This week on Hull on Estates, Doreen So and Noah Weisberg discuss estate freezes and the importance of keeping your spouse and other family members informed in Hamm v. Hamm (Estate of), 2014 MBQB 14.
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
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.
Thank you for reading.
Accidental death policies are not to be confused with life insurance policies. By their terms, accidental death policies usually provide that the benefit will be paid out when death results from accidental, external means.
In determining whether a policy is payable, an issue often arises as to the exact cause of death and contributing factors. Further, exclusions in the policy often serve to allow the insurer to avoid payment.
Take, for example, the recent case of Downey v. Scotia Life Insurance Company, 2020 ABQB 638 CanLII). There, the insured died on a fishing trip. No autopsy was performed. The Coroner’s Report noted that the insured died by asphyxia due to drowning, and that the death was “accidental”. Other “significant conditions contributing to death” was “myocardial infarction”, with the explanation being that the insured “had a myocardial infarction and fell out of the boat.”
The court struggled with whether the terms of the policy covered the death. The court ultimately found that the death was “accidental” in that the medical condition did not cause the death. However, exclusionary provisions in the policy applied so as to exclude coverage. The exclusion clause provided that a death was NOT covered if the death was “in any manner or degree associated with or occasioned by” or “contributed to in any way whatsoever” by any naturally occurring condition, illness, disease or bodily or mental infirmity. Although broad, the exclusion clause was not so broad so as to be void. (Exclusion clauses may be voided if they are so broad so as to “nullify the coverage provided in the policy, and would be contrary to the reasonable expectations of an ordinary person.)
The court referred to numerous “accidental death” cases and the outcomes are sometimes difficult to reconcile. For example, coverage was found in the following cases:
- Insured fell from horse, developed pneumonia. Coverage applied. Death was due to fall. Pneumonia was a “sequela” of the accident;
- Insured suffered a seizure causing him to fall and lodge his head in a position causing asphyxiation;
- Insured suffering brain aneurysm causing fall into bathtub and drowning; and
- Insured suffering seizure while driving causing fatal collision.
Coverage was not found in the following examples:
- Insured suffering injury in car accident. Pre-existing condition of hemophilia was “mixed up in” the cause of death;
- Insured fell, died of heart attack caused by the fall; and
- Insured admitted to hospital for congestive heart problems, suffered fall at hospital requiring surgery, died from complications arising from surgery including congestive heart failure.
Accidental death claims can be complicated and raise difficult issues of factual determination: determining and framing the cause of death, and also issues of contractual interpretation: determining what is covered by the policy and what exclusions may apply.
Thanks for reading.
I’ve always loved a good story. I found this story from CNN particularly intriguing as it has to do with art that was stolen by the Nazis, and how this stolen piece of art eventually made its way to the U.S. just like its family had done after the Nazis came to power.
According to the Mosse Art Restitution Project, Rudolf Mosse was a successful Jewish entrepreneur in the late 19th and early 20th century. He had a large publishing and advertising business that included the publication of 130 newspapers and journals. In 1900, Mosse purchased “Winter” directly from the artist, Gari Melchers, at the Great Berlin Art Exhibit. Mosse later died in 1920. The sole heir of his estate was his daughter, Felicia Lachmann-Mosse. Thus, Felicia came to own Mosse’s extensive art collection. Felicia and her husband also took over and ran one of Mosse’s most prominent publications, Berliner Tageblatt, and the newspaper was renowned for its criticism of Adolf Hilter. When Hilter came to power in 1933, Felicia and her husband were forced to leave Germany. According to CNN, “Winter” was amongst the art that was seized by the Nazis when the Mosse family fled their home but “Winter” was only one painting out of the hundreds of pieces of artwork that were stolen at the time.
Some of this art was auctioned off by the Nazis; some have simply disappeared. “Winter” left the Nazis’ possession and changed hands a number of times before Barlett Arkell bought it, as an innocent purchaser who was none the wiser, from a prominent gallery in 1934. Since 1934, “Winter” has been displayed in the Arkell Museum in Canajoharie, New York. When the Museum discovered that “Winter” was taken illegally from its original owner, the painting was surrendered to the FBI in 2019.
“Winter” has since been reunited with the Mosse family by way of the Mosse Foundation which represents the remaining heirs of Felicia Lachmann-Mosse. To date, the Mosse Art Restitution Project remains actively engaged in their work to recover all of the artwork that was stolen by the Nazis.
The Mosse Foundation and the Project have plans to auction “Winter” in the near future and it is estimated to be worth hundreds of thousands of dollars.
Talk about a never-ending estate administration.
Thanks for reading!
Canada’s population is rapidly aging. With baby boomers constituting just over one quarter of our population, the percentage of elders in our society is rising at an alarming rate. In 2014, the percentage of seniors north of 65 was 15.6 percent of the population. By 2030 – in the next decade – seniors will make up 23 percent of the Canadian population. With this change in demographics, elder abuse (and financial exploitation in particular) has become somewhat of an epidemic.
Financial exploitation commonly occurs when an attorney for property abuses his/her power afforded by the Power of Attorney (“POA”) document. Executing a POA is a vital component of every estate plan. When properly drafted and with the appropriate understanding of rights, duties and obligations, a POA has the effect of protecting individuals and their heirs against future incapacity. When drafted improperly and without a clear recognition of duties and responsibilities, the consequences can be grave.
Toronto resident, Christine Fisher (“Fisher”), is all too familiar with the devastating impact that POA abuse can have on an individual’s financial situation. In 2016, Fisher was 94 and living independently in her own apartment despite suffering from the beginning stages of Dementia. Fisher ultimately executed a POA appointing an old colleague, Theresa Gardiner (“Gardiner”), as her attorney for property. In her role as attorney, Gardiner immediately moved Fisher from her apartment to a seniors’ residence – a decision that was not viewed favourably by Fisher’s family and long-time friend, Nancy Lewis (“Lewis”). In the coming months, Lewis discovered that Gardiner had been abusing the power granted to her under the POA by misappropriating Fisher’s funds. By breaching her fiduciary duty, Gardiner exacerbated Fisher’s financial situation and improved her own. In an attempt to justify her misconduct, Gardiner told CBC News that Fisher had gifted her the money. In July of 2019, Gardiner was charged with several counts of theft. Most of these charges were withdrawn by the Crown in November of 2019.
Unfortunately, the story of Christine Fisher is not an anomaly. It is a reflection of society’s tendency to overlook and ignore vulnerable elders. Given the substantial risks associated with appointing an inappropriate attorney, lawyers should remain vigilant to possibilities of incapacity, fraud and undue influence prior to creating a POA for a client. Recognizing the warning signs is the first step to protecting this vulnerable population.
Thanks for reading!
Suzana Popovic-Montag & Tori Joseph
“Happy wife; happy life” is an adage that we are all familiar with.
I recently came across a decision of the Manitoba Supreme Court that I thought was worthy as an adage for estates and trusts practitioners. What caught my eye was the way Justice Allen opened his reasons for the decision in Hamm v. Hamm (Estate of), 2014 MBQB 14:
“It is a very risky business for a farmer or business owner to undertake an estate freeze without informing his or her spouse of the plan and indeed, without arranging for independent legal advice to have the ramifications of the freeze explained. It is even riskier to divest oneself of the shares and shareholder loan received from that estate freeze, again without informing one’s spouse.”
The couple, in this case, were married for 41 years when the husband died. The husband was a widower with two sons and a daughter from his first marriage. The couple later had a daughter of their own. The couple and their children lived a typical farm life. In the late 90’s, the husband decided to pass the farm operation to his sons. This was done by way of an estate freeze. The sons were a part of some of the husband’s meetings with his lawyers and accountants, while his wife and daughters were not involved at all.
A NewCo was created in the course of the estate freeze. Over time, the husband’s land, machinery, and farm equipment were transferred into NewCo in exchange for preference shares and shareholder loans from NewCo. The husband also made a new Will that gave his interest in the NewCo to his sons. The husband did not tell his wife about this either and she only found out when he died.
On death, the wife elected for equalization of assets under the Manitoba Family Property Act and she claimed that the value of the husband’s farm assets, notwithstanding the estate freeze, ought to be included in their family property for equalization purposes.
The wife won. Justice Allen was not sympathetic to the Estate’s arguments that she ought to have known about the estate freeze, and made her claims earlier, by investigating further when she was told that NewCo was created for “tax purposes”. This was particularly so because the husband continued to run the farm operations as if nothing had happened.
This case is a straightforward example of how testamentary intentions can be thwarted when a spouse is kept in the dark. It is good practice for lawyers to advise their clients that their spouse should be informed and that their understanding should be documented with independent legal advice. In explaining why a spouse should know about an estate freeze, and the pitfalls of telling one’s spouse, this exercise will have the benefit of emphasizing to the client what he/she is truly giving up and bring “home” the realities of this rather legally complicated transaction.
Thanks for reading!
The answer is no in Ontario. Currently, only a limited number of Canadian provinces (Quebec, New Brunswick, Nova Scotia, and Saskatchewan) will allow a policy holder to sell his/her insurance policy to a third party.
Life insurance policies are commonplace in Canada. A life insurance policy is a contract with the insurance company and it is a contract to pay out a sum of money upon the death of the life insured. While most people may be content to maintain their life insurance policy, as is, until their death, those who are in need of cash during their lives may wish to sell the policy for a present-day payout while the purchaser maintains the premiums (and any other obligations to the insurance company) in exchange for the payout on the death. The sale of a life insurance policy by the policy holder is also known in the industry as a “life settlement”.
According to Tyler Wade’s article on ratehub.ca, the practice of selling one’s own insurance policy was popularized in the U.S. when investors saw the AIDS epidemic in the 1908’s as an opportunity where they could offer those suffering from AIDS a payout during their lifetime in exchange for the death benefit in their policies believing, then, that this group of individuals had a shorter life span. The vulnerability of the individuals within this market group and the potential for financial abuse are often cited as the reasons why life settlements ought to be prohibited for public policy reasons.
In Ontario, life settlements are prohibited under section 115 of the Insurance Act, as follows:
“Trafficking in life insurance policies prohibited
115 Any person, other than an insurer or its duly authorized agent, who advertises or holds himself, herself or itself out as a purchaser of life insurance policies or of benefits thereunder, or who trafficks or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation thereof to himself, herself or itself or any other person, is guilty of an offence.”
In 2017 and 2018, there was an attempt to legalize life settlements by amending section 115 (through Bill 162) and by amending the Act to allow third-party lenders to use life insurance policies as collateral (through Bill 20). Both Bills received opposition from non-profit groups like the Canadian Life and Health Insurance Association due to the potential for financial abuse and section 115 of the Act has remained as is in Ontario.
While it is difficult to comment on how the potential for financial abuse can be mitigated by implementing countermeasures, it is unfortunate that Ontarians have limited options once the policy is in place.
Thanks for reading!
Need a little help from the court to move an estate matter along? Then Rule 74.15 is the rule for you!
Found under Rule 74: “Estates – Non-Contentious Proceedings”, Rule 74.15 allows “any person who appears to have a financial interest in an estate” to move for various forms of relief. Often, such a motion is required due to the failure of a party to take a required step. Despite the name of the rule, these matters are often contentious.
Under Rule 74.15, a number of various orders can be sought. These include:
- An Order to accept or refuse an appointment as estate trustee. This can be useful where a person is named as Estate Trustee in a Will, but is not taking any steps to administer the estate. The Order usually provides that if the person does not make an application for a Certificate of Appointment within a certain time, they are deemed to have renounced as Estate Trustee, opening the door to the appointment of an alternate;
- An Order to consent or object to a proposed appointment. If an Order appointing an estate trustee is required, either because there is no estate trustee appointed in the Will, or the person appointed in the Will cannot act, or if there is no Will, then usually the beneficiaries receiving the majority of the estate can consent to the appointment of an estate trustee. If such consent cannot be obtained, then a motion for an Order that the person consent or object can bring the matter to a head;
- An Order requiring the estate trustee to file with the court a statement of the nature and value of the assets of the estate as at the date of death. Can’t get information about the estate from the estate trustee? Then this is the Order you need;
- An Order for further particulars. If you get an Order requiring that the estate trustee file a statement of assets, but are still in the dark, then obtaining this Order will require the estate trustee to provide further particulars;
- An Order requiring a beneficiary who is also a witness to satisfy the court that the beneficiary or the beneficiary’s spouse did not exercise improper or undue influence on the testator. Normally, under s. 12(1) of the Succession Law Reform Act, a bequest to a person who witnesses the Will or that person’s spouse is void. The court, however, can find that the bequest is not void if it is satisfied that the person or spouse did not exercise any improper or undue influence. If an estate cannot proceed because the estate trustees do not know if a certain bequest is void or not, this type of Order can break the log jam, and put the person to the test of disproving improper or undue influence;
- An Order to Pass Accounts. If you want an estate trustee to “show their work”, then an Order requiring the estate trustee to pass their accounts will give you a good look into the estate records.
Although Rule 74.15(2) provides that a motion for an Order for Assistance may be brought without notice, case law has established that notice should be given in most cases. See Noah Weisberg’s blog on that topic, here.
There is also significant case law on who can apply for an Order for Assistance; that is, who “appears to have a financial interest in an estate”. That is a discussion for another day.
Have a great weekend.
The Succession Law Reform Act permits dependant support claims to be brought by a spouse, sibling, child and parent of a deceased. In order to qualify as a “dependant”, the person must be someone that the deceased (i) was providing support to immediately before death, or (ii) was under a legal obligation to support immediately before death.
Interestingly, the definition of “child” is not limited to minor children or financially dependant children. It is thus open to an independent adult child to whom no financial support was being paid immediately prior to death to apply for dependant support, premised on the argument that the deceased parent has a moral obligation to provide support. While we have seen the development and application of the moral obligation principle in Tataryn v. Tataryn Estate and Cummings v. Cummings, and although some decisions of the bench in British Columbia indicate that it is willing to apply the moral obligation principle in favour of independent adult children, in Ontario moral obligation appears to continue to be treated as but one factor to consider in the context of support claims. The fact remains that there is no legal obligation to provide support to an adult child.
A similar view may persist in the British court, which was recently reported to have disallowed an adult son’s plea for his wealthy parents to continue to financially support him, which litigation was brought after his parents significantly reduced their financial involvement. While in this instance the parents were alive and able to successfully respond to the court proceeding, had they died prior to or during the time when financial support was in the process of being reduced, would the adult son have had more success with such a claim? If his parents died subsequent to support being reduced or eliminated, would their estates still be vulnerable to a dependant support claim on moral grounds?
Although each case is fact-specific, I would not be surprised to see that in circumstances where there is a large estate and no other competing support claims, the court may work harder to striking a balance between fairness and testamentary intention, particularly where the parents are shown to have enabled a lifestyle and arguably created a dependency that they withdrew during adulthood.
Thanks for reading and have a great day,