Author: Nick Esterbauer
Earlier this week, I had the pleasure of hosting the Family Dispute Resolution Institute of Ontario’s webinar on “Special Considerations When Valuing a Family-Owned Business” featuring Tom Strezos, Adam Guyatt, and Claudio Martellacci of Grewal Guyatt LLP. A link to their article on this topic is available here.
In the estates context, we often encounter situations where a family business needs to be valued after death. While we will often defer to experts for assistance in this regard, it can be helpful to keep in mind some considerations unique to family businesses that might affect valuation. These may include the following:
- Payroll considerations: including whether any family members are on the business payroll and paid compensation greater or less than standard market rates;
- Related party transactions: for example, whether a family member owns a supply company and that relationship may increase or decrease business expenses and impact its value upon any change in that relationship;
- Non-operating assets or liabilities: whether there are investments in assets that do not impact cash flow directly or liabilities payable to family members;
- Internal controls and governance: such as whether additional staffing costs would need to be considered as part of the valuation to reflect the situation if certain family members were no longer involved in the operations of the business;
- Transferability of goodwill and discounts for reliance on certain individuals: some family businesses may have limited assets beyond goodwill and it can be worthwhile to consider how a departing family members (such as a divorced spouse or incapable or deceased family member) may impact value going forward.
These considerations may be relevant to probate applications, estate administration, and certainly where there are claims against an estate or specifically against a family business.
Also discussed during yesterday’s webinar was the idea of business valuation expert hot-tubbing, whether formally at trial or otherwise working together in a similar manner to try and determine a reasonable value of a company for the purposes of settlement discussions. This is an Interesting concept that may work well for some estate matters where valuation issues are at play.
A recording of this week’s FDRIO webinar is available to FDRIO members free of charge and will be replayed at a fee for non-members later this month. More information is available at fdrio.ca.
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Recent discussion of proposed amendments to the Succession Law Reform Act under Bill 245 has raised questions of whether corresponding changes will be made to the Substitute Decisions Act, 1992. In particular, some estate lawyers are wondering whether a new validation section may be added to the Substitute Decisions Act to address the issue of court validation of powers of attorney (like the new section 21.1 of the Succession Law Reform Act has been proposed to allow courts to validate improperly-executed wills) and/or whether remote execution options may soon be made permanent for powers of attorney as well as wills.
The Substitute Decisions Act already contains curative provisions that allow the court to validate incapacity planning documents in circumstances where the documents are not executed in strict compliance with formal requirements.
Subsection 10(4) of the Substitute Decisions Act reads as follows with respect to the validation of Continuing Powers of Attorney for Property:
(4) A continuing power of attorney that does not comply with subsections (1) and (2) is not effective, but the court may, on any person’s application, declare the continuing power of attorney to be effective if the court is satisfied that it is in the interests of the grantor or his or her dependants to do so.
Subsection 48(4) of the Substitute Decisions Act reads as follows with respect to the validation of Powers of Attorney for Personal Care:
(4) A power of attorney for personal care that does not comply with subsections (1) and (2) is not effective, but the court may, on any person’s application, declare the power of attorney for personal care to be effective if the court is satisfied that it is in the grantor’s interests to do so.
Remote Execution of Documents in Counterpart
While the focus of discussions among estate lawyers regarding Bill 245 may be the proposed updates to the Succession Law Reform Act and, in terms of formal will execution, the amendment of section 4 as it relates to the requirements for the witnessing of wills, Bill 245 also includes proposed changes to the Substitute Decisions Act under Schedule 8.
A new section 3.1 of the Substitute Decisions Act is being proposed to add specific references to the use of audio-visual communication technology and counterpart signing options in the execution and witnessing of Continuing Powers of Attorney for Property and Powers of Attorney for Personal Care. Accordingly, if Bill 245 is passed, the remote and counterpart execution options made available during the pandemic will be made permanent for wills and powers of attorney alike.
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As many of our readers know, Ontario may be well on its way to becoming a jurisdiction in which wills may be validated notwithstanding that they are not strictly compliant with the formal requirements set out under the Succession Law Reform Act. However a recent decision of the Ontario Superior Court of Justice reminds us that Ontario, for now at least, remains a strict compliance jurisdiction where all formalities must be followed in the execution and witnessing of wills and codicils.
During the pandemic, many lawyers have taken advantage of the ability to assist clients in the remote execution and witnessing of their wills, as well as the execution and witnessing of wills in counterpart. In order to validly do so, the will must be witnessed using audio-visual communication technologies. In Re Swidde Estate, 2021 ONSC 1434, however, the drafting solicitor and other witness were neither in the physical presence of the testator nor in her presence by way of audio-visual communication technology, at the time that a codicil was signed. Instead, the witnesses were in communication with the testator over the phone (without video) at the time that she signed the codicil. The codicil was later couriered to the witnesses who then each signed the same document. The Court found that this did not meet the requirements set out under the Emergency Order in Council permitting remote execution and witnessing of wills, and the codicil could not be admitted to probate. This case may serve as a reminder to drafting solicitors to ensure that all requirements are strictly adhered to. In that regard, readers may find it helpful to use a checklist, such as that available through our website (linked here), when assisting clients in the remote execution of wills or other estate planning documents.
Bill 245 is currently in its third reading. Section 5 of Schedule 9 to the Bill provides for the Court validation of wills where a document sets out testamentary intentions but has not been properly executed or made. Such a provision would enable a judge in circumstances such as those in Re Swiddle Estate to validate a will or codicil that was not properly executed. This provision will come into effect no earlier than January 1, 2022 and will apply only to wills left by persons who have died following that date, subject to further changes before the legislation may be finalized and may ultimately take effect. Accordingly, especially while Ontario remains a strict compliance jurisdiction, it is important to exercise caution in ensuring that all wills we prepare are properly executed and witnessed.
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In recent months, an Ontario Superior Court of Justice province-wide Notice to the Profession has permitted the filing of applications for a Certificate of Appointment of Estate Trustee with a Will or a Certificate of Appointment of Estate Trustee Without a Will (“probate applications”) by email. Since then, the Rules of Civil Procedure were updated, effective January 1, 2021 to permit for the service of most court materials by email (among other updates).
Most recently, as of January 8, 2021, the Rules of Civil Procedure were further updated to provide for the options of serving notice of probate applications by email, courier, or personal service. Amended sub-rules 74.04(7) and 74.05(5) now read as follows:
Notice under this rule shall be served on all persons, including charities, the Children’s Lawyer and the Public Guardian and Trustee, and, unless the court specifies another method of service, may be served by,
(a) personal service;
(b) e-mail, to the last e-mail address for service provided by the person or, if no such e-mail address has been provided, to the person’s last known e-mail address; or
(c) mail or courier, to the person’s last known address.
Previously, the Rules of Civil Procedure required the Notice of Application in respect of a probate application to be served by regular lettermail.
Forms 74.06 and 74.16 (Affidavits of Service in respect of probate applications) have also now been updated to refer to these new manners of service of the Notice of Application in respect of a probate application. The revised forms are available here.
This further development in the modernization of estates law procedures is welcome and can be expected to better enable lawyers to assist clients in serving and filing probate applications more efficiently while working remotely during the pandemic and beyond.
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Technology is often considered as a tool more common among younger generations, with older individuals less likely to have embraced the internet and smartphones that, for many of us, have become important parts of our lives.
As lawyers know, the court system and legal profession have embraced technology in a number of new ways over the past year. From Zoom hearings to probate applications filed by email, we have had to adapt to better use technology in the practice of law. Recent news articles also suggest that the pandemic appears to be increasing the use of technology among older adults. In particular, the last ten months are noted to have seen:
- Acceptance of applications typically used primarily by millennials seeking convenience by other groups;
- For many, home delivery has become a “necessity”;
- Video chat has become a “lifeline for older adults”, who may otherwise be totally isolated;
- Increased accessibility to telemedicine and virtual caregiving support; and
- Online education for individuals of all ages, whether geared to enhance career potential or otherwise.
Many of these trends have the potential to assist seniors in aging in place during the COVID-19 pandemic, which no doubt has become an increasingly attractive option in light of the tragic situation at many long-term care facilities. Increased technology use by seniors is noted to be a positive that has emerged as a result of COVID to make independent living more comfortable and safer. There are also a number of online resources available with recommendations for seniors wishing to safely age in place, including this review of possible Home Modifications available through Family Assets, a resource for senior care.
It will be interesting to see how our use of technology continues to evolve to assist individuals at all stages of life during the pandemic and beyond.
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As estates practitioners know well, the medication that an individual takes could reflect underlying conditions that affect mental capacity. High doses of pain medications or other medication prescribed to treat serious physical ailments may also impact a person’s cognition.
A recent article on Considerable highlights the impact that certain common medications may have on mental capacity. An estimated 25% of seniors take “anticholinergic” drugs to treat a variety of common issues, including allergies, insomnia, and asthma. These medications are known to target acetylcholine, a chemical messenger that plays an important role in concentration, cognition, and memory. Some drugs (including over-the-counter medications as well as those for which a prescription is required) impact acetylcholine levels more than others and, when they are taken together, can have a cumulative effect. As a result, high doses of anticholinergic drugs, which are often believed to have only inconsequential side effects, can interfere with brain messaging and result in symptoms consistent with dementia.
The article refers to a patient whose score on a Mini-Mental Status Examination increasing from 11 to 28 out of 30 after a readjustment of her medication, which included common antihistamines and medication for mood and gastrointestinal issues. Further research is being conducted on the short-term and long-term effects of anticholinergic use, as there is concern that prolonged use may cause irreversible cognitive decline.
As our readers know, due to the nature of capacity standards and importance of reviewing capacity on a case-by-case basis at the time of the relevant decision or instructions, it may be worthwhile to consider whether medication, even that commonly prescribed to seniors, may be a contributing factor.
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Other blog entries that may be of interest:
We have previously blogged extensively on the issue of inaccessibility of digital assets and the absence of legislation in Canadian provinces, including Ontario, to clarify the rights of a fiduciary to access and administer digital assets on behalf of a deceased or incapable rights holder.
While the Substitute Decisions Act, 1992, and Estates Administration Act provide that attorneys or guardians of properties and estate trustees, respectively, are authorized to manage the property of an incapable person or an estate, Ontario does not currently have any legislation that clarifies these rights by explicit reference to digital assets. While continuing powers of attorney for property and wills can be crafted to explicitly refer to digital assets and the authority of an attorney for property or estate trustee to access accounts and information in the same manner in which the user him or herself was able, access issues can still arise during incapacity or after death.
A recent CBC article highlights the inadequacy of legislation facilitating access to digital assets. A surviving wife of over forty years was the estate trustee and sole residuary beneficiary of her late husband’s estate. In seeking access to an Apple account that she shared with her husband, she was told that she would require a court order, even after providing Apple with a copy of her husband’s death certificate and will. Apple cited the United States’ Electronic Communications Privacy Act, which predates the prominence of computers and the internet in our daily lives, as prohibiting them from distributing personal electronic information. Four years after her husband’s death in 2016, the Ontario woman is now obtaining pro bono assistance in seeking a court order granting access to the shared account in the absence of any other options.
It is anticipated that the adoption of the Uniform Law Conference of Canada’s Uniform Access to Digital Assets by Fiduciaries Act would resolve some or all of the issues currently faced by Ontario residents in accessing and administering digital assets. However, now over four years since its release, only Saskatchewan has implemented provincial legislation mirroring the language of the uniform act.
It will be interesting to see in coming years whether legislative updates will address continued barriers to the access and administration of digital assets and the corresponding access to justice issue.
Thank you for reading,
Other blog entries that may be of interest:
Recent reports suggest that divorce and separation rates are on the rise during the pandemic (with rates of separation cited as having increased as much as 20% to 57% from last year, depending on the jurisdiction). This has been in part attributed to the stresses of lockdown and worsening financial situations.
Many Canadians may not be fully aware of the legal impact that separation and divorce have upon an estate plan, mistakenly believing that there is no real difference between marriage and a common-law partnership. However, the distinction in Ontario remains important from an estate planning perspective – for example:
- A common-law or divorced spouse does not have any automatic rights upon the death of a spouse who does not leave a will, whereas married spouses take a preferential share and additional percentage of a predeceasing married spouse’s estate on an intestacy;
- A married spouse has the right to elect for an equalization of net family property pursuant to the Family Law Act on death, whereas common-law spouses have no equalization rights on death;
- Marriage automatically revokes a will (unless executed in contemplation of the marriage), whereas entering into a common-law relationship has no such impact; and
- Separation (in the absence of a Separation Agreement dealing with such issues) does not revoke a will or any gifts made to a separated spouse, whereas gifts under a will to a divorced spouse are typically revoked and the divorced spouse treated as having predeceased the testator.
While top of mind for estate lawyers, lawyers practising in other areas of law and their clients may not necessarily turn their minds to the implications that separation and divorce may have on an estate plan, particularly soon after separation and prior to a formal divorce. With the potential for family law proceedings to be delayed while courts may not yet be operating at full capacity, combined with elevated mortality rates among certain parts of the population during the pandemic, it may be especially worthwhile in the current circumstances to remind our clients of the importance of updating an estate plan following any material change in family circumstances, including a separation or divorce.
Thank you for reading and stay safe,
In Ontario, a Continuing Power of Attorney for Property or a Power of Attorney for Personal Care must be signed by two witnesses. As our readers also know, as a result of COVID-19, witnessing and execution requirements for Powers of Attorney in Ontario have been relaxed to facilitate access to incapacity planning during the pandemic. These provisions have recently been extended to November 21, 2020. Provided that one witness to a Continuing Power of Attorney for Property or Power of Attorney for Personal Care is a licensee under Ontario’s Law Society Act, the document may be witnessed using audiovisual communication technology and signed in counterpart. The document does not otherwise need to be witnessed by a lawyer (although, where a lawyer has assisted in the preparation of Powers of Attorney, it will often be most practical for the lawyer and one of his or her staff to witness the client’s execution of the document).
Especially in light of social distancing measures, it is important to keep in mind the restrictions on who can witness incapacity planning documents. In Ontario, neither a Continuing Power of Attorney for Property nor a Power of Attorney for Personal Care can be witnessed by:
- the attorney or the attorney’s spouse;
- the grantor’s spouse;
- a child of the grantor;
- a person whose property/personal care is under guardianship; or
- an individual of less than eighteen years old.
If the lawyer him or herself is being appointed under the document, which is not an uncommon practice, the involvement of a second lawyer or a paralegal in the virtual execution and witnessing of the document(s) may be necessary.
In the Yukon, the witnessing requirements for Powers of Attorney are somewhat different. As it currently stands, in order for a Continuing Power of Attorney for Property (there referred to as an Enduring Power of Attorney) to be effective, a Certificate of Legal Advice must be provided by a lawyer. As a result, the lawyer typically witnesses the Power of Attorney, which is not otherwise valid. While only one witness is required, the lawyer providing the Certificate cannot be the attorney or the attorney’s spouse.
A recent article from Canadian Lawyer reviews proposed changes to Yukon’s Enduring Power of Attorney Act. One of the key amendments is the replacement of the requirement that a lawyer be involved in witnessing the execution of Continuing Powers of Attorney for Property with the option of the witnessing of such documents by two other individuals. Similar to the requirements in Ontario, a witness must be an adult and cannot be the spouse of the donor, the attorney, or the spouse of the attorney.
If approved, the recent Yukon Bill will eliminate the necessity that a lawyer be involved in the witnessing of Powers of Attorney to increase access to incapacity planning throughout the territory.
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A recent decision of the Alberta Court of Queen’s Bench highlights the importance of carefully reviewing settlement agreements prior to their execution.
In Anderson Estate (Re), 2020 ABQB 428, the Alberta Court of Queen’s Bench revisited a settlement that had been negotiated during a judicial mediation.
Mr. Anderson had left a Last Will and Testament executed roughly one month prior to his death that directed that the residue of his estate be distributed to his three children, who were the parties to the litigation. The Will addressed certain advances made to his children during his lifetime, the disposition of real property, and declared the testator’s intent that the parties be treated equally.
One son, who later brought the motion with respect to the interpretation of the agreement, had previously disclaimed real property gifted to him under the Will because the value assigned to the property in the Will itself was significantly higher than the appraised value of the property (with a discrepancy of $2 million), such that he would take a correspondingly lower distribution from the residue of the estate to reflect his acceptance of the gifted property. The judicial mediation process had been initiated with the intention of resolving interpretation issues in respect of the Will arising from the son’s disclaimer of the property. The terms of the Will and the settlement agreement were not straightforward, but the settlement provided in part that the son would receive at a value of $4 million a different property than that bequeathed to him under the Will that he had disclaimed.
Pursuant to the terms of the settlement agreement, the matter returned to the case management judge for the determination of its proper interpretation. The son sought an interpretation of the agreement that provided that he had substituted his receipt of one property for the other at a notional cost corresponding to advances tied to the first property.
Justice Jones reviewed the law in general relating to ambiguities appearing in contracts, such as the settlement agreement that the parties had executed (at paragraphs 35 through 40, briefly summarized below):
- true legal ambiguity arises where a phrase is reasonably susceptible on its face to more than one meaning;
- courts can consider surrounding circumstances that include everything that affected the language of the document from the perspective of a reasonable person;
- extrinsic evidence, however, is intended to serve “as an objective interpretative aid to determine the meaning of the words the parties used”, with limitations set out by the Alberta Court of Appeal in Hole v Hole, 2016 ABCA 34;
- the goal of the courts is to give effect to the objective intentions of the parties, rather than to “second-guess the contract”;
- even in the absence of ambiguity, a judge is to consider relevant surrounding circumstances in interpreting the contract.
The judge found that the settlement agreement was not susceptible to more than one meaning, stating as follows (at para 84):
A retrospective determination that one entered into an agreement on terms less commercially favourable that one now thinks should have prevailed does not evidence ambiguity.
This decision may serve as a reminder to take care in ensuring that the meaning of a settlement agreement is properly understood by all parties and clearly set out without room for ambiguity. Remaining silent on certain points that should properly be addressed during the dispute resolution process may limit the rights of the parties to pursue them, even where the settlement agreement will otherwise lead to the distribution of an estate that may be perceived as unfair.
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