Author: Ian Hull
The Ontario Bar Association (“OBA”) has once again designated November as “Make a Will Month”. Approximately 56% of Canadians do not have a will. This issue first arose in a 2012 LawPRO survey and has been confirmed as an ongoing concern according to a CIBC survey in August 2015.
Furthermore, according to this article in the Law Times, the percentage of lawyers who do not yet have wills is about the same as in the general population. According to Jordan Atin, many of the factors that might discourage someone from taking the time to make a will, apply equally to lawyers. Among the various factors, the most obvious is the perception that making a will is a long, complicated process and that having that conversation is not an easy thing to do.
However, the estate planning process does not have to be something awful. Mr. Atin’s experience is that clients almost always feel relieved after they finally make their will. Despite the time and potential stress involved in the will-making process, the peace of mind that will come afterward should serve as a motivating factor.
This year’s “Make a Will Month” may be even more important than it has been in the past. Notwithstanding the fact that everyone should have a will regardless of the month, as of January 1, 2016, there will be some changes to the rules governing testamentary trusts, as has been discussed on this blog before . Going forward, tax treatment of testamentary trusts will be much different than in the past. Graduated Rate Estates (GREs) will no longer be available for testamentary trusts that continue past the first three years following a testator’s death. There will also be a shift in responsibility for income tax to a surviving spouse’s estate rather than a deceased spouse’s estate.
If you have not already made your will, consider participating in the OBA’s “Make a Will Month”, as well as seeking advice with respect to the upcoming changes to the rules.
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Certain types of assets, such as life insurance proceeds or RRSPs, may be designated to be paid out directly to a beneficiary upon the death of the owner. In such a case, the asset does not pass through the estate and Estate Administration Tax is not paid on the value of the asset. It is not strictly required that they be referred to in a will, as the beneficiary designation in the plan itself is sufficient to gift the asset on death. However, it is possible, as per section 51(1) of the Succession Law Reform Act, RSO 1990, c S.26 (“SLRA”), to refer to a plan in a will, either to confirm the designation in the plan itself, or to make the designation.
However, an issue may arise if there is a beneficiary designated in both the plan and the will, but the named beneficiary is not the same. It is then necessary to determine which designation will prevail.
Section 52(1) of the SLRA states that a “revocation in a will is effective to revoke a designation made by instrument only if the revocation relates expressly to the designation, either generally or specifically.” Accordingly, if there is a conflict between the will and the plan with respect to the designated beneficiary, as long as the will expressly refers to the plan designation, the will should govern the ultimate beneficiary of the plan. Moreover, it may be possible to determine which designation will prevail by looking at which was made most recently. As per section 52(2) of the SLRA, a later designation revokes an earlier designation, to the extent of any inconsistency.
There is also case law to support overriding a plan designation based on the clear intention of the testator. In McConomy-Wood v McConomy, 2009 CanLII 7174 (ONSC), the testator designated one of her three children, Lisa, as the beneficiary of her RRIF a few weeks prior to her death. However, throughout her life, it was the testator’s consistent intention, frequently expressed to her children, that they would all be treated equally and that all of her assets would be divided equally amongst the three of them.
The will did not expressly refer to the designation, but it named Lisa as the sole estate trustee to hold the assets of the estate in trust for all three siblings equally. The judge in McConomy-Wood v McConomy therefore found that the intention of the testator with respect to the RRIF designation was that her daughter hold the proceeds of the RRIF on the same terms as the estate.
The most prudent way of dealing with potential conflicts is to be aware of beneficiary designations in the plans themselves. If you choose to also refer to the designation in your will, take the time to verify who the named beneficiary is and to be consistent between the will and the plan, in order to avoid any conflicts or confusion.
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When a life insurance policy’s designated beneficiary is the estate of the policy-holder, the proceeds of the insurance policy will be paid into the deceased’s estate. Usually, the value of the life insurance proceeds are included in the value of the estate when applying for a Certificate of Appointment of Estate Trustee. But there may be a case for not including them.
The Ministry of Finance takes the position that the “total value of the estate is all of the assets owned by the deceased at the time of death, including…insurance, if proceeds pass through the estate, e.g., no named beneficiary other than ‘Estate’.” However, the Estate Administration Tax Act, 1998, S.O. 1998, c. 34 defines ‘value of the estate’ as “all the property that belonged to the deceased person at the time of his or her death”.
Therefore, some have suggested that there can be an argument made that, at the time of the deceased person’s death, they did not actually own the proceeds from the insurance policy. Rather, they owned the contract of insurance. The proceeds are only payable after death and therefore cannot be in the deceased person’s possession when they die. Whether this argument would succeed is uncertain, but it does raise an interesting question of a conflict between the clear wording of a statute and Ministry policy.
Considering that, as discussed in this Toronto Star article, Ontario has the highest estate tax in Canada, the issue of what is and is not to be included in someone’s estate for the purpose of determining the amount of estate administration tax is not insignificant. Currently, the rate of estate administration tax is $5 per $1,000 of the first $50,000 of an estate, and then increases to $15 for each $1,000 after that. Keeping an insurance policy outside of the estate could result in significant tax savings.
Of course, there are other ways to avoid including the value of insurance proceeds in your estate. This includes designating a beneficiary other than the estate. In that case the insurance proceeds would pass entirely outside of the estate and no estate administration tax is payable.
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Both the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”) and the Succession Law Reform Act, R.S.O. 1990, c. S.26 (“SLRA”) contemplate the support of spouses. The FLA is focused specifically on spouses, while the SLRA deals with support of dependants, which includes a spouse of a deceased, as well as a parent, child, or sibling, to whom the deceased was providing support or legally obligated to provide support. Should these regimes be kept separate, or is there some meshing of the two, allowing for the FLA to influence the determination of spousal support under the SLRA?
The relevant sections of the FLA and the SLRA are as follows:
- FLA 30: “Every spouse has an obligation to provide support for himself or herself and for the other spouse, in accordance with need, to the extent that he or she is capable of doing so.”
- SLRA 58(1): “Where a deceased, whether testate or intestate, has not made adequate provision for the proper support of his dependants or any of them, the court, on application, may order that such provision as it considers adequate be made out of the estate of the deceased for the proper support of the dependants or any of them.”
As far back as 1984, in Mannion v Canada Trust Co., (1984) 24 ACWS (2d) 363, the Ontario Court of Appeal considered the predecessor to the FLA, the Family Law Reform Act, holding that “[a]lthough the matters to be considered under the Family Law Reform Act in the case of a spouse parallel in many respects the matters to be considered under the Succession Law Reform Act in the case of a widow, they are not identical. In many aspects the Succession Law Reform Act is broader.”
There have also been attempts to apply the Spousal Support Advisory Guidelines to the determination of quantum of support payable to a surviving spouse. In Fisher v Fisher (2008), 88 OR (3d) 241 (Ont CA), it was held that the Spousal Support Advisory Guidelines are not applicable in every case, and are intended to be a starting point in determining the amount of support that is fair. However, four years later in Matthews v Matthews, 2012 ONSC 933, the Court remarked that “the Spousal Support Advisory Guidelines do not have any relevance…because those guidelines are based on income sharing and the formulas in the Advisory Guidelines generate ranges of outcomes rather than precise figures for amount and duration. Here the Respondent is deceased and there is no income on his part to share.”
Ultimately, the major distinction between the family law context and the succession law context is that in family law both parties continue to require support and sustenance to live on, while in the succession law context, only one party remains in need of such support. Therefore the balancing act that must often be undertaken in order to consider the needs of both spouses in a divorce, is not present in the case of a deceased and a surviving spouse. This is a significant difference between the two statutes, and it cannot be assumed that the FLA can be applied in the estate law context.
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I recently tweeted this article from the Financial Post, which discusses different methods of charitable giving and the tax benefits associated with each method.
With respect to inter vivos charitable gifts, the methods include:
- A one-time gift using cash, cheque or credit card;
- Gifting publicly traded securities;
- A one-time gift using flow-through shares; and
- Gifting real estate or private shares.
One-time gifts using cash, cheque or credit card, which are familiar to most individuals, are the most common type of gift and are often gifts of smaller amounts. The other type of one-time gift, which makes more sense for larger gifts, is a gift of “flow-through shares”. These are a particular type of stock involved in materials or energy exploration that qualify for significant government credits. This option is better for individuals comfortable with advanced tax strategies and high taxable incomes. The two remaining inter vivos methods of gifting publicly traded securities, private shares, or real estate, are best for large gifts and result in tax benefits with respect to capital gains.
With respect to testamentary giving, the article discusses leaving money in a will, leaving money through an insurance policy, and donating RRSPs and RRIFs. Gifting money to charities via a bequest in a will is familiar to many individuals. However, there are often more tax-efficient ways to give, since money in your estate has been fully taxed and probated along the way.
The other methods of testamentary giving discussed are less common. Leaving money through an insurance policy involves paying premiums on a policy for which a charity is the beneficiary, and receiving a tax receipt on the payment of that premium. This method is said to often deliver a higher rate of return than investing and leaving money to a charity in your will. It also has the benefit of providing certainty with respect to the amount you will be donating to the charity. Donating your RRSPs or RRIFs has a benefit in that, often, the taxes on an RRSP or RRIF may be the largest tax liability on an estate. By donating the balance of the RRSPs or RRIFs, you can effectively use a charitable gift to cancel out the tax.
If charitable giving is something that you consider important, consider gifting in a tax-efficient way so as to gain a benefit yourself, and to provide even more of a benefit to your chosen charity.
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Not too long ago, when opening a trust account at a financial institution, the customer doing so had no requirement to provide the bank with information about the beneficiaries of the trust. However, in February 2014, amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (SOR/2002-184) came into effect. These amendments significantly enhanced the obligations of financial institutions in these situations, and consequently, significantly changed the information that a customer must provide upon opening a trust account.
The law in this area has developed quite rapidly. Before 2008, there was no requirement to obtain information with respect to the beneficiaries of a trust. Between 2008 and 2014, there was not yet a requirement to obtain information, but financial institutions and securities dealers had to take reasonable measures to obtain the name, address and occupation of all beneficiaries with an interest of 25% or more in a trust.
The most recent amendments to the Regulations came into effect February 1, 2014. The relevant section of the Regulations is as follows:
11.1(1) Every financial entity or securities dealer is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity…shall, at the time the existence of the entity is confirmed, obtain the following information:
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(d) in all cases, information establishing the ownership, control and structure of the entity.
Thus, the financial institution must obtain the names of all beneficiaries, settlors, and trustees of the trust, as well as information about the ownership, control and structure of the trust. Section 11.1(2) also requires that the financial institution confirm the accuracy of the information obtained. As per section 11.1(4), if the required information cannot be obtained or confirmed, the financial institution must treat that customer as “high risk” and “apply the prescribed special measures” as set out in the Regulations.
Furthermore, included in the definition of “ongoing monitoring” in section 1(2) of the Regulations is the requirement that the information referred to in section 11.1 be kept up to date through periodic monitoring.
While the Regulations are directed at financial institutions, the reality is that customers opening trust accounts will also be subject to these requirements. This means that the information will need to be produced upon opening the trust account, as well as maintained over the life of the trust.
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A recent decision of the Ontario Superior Court of Justice, Post Estate (Trustee of) v Hamilton, 2015 ONSC 5252 (available on Westlaw) considered a rather unusual set of facts with respect to joint tenancy and an interesting application of the equitable remedy of adverse possession.
Edward and Heather had been common law spouses several decades ago. They purchased a home together (the “home”) in 1980, as joint tenants. Three years later, Edward and Heather ended their relationship, and Heather moved out of the home they had bought together. Edward lived in the home ever since, until his death in December 2014. Heather has not been heard from since 1983.
When Edward died last year, his Estate ran into a roadblock with the home. Edward’s family had understood that the home was in Edward’s name alone, but were surprised to find that Heather and Edward still owned the home together as joint tenants. Under the law of joint tenancy, when one of the joint owners dies, the asset passes to the surviving joint tenant, by right of survivorship. Theoretically, therefore, the home should have become Heather’s property.
The wrinkle in this case was that, despite “strenuous efforts”, Heather could not be found. Edward’s Estate Trustee then brought an Application for an Order vesting title in the home in the Estate. The issue considered by the Honourable Justice MacDougall was thus, whether one joint tenant can acquire full title to property by way of adverse possession. In order to establish title by possession, Justice MacDougall stated that a party must show three things:
- i. Actual possession for the statutory period by him/herself and those through whom s/he claims;
- ii. That such possession was with the intention of excluding from possession the owner or person entitled to possession; and
- iii. Discontinuance of possession for the statutory period by the owners and all others, if any, entitled to possession.
With respect to the first and third requirements, Edward had actual possession of the home by himself for 32 years, which is well beyond the 10 year statutory period required. With respect to the second requirement, the court found that, although Edward did not have a “clear and direct intention” to exclude Heather, the court can still infer a presumed intention to exclude and consequently find in favour of adverse possession. In this case, Justice MacDougall was able to infer such presumed intention due to the facts that Edward believed he had full ownership of the house, he paid all the expenses for the house for 32 years, and made mortgage payments and renewed the mortgage without Heather’s signature or agreement.
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A recent decision of the Ontario Superior Court of Justice, Grillo Estate v Grillo, 2015 ONSC 1352, considered an Application for an Order invalidating the holograph Will of Domenico Grillo. The Applicant was the adult daughter of Mr. Grillo, who also had two other adult children. Mr. Grillo had been born in Italy but prior to his death, was domiciled in Ontario. He had family in Italy, namely his sister and her children, and would frequently visit them. One of these such visits was in March 2014, despite the fact that at the time he was very ill.
On July 1, 2014, Mr. Grillo’s niece, Anna (in Italy) called his daughter in Canada, to tell her that Mr. Grillo was very ill. Anna subsequently made several other calls that seemed suspicious to Mr. Grillo’s children. The three children decided to go to Italy to check on their father. However, before they were able to reach him, Mr. Grillo passed away on July 4, 2014. Upon arrival, the children found that many of their father’s possessions were missing from the home he owned and in which he had been staying. Among the missing possessions were his wallet, bank cards, credit cards, passport, and jewellery.
The children were then presented with a document which Anna purported to be a holograph Will executed by Mr. Grillo on May 5, 2014, while he was in Italy. The beneficiaries under this Will were his three adult children, as well as Anna, his niece. Mr. Grillo had executed a prior Will in 1994, under which his three adult children were equal beneficiaries. Mr. Grillo’s children could immediately see that the alleged holograph Will was not written in their father’s handwriting. An Italian handwriting expert also came to the same conclusion.
As this case had an international aspect, the court had to determine whether there was a real and substantial connection to the jurisdiction of Ontario, using the tests laid down in Club Resorts Ltd v Van Breda,  1 S.C.R. 572. The Court found that there was a real and substantial connection, due to the following:
- Notwithstanding that Mr. Grillo was in Italy when he died, he was a resident of Ontario and Rule 17.02(b) and (c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 permits service ex juris in respect of the administration of the estate of a deceased person who was a resident of Ontario, or for the setting aside of a will in respect of personal property in Ontario;
- All presumptive connecting factors generally pointed to a relationship between the subject matter of the litigation and the forum of Ontario such that it would be reasonable to expect that the defendant, in this case Anna, would be called to answer legal proceedings in Ontario;
- As per section 26(2) of the Succession Law Reform Act, R.S.O. 1990, c. S.26, the fact that Mr. Grillo was domiciled in Ontario at the time of his death, means that the law of Ontario will govern the formalities and validity of both the 1994 will and the 2014 will.
Perhaps the most interesting element of this case is that criminal charges had been laid in Italy for various counts of theft, and writing and registering a forged will. In light of this evidence, as well as the evidence from the Applicant and the handwriting expert suggesting that Mr. Grillo had not written the 2014 holograph Will, the Court had little trouble finding that the holograph Will was not valid.
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A recent New York Post article discusses the estate of the late Maurice Laboz of Manhattan, who left $20 million to his two daughters, Marlena and Victoria, 21 and 17 respectively, to inherit when they turn 35. However, Mr. Laboz has also provided a number of ways in which the girls can gain access to some money in the meantime.
For example, if Marlena graduates from “an accredited university” and writes a short essay, to be approved by the trustees, she will receive $750,000. The Testator also included a provision which will triple their salary each year, providing an incentive for them to work hard and earn a good salary, and not just to rely on their inheritance.
There are also restrictions for Mr. Laboz’s daughters. He has included a term of the trust such that, if they decide to have children and not to work outside the home, they will receive 3% of the value of their trust every year. But, if they have a child born out of wedlock, they will not receive any of the money allotted for this purpose.
I recently tweeted this post from Elder Law Answers, which discusses incentive trusts. As illustrated by Mr. Laboz’s trust for his daughters, an incentive trust is a way to provide for your loved ones, while retaining some control over the way the money is spent. Such trusts may have very specific instructions to ensure that the trust funds support positive behavior, and discourage unproductive or harmful behavior. Some of the types of incentives can include rewards for degrees, or matching employment earnings, as discussed above. An incentive trust might also include funds to match the down payment on a house, or to reward doing charitable or volunteer work. An incentive trust may also try to deter harmful behavior, such as drug use, by providing a reward for undergoing treatment for addiction.
As noted by BMO Nesbitt Burns, incentive trusts have seldom been used in Canada and can be difficult to design and administer. In particular, selection of Trustees for an incentive trust is critical, due to the great deal of discretionary powers they can exercise over distribution of trust funds. But if you have good advice on setting up a Trust, it may be a way to ensure that your loved ones’ inheritance will be well spent.
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Estate litigation often involves not only financial, but emotional issues. Among the most common disagreements are those between family members, whether amongst siblings, or between siblings and a surviving spouse. In some cases, the parties cannot get along and they may require that the Court determine the matter in dispute. However, there are also situations where the disagreement can be worked out between the two sides, such as through an Alternative Dispute Resolution (“ADR”) process like mediation, without the extra time and expense that comes with a Court proceeding.
Another form of ADR used primarily in the family law context is Collaborative Family Law (“CFL”). CFL is structured in a series of four-way meetings between the parties and their lawyers. There is no mediator, arbitrator, or judge present, so CFL requires a high level of trust between the lawyers and clients. Candidates for this collaborative approach to dispute resolution are often parties who still get along reasonably well, and who are willing to cooperate with one another.
Based on the frequently emotional and familial aspects of estate litigation, it seems that CFL, or a form of CFL, could be applicable in the estates context. Back in 2010, as noted by this prior blog post, there seemed to be some interest in applying the CFL model to estate Law. This article in Canadian Lawyer from later that same year discussed why collaborative estate law didn’t seem to be catching on.
One of the key features of CFL that seems to make it unattractive in estate law is that, if after the series of four-way meetings, the parties cannot agree between themselves, they must start from scratch. The lawyers who participated in CFL cannot continue to represent the same client in court proceedings. All information produced in the CFL process has to be reproduced, including financial statements, expert reports, appraisals, etc. Although the best case scenario in CFL involves saving money as well as preserving relationships, the worst case scenario could possibly involve additional expenses and harm to relationships in any event.
However, perhaps the clause that restricts a lawyer from staying on the file after unsuccessful meetings could be removed, or at least modified. One possibility considered is to disqualify only the individual lawyer who worked on the file, and not the entire firm. This may make it more accessible to parties who would otherwise be good candidates for resolving their problem in a collaborative way, as opposed to an adversarial one.
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