Tag: allocation clauses
Over the past few months, since the release of Re Milne, 2018 ONSC 4174, estate practitioners have been in turmoil over the decision which found that wills are trusts that must have certainty of object, subject-matter, and intention. As a result of the uproar caused by the decision, the Divisional Court expedited a hearing of the appeal of Re Milne. Four and half months later, the estates bar and individuals with multiple wills can now rest easy with the Divisional Court’s decision in Re Milne, 2019 ONSC 579.
The Lower Court Decision
At the lower court, Justice Dunphy found a primary will to be invalid where an allocation clause in the will provided the estate trustees with the discretion to determine which estate assets fell under the secondary will or the primary will based on whether probate of such assets would be required. Justice Dunphy found that such allocation clauses resulted in there being no certainty of subject-matter with respect to the primary will as assets could be allocated between the two wills after death (the secondary will, on the other hand, was worded in such a way that it was found to validly capture all of the testator’s assets).
In particular, Justice Dunphy took issue with the conferral of discretion upon the estate trustees to determine which assets, if any, would fall under the primary will. The allocation clause at issue specifically provided for the exclusion of assets from the primary estate “for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for a transfer or realization thereof.” Justice Dunphy found that this clause granted the estate trustees the power to determine which assets, if any, were subject to the will based on the “subsequent, subjective determinations of the Estate Trustees as to what is desirable.” Justice Dunphy further found that the assets that fall under a particular will must be objectively ascertainable at the time of death, and not subject to the subsequent discretion of the estate trustees.
The Issues on Appeal
The estate trustees appealed the lower court decision on the following issues:
- Did the Application Judge err in holding that a will is a trust?
- Did the Application Judge err in holding that the “three certainties” determine the validity of a will?
- Did the Application Judge exceed the Court’s inquisitorial jurisdiction? (the Court agreed that the Application Judge exceeded his jurisdiction, but found that such a conclusion was unnecessary to decide the appeal).
A Will is Not a Trust
As many will recall, the lower court decision began with the proposition that “a will is a form of trust. In order to be valid, a will must create a valid trust and must satisfy the formal requirements of the Succession Law Reform Act, R.S.O. 1990, c. S.26.” No precedent was provided for this statement and it was this finding which ultimately led to the finding that the allocation clause contained in the primary will resulted in a lack of certainty of subject matter and therefore the invalidity of the primary will.
The Divisional Court found that a will is not a trust on the following basis:
- the definition of a “will” in the Succession Law Reform Act does not state that a Will is a trust;
- a will can contain a trust, but is not required to;
- during the administration of an estate, no separate beneficial interest exists – the property comprising the residue of the estate is not held in trust for the beneficiaries; and
- historically, courts of chancery were responsible for oversight of the administration of estates and trusts, such that the law with respect to executors of estates and trustees of trusts share similarities, however, the roles remain distinct, despite conflation that now exists between the two roles.
Finally, the Divisional Court found that even if section 2(1) of the Estate Administration Act, which vests the property of a deceased person in their personal representative “as trustee for the persons by law beneficially entitled thereto”, resulted in the creation of a trust, such a trust would be a statutory trust and therefore not subject to the “three certainties.”
The Primary Will Contains Certainty of Subject Matter
Although the Divisional Court found that wills are not trusts and that even if they are trusts, they are not subject to the “three certainties”, the Court went on to consider whether the use of an allocation clause in multiple wills would result in a lack of certainty of subject matter.
The Court held, at paragraph 49, that:
The property in the Primary Wills can be clearly identified because there is an objective basis to ascertain it; namely whether a grant of authority by a court of competent jurisdiction is required for transfer or realization of the property. As a result, the Executors can allocate all the deceased person’s property between the Primary and Secondary Wills on an objective basis.
Thus the Court found that there was no lack of certainty of subject matter as the allocation clause provides an objective criteria for determining which will an asset might fall under, being the objective determination as to whether probate is required to handle the asset.
Furthermore, earlier in the decision (at paragraph 24), the Court confirmed that the discretionary nature of an allocation clause does not mean that it can be exercised arbitrarily and that executors must exercise such discretionary powers in accordance with their fiduciary obligations.
Although not explicitly stated, it appears from these findings that the Divisional Court found that allocation clauses are valid discretionary powers which may be conferred on estate trustees. Such a finding may provide further comfort to those concerned, not only about the issue of whether a will is a trust, but the separate issue of whether a testator may confer such a discretionary power on estate trustees. As it stands, the Divisional Court’s decision supports the validity of allocation clauses.
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