Author: Ian Hull
A recent article in the Toronto Star discusses how the current state of the law in Ontario makes elderly individuals vulnerable to predatory marriages. In Ontario, under section 16 of the Succession Law Reform Act, RSO 1990, c S.26 (the “SLRA”), a will is automatically revoked by the marriage of the testator.
There is a discrepancy regarding the capacity required to
make a will and the capacity required to marry. In Banton v Banton,  OJ No 3528, the court considered a situation in which an 88 year old man, George, married a 31 year old waitress at his nursing home, Muna. After their marriage, amidst concerns regarding his capacity, George prepared a will leaving everything to Muna. The court found that George did not have testamentary capacity and that his will was invalid, but found that the capacity to marry was a lower standard, requiring that an individual be capable of understanding the nature of the relationship and the obligations and responsibilities it involves. Accordingly, George and Muna’s marriage was valid and George was found to have died intestate.
The issue is that, even if wills executed following a potentially predatory marriage are found invalid as a result of incapacity or undue influence, the marriage may still be valid, and thus the intestacy provisions of the SLRA will be relevant. Under Part II of the SLRA, if a deceased passes with a spouse and children, the spouse is entitled to a preferential share in the amount of $200,000, in addition to a share of the residue of the property after payment of the preferential share.
The Star article suggests that the law nullifying wills on marriage makes it easy for a predatory bride or groom to take advantage of elderly individuals. It points out that Ontario law regarding revocation of wills upon marriage is lagging behind other provinces, namely Alberta, British Columbia and Quebec, none of which statutorily revoke wills after marriage. In Alberta in particular, it was noted that the remedial legislation was made after a study revealed that few people were aware that wills did not survive a new marriage.
It is therefore possible in Ontario that an elderly person who intends to leave their entire estate to their children could be caught unaware that their existing will was revoked by marriage, with no knowledge of the need to execute a new one. It is also possible that a testator may not even have the capacity to make a new will after entering a predatory marriage and will be left without recourse. With an aging population, elder abuse, which often takes the form of financial abuse, is a very serious concern. Consequently, it may be time for Ontario to consider measures to protect elderly or vulnerable individuals against predatory marriages.
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It is well recognized that in order to create a valid trust, the “three certainties” must all be present. An Ontario Superior Court judgment from November 2015 considered the three certainties, particularly the certainty of intention, and found that the intention was absent and thus the trust failed.
Briefly, the key facts of Ridel v Schwartz, Levitsky, Feldman Inc., 2015 ONSC 6899 are as follows:
- Following a judgment against e3m Investments Inc. (“e3m”) for breach of contract, negligence and breach of fiduciary duty in April 2013, the Ontario Securities Commission (the “OSC”) was concerned with respect to e3m’s ability to satisfy the judgment in favour of the Ridels;
- e3m was required by the OSC to create an Accumulating Account in order to accumulate and maintain sufficient liquid assets to satisfy the Judgment;
- After unsuccessfully appealing the Judgment in November 2014, e3m filed an assignment in bankruptcy on January 20, 2015;
- The statement of affairs showed available cash of approximately $550,000.00, most of which was held in the Accumulating Account.
The question before the court was whether the Trustee in Bankruptcy could take possession of the funds in the Accumulating Account, or whether these funds were held in trust for the benefit of the Plaintiffs in the civil action (the “Plaintiffs”). Specifically, the issue was whether the certainty of intention had been met.
The court found that the OSC Decision requiring the establishment of the Accumulating Account and the terms and conditions which required it did not evidence an intention to create a trust, and the OSC did not take a position regarding whether the funds were trust funds. The court also found that the terms and conditions did not address the ultimate disposition of the funds in the Accumulating Account and whether they would or would not become payable to the Plaintiffs, another indication that a trust was not intended. The court also held that the Plaintiffs’ distance from the negotiations that resulted in the Accumulating Account is a relevant factor, despite the fact that notice is not required. Additionally, despite the fact that funds were segregated, this is not conclusive of an intention to settle a trust. Lastly, the ability of the OSC and the Investment Industry Regulatory Organization of Canada (“IIROC”) to permit the funds in the account to be used for any purpose they deem appropriate within their regulatory mandate as fundamentally inconsistent with an intention to create a trust.
As demonstrated in this case, it appears that the court will very strictly consider whether the intention to settle a trust is present. Thus, if the establishment of a valid trust is desired or required, it is vitally important to indicate any intention to settle a trust very clearly and explicitly.
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Last week I tweeted an article from Advisor.ca on Seg Funds for Estate Planning: Advantages and Pitfalls, which discusses the benefits of using segregated funds as part of estate planning and notes some areas that may lead to issues. Segregated funds are a type of investment fund available through life insurance companies, where the funds are kept “segregated” from the general assets of the company. They have an advantage in estate planning in that, as an insurance product, the beneficiary is named on the plan itself, and thus, provided that the estate has not been named as beneficiary, the proceeds pass outside of the estate, avoiding probate fees.
One possible benefit of segregated funds, as noted by the article, is protection from creditors. Because the segregated fund passes directly to the beneficiary, it is not an estate asset, and is not available to satisfy creditors’ claims. However, it is noted that the creditor protection may be lost in certain circumstances, including if it was purchased at a time when the investor knew that he or she may be subject to a creditor claim.
When considering a segregated fund as a way to minimize probate fees, it is important to consider additional fees associated with such funds. Segregated funds usually have a higher management expense ratio (MER) than mutual funds. If the amount that would be saved in probate fees is less than the MER, the segregated fund may not result in any net savings.
Lastly it is important to be aware of any beneficiary designations in a will that may create possible conflicts with the designated beneficiary of the segregated fund. Pursuant to s. 51 of the Succession Law Reform Act, R.S.O. 1990, c. S.26, a beneficiary designation can be made either by an instrument or by will, as long as the will designation refers expressly to a plan. Section 52(2) provides that a later designation revokes an earlier designation. Therefore if a will is executed after the beneficiary of the segregated fund is designated, and makes a designation that differs from that in the fund, the designation in the will revokes the designation in the fund.
The article provides the example of Orpin v Littlechild, 2011 ONSC 7695. In that case, the testator had a segregated fund held in an RRSP which designated his sons as beneficiaries. Following this designation, the testator executed a new will which designated his spouse “as the sole beneficiary of all moneys that I may have at the date of my death in any registered retirement savings plan, registered retirement income fund, registered pension plan, registered investment fund or any other similar device”. The court then had to decide to whom the fund would pass. Despite the fact that the will did not specifically refer to the insurance policy, the broad language used in the will was sufficient to change the designation of the segregated fund.
There are other similar products to segregated funds, such as life insurance policies which can have similar benefits and effects. However, it is important to be familiar with a variety of options in order to properly advise clients on what strategy may work best for them.
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Last year, a regulation to the Estate Administration Tax Act, 1998, S.O. 1998, c. 34, Sched. (the “EATA”) came into effect requiring estate trustees to file an Estate Information Return (“EI Return”) with the Ministry of Finance within 90 days after issuance of a Certificate of Appointment of Estate Trustee. The EI Return must include information with respect to the “value of the estate”. Under the EATA, this term is defined as “the value which is required to be disclosed under section 32 of the Estates Act (or a predecessor thereof) of all the property that belonged to the deceased person at the time of his or her death less the actual value of any encumbrance on real property that is included in the property of the deceased person.”
Section 32 of the Estates Act, R.S.O. 1990, c. E.21, among other things, provides in subsection (3) that “Where the application or grant is limited to part only of the property of the deceased, it is sufficient to set forth in the statement of value only the property and value thereof intended to be affected by such application or grant.” This means that any assets that are governed by a Will that is not being submitted for probate are not required to be disclosed on the EI Return. Accordingly, if an individual has multiple wills, any assets governed by their Secondary Will do not have to be disclosed on the EI Return.
Multiple wills are used in estate planning to deal with a testator’s assets and belongings that do not require a Certificate of Appointment of Estate Trustee to transfer and distribute, therefore avoiding the need to pay Estate Administration Tax on the value of those assets and belongings. With the introduction of the EI Return, there may be increasing motivation for testators to use multiple wills in their estate planning. In providing their valuation of the estate being administered, estate trustees will now be required to substantiate the valuation used. This may require formal valuations, such as appraisals, which may result in significant costs to the estate.
For example, if a testator has a number of pieces of art and jewelry, which can be transferred without a Certificate of Appointment, the estate trustee would be required to have appraisals performed on each piece in order to substantiate their valuation for the EI Return. In this situation, it may be more efficient, both in terms of cost and in terms of the time required to complete the formal valuations, to distribute those assets through a Secondary Will. Testators and solicitors should consider whether the costs of determining the value for each and every item or asset may be higher than the expenses involved in preparing multiple wills. It may be that, with the EI Return now in effect, a lower threshold for the value of a testator’s assets may justify an estate plan that involves multiple wills.
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Toronto trusts and estates litigator Ian Hull will speak at an upcoming Law Society of Upper Canada (LSUC) program, aimed at providing litigators with a primer on mediation, he tells AdvocateDaily.com.
It is well-known that executors and estate trustees have fiduciary obligations. We have discussed some estate trustee liabilities and obligations on this blog before. Although it may seem obvious that estate trustees must act selflessly and in the best interests of the beneficiaries and the estate, a recent decision from the Ontario Superior Court of Justice provides an instance where estate trustees were held liable for failing to carry out the terms of a will and self-dealing, even by passively standing by.
In Cahill v Cahill, 2016 ONSC 2863, the named estate trustees of an estate were held jointly and severally liable for failing to establish a trust pursuant to the Deceased’s will. The relevant facts are as follows: The Deceased left a Last Will and Testament naming two of his adult children, Sheila and Kevin, as Estate Trustees. The terms of the Will provided that Sheila and Kevin were to set aside $100,000.00 in a trust fund for the benefit of another of the Deceased’s adult children, Patrick, and that he would receive $500.00 per month from the trust until his death or until the principal was reduced to nil. The funds to set up the trust came from the sale of the Deceased’s home, and were put into a Non-registered Investment Plan with London Life (the “London Life Plan”), owned by Kevin.
For a period of time, Patrick received the payments of $500.00 per month, until the summer of 2014, when several of his cheques were returned for insufficient funds. He then discovered that in May 2012, Kevin had withdrawn the principal remaining in the London Life Plan, which was approximately $92,000.00 at the time, as a mortgage with respect to some commercial premises purchased by him for his business, and lost the funds when his business failed and the bank realized on the property.
The Court found that both Kevin and Sheila were in breach of their fiduciary obligations to the beneficiaries of the Estate, as they had failed to carry out the instructions set out in the Will. In fact, the Court found that the trust fund provided for by the Will was never actually set up. Even though Kevin opened the London Life Plan with the $100,000.00 amount, and he was noted as the legal owner, his application for the London Life Plan did not mention a trust, Patrick was not disclosed as a beneficiary, and Patrick therefore did not have equitable title to the Plan. The Plan therefore did not meet the requirements for a trust. The court held that Kevin’s self-dealing by using the funds for his personal benefit was a “wrongful and deliberate misappropriation of the funds” and that he had breached his fiduciary obligations by his conduct in this respect.
Throughout these events, Sheila had been quite passive. She claimed that she had relied on Kevin to do most of the work required to administer the Estate, as he had expertise in the field of financial management. However, the court held that the case law is clear that there is no distinction between sophisticated and unsophisticated individuals in fulfilment of the obligations of Estate Trustees. As such, if Sheila was not confident in her knowledge of the role, she should have either obtained the necessary guidance, or renounced as Estate Trustee. Furthermore, she failed to discharge her obligations by failing to ensure that all proper steps were taken to set up the trust fund. If it had been set up, Kevin was to be the sole trustee, but as the court found that it was not, in fact, established, there was never a point at which Sheila was relieved of her obligations as Estate Trustee.
Ultimately, the court held that Kevin and Sheila were jointly and severally liable and were required to fund the trust in accordance with the terms of the will. It is therefore vital to always keep in mind the seriousness of the duties and obligations of estate trustees.
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We blogged about the Ontario Retirement Pension Plan (“ORPP”) some time ago when it was first proposed and introduced. The ORPP will begin on January 1, 2017, and will be fully implemented by January 1, 2020. According to the Ontario government website with respect to the ORPP, studies show that people are not able to save enough money for retirement and that the Canada Pension Plan (“CPP”) is insufficient, stating that the maximum yearly benefit from CPP in 2015 is $12,780 and the average yearly benefit is $7,000.
Both the ORPP itself and the contribution rates for the ORPP will be phased in from 2017 to 2020, as set out in this article from the National Law Review. For instance, the initial implementation of the ORPP in January 2017 will begin with large employers, at a rate of contribution of 0.8 percent by both the employer and employee (for a total of 1.6 percent). This will then be increased to 1.6 percent each the following year and further increased to 1.9 percent each starting in 2019. Similar phasing will take place as medium-sized employers begin the ORPP in January 2018, small employers in January 2019, and employers with registered plans that do not meet the comparability threshold in January 2020. Ontario’s ORPP website also provides a helpful chart describing the phases that can be viewed here.
Last month, Ontario reached an understanding with the federal government that ORPP premiums will be collected through the existing CPP framework. Ontario also delayed the date to begin collecting premiums from large employers who will be included in the first phase of implementation. Although they will be required to register as of January 2017, they will not be required to remit premiums until January 2018.
Once it has been fully phased-in, the contribution rate will be a combined 3.8 percent of pensionable earnings. For an individual earning $50,000.00 per year, for example, who contributed to ORPP for 40 years and retired at age 65, this results in an ORPP payment of $7,138 per year, in addition to CPP, OAS, and other retirement savings.
It is stated that the ORPP is intended to complement existing retirement savings arrangements, not replace them. For many individuals, there will still be a need to make individual plans with respect to retirement saving and planning. As always, it is important to consider you own individual needs during retirement and consult advisors who can help you make and implement a comprehensive plan.
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Jim Downs , managing director of MKD International Inc. , and Toronto trusts and estates lawyer Ian Hull are calling on members of the legal community to support 500 Miles for Parkinson’s , an event to raise $500,000 for disease research.
According to the News Release, the Finding Your Way program is a “multicultural safety campaign that helps people with dementia stay safe and active, while helping to prevent the risk of wandering and going missing.” It notes that the program’s training services will be enhanced this year to include both first-responders as well as supportive housing and retirement home staff.
The Finding Your Way program is specifically focused on addressing and preventing individuals with dementia from going missing and states that 60% of people with dementia related memory problems become lost at some point. Their website provides some resources, including checklists for What to do when a person with dementia goes missing and What to do when reuniting after a missing incident. They also provide some suggestions of ways to reduce the risks associated with dementia. The first suggestion is to stay safe at home, by considering the best living arrangements for someone with dementia and ensuring that individuals with dementia maintain their health. The second suggestion is to be a part of the community while reducing the risk of becoming lost by carrying identification at all times, ensuring that someone knows where the senior with dementia is going, and dressing appropriately for the weather. The third suggestion encourages getting around in the community by urging seniors with dementia to get to know their neighbours and professionals in the neighbourhood (i.e. pharmacists, grocers, bankers), as well as participating in social activities.
The Alzheimer Society of Ontario’s website provides some “Dementia numbers in Canada” stating that in 2011, 14.9 per cent of Canadians 65 and older were living with Alzheimer’s disease and other dementias, with the figure expecting to increase. It also notes that one in five Canadians aged 45 and older provides some form of care to seniors living with long-term health problems. In 2011, family caregivers spent over 444 million unpaid hours looking after someone with cognitive impairment, including dementia. It is clear that dementia affects a great deal of people in Canada and in Ontario.
The Minister Responsible for Seniors Affairs stated in the News Release that “[o]ur communities have an important role to play in helping keep people with dementia safe, and this funding will help the Alzheimer Society of Ontario to deliver these resources to even more Ontarians.”
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Convocation agreed in a majority vote to provide additional funding to the long-running Lawyers Feed the Hungry charitable initiative with a two-year, $200,000 investment — a move which foundation chairman and bencher Ian Hull tells AdvocateDaily.com is “great news and is much needed.”