effectively directed his executors to wind-up the company and to distribute its assets in accordance with his will, even though he did not own those assets directly. As already noted, the key question thus boils down to whether this was indeed Peter’s subjective intention in his will: see Re Kaptyn Estate, at paras. 126-144. For the reasons stated above, I conclude that the application judge did not err in concluding that this was Peter’s intention.
[22]       It follows that I also do not agree with the conclusions reached in the Saskatchewan and Alberta cases relied on by Gina, Bianca, and Emily, to the extent that those cases can be read as holding that a sole shareholder of a corporation can never effectively gift corporate assets because they are owned by the corporation: see Re Thornton Estate (1990), 85 Sask. R. 34 (Surr. Ct.), at paras. 4-5; Earl v. Wilhelm, 2000 SKCA 1, 183 D.L.R. (4th) 45, at para. 12, leave to appeal refused, [2000] S.C.C.A. No. 124; Re Meier(Estate of), 2004 ABQB 352, 366 A.R. 299, at paras. 16-22; and OryshchukEstate, 2009 ABQB 688, 485 A.R. 379, at para. 35. As noted, the principle of corporate separateness does not complete the analysis of whether a testator who is the sole shareholder of a corporation can effectively gift corporate assets. The court must go on to consider whether that authority exists under corporate law or under the terms of the relevant will. I agree with the application judge that because both sources of authority are present in this case, Peter could effectively bequeath assets held by Trezzi Construction.
Although I like the result of this decision in giving effect to the will-maker’s intentions, I would still be very reluctant to draft a will leaving corporate-owned assets to beneficiaries in British Columbia. If I did, I would want to include provisions as to how this is to be accomplished, and a fall-back position, such as a gift of the shares to the beneficiaries if the gifts were found invalid.

I have a number of reasons for my hesitancy.

First, although a British Columbia court may find this Ontario decision persuasive, a British Columbia court is not bound to follow it, and could decide to follow the decisions in Alberta and Saskatchewan.

Second, in Trezzi, Peter Trezzi was the sole shareholder, and his estate trustee had the power to wind-up the company acting unilaterally. If there were another shareholder, that would not be the case. Even if at the time the time the will is drafted, the will-maker is the sole shareholder, that may change before death. The will-maker could transfer some or all of his shares, perhaps to other family members. His personal representative would no longer have the power to unilaterally wind-up the company.

Third, the company might dispose of the assets left in the will. This problem is not unique to corporate-owned assets. Anytime a will-maker is leaving specific property to beneficiaries, the will-maker should consider making other provisions in case the property is disposed of between the will and the date of his death.

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