Last year, Spence v. BMO Trust Company, 2015 ONSC 615 was one of the most significant estate cases of 2015. In Spence, the testator made a Will that unambiguously and unequivocally disinherited one of his daughters. The disappointed daughter applied to the Ontario Superior Court of Justice for an order setting aside the Will on the ground that she was disinherited solely because she had a child with a white man. A third party swore an affidavit corroborating the Applicant’s evidence that her father disinherited her for reasons that were racially discriminatory. Justice Gilmore accordingly set aside the entire Will on the basis that it was contrary to public policy against racial discrimination. The Respondent BMO Trust Company appealed the decision.
This week, the Ontario Court of Appeal released its long awaited ruling in Spence v. BMO Trust Company, 2016 ONCA 196. The Court of Appeal overturned Justice Gilmore’s decision, stating that the principle of testamentary freedom to choose one’s beneficiaries is generally immune to judicial scrutiny.
In reaching its decision, the Court of Appeal appears to have significantly restricted the scope of the public policy doctrine in estate cases. Simply put, a Will that does not impose any conditions that, on its face, offend public policy appears to be valid regardless of the testator’s intentions. Thus, the Court in Spence found that the testator was free to disinherit his daughter even if his intention appeared to be racially discriminatory.
It remains to be seen whether the Applicant will seek leave to appeal to the Supreme Court of Canada.
To hear an interesting discussion about the earlier decision in this case check out Hull on Estates podcast #404
A recent decision of the Ontario Superior Court of Justice, Grillo Estate v Grillo, 2015 ONSC 1352, considered an Application for an Order invalidating the holograph Will of Domenico Grillo. The Applicant was the adult daughter of Mr. Grillo, who also had two other adult children. Mr. Grillo had been born in Italy but prior to his death, was domiciled in Ontario. He had family in Italy, namely his sister and her children, and would frequently visit them. One of these such visits was in March 2014, despite the fact that at the time he was very ill.
On July 1, 2014, Mr. Grillo’s niece, Anna (in Italy) called his daughter in Canada, to tell her that Mr. Grillo was very ill. Anna subsequently made several other calls that seemed suspicious to Mr. Grillo’s children. The three children decided to go to Italy to check on their father. However, before they were able to reach him, Mr. Grillo passed away on July 4, 2014. Upon arrival, the children found that many of their father’s possessions were missing from the home he owned and in which he had been staying. Among the missing possessions were his wallet, bank cards, credit cards, passport, and jewellery.
The children were then presented with a document which Anna purported to be a holograph Will executed by Mr. Grillo on May 5, 2014, while he was in Italy. The beneficiaries under this Will were his three adult children, as well as Anna, his niece. Mr. Grillo had executed a prior Will in 1994, under which his three adult children were equal beneficiaries. Mr. Grillo’s children could immediately see that the alleged holograph Will was not written in their father’s handwriting. An Italian handwriting expert also came to the same conclusion.
As this case had an international aspect, the court had to determine whether there was a real and substantial connection to the jurisdiction of Ontario, using the tests laid down in Club Resorts Ltd v Van Breda,  1 S.C.R. 572. The Court found that there was a real and substantial connection, due to the following:
- Notwithstanding that Mr. Grillo was in Italy when he died, he was a resident of Ontario and Rule 17.02(b) and (c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 permits service ex juris in respect of the administration of the estate of a deceased person who was a resident of Ontario, or for the setting aside of a will in respect of personal property in Ontario;
- All presumptive connecting factors generally pointed to a relationship between the subject matter of the litigation and the forum of Ontario such that it would be reasonable to expect that the defendant, in this case Anna, would be called to answer legal proceedings in Ontario;
- As per section 26(2) of the Succession Law Reform Act, R.S.O. 1990, c. S.26, the fact that Mr. Grillo was domiciled in Ontario at the time of his death, means that the law of Ontario will govern the formalities and validity of both the 1994 will and the 2014 will.
Perhaps the most interesting element of this case is that criminal charges had been laid in Italy for various counts of theft, and writing and registering a forged will. In light of this evidence, as well as the evidence from the Applicant and the handwriting expert suggesting that Mr. Grillo had not written the 2014 holograph Will, the Court had little trouble finding that the holograph Will was not valid.
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A recent New York Post article discusses the estate of the late Maurice Laboz of Manhattan, who left $20 million to his two daughters, Marlena and Victoria, 21 and 17 respectively, to inherit when they turn 35. However, Mr. Laboz has also provided a number of ways in which the girls can gain access to some money in the meantime.
For example, if Marlena graduates from “an accredited university” and writes a short essay, to be approved by the trustees, she will receive $750,000. The Testator also included a provision which will triple their salary each year, providing an incentive for them to work hard and earn a good salary, and not just to rely on their inheritance.
There are also restrictions for Mr. Laboz’s daughters. He has included a term of the trust such that, if they decide to have children and not to work outside the home, they will receive 3% of the value of their trust every year. But, if they have a child born out of wedlock, they will not receive any of the money allotted for this purpose.
I recently tweeted this post from Elder Law Answers, which discusses incentive trusts. As illustrated by Mr. Laboz’s trust for his daughters, an incentive trust is a way to provide for your loved ones, while retaining some control over the way the money is spent. Such trusts may have very specific instructions to ensure that the trust funds support positive behavior, and discourage unproductive or harmful behavior. Some of the types of incentives can include rewards for degrees, or matching employment earnings, as discussed above. An incentive trust might also include funds to match the down payment on a house, or to reward doing charitable or volunteer work. An incentive trust may also try to deter harmful behavior, such as drug use, by providing a reward for undergoing treatment for addiction.
As noted by BMO Nesbitt Burns, incentive trusts have seldom been used in Canada and can be difficult to design and administer. In particular, selection of Trustees for an incentive trust is critical, due to the great deal of discretionary powers they can exercise over distribution of trust funds. But if you have good advice on setting up a Trust, it may be a way to ensure that your loved ones’ inheritance will be well spent.
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The division of one’s personal property, which may include, jewellery, art, books, furniture, tools and clothing, can often become a significant source of tension and conflict amongst those who collectively stand to inherit such items from the estate.
The sentimental value that is often attached to such items, coupled with the loss of a loved one, can result in emotions running high at the time when important allocation decisions must be made. As such, it is almost inevitable that disagreements will arise.
When such disagreements arise it is important to consult the deceased’s Will. Through the estate planning process individuals often consider and make provision for specific items of personal property within the terms of their Will. A Will may, for example, make a specific bequest of a disputed item. In some instances, the deceased may have gone one step further and referenced an attached memorandum within his or her will. Such a memorandum may contain an itemized list of various items of the deceased’s personal property and outline precisely whom the deceased has directed to receive each item.
It is extremely rare, however, for all items of personal property to be included within the Will or an attached memorandum. Any items not expressly listed will generally fall to the residue of the estate, and as such, must ultimately be divided amongst the beneficiaries of the estate. It is quite common in this regard for the deceased, through the terms of his or her Will, to direct the beneficiaries to “divide any remaining items of personal property equally amongst themselves, as they agree”. Disagreements often arise as a result of the ambiguity created by such wording and where the beneficiaries cannot agree amongst themselves as to the best way to allocate the items.
While there are many options open to executors and beneficiaries, including drawing straws, picking numbers out of a hat or tossing a coin, these options can result in individuals missing out on specific items that they valued above all others purely due to chance. A fair alternative, that allows beneficiaries to walk away with the majority of the items they want and seems to have good results, is to hold an “auction”.
In order to conduct such an action, all items must first be appraised. The total of the appraised value should then be divided by the number of beneficiaries. Each beneficiary can then be provided with a sum equivalent to their share of the appraised value, which he or she will then use to bid on the items. For example, if the appraised value of all items was $10,000.00 and there were two beneficiaries, each beneficiary would receive $5,000.00 to bid on items. A list of all items and their appraised value should be presented to each beneficiary in advance of the auction. On the auction day, each item should be presented one by one before all the beneficiaries. Each beneficiary is given equal opportunity to bid on the items, and the highest bidder will go home with the item. Therefore, if a beneficiary values one item over others, he or she can choose to spend the majority of his or her auction dollars on that item. Any unused auction dollars are returned to the estate. Any remaining items that are not sold at auction can then be divided amongst the parties as they agree, and if they cannot agree they may be listed for sale and the profits split between the beneficiaries. Finally, the value of the items successfully obtained at the auction should be deducted from each beneficiary’s share of the overall estate prior to the final distribution in order to ensure a fair distribution.
For example, lets say there are two beneficiaries to an estate, Jack and Jill. Jack and Jill stand to inherit from the estate equally (50/50) and the Will directs them to divide all items of personal property as they agree. A dispute subsequently arises with respect to specific items of the deceased’s personal property. The total value appraised value of the deceased’s personal property is $10,000.00. Both Jack and Jill would be provided with $5,000.00 to bid with at the auction. Jill bids on items totaling $2,000.00, Jack bids on items totaling $3,000.00. If the total estate value was worth $100,000.00, Jack’s share of the estate would be $50,000.00, and Jill’s share would be $50,000.00. After deducting the value of the items they received at the auction Jack would receive $47,000.00 ($50,000 – $3,000) and Jill would receive $48,000.00 ($50,000 – $2,000).
By using this method each beneficiary has a certain amount of control over the items he or she receives and has the opportunity to actively select the items he or she values most.
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An article that appeared in the Wall Street Journal this past weekend highlights an important issue that is often overlooked when individuals plan for the distribution of their wealth after death.
The article suggests that 70% of wealth inherited by a younger generation is lost, and that, by the time that the inherited wealth makes it to a subsequent generation, only 10% of its original value typically remains.
In Canada, where 40% of individuals rely on a family inheritance to fund their retirement, such poor rates of intergenerational wealth preservation could present a serious problem.
In addition to obtaining formal lawyer assistance in creating a formal estate plan, the article refers to a new approach to preserving wealth called “heritage design”.
Heritage design uses “pre-inheritance” intergenerational experiences to foster the preservation of family wealth. This approach, which supplements estate planning, involves annual meetings with the testator and his or her beneficiaries, at which time family values and traditions are reinforced and younger generations learn how to manage funds which they can expect to eventually inherit.
Family meetings during which an estate plan is discussed and explained to beneficiaries has the potential not only to assist in the preservation of family wealth from generation to generation, but also can help prevent disputes over the intended distribution of an estate after death.
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Today on Hull on Estates, Doreen So and David Smith discuss missing beneficiaries and options for locating and dealing with this issue. Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog page.
Today on Hull on Estates Andrea Buncic and Jonathon Kappy discuss the guiding principles for estate trustees when allocating dividends between income and capital beneficiaries. If you have any questions, please email us at email@example.com or leave a comment on our blog page.
Click here for more information on Andrea Buncic.
Today on Hull on Estates, Paul Trudelle and Stuart Clark discuss the recent case of Kiperchuk v. The Queen, and whether an RRSP that passes to a designated beneficiary on death is available to CRA to satisfy the deceased’s tax debt.
If you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog page.
Click here for more information on Paul Trudelle.
Click here for more information on Stuart Clark.
For my final blog of this week, I thought I would give further consideration to the unique legal issues arising out of life insurance beneficiary designations.
Because of the increasing complexity of insurance structures, it is not always easy to determine what "property" is held by a policyholder at the time of his death. The question is relevant when one considers that, in Ontario, Estate Administration Tax is levied on the value of "all property that belonged to the deceased at the time of his or her death." In this context, there is good reason to question when a contract between the deceased and his insurer morphs into a legal obligation owed by the insurer to the beneficiary.
While the contractual obligation between the deceased and his or her insurer has been described by at least one court as a "species of property", that property (if we are talking about term insurance) only realizes its true value after (as opposed to "at the time of") the death of the deceased policy owner. More than one commentator has noted that the value of term life insurance before the death of the deceased is arguably nominal. However, in Re Carlisle Estate, discussed yesterday, the Court stated: "No one would suggest that the value of a winning lottery ticket is the price paid for the ticket. The value of an insurance policy is the amount paid to the beneficiary by the terms of the policy."
Have a great long weekend!
David M. Smith
The 2009 federal Budget contains a few items relevant to Estates, particularly with respect to Registered Retirement Savings Plans (“RRSPs”).
For a thorough review please see the 343-page document. A Bloc Quebecois amendment to the Budget yesterday evening was defeated; Opposition Party amendments have yet to occur. Budget speech to approval of the Budget motion could take up to four days.
While there are benefits for first-time home buyers in the Budget, and a host of infrastructure investments, not everyone is happy. Other media view the bad-time Budget as possibly providing the boost we need.
Regarding Estates, the Budget proposes that certain losses now be applied against terminal income – see page 318 of the Budget. The fair market value of investments held in an RRSP at the time of an RRSP annuitant’s death is generally included in the deceased’s income for the year of death. A subsequent increase in the value of the RRSP investments is generally included in the income of the RRSP beneficiaries upon distribution.
Similar rules apply in the case of Registered Retirement Income Funds (RRIFs).
There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.
Budget 2009 proposes to allow, upon the final distribution of property from a deceased annuitant’s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of his or her death and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant.
Assuming the Budget motion passes, this measure will apply in respect of deceased annuitants’ RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.
This change, especially in this uncertain economy, might help to make a weak financial situation a bit more palatable.
Thank you for reading our blogs this week. Enjoy your weekend.