When a parent transfers assets to an adult child, the rebuttable presumption of resulting trust will apply to that transfer. Unless the child can rebut the presumption, it will be presumed that the child was holding the transferred assets in trust for the parent.
But what kind of evidence will be needed to rebut the presumption? Ideally there would be some kind of documentation made contemporaneously with the transfer to support the parent’s intention. If the documentation is lacking, there may be evidentiary issues where the parent has passed away or is incapable, and is not able to give evidence as to his or her intention at the time of the transfer.
In the recent decision of Pandke Estate v Lauzon, 2021 ONSC 123, the court considered two cheques paid by a mother, Carol, to her adult son and daughter-in-law, Steven and Marnee, in the amounts of $35,000.00 and $90,000.00, respectively, shortly before her death. The court reviewed the evidence in determining whether the presumption of resulting trust was rebutted, or whether Carol had intended the cheques to be gifts.
Carol was diagnosed with terminal pancreatic cancer in 2017, and died about a month following her diagnosis. At the time that she was diagnosed, she lived with her husband, William, to whom she had been married since 1992. Following her diagnosis, it was decided that Carol would move in with Steven and Marnee, as William was not physically capable of providing her the care that she would require. Shortly after moving in with Steven and Marnee, Carol provided a cheque in the amount of $35,000.00, payable to Marnee, with a note on the cheque stating that it was “For Rent”. Four days later Carol provided another cheque payable to Steven, in the amount of $90,000.00, with the note on the cheque stating “Medical Expenses”. The total value of the two cheques constituted the majority of Carol’s liquid assets. William, who was the sole beneficiary of Carol’s estate, challenged these payments following Carol’s death.
The court found that the $35,000.00 payment was intended to be a gift by Carol to Steven and Marnee. Part of the evidence on which the court’s conclusion in this regard was based was Marnee’s hearsay evidence of what Carol had told her about why she was making the payment, being that Steven had left his job to care for Carol and she did not want him to suffer financially as a result. The court found that Marnee’s hearsay evidence could be admitted, notwithstanding that it was hearsay, on the basis that it fell within a traditional exception to the hearsay rule (that the statement is adduced to demonstrate the intentions or state of mind of the declarant at the time the statement was made) and under the principled approach to hearsay evidence as it met the necessity and reliability requirements. The court also found that Marnee’s evidence was corroborated by independent evidence.
However, with respect to the $90,000.00 payment, the court found that there was insufficient evidence to rebut the presumption of resulting trust. Although the court admitted Steven’s evidence of statements made by Carol to him as to her state of mind at the time the cheque was signed, the court also raised other concerns with Steven’s evidence. For instance, the reference to “Medical Expenses” noted on the cheque was concerning, as there were no medical expenses, and the court wondered why Carol would not have simply indicated that it was a gift if that is what she intended it to be. The court was also not convinced by a statement that Steven said was made by Carol that she was making the payment because she did not want Steven to suffer financially because he had left work to care for her, given that only a few days before Carol had made the $35,000.00 payment, which paid off Steven’s truck loan, line of credit, and left around $15,000.00 cash to spare. There was also no corroborating evidence of Carol’s intention to gift the $90,000.00 amount to Steven. As a result, Steven held the $90,000.00 in trust for Carol’s estate.
Unfortunately, it is often the case that payments to adult children are challenged after the parent has died. Unless the parent has taken special care to document his or her intention in making the payment, the intention can be difficult to determine with any degree of certainty. Accordingly, a parent making a gift to an adult child should consider seeking legal advice as to the best way to document such a transfer in order to ensure that their intentions will be upheld. From the opposite perspective, if a parent wants to make a transfer on the basis that their adult child will hold the asset in trust for him or her, or his or her estate, the parent should also consider seeking legal advice to ensure that this is properly documented in order to reduce the chance of issues arising in this regard after his or her death.
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Mentoring plays a vital role in the development of competent practitioners. The need for mentorship has never been greater, especially now, as the practice of law evolves with the pandemic.
Come join Hull & Hull LLP’s Suzana Popovic-Montag, who will be presenting at the upcoming ADR Mentorship Circle program on April 22nd at 5:30 PM. As one of the country’s premier estate litigators with almost 25 years of litigation experience, she has successfully represented clients at every level of court, including the Supreme Court of Canada. Suzana will bring her extensive experience in Estate Law to students and members of the OBA.
Registration via the Ontario Bar Association can be found here.
Registrants are invited to select their top two practice areas of interest. Please email Janet Green at email@example.com to indicate your top two practice areas of interest.
Best efforts will be made to accommodate each registrant’s first choice.
Just over a week ago I had the privilege to attend the OBA’s annual evening with the judges of the Toronto Estates List. Unfortunately, due to the pandemic, the event was held virtually this year, but it was nonetheless very interesting and informative and I’m sure everyone appreciated the judges sharing their time. I take this opportunity to mention a few of the topics discussed.
- New Technology Implemented by the Court
The Estates List judges shared with event attendees that the new technology that has recently been adopted by the Court is here to stay. It was suggested that counsel invest the time to learn how the CaseLines system works and get comfortable with it, as it is intended that CaseLines will be in use going forward. The use of sync.com is already being phased out, and mainly CaseLines will be used in the future. This is expected to be the case even when we are able to return to in-person hearings.
- New Model Orders
We have previously blogged about the model orders that have recently been added to the Estates List Practice Direction. At the event, the judges emphasized that the model orders are an excellent resource and should be used going forward.
- Availability of Case Conferences
The Estates List judges clarified that case conferences continue to be available. It was suggested that before parties take steps to gear up for a contested motion, if they are not able to solve the matter on their own, they should consider scheduling a 30 minute case conference, and try to work it out with the assistance of one of the members of the Estates List Bench. This may allow matters to be resolved more quickly, thus freeing up court resources for other matters, and in a way that is more cost-effective for the parties.
- The Court’s Workload
Between January and March of this year, the Estates List heard between 400-500 matters, which is close to the number of matters that would be heard in a regular year. The number of matters being heard in writing has almost doubled from the norm, with the Estates list having heard almost 900 matters in writing so far this year, compared with around 1500 in a whole year in normal times. It is clear that the Estates List continues to operate effectively notwithstanding the lack of in-person attendances.
I understand that the event was recorded and will be available for later viewing. I encourage anyone who missed the event to check out the recording and take advantage of the advice and tips from the Bench.
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We have blogged previously on whether a suicide note could be found to be a valid holograph will. See Suzana Popovic-Montag’s blog “Testamentary Capacity and Suicide”. Also see my paper on the subject, “Suicide, Suicide Notes and Testamentary Capacity”.
The courts have held that a suicide note can be considered to be a valid holograph will. However, the usual tests of establishing that the note demonstrates sufficient testamentary intent, and the requirement that the propounder establishes capacity remain. The fact that there was a suicide is a consideration but is not conclusive evidence of incapacity.
The court recently considered whether a suicide note was a will in McGrath v. Joy, 2020 ONSC 7454 (CanLII). There, the deceased took his own life after writing a note that purported to void any bequests to his spouse as contained in a prior will.
In considering whether the note was a valid holograph will, the court noted that a suicide note is a “special circumstance” that requires close scrutiny. In light of evidence relating to the deceased’s alcohol and drug use on the day in question, the court found that there were “suspicious circumstances” that “spent” the presumption of capacity and reshifted the legal burden of establishing testamentary back onto the propounder.
The court considered extensive evidence from the deceased’s family and friends about the deceased’s alcohol and drug use, including evidence about his condition on the day of his suicide. The propounder relied on an expert opinion. However, the opinion was inconclusive. The court also looked at the content of the note itself. It was sloppily written. It was a significant departure from formal wills previously made by the deceased.
The court concluded that the propounder had not met the burden of establishing on a balance of probabilities that the deceased had testamentary capacity.
In the costs decision, the judge cited the “modern costs rules with respect to estates” and the general proposition that the “loser pays” that applies to estate litigation. The court held that the propounder “acted unreasonably in attempting to have this suicide note admitted into probate as a holograph will” for a number of reasons, including the fact that he was not acting as an estate trustee seeking the guidance of the court but, rather, was pursuing his self-interest in an attempt to oust the legacies to others, and the fact that his own expert was not able to opine on the deceased’s testamentary capacity. However, the estate also bore some responsibility for costs due to the deceased’s own actions in preparing the note. A blended costs award was made whereby the propounder bore some of the costs and the estate bore the rest.
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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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When parents consider who should be the guardian of their minor-age children in the event they both were to die, they are probably thinking in terms of who will assume parenting responsibilities. In Ontario, however, there is an important distinction between the custodial guardian and the guardian of property, the latter being the person who will make financial decisions for those children until they reach the age of majority. One person can fulfill both roles or parents can break the responsibilities apart and assign guardians for each.
Let’s explore the second form of guardianship first.
In Ontario, subsection 47 (2) of the Children’s Law Reform Act describes a guardian of the property as someone “responsible for the care and management of the property of the child.”
Their duties include making trustee investments and investing the child’s money as required by the management plan approved by the court. If there is a large amount of money involved, the guardian may be required to pass the accounts before the court at fixed intervals, usually from one to five years.
Detailed records, or accounts, must be kept of all transactions carried out on behalf of the children.
Guardians of property may be paid for their work, following the fee scale set out in Ontario Regulation 159/00. It states they are entitled to three per cent on capital and income receipts, three per cent on capital and income disbursements and three–fifths of one per cent on the annual average value of the assets as a care and management fee.
The court can review the accounts and adjust the amount of compensation given, and, if required, demand that some or all of these funds be repaid.
With the financial responsibilities involved in being a guardian of property, it is easy to see why parents should select someone comfortable with handling money for this role.
When selecting a custodial guardian to assume day-to-day parenting duties, most people look to family members. That often works well, especially if the person lives close by and has children of their own. But don’t be afraid to look beyond your circle of relatives. In some circumstances, a family friend might be the better choice. Just as there are no perfect parents, there are no perfect guardians, but your children will have to live with the choice you have made in the event of your untimely death.
There are a number of factors to consider with any guardian choice, such as geography. School-age children may not appreciate being uprooted from friends and schoolmates if the custodial parent lives in another community or province.
The age and health of the custodial guardian are important as well, as you want someone who has the energy to take on the myriad of tasks involved in child-rearing. For that reason, someone who is nearing retirement might not be a wise choice as a custodial guardian.
Parents also have to think about the attitudes and values they are trying to instill in their children. You want to find a custodial guardian who lives by similar standards as yours, to ensure your children are brought up in a manner in which you approve.
Finances should be a factor in your decision-making. Even if a will provides funding for the children’s needs, the custodial guardian’s expenses will go up, so you won’t want to select someone who is already financially strained.
For both guardian roles, you will want to be sure to discuss the issue thoroughly with the people in question before appointing them in your will. It is a statistical long-shot that their services will be required, but make sure they are comfortable taking on those duties if they are ever required to fulfill those roles.
One final point: review your guardianship appointments on a regular basis. Everyone’s personal circumstances change, and the person who agreed to be guardian 10 years ago may be unfit or unwilling to assume that role now.
Stay safe – and have a great day,
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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A lawyer was sued for negligence in allegedly failing to ensure that a will was not procured by undue influence or as a result of the testator’s lack of testamentary capacity. On examination for discovery, the lawyer was asked to advise as to texts or other secondary sources that the lawyer regarded as authoritative regarding the drafting of wills, and to advise as to whether the lawyer was aware of any cases (primary sources) that indicated that the lawyer was not required to document evidence of testamentary capacity.
The lawyer refused to answer those questions. The plaintiff brought a motion to compel the lawyer to answer. Must the lawyer answer those questions?
In Marshall v. Jackson, the motions master ordered the lawyer to answer the questions. On appeal, reported at 2021 ONSC 2361, the court held that the questions need not be answered.
The appeal judge held that it was trite law that a party cannot function as his or her own expert. By ordering the questions to be answered, the master in effect required a fact witness to research and deliver a legal opinion, which was contrary to a first principle of the law of evidence. Citing the Supreme Court of Canada, the appeal judge stated that “it is for the [trier of fact] to form opinions, and draw inferences and conclusions, and not for the witness”. The questions, it was held, went beyond asking the defendant for his or her general understanding of the steps he or she should have taken to ascertain testamentary capacity, but required that the lawyer research primary and secondary sources of law in an effort to provide support for legal reasoning going to the standard of care.
A third question was also refused: whether the defendant “understood that he was obliged to ensure that all available means were utilized to ascertain testamentary capacity”. The defendant submitted that the question was too broad to be answerable. Would “all available means” include hiring a team of psychiatrists to evaluate the testator’s capacity? The appeal judge held that while the defendant’s counsel may have a point, the fact that the question was excessively broad did not make it unanswerable. “Indeed, the very absurdity of the literal meaning of the question makes it an easy one to answer.” Presumably, the answer will be “No”.
Next question, counsel?
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The basic limitation period under section 4 of the Limitations Act, 2002 provides that a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. However, pursuant to section 7(1) of the Act, the “clock” does not run when the person with the claim,
(a) is incapable of commencing a proceeding in respect of the claim because of his or her physical, mental or psychological condition; and
(b) is not represented by a litigation guardian in relation to the claim.
A person is also presumed to be capable of commencing a proceeding in respect of a claim at all time unless the contrary is proved (section 7(2)), although minors are dealt with separately under section 6 of the Act.
The issue of the plaintiff’s capacity to commence a proceeding in respect of his claim was considered at length by the Court of Appeal in Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447. Carmichael is a tragic case involving the murder of the plaintiff’s 11 year old son. The plaintiff strangled his son to death in 2004 when he was suffering from mental illness and psychotic delusions. During this time, the plaintiff was also taking an anti-depressant that was manufactured by the defendant drug company. The plaintiff was charged with murder and he was found to be not criminally responsible as a result of his mental disorder. He later received an absolute discharge from the Ontario Review Board on December 2, 2009. Nearly two years after that, the plaintiff commenced his claims against the drug company on October 5, 2011.
The defendant drug company brought a motion for summary judgment to dismiss the plaintiff’s claim as statute barred. The motions judge dismissed the motion because he found that the plaintiff was incapable of commencing a proceeding because of his psychological condition until the day of his absolute discharge from the Ontario Review Board. The Court of Appeal disagreed.
The Court of Appeal affirmed the use of the Huang/Hengeveld indicators as a list of non-exhaustive, objectively verifiable indicators of incapacity under section 7(1)(a) of the Act (see paras. 94-96):
- a person’s ability to know or understand the minimum choices or decisions required to make them;
- an appreciation of the consequences and effects of his or her choices or decisions;
- an appreciation of the nature of the proceedings;
- a person’s ability to choose and keep counsel;
- a person’s ability to represent him or herself;
- a person’s ability to distinguish between the relevant and irrelevant issues; and,
- a person’s mistaken beliefs regarding the law or court procedures.
Moreover, the plaintiff’s physical, mental, or psychological condition must be the cause for the incapacity in order to meet section 7(1)(a). The incapacity cannot arise from other sources, such as lack of sophistication, education, or cultural differences (para. 101).
The Court of Appeal ultimately found that the plaintiff had the capacity to sue the defendant drug company prior to his absolute discharge from the Ontario Review Board. The Court disagreed with the motions judge’s view of the plaintiff’s expert evidence. The plaintiff’s expert witness was criticized for never having prepared a capacity assessment before and for making conclusions that were unsupported by the evidence. Rather,
“The evidence shows that Mr. Carmichael had several reasons for not suing GSK before December 2, 2009: he did not believe he had the necessary expert evidence until he received the genetic test from Dr. Lucire in October 2009; he was worried about repercussions if the Hospital decided that he was not taking responsibility for his actions; and he was concerned for his own and his family’s well-being. These are understandable reasons for not commencing a lawsuit. But in my view, none of these reasons, alone or together, prove that Mr. Carmichael was incapable of suing GSK until December 2, 2009 because of his psychological condition.” (para. 163)
Leave to appeal to the Supreme Court of Canada was denied last week.
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