Author: Ian Hull
I recently came across an interesting New York Estate Planning Blog, which attempts to address the valuation of intangible property in relation to the payment of estate administration tax.
Although it is rather straightforward that estate trustees are required to value assets of a deceased person, and pay taxes on those assets, the issue posed by the blog is, whether intangible assets are included in the payment of estate administration taxes, and if so, how a valuation is reached.
In Ontario, intangible property is deemed to be owned by the deceased at the time of death, and is therefore included in the calculation of estate administration tax. This has been made clear by the Ministry of Finance.
Valuing intangible property appears to be less clear though. Apparently, in the USA, disputes have arisen between estate trustees and the Internal Revenue Service (IRS), over the valuation of intangible assets, and to the amount of estate administration tax paid.
This dispute seems to be highlighted by the valuation of publicity rights. For example, the estate trustees of Michael Jackson’s estate have valued his estate at $2,105.00, whereas the IRS has attributed a value of $1.125 billion – therefore alleging that an additional $702 million is owned in estate administration tax (based on taxes and penalties). According to the LA Times, most of the dispute is over the price attributable to the King of Pop’s image, and his interest in a Trust which includes the ownership of Beatles songs, including Yesterday, Get Back, and Sgt. Pepper’s Lonely Hearts Club Band.
While most Ontario residents will not be burdened with valuing publicity rights, it is nonetheless important to consider the inclusion of assets, including intangible assets, in calculating estate administration tax, and that a proper valuation is obtained. Otherwise, in reviewing the payment of estate administration tax paid, the CRA may not ‘Let it Be’.
What language will be sufficient to effect a beneficiary designation by codicil? The decision in The Bank of Nova Scotia Trust Company v Ait-Said, 2016 ONSC 4051 (Canlii) provides some guidance on this issue.
The Testator, Mr. Briggs, made a number of amendments to his will. In particular, he had had drafted a document (“the July 29, 2013 Document”) which referred to the contents of the safety deposit box. Only a photocopy of this handwritten document was located when the records were searched. The July 29, 2013 Document provided that the contents of the Testator’s safety deposit box were to be left to Ms. Lockhart, a respondent in the proceeding. This safety deposit box included within it life insurance policies. Mr. Brigg’s wife, Ms. Briggs, had been named the beneficiary of the policies but had predeceased him.
It was Ms. Lockhart’s position that their inclusion in the box effected a declaration within the meaning of the Insurance Act, naming her beneficiary of the policies. She argued that the declaration in the holograph will should not be held to the same standard as that of a will prepared in accordance with the formalities of the Succession Law Reform Act, and that the wording of the document was sufficiently clear in its testamentary intentions to designate her as beneficiary of the policy. The Estate Trustee, the Bank of Nova Scotia Trust Company, maintained that there was no valid declaration or intention to name Ms. Lockhart the beneficiary of the policies, and that the proceeds of the policies had to be distributed in accordance with the Insurance Act.
As a preliminary concern, the Court evaluated whether this document should be admitted to probate. The Court accepted on the evidence that the July 29, 2013 Document was admissible for probate despite it being a photocopy of a handwritten document.
In making a determination as to the beneficiary of the proceeds of the policies, the Court considered the words “the total contents of my safety deposit box.” It found these words were not sufficient to meet the requirements of the provisions of Insurance Act. In its reasons, the Court stated that the document did not identify the insurance contract or the proceeds and dismissed Ms. Lockhart’s argument that there had been a valid declaration in her favour.
The Court also dismissed Ms. Lockhart’s argument that the Estate Trustee held the policies in trust for her. In doing so, it referred to the document’s emphasis on personal possessions within the safety deposit box and that in doing so the Testator likely did not intend to include the policies. The Court refused to find any fixed or final intention to leave the policies to Ms. Lockhart on this basis. The policies were therefore to be distributed in accordance with 194(1) of the Insurance Act to the Testator’s personal representative.
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One of the primary duties of an Estate Trustee is to ascertain the assets of the estate. Sometimes, at the time of death, property of another person may be left at the deceased’s place of residence or otherwise in their possession. This property, unsurprisingly, can be assumed to be the deceased’s. However, if property entitlement is in dispute, when and how does a claimant to property go about inspecting the property?
Rule 32.01(1) of the Rules of Civil Procedure provides:
The court may make an order for the inspection of real or personal property where it appears to be necessary for the proper determination of an issue in a proceeding.
In Catto v Catto, 2016 ONSC 3025, the Court considered this Rule in the context of an application seeking the opinion, advice and direction of the Court relating to various issues in the administration of an estate.
The Deceased had died suddenly and without a will. He and his brother had been collecting hockey cards for over twenty years. His brother claimed to have left his part of the collection with the Deceased when he ran out of storage room in his own home. A list indicating the ownership of the cards went missing when the cards were left in the possession of the Deceased. The Deceased’s wife, Ms. McKay, knew the Deceased collected hockey cards but did not know that the cards may belong to anyone other than her late husband. Affidavits were filed detailing the storage of all the collected cards at the Deceased house. Evidence was also provided supporting the two brother’s long history of collecting hockey cards together. The Court found the Deceased’s brother was entitled to inspect the cards at a time and location mutually agreeable to the parties. It also found that if the list could not be located, the parties could randomly divide the cards as they might agree or the Court would make a determination.
This case also raises a worthwhile point to remember. It might seem that an obvious solution would have been to allow the Deceased’s brother to simply take what he thought was his. In the facts of this case, Ms. McKay was the sole beneficiary of the Estate, and presumably, if there were no creditors or dependants, she could have easily done so without attracting liability. However, had there been concerns with respect to creditors, beneficiaries, or dependents, as estate trustee, she could have potentially incurred liability for making a distribution.
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The hockey legend, Gordie Howe, died this past Friday. He leaves behind four children and nine grandchildren. The details of his estate are not yet known. The day before he died, the Michigan Court of Appeal upheld a verdict in his favour where he was awarded approximately $3,000,000 in damages. The defendants in that proceeding were found liable for destruction of some of Gordie Howe’s personal memorabilia. The timing of his passing favours his estate. While unusual, parties do die during litigation. If Mr. Howe had died during an ongoing proceeding, it could have been the cause of some confusion. It is important to remember that the Rules of Civil Procedure offer guidance on this issue.
Rule 11.01 provides that where a party has an interest or liability that is transferred by reason of death or other means, the proceeding is automatically stayed with respect to the party whose interest or liability is transmitted. This stay is in effect until an order to continue the proceeding is obtained.
Rule 11.02(1) governs the process by which one obtains an order to continue. This requires an affidavit from an interested party, which verifies the transmission of interest or liability. The party seeking an order to continue the proceeding should also file Form 11A. These materials can be filed with the registrar. Obtaining an order to continue a proceeding can be done without any notice to the parties in a proceeding. Once this order is obtained, Rule 11.02(2) requires that it be served upon every other party forthwith.
It is understandable that there will be some delay when a party dies. However, it should be remembered that Rule 11.03 allows a defendant to move to dismiss the lawsuit where a plaintiff fails to obtain an order to continue a proceeding after a reasonable period of time.
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The Canadian government, after receiving a four month extension for passage of Bill C-14, which enables medically assisted suicide, will not meet today’s deadline set out by the Supreme Court of Canada. The Bill has passed its second reading in the Senate and has obtained agreement in principle. Yet, after this vote, the Senate adjourned its hearing until June 7th. As previously blogged, the Bill is a result of the Supreme Court of Canada’s decision in Carter v. Canada (Attorney General) 2015 SCC 5, where the Supreme Court ruled that the blanket criminal code provisions prohibiting physician assisted suicide were unconstitutional. The federal government was initially given a year’s time to put in place remedial legislation, and recently received a four month extension to this deadline. In granting the extension, the majority of the Court stated that it would be unfair to those who already qualify based on Carter to delay the legislation any longer.
Despite this, as of the end of today, physicians and patients will be left in legal limbo. While guidelines have been provided to doctors across the provinces, these could be the cause of significant variation in medical practice.
There are already concerns about the constitutional validity of the proposed legislation. The Alberta Court of Appeal in Canada (Attorney General) v. F. (E.), 2016 ABCA 155 considered the Supreme Court’s guidance in Carter and found that Carter did not limit applications for physician assisted suicide to only those who were terminally ill. It rejected the Attorney General for Canada’s argument that these limits could be inferred from the language in the Carter decision.
The Alberta Court of Appeal found that any attempt to read restrictions into the Carter decision would have to take into account the balance of values struck in Carter: autonomy and dignity of the applicant on one hand, and the sanctity of life and protection of the vulnerable on the other. The Court found that because of these important interests, it would be inappropriate to exclude, by inference, those who meet the criteria in Carter, and were never expressly excluded by the Supreme Court’s decision. The Court of Appeal also found that the Supreme Court did not exclude mental illnesses as the basis for application.
The Bill, as it is currently written, appears only to allow those who are terminally ill to apply. It will be interesting to see whether at this late hour any revisions will be made to the legislation to avoid the obvious challenge to its constitutional validity. Any such revisions will only increase the delay and uncertainty that will exist as of the end of today.
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In Royston (Trustees of) v Alkerton, 2016 ONSC 2986, the executors of the estate of Recia Royston (“Recia”) sought the opinion, advice or direction of the court regarding the interpretation of a residue clause in Recia’s Will. The clause in question read as follows:
My Trustees shall divide the residue of my estate equally among my children alive at my death; but if any child of mind dies before me, leaving issue alive at my death, my Trustees shall divide the part to which that deceased would have been entitled if alive on [sic] at my death among that child’s issue in equal shares per stirpes.
Recia had five children: Michael, Peter, Laura, Alan, and John. Both Alan and John predeceased Recia. Alan had two children, Jacob and Jennifer; John had no children.
The question for the court was whether Jacob and Jennifer were entitled to the share of Recia’s estate to which their father, Alan, would have been entitled if alive. Laura’s position was that Recia intended the clause to capture only those of her children alive at the time of the execution of the will on May 13, 2014 (the “2014 Will”), namely Laura, Michael, and Peter.
The court found that Recia intended the plain meaning of the term “my children” in the clause in question, which would accordingly include all of Recia’s children. Recia had chosen to restrict her residue clause in certain ways – for instance, by specifying that it should benefit her children alive at her death, and that the children of any predeceased children should take in equal shares per stirpes. However, although she could have, she did not exclude Alan’s children, nor was there any indication that she intended to treat her children then living, or their issue, differently from the issue of her then deceased child.
The court also considered a prior will made in 1993, which contained a clause with different wording than the residue clause in the 2014 Will, but that the court held expressed the same intent. As there was no suggestion that Jennifer and Jacob were not entitled to share under the 1993 Will, this evidence corroborated a finding that they should similarly benefit under the 2014 Will.
The court also looked to another clause in the 2014 Will, and found that it was consistent with an intention on Recia’s part to benefit all of her children alive at her death, or their issue. This other clause stated that if any beneficiary died before attaining the age of 21, without issue, their share should be divided amongst Recia’s issue in equal shares per stirpes – which would include Jacob and Jennifer – thereby supporting the finding that Recia intended Jacob and Jennifer to benefit from the share of the estate that would otherwise have gone to Alan.
The court also made some comments with respect to the admissibility of direct extrinsic evidence, and ultimately did not admit much of the evidence from Laura, Jacob, Jennifer, and Recia’s brother, Larry Cohen, who was one of the executors of her estate. Following the case law in Rondel v Robinson Estate, 2011 ONCA 493, Barlow v Parks Estate,  OJ No 266, and Re Burke, 1959,  OR 26, the court considered the circumstances surrounding the preparation and execution of Recia’s will in its interpretation of the clause in question.
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A collaborative approach to law firm management can be well-suited to today’s competitive legal marketplace, as it ensures there’s always somebody who can step in and help a client, Toronto trusts and estates litigator Ian Hull tells Lawyers Weekly .
A recent decision of the Ontario Superior Court of Justice, The Estate of Ingrid Loveman, Deceased, 2016 ONSC 2687, considered a passing of accounts, and specifically considered whether the Estate Trustees in this case, among other things, met the requisite standard of care in administering the Estate.
The Court briefly reviewed the case law with respect to the standard of care of Estate Trustees, noting that an estate trustee is a fiduciary to the beneficiaries of an estate, must exercise the degree of diligence that a person of prudence would exercise in the conduct of his or her own affairs, and may not prefer his or her own interests over the interests of beneficiaries.
Pursuant to the Deceased’s Last Will and Testament dated July 12, 2006 (the “Will”), two of her seven children, Peter and Heidi, were named as Estate Trustees. The Will provided, in part, that a house (the “House”) was to be retained for six months, at which time Peter had six months to exercise an option to purchase it for 70% of its fair market value as of the date of death. Should he exercise that option, the proceeds were to be divided into six equal shares, with each of four of the Deceased’s children (David, Heidi, Douglas, and Dirk) receiving one share, and the two remaining shares to be equally divided amongst her four grandchildren, and kept in trust.
Peter exercised the option to purchase the House within the twelve month time period. However, he only gave notice of his decision to purchase it; he did not actually act on the decision, nor complete the transaction within the time limit. He claimed that he delayed the purchase as he did not have access to the funds required in a way that was most economical for him. However, the Court found that postponing the sale in this manner was convenient to Peter, but not to the Estate nor to the beneficiaries, and he therefore breached his fiduciary duty.
There was also a delay in obtaining probate, which the Court concluded was likely due to Peter delaying the application until he deemed it necessary, being when he decided to exercise his option to purchase the House. The Court found that Peter accordingly placed his interests before those of the Estate and the beneficiaries. Furthermore, the Court found that, had the Estate Trustees adhered to the time frames stipulated by the Will, it is likely that litigation involving a claim by one of the Deceased’s grandchildren would have been avoided.
Although the Estate Trustees in this case did not act in a malicious or egregious manner, the mere fact that there was a delay related to the preference of an Estate Trustee was sufficient for the Court to find that Peter had breached his fiduciary duty. Fiduciaries are required to act with utmost good faith. This is an extremely high standard, and therefore, the interests of beneficiaries should never be anything but a trustees’ first and foremost priority.
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The nature of a will is that it is revocable, meaning that testators can change their mind, cause their will to no longer be in effect, and make a new will at any time. However, just as there are requirements for executing a will, there are specific rules in place that govern how a will may be revoked.
In Ontario, a will can only be revoked in certain ways. Under section 15 of the Succession Law Reform Act, RSO 1990, c S.26 (SLRA), a will or part of a will is revoked only by (a) marriage; (b) another will; (c) a writing declaring an intention to revoke, and made in accordance with the requirements of making a will; or (d) burning, tearing or otherwise destroying the will by the testator with the intention of revoking it. Accordingly, testators cannot simply decide that they no longer wish their will to govern their estate without any further action. They must take the step of executing a later will, destroying the will, or putting it in writing in the correct format that they wish to revoke. Many people are not aware that marriage revokes a will, so clients should always be advised of this in order to prevent any possible inadvertent revocation.
However, revocation of a will may not be the final word. Revival and republication exist to bring a revoked will back into effect. Revival is the restoring of a revoked will. Pursuant to section 19 of the SLRA, a revoked will can only be revived by a will or codicil that shows intention to give effect to the will or part that was revoked, or by re-execution of the revoked will with the required formalities, if any. The intention to revive a revoked will must appear on the face of the instrument purporting to revive it, and simply describing a later codicil as being a codicil to an existing will is not sufficient. If a will has been destroyed, it can only be revived by re-execution of a draft or copy or by a codicil referring to a draft or copy.
As opposed to revival, which restores a revoked will, republication, on the other hand, confirms a valid will. Republication occurs when a testator re-executes a will for the express purpose of republishing it or by making a codicil to the will. Essentially, republishing a will shifts the date of the will, so it is as if the testator had made a new will, with the exact same dispositions, at a later date. Republication must be in the form of a codicil to an existing will, or a document that makes specific reference to the will being republished as an existing testamentary document.
These may seem like simple concepts, but it is important to keep the basic rules in mind, as well as the sources of such rules, in order to properly advise clients and pre-empt easily avoidable issues as much as possible.
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For business owners, part of a comprehensive estate plan should include a succession plan for your business. It is important to start planning the succession of your business early and revisit it from time to time. This should not be a single, discrete task, but an ongoing process over time. The Canada Business Network, a government organization providing resources and information to businesses, suggests that the process of retiring or exiting from your business could take up to 5 years. Furthermore, in case of unexpected illness or death, you do not want to be left without a plan.
Your succession plan should include consideration of matters such as the vision for your business, the selection of a successor and a plan for their training, and the timeline for your transition out of the business. It could also include a plan with respect to how you might remain involved following your transition, and in what capacity.
You will need to consider whether you want to transfer the business to another person, or sell it, either to a partner, third party buyer, or even an employee. In a family business, you may wish to transfer the business to family members who have been involved in the business. This would ideally be implemented much earlier than your planned exit to allow family members to work in the business, learn it over time, and be prepared to take over when the time comes. If there are multiple family members involved, it may be difficult to decide who you wish to take over the responsibility, and may be even more difficult to communicate to those not selected. Regardless of how difficult this conversation may be, it should nonetheless be discussed sufficiently early to attempt as smooth a transition as possible.
It is also important to consider estate planning strategies specifically relating to the transition of your business. Some considerations could include how to transfer your shares to the successor in a way that minimizes tax, and whether you will be able to make use of the capital gains exemption from dispositions of Qualified Small Business Corporation shares. You may want to consider implementing an estate freeze by exchanging common shares for preferred shares, and issuing new common shares to your successors in order to freeze the value of your shares in the business. The value of future growth will then accrue to the common shares held by the successors. In this regard, and with respect to your entire succession plan, it would be wise to work with professional advisors to create and implement a tax-efficient method of transitioning your business that will work best for you.
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