Trusts are generally divided into two categories; “inter vivos” or “testamentary” trusts. Inter vivos trusts are broadly defined as trusts that are established by a settlor while they are still alive, typically pursuant to a deed of trust, while testamentary trusts are established in the terms of a Will or Codicil. Generally speaking there is no overlap between an individual’s Will and any inter vivos trust, with any inter vivos trust existing separate and apart from the settlor’s “estate”. But does this have to be the case? Could you theoretically, for example, leave a bequest in a Will to an inter vivos trust that you previously established, thereby potentially increasing the assets governed by the trust upon your death, or must a trust which governs estate assets be a “testamentary trust” established by the Will? The short answer is “it depends”, although any individual considering such a bequest should proceed with extreme caution.
A clause in a Will that provides for the potential distribution of estate assets to a separate inter vivos trust is often referred to as a “pour over” clause, insofar as the assets of the estate are said to “pour over” into the separate trust. The availability and use of “pour over” clauses in Ontario is somewhat problematic.
The fundamental issue with the use of “pour over” clauses that allow a bequest to be made to a trust is that the formalities that are required to make or amend a trust are much lower than the formalities that are required to establish a Will, with trusts often containing provisions that will allow for their unilateral amendment or revocation after their establishments. The statutes which establish the parameters that are required for a Will to be valid are very strict, with a Will only being able to be later amended or altered if it too meets very strict criteria. The potential concern in allowing a distribution from a Will to a separate trust that can easily be amended after the execution of the Will is that it could create the scenario in which an estate plan could be altered after the Will was signed in a way that would not meet the strict formal requirements that would otherwise be required for a Will to be altered or amended.
In Ontario the formalities required for a Will to be valid is established by section 4(1) of the Succession Law Reform Act. A Will that has been signed in accordance with the formal requirements of section 4(1) can only be altered or amended by a Codicil that itself has been signed in accordance with the formal requirements of section 4(1), or if the alterations to the Will meet the requirements of section 18 of the Succession Law Reform Act. Unlike alterations and/or amendments to a Will, an alteration or amendment to a trust does not need to meet any formal statutory requirements for it to be valid, with the only requirements being those stipulated in the trust document itself and/or under the rules in Saunders v. Vautier. As a result, an inter vivos trust to which a bequest was directed using a “pour over” clause could theoretically be changed numerous times after the signing of the Will either with or without the involvement of the testator, thereby bringing into question whether the bequest actually represents the deceased’s testamentary intentions at the time the Will was signed.
In Quinn Estate v. Rydland, 2019 BCCA 91, the British Columbia Court of Appeal upheld the lower British Columbia Supreme Court decision, 2018 BCSC 365, which found that a “pour over” clause which purported to distribute certain estate assets to a trust that was settled by the Deceased during his lifetime was inoperable, with the funds that were to be distributed to the trust instead being distributed on an intestacy. In coming to such a decision the court appears to place great emphasis on the fact the trust in question could be amended unilaterally after the fact and in fact was amended in such a fashion after the execution of the Will.
The court in Quinn Estate provides an excellent summary of the considerations to make when determining whether a “pour over” clause can be upheld, including the concepts of “facts of independent significance” and “incorporation by reference”. I will discuss the concepts of “facts of independent significance” and “incorporation by reference” as they relate to pour over clauses in my remaining blogs this week.
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Handwritten Wills/Codicils are certainly quite rare, particularly for people with means. In certain circumstances, and particularly where the testator had made a pre-existing Will, the presence of a subsequent handwritten Will or Codicil can suggest the presence of suspicious circumstances.
As Paul Trudelle blogged last week, Larry King apparently executed a secret handwritten codicil in 2019 that divided his roughly $2 million estate amongst his five children, to the exclusion of his wife, Shawn King. Mrs. King apparently intends to challenge the validity of the 2019 codicil.
In Ontario, an amendment to a Will is referred to as a “codicil” and it is considered to be a Will, for the purposes of the Succession Law Reform Act. A handwritten Will, in Ontario, is referred to as a “Holograph Will” and the only requirement is that it be made wholly by the testator’s own handwriting and signature, without formality, and without the presence, attestation or signature of a witness. The fact that a Holograph Will is usually made without witnesses will often cause litigation, particularly if there are suspicious circumstances surrounding its execution and/or discord in the family of the deceased.
If Mr. and Mrs. King resided in Ontario, Mrs. King could pursue various claims in challenging the validity of the 2019 codicil (subject to the available evidence), including:
- Lack of requisite testamentary capacity on Mr. King’s part;
- Mr. King being subject to undue influence from any or all of his children (or other third parties);
- Presence of suspicious circumstances in the execution of the codicil; and
- Presence of fraud in the execution of the document (which is pleaded quite rarely, as there are serious costs consequences for those that make such an allegation but are unable to prove it).
It will certainly be interesting to see how this matter unfolds, particularly taking into account that $2 million is not a significant amount when the costs of litigation are taken into account.
Interestingly, some sources suggest that his Estate is actually worth $50 million, which sounds a lot more accurate!
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It is not uncommon for the lawyer who drafted a testator’s will or codicil to subsequently be retained by the Estate Trustees after the testator’s death to assist with the administration of the estate. The rationale behind the drafting lawyer being retained to assist with the administration of the estate appears fairly self-evident, for as the drafting lawyer likely has an intimate knowledge of the testator’s estate plan and assets they may be in a better position than most to assist with the administration of the estate.
While retaining the drafting lawyer to assist with the administration of the estate is fairly uncontroversial in most situations, circumstances could become more complicated if there has been a challenge to the validity of the testamentary document prepared by the drafting lawyer. If a proceeding has been commenced challenging the validity of the testamentary document, there is an extremely high likelihood that the drafting lawyer’s notes and records will be produced as evidence, and that the drafting lawyer will be called as a non-party witness as part of the discovery process. If the matter should proceed all the way to trial, there is also an extremely high likelihood that the drafting lawyer would be called as a witness at trial. As the drafting lawyer would personally have a role to play in any court process challenging the validity of the will, questions emerge regarding whether it would be proper for the drafting lawyer to continue to represent any party in the will challenge, or would doing so place the drafting lawyer in a conflict of interest?
Rule 3.4-1 of the Law Society of Ontario’s Rules of Professional Conduct provides that a lawyer shall not act or continue to act where there is a conflict of interest. In the case of a drafting lawyer representing a party in a will challenge for a will that they prepared, an argument could be raised that the drafting lawyer is in an inherent position of conflict, as the drafting lawyer may be unable to look out for the best interests of their client while at the same time looking out for their own interests when being called as a witness or producing their file. There is also the potentially awkward situation of the drafting lawyer having to call themselves as a witness, and the associated logistical quagmire of how the lawyer would put questions to themselves.
The issue of whether a drafting lawyer would be in a conflict of interest in representing a party in a will challenge was dealt with in Dale v. Prentice, 2015 ONSC 1611. In such a decision, the party challenging the validity of the will brought a motion to remove the drafting lawyer as the lawyer of record for the propounder of the will, alleging they were in a conflict of interest. The court ultimately agreed that the drafting lawyer was in a conflict of interest, and ordered that the drafting lawyer be removed as the lawyer of record. In coming to such a conclusion, the court states:
“There is a significant likelihood of a real conflict arising. Counsel for the estate is propounding a Will prepared by his office. The preparation and execution of Wills are legal services, reserved to those who are properly licensed to practise law. Counsel’s ability to objectively and independently assess the evidence will necessarily be affected by his interest in having his firm’s legal services found to have been properly provided.” [emphasis added]
Decisions such as Dale v. Prentice suggest that a lawyer may be unable to represent any party in a will challenge for a will that was prepared by their office as they may be in a conflict of interest. Should the circumstance arise where the drafting lawyer is retained to assist with the administration of the estate, and subsequent to being retained someone challenges the validity of the Will, it may be in the best interest of all parties for the drafting lawyer to indicate that they are no longer able to act in the matter due to the potential conflict, and suggest to their clients that they retain a new lawyer to represent them in the will challenge.
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People change their mind all of the time. When someone changes their mind about the terms of their Will however, things can become more complicated. Going to a lawyer to formally make a change to the Will may seem daunting. If the change to the Will is relatively minor, an individual may be tempted to forgo meeting with a lawyer to draw up a new Will or Codicil, and simply make the change to the Will themselves by crossing out or inserting new language by hand on the face of the old Will. But would such handwritten changes be valid?
Although the advice to any individual thinking of changing their Will would always be to speak with a lawyer about the matter, people do not always adhere to such advice. If someone has made handwritten changes to their Will after the document was originally signed, such changes can under certain circumstances alter the terms of the Will.
Section 18(1) of the Succession Law Reform Act (the “SLRA“) provides that unless any alteration to a Will is made in accordance with the requirements of section 18(2) of the SLRA, such alterations have no effect upon the provisions of the Will itself unless such an alteration has had the effect that you can no longer read the original wording of the Will. Section 18(2) of the SLRA further provides:
“An alteration that is made in a will after the will has been made is validly made when the signature of the testator and subscription of witnesses to the signature of the testator to the alteration, or, in the case of a will that was made under section 5 or 6, the signature of the testator, are or is made,
(a) in the margin or in some other part of the will opposite or near to the alteration; or
(b) at the end of or opposite to a memorandum referring to the alteration and written in some part of the will.”
As a result of section 18(1) and 18(2) of the SLRA, any handwritten change to a Will does not validly alter the terms of the Will unless the testator and two witnesses sign in the margins of the Will near the alteration (subject to certain exceptions listed). If the handwritten change is not accompanied by such signatures it is not a valid alteration and has no impact upon the original terms of the Will, unless the handwritten change has had the effect of “obliterating” the original language of the Will by making it no longer readable.
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Last week we discussed the doctrine of republication, which makes an older valid will operate as if it had been executed on the (later) date of republication. A codicil that refers to a prior unrevoked will is the most common example of republication.
Republication must not be confused with revival of a revoked will, which requires clear evidence of an intention to make valid a previously revoked will. (We have written before about revocation of a will, which can be effected by marriage (depending on the will), making a new will, a proper written revocation, and destruction of the will with an intention to revoke.)
Section 19(1) of the Succession Law Reform Act provides that a revoked will can be revived by: (a) another duly executed will, (b) a codicil that shows an intention to revive, or (c) re-execution of the will with the required formalities. Re-execution also requires intention, so merely signing a revoked will does not revive it.
If there is a codicil that refers to a validly revoked will, the court will look to see whether there is evidence of intention to revive. If a codicil is ambiguous, the court will consider extrinsic evidence of whether the testator had an intention to revive the will. Whether or not extrinsic evidence is admitted, the court will place itself “in the position of the testator” and consider the codicil in light of “surrounding circumstances.” In this way, the court will try to find the testator’s true intentions from the codicil (Hale v Tokelove (1850), 2 Rob Ecc 318 at 325).
Intention to revive can be a significant issue if a testator does not know that his or her will was revoked in the first place. A properly executed codicil that would republish a valid will might not be sufficient to revive a revoked will. For example, a testator might not be aware that his or her marriage revoked their previous will. If that testator makes a codicil referring to the earlier will, without understanding that the will was revoked by operation of law, then the codicil may not show the necessary intention to revive the will. If the testator dies without making a new will, his or her estate will pass on either full or partial intestacy, despite having made a will.
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As we have previously discussed on our blog, the assets left behind by individuals who live and die in a number of jurisdictions other than Canada may be subject to an inheritance tax. For example, in the United States, inheritance tax is payable on the value of assets beyond an initial $5.45 million exemption.
Inheritance tax may not be payable on all assets inherited by one’s surviving family members. Tax-avoidance vehicles that are well known in Canada, such as joint ownership, inter vivos gifts, and trusts can be used in certain circumstances to limit one’s exposure to inheritance tax. However, fewer of our readers may be aware that a limitation may also apply to inheritance tax payments in respect of assets being passed on to a surviving spouse.
Sub-section 2056(a) of the U.S. Internal Revenue Code specifies as follows:
For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsection (b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.
The application of subsection 2056(a) would typically result in the exclusion of assets passing to a surviving spouse from the calculation of inheritance tax. However, there are certain limitations to the marital deduction, which are described under subsection 2056(b) of the legislation. For example, the marital deduction may not apply if the surviving spouse’s entitlement in an asset is limited to a life interest.
Litigation recently emerged in respect of the estate of author Tom Clancy, who altered his estate plan by executing a codicil that had the effect of qualifying the share of his estate being left for his second wife and her child for the marital deduction. Clancy’s will established three trusts: (1) one for the benefit of his second wife, (2) one for the benefit of his second wife and their child together, and (3) one for the children of his first marriage. The children from Clancy’s first marriage argued that, notwithstanding the terms of the codicil, the marital deduction should not apply to funds held in trust for both Clancy’s wife and their child. If the second trust had not qualified for the marital deduction, the approximate $16 million in inheritance tax would have been deemed payable out of the assets of both the second and third trust, rather than exclusively borne out by the third trust. The result would have increased the total inheritance taxes paid (from approximately $12 million), but reduced the tax burden to be paid out of the share left for Clancy’s children from his first marriage. The matter proceeded to court in Maryland and it was determined (and upheld on appeal) that the codicil did, in fact, have the effect of qualifying the second trust for the marital deduction.
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Republication of a valid will makes the will operate as if it were created on the date of republication. Generally speaking, a codicil republishes the will to which it refers, unless a contrary intention is expressed in the codicil. For example, a codicil, duly executed on September 14, 2016, to an earlier will would republish the will, making it operate as if the will were executed on September 14, 2016. This is true whether or not the codicil is annexed to the will. A testamentary document that is not called a codicil and that does not make reference to a specific earlier will does not republish the will.
The Wills Act, 1837 provided that a republished will is deemed to have been made at the time of the republication. The Succession Law Reform Act (SLRA) does not make any reference to republication, to either confirm or abolish the doctrine. Thus, the SLRA has a neutral effect on the doctrine, and it continues to operate
in Ontario law.
The concept of republication was more important before the Wills Act, 1837 was enacted, when it was a rule of law that real property acquired after the date of the execution of a will could not be devised by that will. The Wills Act, 1837 changed the law so that a will speaks from the date of death in respect to the property of the testator.
Republication can still be useful in estate planning. For example, republication can be used to incorporate by reference a document or memorandum into the will that was not in existence when the will was first executed (Lady Truro, Re (1866), [1865-69] LR 1 P &D 201). Republication might also be significant in construing the meaning of certain provisions of a will, particularly descriptions.
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Our blog has previously discussed the importance of original testamentary documents at length. Typically, an original will is required in order to apply for a Certificate of Appointment of Estate Trustee With a Will. If an original will cannot be located, it may be presumed that it was physically destroyed, and therefore revoked, by the testator. Alternatively, a copy of a will may be admitted to probate upon the filing of a lost will application. However, this remedy is not a fix-all that can be used in all situations in which an original will cannot be located and, even when successful, will result in additional legal fees and delays in the administration of the estate.
Certain provisions within the Criminal Code of Canada criminalize the theft and destruction of another person’s testamentary instruments in recognition of the importance of these documents. At Section 2, the Criminal Code defines a “testamentary instrument” as including “any will, codicil or other testamentary writing or appointment, during the life of the testator whose testamentary disposition it purports to be and after his death, whether it relates to real or personal property or to both”.
Typically, the theft of personal property valued at less than $5,000.00 is a summary offence and can result in up to two years of imprisonment. Where stolen property meets the definition of a testamentary instrument, the seriousness of the crime is elevated to an indictable offence, punishable by up to ten years in prison (section 334(a) of the Criminal Code). The possession of a stolen testamentary instrument is also a crime in Canada. The Criminal Code prohibits possession of property obtained by a criminal act and specifically identifies the possession of a stolen testamentary instrument as an indictable offence with a penalty of up to ten years of prison (sections 354, 355(a)).
Similarly, the destruction, concealment, cancellation, or obliteration of a testamentary instrument “for a fraudulent purpose” is an indictable offence and a conviction may result in up to ten years of imprisonment (section 340). The destruction of a testamentary instrument as a result of an act of mischief is also an indictable offence , punishable by up to ten years in prison (section 430(3)).
The provisions of the Criminal Code outlined above illustrate the significance of the original copy of a last wills and testaments, codicils, and other testamentary documents in Canada and the lengths that the law will go to in protecting the sanctity of these original documents that are typically required in order to administer an estate in the way intended by the testator.
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What language will be sufficient to effect a beneficiary designation by codicil? The decision in The Bank of Nova Scotia Trust Company v Ait-Said, 2016 ONSC 4051 (Canlii) provides some guidance on this issue.
The Testator, Mr. Briggs, made a number of amendments to his will. In particular, he had had drafted a document (“the July 29, 2013 Document”) which referred to the contents of the safety deposit box. Only a photocopy of this handwritten document was located when the records were searched. The July 29, 2013 Document provided that the contents of the Testator’s safety deposit box were to be left to Ms. Lockhart, a respondent in the proceeding. This safety deposit box included within it life insurance policies. Mr. Brigg’s wife, Ms. Briggs, had been named the beneficiary of the policies but had predeceased him.
It was Ms. Lockhart’s position that their inclusion in the box effected a declaration within the meaning of the Insurance Act, naming her beneficiary of the policies. She argued that the declaration in the holograph will should not be held to the same standard as that of a will prepared in accordance with the formalities of the Succession Law Reform Act, and that the wording of the document was sufficiently clear in its testamentary intentions to designate her as beneficiary of the policy. The Estate Trustee, the Bank of Nova Scotia Trust Company, maintained that there was no valid declaration or intention to name Ms. Lockhart the beneficiary of the policies, and that the proceeds of the policies had to be distributed in accordance with the Insurance Act.
As a preliminary concern, the Court evaluated whether this document should be admitted to probate. The Court accepted on the evidence that the July 29, 2013 Document was admissible for probate despite it being a photocopy of a handwritten document.
In making a determination as to the beneficiary of the proceeds of the policies, the Court considered the words “the total contents of my safety deposit box.” It found these words were not sufficient to meet the requirements of the provisions of Insurance Act. In its reasons, the Court stated that the document did not identify the insurance contract or the proceeds and dismissed Ms. Lockhart’s argument that there had been a valid declaration in her favour.
The Court also dismissed Ms. Lockhart’s argument that the Estate Trustee held the policies in trust for her. In doing so, it referred to the document’s emphasis on personal possessions within the safety deposit box and that in doing so the Testator likely did not intend to include the policies. The Court refused to find any fixed or final intention to leave the policies to Ms. Lockhart on this basis. The policies were therefore to be distributed in accordance with 194(1) of the Insurance Act to the Testator’s personal representative.
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In a recent Ontario Court of Appeal decision, Holgate v Sheehan Estate, 2015 ONCA 717, the court was asked to consider an appeal from a motion for determination of an issue under Rule 21.01(1)(a) of the Rules of Civil Procedure. The Rule 21 motion arose in the context of a trial with respect to the interpretation of the will and codicil of John Holgate, and particularly the meaning of the word “use”. The appeal also dealt with the trial judge’s jurisdiction to hear the mid-trial Rule 21 motion, but this blog will deal with the former issue.
Mr. Holgate had passed away and was survived by two sons from his first marriage (the “sons”) and his second wife, (“Mrs. Holgate”). Mr. Holgate’s will and codicil provided for a life interest in two trusts to Mrs. Holgate. Following Mrs. Holgate’s death, Mr. Holgate’s children were entitled to the remainder of the two trusts. The wording of the two trusts provided that the trust assets were to be held for “the sole use and benefit of my wife MAY HOLGATE during her lifetime”.
The sons brought an action against their father’s estate, Mrs. Holgate’s estate and Mrs. Holgate’s daughter personally, claiming that Mrs. Holgate’s life interest allowed her to use the money but not save it. They alleged that Mrs. Holgate had not only used trust assets, but had also saved money, thereby depleting the capital of the estate to their detriment and contrary to their father’s intention.
Three days into the trial, the trial judge invited counsel to bring a mid-trial motion either for determination of an issue or for directions in order to determine this critical issue with respect to the interpretation of the will and codicil, namely the meaning of the term “use”. Counsel agreed to bring a Rule 21 motion and asked whether the wording of the will and codicil precluded Mrs. Holgate from accumulating wealth from the trusts in her own name.
The trial judge concluded that:
- nothing in the will or codicil prevented Mrs. Holgate from saving and accumulating wealth;
- the language of the will came as close as possible to conferring an absolute gift on Mrs. Holgate; and
- neither of the trusts included any limitations on the use of the assets by Mrs. Holgate.
On appeal by the sons, the Court of Appeal agreed with the trial judge’s interpretation, that the words and phrases used in the trusts indicate a clear intention on Mr. Holgate’s part to allow his wife unrestricted access to the funds. They also cited Dice v Dice Estate, 2012 ONCA 469, which held that “[t]he golden rule in interpreting wills is to give effect to the testator’s intention as ascertained from the language that was used”.
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