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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What happens to communications between a solicitor and a testator once the testator passes away? Can privilege be waived in order to determine the intentions of a testator?
As stated in R v McClure, 2001 SCC 14, “solicitor/client privilege must be as close to absolute as possible to ensure public confidence and retain relevance. As such, it will only yield in certain clearly defined circumstances, and does not involve a balancing of interests on a case-by-case basis.”
It has been established that the beneficiary of privilege (i.e. the client) is able to pass on their privilege to established successors. Pursuant Bullivant v AG for Victoria  (HL), a testator’s death does not destroy the privilege that can be asserted by an executor, and the heirs of the testator.
In Hicks Estate v. Hicks, (1987) 25 E.T.R. 271, the Ontario District Court (as it then was) was faced with the question of whether an Estate Trustee could step into the shoes of the deceased individual and waive privilege in the same fashion as the deceased. In this case, the court clarified that solicitor/client privilege exists for the benefit of the client, not the solicitor.
In Goodman v Geffen,  2 SCR 353, the Supreme Court of Canada established that there are situations where privilege does not arise where the interests of the party seeking information are the same as those of the individual who retained the solicitor. For example, the court may receive evidence from a solicitor of instructions given to the solicitor by a deceased testator in order to determine the testator’s true intentions. This principle has been further explained in the case of Stewart v Walker (1903) 6 OLR 495 (CA): “the reason on which the rule is founded is the safeguarding of the interest of the client, or those claiming under him when they are in conflict with the claims of third persons not claiming, or assuming to claim under him.” As such, upon the death of a testator, it is possible for the privilege between the testator and their solicitor to extend beyond death.
Aside from trying to determine the true intentions of the testator, the principle of solicitor/client privilege upon the death of a testator can be applied to the disclosure of legal opinions to a trustee, as a trustee is bound to act in the best interests of the beneficiaries and to further their interests. This will be discussed further next week.
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Donald Trump is president-elect of the United States of America. While the political ramifications of the surprise result of this week’s election are not yet known, there is little doubt that, as it relates to Donald Trump personally at least, his world is about to change. Donald Trump prides himself on being a successful businessman, controlling, amongst other things, a vast hotel empire that bears his name. But who controls such assets on Mr. Trump’s behalf while he is president?
In the days following Justin Trudeau’s selection of his first cabinet in November 2015, I wrote a blog about the requirement that all of such cabinet members would need to place their investments into a blind trust. At its most simple, a blind trust can be thought of as an individual relinquishing control over their assets, and providing them to a trustee to manage on their behalf. The trustee has complete discretion over how to invest the individual’s assets, with the beneficiary being provided with no information regarding how the investments are being held, and the beneficiary having no say in how the funds are managed. As the beneficiary has no idea what their funds are invested in, the theory is that they would not be inclined to enact government policy which would favour their own investments, and they would be able to avoid a conflict of interest.
CNBC is reporting that Mr. Trump will be placing his business interests into a blind trust while president, handing over control to his three children. CNBC has noted that Mr. Trump’s circumstance is not typical to those of other politicians who place their assets in blind trusts, noting that Mr. Trump likely knows his own investments intimately as a result of their bearing his name, such that, even in a blind trust, he would likely be able to identify them. NPR has previously reported about such difficulties, noting that it would likely be impossible for Mr. Trump to place his most valuable asset, being his own “Trump” name and brand, into a blind trust.
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The composition of assets held by a trust can be complex. In situations wherein a significant amount of wealth is held in a trust, the trust can often be composed of various corporate entities (whether numbered companies or otherwise), which in turn can often hold interests in other corporations. The administration of such corporate entities can have wide ranging implications, with the trusts perhaps only owning a portion of any shares in the overall structure. But what right, if any, does a beneficiary of the trust have to view the backing corporate documentation for such corporations? Does a beneficiary of a trust have an automatic right to view all backing corporate documentation, or do the trustees have the authority to refuse the request in certain circumstances?
Although there is little jurisprudence in Canada on the subject, the English case of Butt v. Kelson,  Ch. 197, has been cited as a leading authority. In Butt v. Kelson, Justice Romer provides the following commentary in confirming that beneficiaries of a trust have certain rights to compel the release of backing corporate documentation:
“What I think is the true way of looking at the matter is that which was presented to this court by Sir Lynn Ungoed-Thomas, that is that the beneficiaries are entitled to be treated as though they were the registered shareholders in respect of trust shares, with the advantages and disadvantages (for example, restrictions imposed by the articles) which are involved in that position, and that they can compel the trustee directors if necessary to use their votes as the beneficiaries, or as the court, if the beneficiaries themselves are not in agreement, think proper, even to the extent of altering the articles of association if the trust shares carry votes sufficient for that purpose… I would propose, accordingly, that the declaration which has been made be discharged, but that there should be inserted into the order liberty to [the beneficiary] to apply in these proceedings in relation to any document which he may hereafter desire to see and of which [the trustees] decline to give him inspection.“ [emphasis added]
Justice Romer’s commentary suggests that at minimum a beneficiary of a trust is entitled to the same disclosure rights regarding any corporation owned by the trust as if the beneficiary were the shareholder of the shares which the trust owns. Whether such disclosure rights go beyond that of a shareholder, and whether the beneficiary can compel the release of any documentation available only to the directors, will need to be determined on a case by case basis, with Justice Romer suggesting that it may even be possible in circumstances where the trust is the majority shareholder for the beneficiaries to compel the trustees (as shareholders) to alter the articles of incorporation to provide for the release of certain documentation which otherwise may not have been available to them. Whether the beneficiaries would be entitled to receive such documentation would need to be determined by the court on a case by case basis.
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Pursuant to section 4 of the Limitations Act, generally, a claim should be started by an individual within two years of the claim being discovered. Section 5 of the Limitations Act, defines discovery as “the day on which a reasonable person with the abilities and in the circumstance of the person with the claim first ought to have known of the matters referred to.”
These provisions raise an interesting estates question: What if an individual was unaware that they were named as a beneficiary of an estate? Would the Limitations Act apply in these circumstances, even though the beneficiary was unaware of their claim?
The doctrine of fraudulent concealment may operate to provide for an equitable tolling of the limitation period. Simply put, this means that discoverability is a factor in considering fraudulent concealment for estates purposes. The doctrine will suspend the running of the limitation clock until the reasonable party can reasonably discover the cause of action.
As stated in Roulsten v McKenny et al, 2016 ONSC 2377 para 41, and as established in Giroux Estate v Trillium Health Centre, 2005 CanLII 1488 (ON CA), “the purpose underlying the doctrine of fraudulent concealment is to prevent defendants who stand in a special relationship with a party from using a limitation provision as an instrument of fraud”. A special relationship can be defined as one in which the plaintiff may rely on the defendant’s word and defendant ought to reasonably foresee that the plaintiff would rely on his representation.
As defined in the case of KM v HM,  3 SCR 6, at para 65, “‘Fraud’, for the purposes of fraudulent concealment, is defined as “conduct which having regard to some special relationship between the two parties concerned, is an unconscionable thing for one to do towards the other.”
As established through the existing jurisprudence, in order to make out the doctrine of fraudulent concealment, there are three necessary elements:
- the defendant and the plaintiff are engaged in a special relationship with one another;
- the defendant’s conduct is unconscionable; and
- the defendant conceals the plaintiff’s right of action
As stated above, if an individual was unaware that they were the beneficiary of an estate, and a named estate trustee actively concealed the fact, it is possible that the remedy of fraudulent concealment provision would apply. It appears the provision will not apply if you knew or ought to have known that you were a beneficiary of an estate.
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A recent decision of the Supreme Court of Nova Scotia considers the issue of which individuals may qualify as persons having an interest in an estate.
Kenny v. Kenny Estate, 2016 NSSC 214 (CanLII), featured a situation in which the deceased, a father of two, had executed a new will after his wife and son had died. The deceased’s last will and testament named his daughter as sole residuary beneficiary. His prior will named both children (or their surviving issue) as alternate beneficiaries in the event that his wife predeceased him. The granddaughter of the testator, being the daughter of the predeceasing son, sought to have the will proved in solemn form as a “person interested in the estate”.
The application was heard within the context of Nova Scotia’s Probate Act and the related procedure and regulations. The Probate Act refers to the requirement to prove a will in solemn form on application by an interested person seeking this relief.
In determining that the granddaughter qualified as an interested person and had standing to bring such an application, the Court considered the following facts:
- The granddaughter would have benefitted as an alternate residuary beneficiary under a prior will (as a result of her grandmother’s death and her father’s death before that of her grandfather);
- The inclusion of grandchildren as issue is consistent with the jurisprudence and
the definition of the word used in Nova Scotia’s Intestate Succession Act;
- The granddaughter was a lineal descendant of the testator, and, accordingly, qualified as his “issue”.
In Ontario, an “interested person” who objects to a will and seeks to have it proven in solemn form can, similarly, request this relief pursuant to Rule 75.01 of our Rules of Civil Procedure. However, the Ontario Court of Appeal recently confirmed that the right of an interested person to have a will proved in solemn form is not absolute. An interested person may request proof in solemn form but cannot require it, as it is in the discretion of the Court alone to determine whether the testamentary instrument ought to be proved and, if so, the manner in which this is to be done.
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Life insurance can be a useful tool in estate planning to offset tax liabilities and supplement the assets that may otherwise be available to leave to a surviving spouse or other family members.
An article by Michael Grob, featured in the most recent issue of the Step Journal, highlights the potential of life insurance in estate planning, with a focus on the utility of insurance within the context of high net worth individuals who have assets in multiple jurisdictions.
Last year, the Canadian Life and Health Insurance Association released statistics from 2014, which suggests that the size of Canadian life insurance policies continues to grow, despite prolonged low interest rates and slower than average investment growth. During 2014, the value of life and health insurance policies increased by 11.5% to $721.2 billion. While these figures suggest that the use of life insurance in estate planning is increasing, Mr. Grob states that it is less commonly used to its potential in the cross-border context.
There are many reasons why life insurance policies are such an effective estate planning tool, and why they may be especially suitable when cross-border issues may also present themselves. These reasons, which are highlighted within Mr. Grob’s article, can be summarized as follows:
- Availability of liquid funds available for use by an estate upon death, including for the satisfaction of foreign taxes and/or inheritance tax, where there may otherwise be complications in obtaining probate that will delay the payment of these estate liabilities;
- Tax concessions generally associated with life insurance (in Canada, life insurance proceeds are not typically taxable, nor are they normally subject to probate fees when a designated beneficiary other than the estate is identified);
- Accessibility to life insurance in other jurisdictions, even if local access is limited, through international providers;
- Variety of different options regarding policies and their terms; and
- Equalization of inheritances left to survivors; for example, in circumstances in which a business will be left to one child and the testator wishes to establish a life insurance policy to benefit the other(s) or to provide a corporation with sufficient funds to buyout the business interests left to one or more shareholders.
With all of the benefits associated with the use of life insurance policies, it is important to consider the potential of life insurance in achieving clients’ objectives when assisting them with estate planning.
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It is well recognized that in order to create a valid trust, the “three certainties” must all be present. An Ontario Superior Court judgment from November 2015 considered the three certainties, particularly the certainty of intention, and found that the intention was absent and thus the trust failed.
Briefly, the key facts of Ridel v Schwartz, Levitsky, Feldman Inc., 2015 ONSC 6899 are as follows:
- Following a judgment against e3m Investments Inc. (“e3m”) for breach of contract, negligence and breach of fiduciary duty in April 2013, the Ontario Securities Commission (the “OSC”) was concerned with respect to e3m’s ability to satisfy the judgment in favour of the Ridels;
- e3m was required by the OSC to create an Accumulating Account in order to accumulate and maintain sufficient liquid assets to satisfy the Judgment;
- After unsuccessfully appealing the Judgment in November 2014, e3m filed an assignment in bankruptcy on January 20, 2015;
- The statement of affairs showed available cash of approximately $550,000.00, most of which was held in the Accumulating Account.
The question before the court was whether the Trustee in Bankruptcy could take possession of the funds in the Accumulating Account, or whether these funds were held in trust for the benefit of the Plaintiffs in the civil action (the “Plaintiffs”). Specifically, the issue was whether the certainty of intention had been met.
The court found that the OSC Decision requiring the establishment of the Accumulating Account and the terms and conditions which required it did not evidence an intention to create a trust, and the OSC did not take a position regarding whether the funds were trust funds. The court also found that the terms and conditions did not address the ultimate disposition of the funds in the Accumulating Account and whether they would or would not become payable to the Plaintiffs, another indication that a trust was not intended. The court also held that the Plaintiffs’ distance from the negotiations that resulted in the Accumulating Account is a relevant factor, despite the fact that notice is not required. Additionally, despite the fact that funds were segregated, this is not conclusive of an intention to settle a trust. Lastly, the ability of the OSC and the Investment Industry Regulatory Organization of Canada (“IIROC”) to permit the funds in the account to be used for any purpose they deem appropriate within their regulatory mandate as fundamentally inconsistent with an intention to create a trust.
As demonstrated in this case, it appears that the court will very strictly consider whether the intention to settle a trust is present. Thus, if the establishment of a valid trust is desired or required, it is vitally important to indicate any intention to settle a trust very clearly and explicitly.
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Last week I tweeted an article from Advisor.ca on Seg Funds for Estate Planning: Advantages and Pitfalls, which discusses the benefits of using segregated funds as part of estate planning and notes some areas that may lead to issues. Segregated funds are a type of investment fund available through life insurance companies, where the funds are kept “segregated” from the general assets of the company. They have an advantage in estate planning in that, as an insurance product, the beneficiary is named on the plan itself, and thus, provided that the estate has not been named as beneficiary, the proceeds pass outside of the estate, avoiding probate fees.
One possible benefit of segregated funds, as noted by the article, is protection from creditors. Because the segregated fund passes directly to the beneficiary, it is not an estate asset, and is not available to satisfy creditors’ claims. However, it is noted that the creditor protection may be lost in certain circumstances, including if it was purchased at a time when the investor knew that he or she may be subject to a creditor claim.
When considering a segregated fund as a way to minimize probate fees, it is important to consider additional fees associated with such funds. Segregated funds usually have a higher management expense ratio (MER) than mutual funds. If the amount that would be saved in probate fees is less than the MER, the segregated fund may not result in any net savings.
Lastly it is important to be aware of any beneficiary designations in a will that may create possible conflicts with the designated beneficiary of the segregated fund. Pursuant to s. 51 of the Succession Law Reform Act, R.S.O. 1990, c. S.26, a beneficiary designation can be made either by an instrument or by will, as long as the will designation refers expressly to a plan. Section 52(2) provides that a later designation revokes an earlier designation. Therefore if a will is executed after the beneficiary of the segregated fund is designated, and makes a designation that differs from that in the fund, the designation in the will revokes the designation in the fund.
The article provides the example of Orpin v Littlechild, 2011 ONSC 7695. In that case, the testator had a segregated fund held in an RRSP which designated his sons as beneficiaries. Following this designation, the testator executed a new will which designated his spouse “as the sole beneficiary of all moneys that I may have at the date of my death in any registered retirement savings plan, registered retirement income fund, registered pension plan, registered investment fund or any other similar device”. The court then had to decide to whom the fund would pass. Despite the fact that the will did not specifically refer to the insurance policy, the broad language used in the will was sufficient to change the designation of the segregated fund.
There are other similar products to segregated funds, such as life insurance policies which can have similar benefits and effects. However, it is important to be familiar with a variety of options in order to properly advise clients on what strategy may work best for them.
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In Kuchta v The Queen, 2015 TCC 289, the Tax Court of Canada had occasion to consider some interesting issues with respect to the meaning of “spouse” in the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (the “ITA”) and a spouse’s joint and several liability for a deceased spouse’s tax liabilities on death.
Ms. Kuchta was married to Mr. Juba (the “Deceased”) at the time of his death in 2007. Ms. Kuchta was the designated beneficiary of two of the Deceased’s RRSPs, and she accordingly received $305,657.00 upon the Deceased’s death. The Deceased was assessed by the Minister of National Revenue (the “Minister”) and found to owe $55,592.00 in respect of his 2006 taxation year. After the Deceased’s Estate failed to pay that amount, the Minister assessed Ms. Kuchta for the amount owing, pursuant to s. 160(1) of the ITA. This section provides that where a person has transferred property to their spouse, the transferee and transferor are jointly and severally liable to pay the transferor’s tax.
Ms. Kuchta’s position was that, three of the four requirements of s. 160(1) were met, but that the last requirement had not been met. Ms. Kuchta stated that she was not the Deceased’s spouse at the time of transfer of the RRSPs, as it occurred immediately after the Deceased’s death, at which point their marriage had ended. The Court, therefore, had to consider (a) when should the relationship between Ms. Kuchta and the Deceased be determined; and (b) does the word ‘spouse’ in s. 160(1) include a person who was, immediately before a tax debtor’s death, his or her spouse?
With respect to issue (a), if the relationship is determined at the time that Ms. Kuchta was designated as beneficiary of the RRSP, they would have been married, whereas if the relationship were determined at the time of transfer, they would not have been married. The Court easily concluded that the relationship should be determined at the time of transfer. It then had to determine whether the word “spouse” in s. 160(1) is sufficiently broad to include Ms. Kuchta at the time of transfer. That is, whether it included widows and widowers.
The Court undertook a “textual, contextual and purposive analysis of the word ‘spouse’ in subsection 160(1).” After a lengthy and thorough analysis, the Court concluded that the word ‘spouse’ must have been intended to include widows and widowers. It found that Parliament used both the legal and colloquial meanings of the term in the ITA, which differ from each other, thus presenting conflicting interpretations and ambiguity. However, the purposive analysis was found to point to an interpretation that includes widows and widowers.
Ultimately, therefore, Ms. Kuchta was found jointly and severally liable for the Deceased’s unpaid taxes, as a result of the beneficiary designation of the Deceased’s RRSPs. It will be interesting to see how this case applies going forward, and we should keep in mind that the Minister may be able to collect on unpaid taxes from the beneficiary of a Deceased’s RRSP.
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