A recent decision from the Royal Court of Jersey was recently discussed here with respect to a beneficiary’s right to disclosure from a trust. This blog by lawyers from Ogier is an insightful read on this particular area of trust law.
According to the authors at Ogier, M v W Limited and Others was a case that considered a beneficiary’s broad request for documents, such as copies of all trust instruments, latest accounts, financial statements for the corporations owned by the trust, and details about all past distributions from the trust. While Court’s decision was grounded in an interpretation of the relevant Jersey legislation, some of its commentary remains instructive for those of us who practice outside of Jersey.
In M v W Limited and Others, the nature and immediacy of the beneficiary’s interest is salient to the inquiry. For example, a contingent beneficiary may not be entitled to as much disclosure as a beneficiary who is entitled to the assets of the trust at that point in time. By extension, it is also relevant to consider whether the disclosure at issue would negatively affect another class of beneficiaries as well as the proportionality of the request.
As for the law in Canada, I have blogged on a recent Supreme Court of Canada decision about a trustee’s duty to disclose the existence of a trust to the beneficiaries. Justice Brown for the majority in Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, has stated the following at paragraph 19,
“In general, wherever “it could be said to be to the unreasonable disadvantage of the beneficiary not to be informed” of the trust’s existence,  the trustee’s fiduciary duty includes an obligation to disclose the existence of the trust.”
This notion of whether a beneficiary would be unreasonably disadvantaged by the non-disclosure is important to keep in mind because the right to disclosure is grounded in a beneficiary right to hold trustees accountable and to enforce the terms of the trust.
Practically speaking, issues of disclosure often leads to a request for the trustee to commence an application to pass accounts. While the trustee will have the benefit of a court order approving his/her administration for that period (if and when Judgment is obtained), an application to pass accounts must be served on all beneficiaries with a contingent or vested interest pursuant to Rule 74.18 of the Ontario Rules of Civil Procedure. In turn, these beneficiaries will have the right to object to the trustee’s accounts and seek relevant disclosure from the trustee in the course of this process.
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In 2016, there were an estimated 1,359,655 persons of Ukrainian origin residing in Canada, making them one of Canada’s largest ethnic groups. Because this is a community that is now overwhelmingly born in Canada only a small percentage have knowledge of the Ukrainian language. However, many have cultural, family, and other ties to the country of origin of their grandparents. There are many aspects of international inheritance and estates that involve assets and beneficiaries in both countries as a result of these historic ties.
Ukraine is a European continental law country, with a population of 44 million, in which notaries deal with estates or “successions”. The “Certificate of Right to Inheritance” is the Ukrainian equivalent of the “Letters of Administration” or “Letters Probate” or a “Certificate of Appointment of Estate Trustee” which are used in Canada.
It should be noted that under Ukrainian legal procedures, the right to assets of a decedent is based upon the terms of a will, if any, or in accordance with the Ukrainian law on intestate succession. For example, if a wife dies leaving a husband and two living sons but left no will, her estate would be transferred to her heirs, namely her sons and husband pursuant to the Civil Code of Ukraine, in equal shares. In the case where one of the sons subsequently dies leaving three children, then the son’s share would be transferred to his beneficiaries, namely his wife and three children.
Also interesting, according to the Civil Code of Ukraine, a beneficiary (testamentary or legal heir) has the right to renounce their share in the Deceased’s estate in favor of another beneficiary. So, in order to minimize legal formalities and respectively notarial costs and expenses, beneficiaries can renounce their shares in an estate in favor of another beneficiary by completing a document in front of a notary.
If you are interested in further information on the topic of international inheritance we are pleased to assist, along with our lawyer colleagues in Ukraine.
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What do you do with an estate where the administration of the estate is all done and as an estate trustee or lawyer you are at the stage where you are ready to pay money to a foreign resident as a beneficiary of the deceased’s estate?
Do you charge HST to a non-resident beneficiary receiving money from an estate? The answer is – it depends.
The HST is a consumption value added tax (VAT) that is assessed incrementally based on the increase in value of a product or service at each stage of production or distribution. In theory, it is designed to pay for infrastructure and services provided by a state and funded by its taxpayers for services relied upon for that product or service. It is a tax that is used by many countries around the world. As of 2018, 166 of approximately 193 tax collecting countries employ a VAT, including all 35 of the more advanced Organization for Economic Cooperation and Development (OECD) members, except the United States which uses a sales tax system instead. The HST is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value added sales tax (HST). In Ontario the HST is 13% of which 8% is the provincial portion.
The tax is structured in a way that mostly does not apply to non-residents. Many services provided in Canada are “zero-rated” for the HST when supplied to a non-resident. However, if a service is rendered to an individual, the individual generally has to be outside Canada while the service is being performed for there to be no HST. If legal services are provided to a non-resident or if the non-resident is receiving a bequest, then there is no HST charged,while the individual is resident in a foreign country.
There are situations where a person might be deemed to be resident although never having been in Canada. This would include when a person is subject to, or commences a court proceeding in Canada. Legal services and other advisory, consulting, or professional services provided to a non-resident are generally not charged except: a service rendered to an individual in connection with criminal, civil, or administrative litigation in Canada (however, a service rendered before the start of such litigation may be zero-rated and not charged); a service in respect of real property situated in Canada; a service in respect of goods situated in Canada at the time the service is performed, among others.
In regard to international inheritance and the HST it therefore depends if litigation was commenced in Canada in regard to that estate, or if there was some other event linking the beneficiary to Canada, other than the receipt of money. Where there is litigation then that portion of the service provided will be subject to the HST and should be charged to the non-resident. Otherwise, there is no HST charged to a non-resident beneficiary.
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When making testamentary gifts in a Will, if a specific bequest fails for any reason, the assets in question will fall into the residue of the estate. However, if a gift of residue fails, the distribution of whatever assets are affected by the failure will be governed by the intestacy provisions set out in Part II of the Succession Law Reform Act, R.S.O. 1990, c. S.26.
The recent decision of Sabetti v Jimenez, 2018 ONSC 3523 in part considers the interpretation of a residue clause in order to determine whether there is a partial intestacy in respect of the estate of Ms. Valdes.
The applicant, Mr. Sabetti, was Ms. Valdes’ second husband. She had three adult children from her prior marriage. Ms. Valdes’ Will provided that the residue of her estate was to be divided into four equal shares. The first share was to be held in trust for Mr. Sabetti during his lifetime, and on his death, whatever amount was remaining was to fall into and form part of the residue. The remaining three shares were to be transferred to Ms. Valdes’ three children.
Mr. Sabetti claimed that because of the gift-over of his share of the residue, which provides that it is to form part of the residue, the beneficiaries of the first share of the residue were not named with sufficient certainty, and a partial intestacy must result. Ultimately, the Honourable Justice Dunphy concluded that Ms. Valdes’ intention was clear on the face of the will, and found that there was no partial intestacy.
In its decision, the Court goes through an interesting analysis of the residue clause, outlining the rules applicable to construction of documents. Where there are two possible interpretations, one of which creates an absurd result, and one of which is in line with the apparent intention of the maker of the document, the latter is to be preferred. It is also preferable to construe a will so as to lead to a testacy over an intestacy, if it is possible to do so without straining the language of the Will or violating the testator’s intention.
In this case, the Court found that to interpret the term of the residue according to Mr. Sabetti’s position would lead to an absurd result. In terms of Ms. Valdes’ intention, the Court was of the view that the intended beneficiaries of the remainder interest were clearly the other three shares of the residue. The Court found no difficulty in discerning the testator’s intention or in applying it, and was able to read the Will in such a way as to avoid an intestacy.
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In Ontario, if there is a claim to be made or continued by a deceased person or their estate, any such claim must be brought by the executor or administrator of his or her estate. If there is no executor or administrator, under Rule 9.02 of the Rules of Civil Procedure, RRO 1990, Reg 194, the court may appoint a litigation administrator, who will represent the estate for the purpose of the proceeding. A beneficiary or other person may also represent the interests of an estate, under Rule 10.02, where it appears that an estate has an interest in a matter in question in a proceeding.
In British Columbia, section 151 of the Wills, Estates and Succession Act, SBC 2009, c. 13 (“WESA”) provides an alternative way of pursuing a claim by an estate. Section 151 states that a beneficiary of an estate may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of a deceased person, either to recover property or enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or to obtain damages for breach of a right, duty or obligation owed to the deceased person. Section 151(3) outlines the circumstances in which the court may grant leave in this regard:
(3) The court may grant leave under this section if
(a) the court determines the beneficiary or intestate successor seeking leave
(i) has made reasonable efforts to cause the personal representative to commence or defend the proceeding,
(ii) has given notice of the application for leave to
(A) the personal representative,
(B) any other beneficiaries or intestate successors, and
(C) any additional person the court directs that notice is to be given, and
(iii) is acting in good faith, and
(b) it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a beneficiary or an intestate successor for the proceeding to be brought or defended
In a document produced by the Government of British Columbia entitled “The Wills, Estates and Succession Act Explained” (“WESA Explained”), section 151 is described as overcoming a gap in the law. Previously, if a beneficiary wished for an action to be brought on behalf of an estate, and the personal representative refused to do so, the beneficiary’s sole recourse would be to apply for removal of the personal representative.
However, removal may not always be necessary or convenient. As described in WESA Explained, such a situation could arise in the event that the personal representative’s main concern (as is often the case with executors, generally) is to preserve and distribute the estate. The personal representative is therefore likely more risk adverse and conservative in assessing the potential success of pursuing an action. The beneficiary may have differing views on the merits of the claim, and in his or her assessment of the risk and return.
Section 151 of WESA differs from the process for litigation administrators and representation orders in Ontario in that s. 151 allows the executor and beneficiary appointed to bring a claim on behalf of the estate to co-exist simultaneously.
The concept of s. 151 is similar to a derivative action, in which a shareholder or other person is permitted to bring an action on behalf of a corporation, where the corporation refuses to do so.
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Over the holidays I had a great nostalgia trip watching the recent Netflix series “The toys that made us” about the history of toys. One of the episodes focused on “He-Man and the Masters of the Universe“. For those of you who did not grow up in the 1980s, the titular character had a habit of loudly proclaiming “I have the power” right before getting down to business and saving the day. I feel like loudly proclaiming “I have the power” is as good a segue as any to discuss the general principles surrounding the rule in Saunders v. Vautier.
The term “Saunders v. Vautier” is often thrown around by estates lawyers as if it is a foregone conclusion that everyone in the room, including clients, should instinctively know what is meant by the phrase. This, of course, is not always the case. For those needing a general refresher look no further.
When lawyers mention the rule in “Saunders v. Vautier” it is often done in reference to a scenario wherein a beneficiary is not to receive certain property until a specific age, however as the provision providing for the gift does not contain a “gift-over” to another beneficiary should the originally named beneficiary not reach the specified age, the beneficiary immediately demands receipt of the gift upon attaining 18 years of age thereby collapsing the trust. While the rule in Saunders v. Vautier can be utilized in such a scenario, it would be a mistake to assume that this is the only scenario in which the rule in Saunders v. Vautier may be utilized, as the potential applications of the rule are much more expansive than this.
At its most expansive the rule in Saunders v. Vautier can be thought of as the rule which allows a beneficiary(s) to ignore the testator’s/settlor’s intentions and vary the terms of a trust. It stands for the proposition that if all potential beneficiaries of a trust, collectively representing 100% of the potential “ownership” of the assets of the trust, unanimously direct that the trust is to be wound up and/or varied, the trustee(s) must act in accordance with the beneficiaries’ direction regardless of whether such direction goes against the testator’s/settlor’s “intention” in establishing the trust. As summarized by the Supreme Court of Canada in Buschau v. Rogers Communications Inc.:
“The common law rule in Saunders v. Vautier can be concisely stated as allowing beneficiaries of a trust to depart from the settlor’s original intentions provided that they are of full legal capacity and are together entitled to all the rights of beneficial ownership in the trust property. More formally, the rule is stated as follows in Underhill and Hayton: Law of Trusts and Trustees (14th ed. 1987), at p. 628:
If there is only one beneficiary, or if there are several (whether entitled concurrently or successively) and they are all of one mind, and he or they are not under any disability, the specific performance of the trust may be arrested, and the trust modified or extinguished by him or them without reference to the wishes of the settlor or trustees.”
If even one beneficiary of the trust, however remote their interest may be, should refuse to consent to the proposed variation, the rule in Saunders v. Vautier may not be utilized and the trust must continue to be administered as settled. If one of the potential beneficiaries of the trust is under a legal disability, whether as a result of being a minor or otherwise, the principles from Saunders v. Vautier may still be utilized, however the consent of the beneficiary under a legal disability must be obtained under the Variation of Trusts Act which allows the court to consent to the proposed variation on behalf of the beneficiary under a legal disability. Should the court ultimately provide such a consent, and assuming all remaining “sui juris” beneficiaries have already consented to the proposed variation, all potential beneficiaries would have consented to the proposed variation and the rule in Saunders v. Vautier would be invoked.
Thank you for reading. Wield that power wisely.
The answer is no according to Borges v. Santos, 2017 ONCJ 651.
In Borges v. Santos, a garnishment proceeding was commenced by Maria, who was entitled to child support from Antonio. Maria sought to garnish a trust that was established from the Estate of Antonio’s mother. Pursuant to the Will of Antonio’s mother, the Trustees were given an absolute and unfettered discretion to pay any part of income or capital for Antonio’s benefit and to keep Antonio’s comfort and well-being in mind in exercising their discretion. In this case, the Trustees also happened to be Antonio’s brother and sister as well as the gift-over beneficiaries of this Trust such that they will be entitled to all income and capital that were not distributed to Antonio 21 years after their mother’s death.
In one of her arguments, Maria contended that the Trust was not truly discretionary because of the non-arm’s length relationship between the Trustees and Antonio since they were siblings. The Court in case clarified that Tremblay v. Tremblay, 2016 ONSC 588, “does not stand for the proposition that all familial relationships between trustees and beneficiaries automatically demonstrate that the trust is under the control and hence the property of the beneficiary” for the purposes of the Family Law Act.
Interestingly, Antonio gave evidence in this proceeding that he wanted the Trustees to honour his child support obligations to Maria, although they chose not to comply with his wishes. Ultimately, as obiter, the Court also asked the Trustees to consider making a distribution to Antonio for his comfort and well-being by supporting his son, Christopher, while acknowledging that he could not order them to do so.
For those of you who are interested in the essential elements of a Henson Trust, click here, for a previous blog on this topic by Ian Hull.
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Receiving an inheritance under a will is a gift, and there is no obligation, as a beneficiary, to accept it. It is possible for a beneficiary to waive their right, or “disclaim” their interest, to a gift under a will.
As established in Biderman v Canada, 2000 CanLii 14987 (FCA):
A disclaimer is the act by which a person refuses to accept an estate which has been conveyed or an interest which has been bequeathed to him or her. Such disclaimer can be made at any time before the beneficiary has derived benefits from the assets. It requires no particular form and may even be evidenced by conduct.
Furthermore, Biderman v Canada establishes that “there is no entitlement to an estate until it is opened since a testamentary gift can always be revoked until death. Once made, the disclaimer is retroactive to the date of death of the deceased.”
There is no prescribed form for drafting or implementing a disclaimer of inheritance. Generally, the waiver should be a written agreement, acknowledging the waiver of inheritance (preferably drafted by a lawyer). The disclaiming agreement should be signed by the beneficiary, and witnessed.
It is also important to ensure that the beneficiary waiving their right to inheritance was not improperly or unduly influenced to do.
The disclaimer, once signed, does not need to be filed with the court. It is important that the lawyer who acts for the estate or the estate trustee keeps the waiver.
If an inheritance is disclaimed, the gift will be deemed void and fall into the residue of the estate, which will then be distributed according to the deceased’s will, or pursuant to the intestacy provisions of the Succession Law Reform Act. When disclaiming a gift, the beneficiary does not have any control over who receives their part of the inheritance.
A beneficiary can not disclaim part of a gift; once you disclaim part of your interest in an inheritance, you disclaim all of it. In Re Skinner, 1970 CanLii 360, the Ontario Supreme Court established that “the law is clear that, where there is a single undivided gift, the donee must take the whole or disclaim the whole: he cannot disclaim part.”
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I Don’t Want That Gift!
It is not uncommon to encounter situations where an individual dies without a will, having never been married, widowed, separated or divorced and without children. It can, however, be uncommon to come across situations where an individual dies under these circumstance but also leaves behind no known close relatives or next of kin. When this occurs, the question that immediately arises is: who will inherit the deceased person’s estate?
In Ontario, the distribution of the estate of an unmarried, childless person who has died without a will is governed by Part II of the Succession Law Reform Act (the “Act”). The Act provides a statutory scheme that sets out classes of individuals who will inherit on such a persons’ intestacy. The order of entitlement is as follows:
- Nieces and Nephews; and finally,
- Next of Kin.
When none of the above individuals can be identified or located, section 47(7) of the Act states that the property of the deceased person becomes the property of the Crown, and the Escheats Act, 2015 applies.
Depending on the circumstances, individuals without a family may wish to consider if there is a charitable organization or community activity that they belong to that they would prefer to benefit from their estate under a will. In the alterative they may wish to take proactive steps to locate their distant relatives during their lifetime.
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Last week we considered the application of solicitor/client privilege to a deceased testator and their testamentary intentions. A further consideration in examining the passing of solicitor/client privilege upon death is whether the individual claiming privilege is a trustee, executor, or a beneficiary.
Trustees, executors, and beneficiaries are generally regarded as having a community of interest, which may entitle them to solicitor/client privilege. Under the common law, there is not a need to protect communications between solicitors and clients from disclosure to persons who are claiming under the estate where the executor (or trustee) and beneficiary have a joint interest in the advice. The common interest/joint interest provision applies so that no privilege will attach to communications between a solicitor and client against a person who has a joint interest with the client in the subject matter of the communication. There can be no privilege asserted against beneficiaries of a trust over communications between a trustee and a trustee’s solicitors regarding the business and affairs of the trust.
Re Ballard Estate, (1994), 20 OR (3d) 189 (Ont. Gen. Div.), held that documents will be said to belong to a beneficiary because the solicitor was engaged and giving advice in regard to the administration of the estate and for the benefit of all beneficiaries who take or may take under the will or trust.
Pursuant to paragraph 16 of Chang v Lai Estate, 2014 BCSC 128, “it is well established that a beneficiary has a proprietary interest in and a right to production of any document relating to advice sought and obtained by an executrix or trustee in connection with the administration of an estate. The executrix cannot claim solicitor/client privilege over such documents because they have a commonality of interest with the beneficiaries in the administration of the estate.” As such, the advice taken by a trustee or an executor is for the benefit of all beneficiaries of the will, establishing a joint interest between the executrix and beneficiaries.
The aforementioned case further highlighted that a beneficiary is not entitled to the production of all communications between legal counsel and an executor. If there is an adversarial relationship between a trustee and a beneficiary, there is no joint interest that would compel disclosure of communications that would normally be protected by solicitor/client privilege. Where a beneficiary is in an adversarial relationship with the executor, solicitor/client privilege would appear to remain in place to preserve confidentiality
Moreover, if litigation is commenced against a third party on behalf of the trust, the trustee cannot generally claim privilege as against the beneficiary, as the beneficiary has an interest in the outcome of the litigation. However, pursuant to the case of Talbot v Marshfield , if a trustee is in litigation against a beneficiary, and especially if the trustee is paying their own legal costs, the trustee can generally uphold privilege as against the beneficiary.
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