Author: Christina Canestraro
The transfer of inter-generational wealth has long been a way for families to grow from one generation to the next. Many parents plan the transfer of their wealth at a time when their children are adults, and may be married with families of their own. And while in many respects the saying “what’s mine is yours, and what’s yours is mine” is true when it comes to marriage; it may not always be true when it comes to divorce. This is a key consideration for parents who wish to exclusively benefit their child with a gift or inheritance in the event of divorce.
The Family Law Act (“FLA”) provides guidance on how assets may be divided in the event of divorce. Section 4(2) states that property (outside of a matrimonial home) that was acquired by gift or inheritance from a third person after the date of marriage does not form part of that spouse’s net family property. Donors and/or testators may also expressly provide that income from said property is to be excluded from the spouse’s net family property. The FLA further provides that property (other than the matrimonial home) into which the gift or inheritance can be traced will also be excluded.
If a donor or testator’s intention is to have these assets excluded from a net family property calculation, it is encouraged that they formalize their intentions through proper deeds and/or wills.
Moreover, it is equally important for recipients of gifts and/or an inheritance to be mindful of where those assets are allocated upon receipt. For example, a recipient of a gift of money may want to be cautious of placing these funds in a joint bank account, where the assets may become commingled and difficult to trace.
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Section 9(1) of the Estates Administration Act, R.S.O. 1990, c. E 22 (“EAA” ) provides, among other things, that real property vests in persons beneficially entitled to that property under a will if that property was not disposed of, conveyed to, divided or distributed among the persons beneficially entitled by the personal representative within three years after the death of the deceased (unless a caution has been registered on title). The EAA does not provide further clarification on when vesting takes effect if a property is subject to a life interest, and further, what happens to that property upon the termination of the life interest.
The recent decision of Lewis Pelicos, Executor and Trustee of the Estate of James Pelicos v. The Estate of Stelios Pelicos, 2019 ONSC 5304 provides clarity on when vesting takes place in circumstances where real property is subject to a life interest.
In that case, the Applicant’s father, James, died testate. The beneficiaries of James’ estate were his two sons, Steven and Lewis (the Applicant). James’ last will and testament required his two sons, Steven and Lewis (the Applicant) to hold his residential property in trust for his wife, Lillian, for her lifetime. Steven passed away some years later, leaving only the Applicant as the beneficiary of his father’s estate. The Applicant was also the executor and trustee of his father’s estate.
Following the death of the life tenant, the Applicant wished to sell the property, but required the court’s direction on whether Steven’s estate would be entitled to a share of the proceeds of sale. The answer to that question depended on whether the property vested in the beneficiaries of James’ estate on his death, or the death of the life tenant.
The Applicant brought an application seeking the court’s directions, with the issues stated as follows:
(1) Can it be inferred that the property falls into the residue of the estate upon the termination of the life interest?
(2) In the alternative, do the beneficiaries of James’ estate take their interest on the testator’s date of death, or the date of death of the life tenant?
The court ultimately found that the property vested in both Steven and the Applicant as of the date of death of the testator, and as a result, the property did not fall into the residue of the estate upon the death of the life tenant.
To learn more about Vesting of Real Property, check out this blog:
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Building on this idea of judicial discretion is the recent case of Dobis v Dobis recently heard and decided by the Ontario Superior Court of Justice, whereby the court ordered a passing of accounts by a party who was deemed to have misappropriated funds from an estate asset.
Elizabeth commenced an application in her role as the estate trustee of her late husband’s estate. She sought, among other things, certain orders that would allow her to gain and maintain possession and control over one of the estate assets, a four unit rental property. She also sought an order requiring her son, Mark, to pass his accounts in respect of funds she alleged were misappropriated from the rental property.
Mark resided in one of the units of the rental property with his spouse, and alleged that it was his father’s intention that he maintain a life interest in the property. During the lifetime of the deceased, Mark acted as a manager/superintendent of the rental property in exchange for reduced rent. He also collected rent from one of the tenants and deposited the funds into a bank account owned jointly by his parents. Following his father’s death, Mark began diverting rent from the rental property to himself rather than depositing it in the joint account.
Despite requests from Elizabeth, Mark failed to properly account for the rental income. The accounting that was provided to Elizabeth was not supported by vouchers, and contained no detail of the expenses incurred. Elizabeth submitted that Mark had no legal or beneficial interest in the property, that he was holding the property hostage while unlawfully benefiting personally from the funds generated by the property, and that he failed to account for those funds.
In arriving at its decision, the court relied on the 2016 Ontario Superior Court decision in Net Connect Installations Inc. v. Mobile Zone Inc., which held that a court has jurisdiction to order an accounting where a party is deemed to have misappropriated funds.
Ultimately, Mark was compelled to pass his accounts for all monies received by him in connection with his management of the property. All this to say, watch what you do, because you may be held accountable.
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Mutual wills are a common tool used by two (or more) people who wish to preserve a will (or specific provisions thereunder) by entering into an agreement to avoid future changes. This is a particularly useful tool in blended families where partners have children from prior relationships, and both want to ensure that their children are equally provided for post-death.
The requirements for an application of the doctrine of mutual wills are three-fold: (1) there must be an agreement between the individuals who made the wills, which amounts to a contract; (2) the agreement must be proven by clear and satisfactory evidence; and (3) it must include an agreement not to revoke wills.
Once one of the parties to a mutual will agreement dies, the survivor is then bound by that agreement not to revoke his or her will. Typically, we see mutual wills cases arising after the death of both spouses, once it is discovered that the surviving spouse drafted a new will in breach of their mutual will agreement or disposed of assets contrary to their agreement.
The recent case of Nelson v Trottier grappled with a novel issue with respect to mutual wills: whether, in light of the existence of a mutual wills agreement, beneficiaries to a survivor’s estate could claim a constructive trust over her assets while she was still alive.
The applicants in this case were the deceased’s children. They were not beneficiaries under their father Bill’s will, but were beneficiaries under his wife Huguette’s will. After making a donation in Bill’s honour, the applicants sought, among other things, a declaration imposing a constructive trust over Huguette’s assets and preventing her from gifting property without further order of the court or the consent of the applicants.
After establishing that a mutual wills agreement existed between Bill and Huguette, the court then examined when a constructive trust is established. In deciding this issue, Justice Pattillo stated,
“in circumstances where one of the parties to a mutual wills agreement has died, however, and based on the nature of a mutual wills agreement and the purpose of imposing a constructive trust in respect of such agreement, it is my view that a constructive trust does not arise until either the survivor dies or earlier, in the event there has been a breach of the agreement by the survivor”
Since Huguette was still alive, the question became whether she had breached the mutual wills agreement by making the donation in Bill’s honour. Justice Pattillo ultimately found that Huguette had not breached the mutual wills agreement. His reasons included that the agreement provided that both Bill and Huguette would give the survivor all of their property absolutely and that the surviving spouse could deal with the property as absolute owner while alive (which includes the ability to make gifts).
Interestingly, Justice Pattillo acknowledged that the mutual wills agreement stipulated that the survivor could not dispose of “substantial” portions of the property received during his or her lifetime in order to defeat the agreement; however, he did not find that the donation given to be “substantial” in comparison to the size of the estate.
The application seeking, among other things, a declaration that there was a constructive trust over Huguette’s assets, was ultimately dismissed.
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The city of Toronto was abuzz this past weekend as we kicked off summer 2019 with wall-to-wall sunshine. There were so many wonderful things to celebrate this weekend. For some, celebrations continued over the Toronto Raptor’s historic NBA Championship win. Some were tapping their feet to the beat for the first weekend of Toronto’s Jazz festival. Others, like myself, were flooding the streets to celebrate one of the city’s largest, loudest, and most colourful parades of the year – the Toronto Pride Parade.
Pride festivities provide a great opportunity to come together with others to celebrate and promote the equal rights of all persons regardless of gender or sexual orientation. While there, I reflected on some key considerations for LGBTQ+ individuals to consider in the context of estate planning in Ontario.
1. The value of a will
A will is an invaluable tool to assist people in planning for the future. The Succession Law Reform Act, RSO 1990, c. 26 (“SLRA”) gives individuals the power to dispose of property post-death.
Provided that your will meets the statutory requirements to be valid (which are prescribed in Part I of the SLRA) testators are free to dispose of their property as they wish. This a right regardless of sexual orientation or gender and includes couples that are in common-law relationships and same-sex marriages.
Importantly, the will provides a testator with a level of control over how children are provided for post-death. This is especially important in scenarios where parents rely on assisted reproduction as a method of conceiving a child. Having a will allows a testator to specifically name children and outline how that child is to take under the will. For more information about this, click here.
2. Rules of Intestacy
If you die without leaving a will, your estate will be subject to the rules of intestacy which are governed by Part II of the SLRA. Under these rules, married couples are entitled to take their spouses property absolutely if the deceased is not survived by issue. On July 20, 2005 the Parliament of Canada enacted the Civil Marriage Act, which legalizes same-sex marriage and provides in section 2, that, “Marriage, for civil purposes, is the lawful union of two persons to the exclusion of all others”. This definition replaced the former definition which described marriage as the lawful union between a man and a woman. As a result, same-sex spouses are entitled to take from their spouses estate on an intestacy.
In contrast, common-law relationships do not share this privilege, regardless of whether it is a heterosexual or homosexual common-law relationship.
3. Incapacity During Lifetime
An important consideration for LGBTQ+ individuals is also what would happen in the event that they become incapable of making decisions regarding their health care and property. Although laws vary by jurisdiction, legal and biological family, such as spouses (sometimes including common-law partners), children and parents, will generally be favoured over other persons who may have a close but legally unrecognized, relationship with the incapable person. This could have a negative impact on an individual whose non-accepting family members step into a decision-making role for them.
4. Dependant Support Claim
If you fall under the definition of a “dependant” under Part V of the SLRA, which could apply to same-sex common-law relationships and spouses alike, you may be entitled to make a dependant’s support claim against your partner’s estate.
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I recently attended a panel discussion with judges of Toronto’s Commercial and Estate Lists, the purpose of which was to explore tips for effective practice and advocacy. A key takeaway from this discussion was that case conferences are a valuable tool in a litigator’s toolbox, particularly when litigation becomes contentious.
Case conferences are governed by Rule 50 of the Rules of Civil Procedure. The purpose of Rule 50 is to promote settlement of some or all of the issues in dispute without a hearing, and to obtain orders or directions to ensure that any necessary hearing is expeditious, orderly, and efficient.
Rule 50.13 dictates that a judge may direct a case conference before a judge or case management master, in either an action or application, on his or her own initiative or at a party’s request. A judge can direct a case conferences at any stage of the litigation. Pursuant to Rule 50.13(5), at a case conference, the judge or case management master may:
- identify the issues, noting those that are contested and those that are not;
- explore methods to resolve the contested issues;
- if possible, secure the parties’ agreement on a specific schedule of events in the proceeding;
- establish a timetable for the proceeding; and
- review and, if necessary, amend an existing timetable.
As discussed by my colleague, Kira Domratchev, in her blog on Rule 49 offers to settle, Ontario is a jurisdiction where parties are encouraged to settle their legal disputes prior to reaching the ultimate hearing of a matter. Case conferences are a valuable tool for parties who are looking to narrow the issues before the court, establish a timetable, or potentially reach a full and final settlement.
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Whether art, history, science, or fashion is your thing, a trip to the museum is a sure-fire way to marvel at the ingenuity of humankind, spark new inspiration, or escape to a different time and place. It’s no wonder one of the world’s most popular museums, the Louvre, welcomed 10.2 million visitors in 2018 from all over the world.
Whether motivated by the desire to preserve heritage and culture, or a passion for education, according to this New York Times article, philanthropists have been instrumental in the exponential growth in museums that we have observed, particularly in the last 50 years.
Some donors gift their collectibles to an institution while alive, with conditional terms to the acceptance of their donation. Take, for example, philanthropist Wendy Reves who donated more than 1,400 works from the collection of her late husband to the Dallas Museum of Art, with the stipulation that they recreate five rooms from the couple’s villa in the South of France, including furnishings from the villa’s original owner, Coco Chanel.
Other donors gift their collections from beyond the grave. In other words, they include specific provisions in their will donating their works to a particular institution, also known as a bequest. In 1967, the late Adelaide Milton de Groot, bequeathed her entire art collection (which contained more than 200 paintings) to the Metropolitan Museum of Art in New York City.
While American museums are beholden to important donors, they are also running out of space to properly store and preserve items not on display. In fact, many American museums only showcase approximately 4% of their inventory, with the balance held in climate-controlled storage spaces. To address this issue, many American museums have taken to formally disposing of part of their inventory, a term also known as deaccessioning.
Conversely, Canadian museums are facing challenges on the acquisition side. For the last 30 or so years, the Cultural Property Export and Import Act (CPEIA) earned Canadian donors tax credits for the market value of their donated art as long as it fell within the scope of “national importance”. This incentivized Canadian donors to bequeath their art to Canadian museums, which ensured that important cultural property remained in Canada for the benefit of Canadians.
Recently, the federal court decision in Heffel Gallery Limited v Canada (AG) narrowed the definition of national importance in the CPEIA, meaning millions of dollars in artwork donations to museums and art galleries were halted. As explained in this article, the newly proposed Budget 2019, “proposes to amend the Income Tax Act and the Cultural Property Export and Import Act to remove the requirement that property be of ‘national importance’ in order to qualify for the enhanced tax incentives for donations of cultural property.” This is good news for both donors and museums.
It is still too early to know how these changes will manifest in practice, given that Heffel Gallery Limited v Canada (AG) is still under appeal, and Budget 2019 has not yet passed. Institutions such as the Canadian Museums Association are hopeful that the new changes will mean more tax incentives for donors and more artwork being donated.
All this to say, if you have a Basquiat or Degas yearning to be seen by the masses, it may just have its chance to shine, with significant tax breaks to your estate!
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