When an estate involved in litigation includes an interest in a corporation, there can be confusion as to what kind of interest, if any, the beneficiaries can assert over the corporation’s property during the litigation. This can be a real concern if the estate is being administered by an estate trustee who has demonstrated a propensity for depleting estate assets, or if the beneficiary has concerns over how the corporate property is being managed and wants to provide potential purchasers with notice of the ongoing litigation.

If the deceased was the sole shareholder of the corporation, a beneficiary may be able to assert an interest over corporate property. After all, in Trezzi v Trezzi, 2019 ONCA 978, the Ontario Court of Appeal affirmed that a testator may dispose of corporate property through their will, despite the principle of corporate separateness. If corporate property is gifted to a beneficiary through the deceased’s will under such circumstances, the beneficiary may be able to assert an interest over that property during an estate administration in order to prevent its depletion.

However, if the testator is one of multiple shareholders and a will challenger is claiming only a partial interest in the corporation, it appears that the challenger may not be able to assert an interest in corporate property while the litigation is ongoing. As recently noted by Justice Myers in Iannace v Iannace, 2025 ONSC 2542, “[i]t is still the fundamental rule of corporate law that a corporation is a separate legal person from its shareholders. The shareholders do not own the corporation’s property.”        

Iannace involved a will challenge in which the minimal evidentiary threshold had been met.  The testator, who passed away at the age of 89, changed his will three months prior to his death to disinherit one of his two sons, leaving the residue of his estate to the other son. The testator’s previous will divided the residue of the estate equally between the two. As a result of the dramatic change to the testator’s will, the disinherited son commenced a will challenge.

While litigation was ongoing, the son who inherited the estate was acting as estate trustee and mortgaged a piece of real property held by the estate for up to $1 million without notice to the will challenger. Subsequently, the challenger applied to the court for a certificate of pending litigation (“CPL”) with respect to two properties – the property that the estate trustee had already mortgaged and a property held by a corporation in which the testator had been one of multiple shareholders. 50% of the corporate shares had been held by the testator, whereas the other 50% had been held by the testator’s deceased brother. When the application was heard, the brother’s shares were held by the parties’ cousins.

Justice Myers granted a CPL for the property that the testator had held personally prior to his death, but not the corporate property. Whereas the challenger had a prima facie claim to a 50% interest in the property that the deceased held personally by virtue of the prior will, the challenger had no such interest in the corporate property. The fact that the estate had a 50% stake in the corporation did not give the estate an interest in the title to the property held by the corporation. A CPL also could not issue because the estate, as a shareholder, had not made a claim involving title to the corporation’s property. Moreover, the land was set for sale and the will challenger was not challenging the sale; accordingly, Justice Myers concluded that there was no basis to issue a CPL.

However, the court did grant alternate relief requested by the will challenger, and ordered 50% of the proceeds from the sale of the corporate property to which the estate was entitled to be paid into court, but only if the sale proceeds were distributed to the estate. So long as the sale proceeds were held by the corporation, the court affirmed that the will challenger had no right to claim an interest in them because the challenger had no property claim against the corporation. Justice Myers explained:

“The corporation will do as it pleases with its assets subject always to the corporate law. It may well distribute the proceeds of sale to the shareholders and liquidate. It may do something else with its money if its corporate objects allow and its board of directors and shareholders so decide.

If the applicant is correct that he may own beneficially 25% of the shares of the corporation, he still could not veto a shareholder resolution calling for a fundamental corporate change (that requires 66 2/3% shareholder approval by special resolution). But he might have an oppression remedy in some circumstances. And, if that happens, he may have rights. As of today however, he advances no facts on which to base any claim or relief against the corporation or its property.”

The court’s decision indicates that if a will challenger asserts a partial beneficial interest in a corporation, it may be possible to assert an interest over corporate property or the proceeds from the sale of corporate property – but only once that property is in the hands of the estate. As long as the property is held by the corporation in which the estate has an interest, a will challenger cannot assert an interest over that property.

The will challenger in this case could have 50% of any sale proceeds distributed to the estate paid into court pursuant to rule 45.02 of the Rules of Civil Procedure. All of the requisite criteria were satisfied – by virtue of the will challenge, there was a claim against the sale proceeds, there was a serious issue to be tried regarding the will challenger’s claim to the proceeds, and the balance of convenience supported the order in light of the mortgage already taken out by the estate trustee. As noted by Justice Myers, the estate trustee’s conduct indicated a conflict of interest, and that there was a real risk that the will challenger could be left with an empty or unrecoverable judgment if the order was not granted.

Thank you for reading – have a great day!

Ian.