In Dyjack v. Shaw, 2025 ONSC 1937, the Court was asked to determine whether the Estate or the beneficiary receiving property in Florida was financially responsible for the gift tax payable on the property. This case illustrates the complexities that can arise when dealing with cross-border estate issues and the importance of seeking opinions and advice from local counsel during both the estate planning and administration process.
Background
Carolyn passed away on June 28, 2021, leaving a Last Will and Testament executed January 9, 2013 (the “Will”). The Will appointed her two daughters, Carrie and Kelly, as Estate Trustees and residual beneficiaries. The parties worked together to administer the Estate, but a dispute arose over who was responsible for payment of a U.S. Gift Tax liability related to a Florida property. The Deceased had transferred the Florida Property into joint tenancy with Carrie in 2009 but did not file a U.S. Gift Tax Return at the time of the transfer, or during her lifetime. As a result, on her death there was an outstanding tax liability.
Carrie submitted that the U.S. Gift Tax had been a personal debt of the Deceased and was now a just debt of the Estate and therefore, must be paid for by the Estate. Kelly disagreed, arguing that the Estate was not responsible for the tax liability, so Carrie brought an application seeking the opinion, advice, and direction of the Court.
Key Legal Issues Analyzed
Ultimately, Justice Sanfilippo found that the U.S. Gift Tax was a just debt of the Estate. His decision focussed on the analysis of several key issues.
- Will Interpretation
The Respondent argued that because the clause gifting the Florida Property in the Will did not specify that the transfer was to be “free and clear of any and all encumbrances” whereas a clause gifting property in Port Dover did, the Deceased did not intend for the U.S. Gift Tax to be paid from the Estate’s assets.
However, Justice Sanfilippo noted that the Florida Property passed to Carrie by right of survivorship, outside of the Estate, making the interpretation of the Will unnecessary. Regardless, he noted that if he had been called on to interpret the Will, the Respondent did not provide enough evidence to determine the Deceased’s intentions.
- Section 32 of the SLRA
The Respondent argued that the U.S. Gift Tax constituted a “mortgage” or “any charge” under section 32 of the Succession Law Reform Act (SLRA) which would make Carrie, as the beneficiary of the Deceased’s interest in the Florida Property, liable for the tax.
Justice Sanfilippo rejected this argument, finding that not only did the Respondent provide no Ontario case law where a lien fell within the definition of ‘mortgage’ under s. 32(4), both a special gift tax lien and a general lien (the IRS’s tools for repayment of the U.S. Gift Tax) did not, and could not, exist against title to the Florida Property at the Deceased’s death, so it was unnecessary to determine if a lien fell under the definition of a charge or a mortgage.
- Enforceability in Canada
The Respondent further argued that the U.S. tax was unenforceable in Canada and therefore should not be a liability of the Estate. Justice Sanfilippo disregarded this evidence on the basis that the Respondent’s expert was not an expert of Canadian law and therefore was not permitted to testify on issues of enforcement of a tax debt in Ontario. Conversely, the Applicant’s expert led evidence that the IRS has broad enforcement powers, including the ability to pursue the Estate Trustees personally in the United States for payment of this debt. As such, Justice Sanfilippo found that the Applicant’s payment of this debt was not gratuitous, as the Respondent argued, as there would have been consequences to the Estate and the Estate Trustees had it not been paid.
Conclusion
Given the ever-increasing prominence of cross-border assets, we are seeing issues of this nature on a more regular basis and should ensure we are seeking the opinion of outside counsel to deal with these assets correctly.
Thanks for reading!
Darien Murray