Author: Ian Hull
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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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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