Many parts of the world remain under some degree of lockdown due to the COVID-19 pandemic. For older adults who may have limited access to assistance or company outside of immediate family during the pandemic, and/or whose transition to long-term care may have been delayed as a result, temporary relocation to live with supportive family members may be a suitable option.
As our readers know, inheritance tax is payable in respect of the assets of estates located in a number of jurisdictions, which do not include Canada. In the United Kingdom, for example, an inheritance tax of 40% is charged on the portion of an estate exceeding a tax-free threshold of 325 thousand pounds (subject to certain exceptions).
One way that some families choose to limit inheritance tax is to gift certain assets, in some cases a family house, prior to death, such that its value will not trigger the payment of inheritance tax. In the UK, if an asset is validly gifted at least seven years before death, inheritance tax will not be payable on the asset. However, where the donor of the gift reserves the benefit of the property – for example, if he or she continues to live at real property gifted to another family member – the gift will not be valid for the purposes of inheritance tax calculations.
A recent news article highlights the risk that older individuals in the UK who move back into previously gifted property during the pandemic may lose the benefit of potential inheritance tax exclusions by falling under the “gift with reservation of benefit” exception as a result of benefitting from continued occupation of the gifted property. While this risk may not outweigh the benefits of obtaining family support, it is a factor that a family may wish to consider as part of a decision to alter living arrangements.
Approximately 600 gifts have failed in the past several years, triggering up to 300 million pounds in inheritance tax in the UK. It is certainly possible that these figures will continue to increase as a result of shared family accommodations during the pandemic.
Thank you for reading and stay safe,
Other blog posts that you may enjoy reading:
The last will and testament of the gunman responsible for Nova Scotia’s mass shooting in April 2020 was recently made public. The gunman’s will names his common law spouse as the executor of his estate, estimated to be worth around $1.2 million. However, the gunman’s spouse has renounced her right to be executor of his estate and it is now being administered by the Public Trustee. It was also rumoured that the spouse had renounced any interest she may have had in the gunman’s sizable estate.
Whether the gunman’s partner did in fact relinquish any inheritance remains to be confirmed. However, there are a multitude of reasons why someone may choose to waive their right to an inheritance, including:
- Emotional grounds;
- Personal moral or ethical grounds;
- To avoid taking possession of an undesirable or costly asset, such as real property that requires significant repairs or maintenance;
- To avoid subjecting assets to potential creditors if the beneficiary is on the brink of bankruptcy or involved in a lawsuit; or
- To allow the asset to pass to a secondary beneficiary.
For an overview of what is required to properly disclaim an inheritance, you can read Ian Hull’s blog here.
As shown by the above list, even where a beneficiary does not plan to benefit personally from an inheritance they may still be interested in what happens to that inheritance. In such situations, the beneficiary may want to think carefully about whether disclaiming their inheritance is the best option.
It is important to note that a person can only disclaim a gift if they have not yet benefited from the assets and, once disclaimed, that person has no control over the assets. In other words, a beneficiary who renounces a gift should not have anything to do with those assets either before or after they have been disclaimed. This also means that the beneficiary should not have any say in who receives the inheritance.
If a person wants to disclaim their inheritance in order for it to pass to a secondary beneficiary, they should confirm whether the deceased’s will or intestacy laws, as applicable, provide for that outcome. If it does not, or if the person wishes to direct their inheritance to some other individual or charity, there is another option: they can accept the inheritance and give some or all of the assets to whomever they choose. Depending on the beneficiary’s particular goals and circumstances, accepting an inheritance and distributing the assets as they see fit may be preferable to disclaiming the assets.
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Recently, the Ontario Court of Appeal ruled that even where a gift is not validly executed, the intention of the parties can still be fulfilled through a bare trust.
A father made a profitable investment that was held by his wife in trust for their three children in equal shares. One brother sold his share of the investment, so that the remaining portion of the investment was to be divided 50/50 between his brother and sister. The sister subsequently disclaimed her share of the investment for tax reasons, with the result that her share reverted back to the mother. It was understood and orally communicated that the mother would hold the investment and gift the income from the investment to the sister, with the principal coming back to the sister as part of the mother’s inheritance. When the mother was eventually declared incapable and the brothers became their mother’s Attorneys for Property, they were suspicious of this arrangement between their mother and their sister, and brought an action against the sister and her husband.
The main issue was whether the past and future proceeds of the investment had been validly gifted by the mother to the sister, and whether the sister’s husband, who had assumed responsibility for using the proceeds, was liable as trustee de son tort.
In the initial ruling, the application judge rejected the sister’s claim to the funds and held that the gift from the mother was invalid. Funds had been transferred by the mother to the sister through signed blank cheques. A valid gift requires delivery from the donor to the recipient (Bruce Ziff, Principles of Property Law, 6th ed. (Toronto: Carswell, 2014); Teixeira v. Markgraf Estate, 2017 ONCA 819, 137 O.R. (3d) 641, at paras. 38, 40-44), and the gift was not considered delivered until the cheque had been cashed. In this case, by the time the cheques were cashed by the sister, the mother had been declared incapable and lacked the capacity to gift. The judge ruled that the money belonged to the mother, and that the sister and her husband had to account for it, and the husband was liable as trustee de son tort.
This result was overturned recently in the Court of Appeal. The court found that the applicable legal mechanism here was not a gift, which was invalid, but instead was a valid bare trust. A bare trust is where the trustee has no obligations other than to convey the trust property to the beneficiaries on their demand (Donovan W. M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) at pp. 33-34).
The decision turned on whether there had been sufficient certainty of intention from the mother to create a bare trust, and the court found that there had been. The trust did not have to be formally evidenced in writing because the trust property was funds in a bank account and not land or an interest in land (Statute of Frauds, R. S. O. 1990, c. S.19, ss. 4, 9-11; see also In the Estate of Jean Elliott (2008), 4 E. T. R. (3d) 84 (Ont. S. C.) at para. 42.). There was sufficient evidence in the conduct of the parties to show an intention for the funds to be held for the sister as well as one of her brothers in equal shares, and the certainty of intention for the mother to hold the money as bare trustee was satisfied. As there was a valid trust, the husband was not liable as trustee de son tort because he had not acted inconsistently with the terms of the trust. While the proceeds that had already come from the investment were held on bare trust by the mother, the future distributions from the investment were not, as future property cannot be the subject matter of a trust (para. 58 and 84 of the judgment).
Moral of the story
This is a great indicator of how, when a gift is invalid, the court will use the legal mechanism of a bare trust to give effect to the intention of the parties, so long as their intention is sufficiently certain.
Thanks for reading,
Ian M. Hull and Sean Hess
The transfer of inter-generational wealth has long been a way for families to grow from one generation to the next. Many parents plan the transfer of their wealth at a time when their children are adults, and may be married with families of their own. And while in many respects the saying “what’s mine is yours, and what’s yours is mine” is true when it comes to marriage; it may not always be true when it comes to divorce. This is a key consideration for parents who wish to exclusively benefit their child with a gift or inheritance in the event of divorce.
The Family Law Act (“FLA”) provides guidance on how assets may be divided in the event of divorce. Section 4(2) states that property (outside of a matrimonial home) that was acquired by gift or inheritance from a third person after the date of marriage does not form part of that spouse’s net family property. Donors and/or testators may also expressly provide that income from said property is to be excluded from the spouse’s net family property. The FLA further provides that property (other than the matrimonial home) into which the gift or inheritance can be traced will also be excluded.
If a donor or testator’s intention is to have these assets excluded from a net family property calculation, it is encouraged that they formalize their intentions through proper deeds and/or wills.
Moreover, it is equally important for recipients of gifts and/or an inheritance to be mindful of where those assets are allocated upon receipt. For example, a recipient of a gift of money may want to be cautious of placing these funds in a joint bank account, where the assets may become commingled and difficult to trace.
Thanks for reading!
In order for a gift to be valid, there must be delivery. The issue of the timing of the delivery of a gift was explored in the recent Quebec decision of Estate of Tilden, 2018 QCCS 2971 (CanLII).
There, the Liquidator (a role similar to that of an estate trustee) of the Estate of Robert Tilden claimed that a gift made by the deceased was not perfected by delivery prior to the death of the deceased, and therefore lapsed, and must be returned to the estate.
The facts of the case are quite bizarre. The deceased was involved in a family law proceeding. He did not attend at a family law mediation. A legal assistant called the respondent, the deceased’s cousin and best friend, to ask about the deceased’s whereabouts. Late on September 17, 2015, the respondent drove to the deceased’s cottage to look for him. The deceased was not there. The cottage was clean and nothing appeared out of the ordinary. The respondent returned home, stopping to pick up his mail on the way. In his mail, he found a letter from the deceased. The letter indicated that the deceased had left two boxes for the respondent in the basement of the deceased’s cottage. The respondent returned to the cottage, and in the boxes he found hashish and over $600,000 in cash.
While the respondent was at the cottage, a neighbour arrived, also looking for the deceased. The respondent said that the deceased was not there, and the neighbour left. The respondent then put the cash in his car and left.
The next day, the respondent found a letter with the cash. In the letter, the deceased said that some of the cash was to be delivered to another friend, and that the rest was for the respondent.
That same day, another relative received a letter containing a cheque in the amount of approximately $230,000. The relative was concerned about the deceased, and phoned the police. The police attended at the cottage and found the deceased dead in a sleeping area above the garage. They also found letters in the kitchen setting out how the deceased wanted his estate divided. The respondent gave evidence that he did not notice these letters on both occasions when he was at the cottage.
The cause of death was determined to be suicide, and the date of death was determined to be September 17, 2015: the same day that the respondent picked up the cash.
The respondent asked the court to conclude that the deceased died AFTER the cash was picked up, and therefore there was a valid gift of the cash. He argued that the court should presume that the deceased waited until the respondent left the cottage with the box of money before taking his life.
The court refused to make such a finding. The court held that such a presumption was too much of a stretch, based on the facts as known. The court’s reasoning included consideration of the following:
- It is not “clear and obvious” that the deceased planned to wait for the respondent to take the box of money before committing suicide;
- The deceased would have had no way of knowing that the respondent would go to his cottage immediately upon receiving the letter, to pick up the gift;
- In the deceased’s “letter of wishes” left the cottage to the respondent. Therefore, the deceased could have expected the respondent to search the cottage after he had died;
- A presumption that the deceased waited for the respondent to pick up the gift before he committed suicide presumed that the deceased knew that the gift had to be completed between two living persons. If the deceased knew this, he wouldn’t have hid from the respondent, but would have given him the cash;
- If the deceased was hiding from the respondent when he first attended at the cottage, he wouldn’t have seen that the respondent left without the box of money, and wouldn’t have known that the respondent would return shortly thereafter;
- It did not make sense that the deceased waited for “delivery” of the gift to the respondent, but not to the other friend who was to receive part of the cash;
- The deceased left other property to the respondent in his valid will. The court queried why the deceased would do this with other property, but not with the cash.
The court concluded that the gift of the money was likely meant to be found after the deceased died, but was to be treated as a “secret”. However, in the circumstances, the gift failed. The respondent was ordered to repay the gift of cash made to him. However, as some consolation, no costs were awarded against the respondent.
For another discussion of a case involving an incomplete gift, see our blog, here.
Thanks for reading. Have a great weekend.
In November 2017, my colleague, Sayuri Kagami, blogged about the Ontario Court of Appeal’s decision in Teixeira v Markgraf Estate, which considered the validity of a gift in the form of a cheque cashed after the death of the payor. Today’s blog discusses similar facts in the court’s decision in Rubner v Bistricer. That is, whether pre-signed blank cheques cashed after the payor is declared incapable of managing property constitute either an enforceable promise to gift or, in the alternative, a valid inter vivos gift.
In the late 1960s, the patriarch of the Rubner family, Karl, purchased a 10% stake in a real estate development in Oakville known as the Lower Fourth Joint Venture. Karl kept legal title to this interest in the name of his wife, Eda, with the intention that their three children, Marvin, Joseph, and Brenda, each receive beneficial ownership of a one-third share in the Lower Fourth interest.
Brenda subsequently renounced her share in the Lower Fourth interest to avoid triggering certain tax consequences. Accordingly, her share reverted back to Eda, who then set up an account into which the income generated by Brenda’s former share would be deposited. Notwithstanding that she had disclaimed her share, however, Brenda nonetheless wanted to retain the income that her share generated. In 2014, Eda agreed to sign several blank cheques for the benefit of Brenda and her husband, allowing them to collect the income from Brenda’s former share without incurring the tax liability.
In November 2016, Eda was assessed as being incapable of managing property. Shortly thereafter, Brenda’s husband filled in and deposited two of the blank cheques previously signed by Eda in order to prevent Brenda’s brothers from using those funds to pay for Eda’s expenses.
Brenda’s brothers subsequently commenced an application seeking, amongst other relief, a declaration that the funds withdrawn by Brenda after Eda became incapable were held on a resulting or constructive trust for Eda’s benefit. Brenda took the position that Eda had intended that these funds be considered gifts for Brenda’s benefit. She claimed that at a family meeting in 2012 or 2013, Eda had specifically agreed to gift to Brenda all future income generated by Brenda’s former share in Lower Fourth.
The court was tasked with considering whether a purported promise of future gifts could constitute valid inter vivos gifts. In order to establish a valid inter vivos gift, the recipient must show:
- An intention to make a gift on the part of the donor, without consideration or expectation of remuneration;
- An acceptance of the gift by the donee, and
- A sufficient act of delivery or transfer of the property to complete the transaction.
The court held that the first step and third steps in this analysis could not be satisfied once Eda had been declared incapable of managing her property. Eda was deemed to have been unable to formulate the necessary intention to make a gift with respect to the blank cheques. Moreover, the court held that the delivery of “signed, blank cheques cannot amount to a complete gift”, as the drawer retains an interest in the amount of the cheque until it is cashed. Once Eda became incapable of managing her property, the gift could no longer be perfected. The blank cheques that were cashed after Eda was assessed as incapable of managing her property were held to be invalid, and Brenda was ordered to repay the amounts withdrawn.
Thanks for reading.
Today on Hull on Estates, Jonathon Kappy and Doreen So discuss the issue of gifts that are made by way of a cheque in the context of the Court of Appeal’s decision in Teixeira v. Markgraf Estate
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
You receive a cheque from a loved one who wishes to provide you with a gift. Days later, before you’re able to cash the cheque, your loved one dies. Are you still able to claim your gift? A recent decision of the Court of Appeal for Ontario indicates that in this type of situation, the gift will fail for lack of delivery.
In Teixeira v. Markgraf Estate, the applicant, Mr. Teixeira, brought a claim against the estate of his neighbour Maria Markgraf for payment of a cheque she wrote to him six days before her death. For years, Mr. Teixeira provided support and assistance to his neighbour without any thought of compensation. Shortly before her death, Ms. Markgraf provided a $100,000.00 bequest to Mr. Teixeira in her Will and also wrote him a cheque for $100,000.00. When Mr. Teixeira brought the cheque to Ms. Markgraf’s bank, he was turned away and told the bank would need to make further inquiries. The bank did not tell Mr. Teixera that Ms. Markgraf’s account held insufficient funds to cover the cheque (although she had sufficient funds in her other accounts). Days later, Ms. Markgraf died and the bank, being informed of her death, froze her accounts. Mr. Teixeira unsuccessfully attempted to deposit the cheque at his own financial institution the next day.
The Court of Appeal held that the cheque was subject to the law of gifts and the three elements of a valid gift needed to be met:
- an intention to make a gift on the part of the donor, without consideration or expectation of remuneration;
- an acceptance of the gift by the donee; and
- a sufficient act of delivery or transfer of the property to complete the transaction.
While the first two elements of the test were met, the Court of Appeal grappled with the issue of whether the delivery of the cheque itself was sufficient to constitute delivery of the gift. We’ve previously blogged on the issues that can arise with delivery of inter vivos gifts.
In this case, the Court found that receipt of the cheque did not constitute delivery. The cheque itself was not a transfer of property, but rather a direction by Ms. Markgraf to her bank to pay $100,000.00 to Mr. Teixeira. At any time prior to the cheque being cashed, Ms. Markgraf was able to revoke her direction to the bank. As she retained control over the property to be gifted, the gift was not completed.
Once it received notice of Ms. Markgraf’s death, the bank, pursuant to s. 167 the Bills of Exchange Act, lost all authority to make payment of the cheque and Mr. Teixeira could not oblige the estate to honour the gift. Mr. Teixeira was therefore out of luck in bringing his claim.
Lesson learned: when you receive a gift of cash by way of cheque, cash it ASAP.
On Thursday, I’ll look at when equity might step in to perfect a gift that would otherwise fail (an argument unsuccessfully brought by Mr. Teixeira).
Thanks for reading!
In a perfect situation, a deceased person’s estate would correspond exactly with the gifts as set out in his or her last will and testament. However, it is sometimes the case that the assets of an estate are insufficient to pay all of a testator’s debts, as well as all gifts set out in his or her will, or where the object of a specific bequest no longer exists at the time of the testator’s death.
In the former situation, the principle of abatement would apply to the distribution of the estate to beneficiaries, meaning that the gifts set out in the testator’s will are reduced rateably and in order depending on the type of bequest. If the estate has insufficient assets to pay the testator’s debts, it would be insolvent and the legacies described in the testator’s will would be unable to be paid. If there are assets leftover after payment of debts, but they are not sufficient to fully satisfy all gifts, then some or all of the gifts will abate.
If the testator’s will does not specifically provide for the order in which gifts are to abate, the order of abatement of bequests is as follows:
- Residuary personalty.
- Residuary real property.
- General legacies, including pecuniary bequests from the residue.
- Demonstrative legacies, meaning bequests from the proceeds of a specific asset or fund not forming part of the residue.
- Specific bequests of personalty.
- Specific devises of real property.
The abatement of gifts in each category will occur in equal proportions so that no single beneficiary will be made to bear the full burden of the abatement.
Ademption occurs when a specific legacy in a testator’s will cannot be satisfied due to the lack of existence of the property that was the subject of the bequest. When a specific gift adeems, it fails, and the beneficiary will not receive the gift.
In Ontario, there are a number of statutory provisions that affect the doctrine of ademption, including ss. 20 and 22 of the Succession Law Reform Act, R.S.O. 1990, c. S.26 that permits a will to operate on substituted property, and s. 36 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (the “SDA”) which provides that ademption does not apply to property disposed of by a guardian under the SDA.
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Today’s blog was inspired by Karen Von Hahn’s article in The Globe and Mail about the memoir that she wrote on the subject of her late mother. What Remains: Object Lessons of Love and Loss appears to be a collection of chapters in which each chapter is focused on a different thing or object that reminded the author of her mother. According to Von Hahn, she used items, like her mother’s silver satin sofas and a pack of cigarettes, “as a starting point, lens and metaphor to talk about who she was”. Perhaps poignantly, Von Hahn wrote that “the first line of the book is that the last word my mother ever said to me was ‘pearls’”.
Given the importance that we may attach to our things (and the importance that our loved ones may correlatively attach to our things), those who are thinking about their estate plans may wish to include specific provisions in their Will with respect to the disposition of personal possessions on death.
In doing so, an attorney for property or a guardian of property will also be prohibited from getting rid of these specific items during the testator’s lifetime, if he/she knows that these items are subject to a specific testamentary gift in accordance with section 35.1 of the Substitute Decisions Act, 1992. That being said, section 35.1 of the Act also allows for the disposition of a specific testamentary gift if it is necessary to comply with the guardian’s duties, or if it is gifted to the person who would be entitled to it under the Will within the purview of an optional expenditure under section 37. Accordingly, specificity is key in this regard and it would appear that care should be given to describing the item with as many details as possible.
As Von Hahn wrote in her article,
“Like it or not, we read every book by its cover, and judge everyone we meet by their shoes. Which is why we live our lives engaged in a deep and meaningful relationship with both our possessions, and also those of whom we love.”
On that note, happy long weekend everyone!