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.
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In Ontario, by reason of s. 17(2) of the Succession Law Reform Act, if a testator’s marriage is terminated by a judgment absolute of divorce or is declared a nullity, any devise or bequest to his or her former spouse, any appointment of his or her former spouse as estate trustee, or any grant of a power of appointment to his or her former spouse is revoked, and the will is to be construed as if the former spouse had predeceased the testator.
This is subject to a contrary intention appearing in the will.
This provision was enacted in 1974. Prior to that, bequests to a former spouse remained valid until the testator made a new will, revoked the will, or remarried. (S. 16 of the SLRA provides that a will is revoked by marriage, subject to certain exceptions.)
In Page Estate v. Sachs (H.C.J.), 1990 CanLII 6903, the court had to grapple with the question of the retrospective application of this section. There, the testator made a will in 1968. The will gave the estate to the testator’s spouse. The testator and his spouse were divorced in 1974. The testator died in 1986. The question for the court was whether s. 17(2) would apply in those circumstances.
The court found that s. 17(2) has retrospective application. The gift to the spouse was revoked. The testator’s estate was distributed as if the former spouse had predeceased.
In the decision, the judge quoted from the “Report On The Impact of Divorce on Existing Wills” by the Ontario Law Reform Commission. It was said that s. 17(2) “represents remedial reform legislation in aid of those former spouses who neglect to alter their wills following a divorce and thereby bestowed upon their former spouse unintended windfall benefits.” The judge went on to observe that the section “simply asserts the finality which a decree absolute renders to the relationship and status of the former spouses and ties up any inadvertent loose ends which could resurrect the spousal status.”
Note that the provision only comes into play where there is a divorce or the marriage is declared a nullity. Separated spouses should “tie up any loose ends” and ensure that they consider revising their will upon separation. My first exposure to estates law involved a matter where a wife moved to divorce her husband. The husband was so irate that he vowed that she would not get anything from him in the divorce, and committed suicide. He did not revise his will. As a divorce had not yet been granted, his entire estate passed to his wife, which was clearly contrary to his intentions.
Don’t leave your ends loose.
We sometimes hear about an elderly person marrying a much younger person. What we often do not consider, however, is the possibility that such a marriage is entered into by a “predatory” spouse in order to take advantage of an elderly victim with the ultimate goal of assuming control of his or her finances.
The “predator” is often a caregiver or a family friend or neighbour. In most cases, it is a person who uses a position of trust to cause an elderly victim to change a Will, a power of attorney, an insurance policy designation or other documents. It is also not uncommon for inter vivos transfers to be made while the senior is alive.
According to Ontario law, the act of marriage grants the new spouse certain property rights, specifically with respect to the matrimonial home and spousal support. The most significant effect of a marriage, however, is the fact that the Succession Law Reform Act, revokes any Will executed prior to the marriage. To make matters worse, predatory marriages often occur in private such that the senior’s family members are not aware that he or she has married.
The evidentiary burden imposed upon the elderly victim’s adult family members to prove that a marriage should be declared void as it is a marriage of a “predatory” nature is significant.
Why is it so tough to show that a marriage is void?
Capacity is a fluid concept. It means that a person could have capacity for one task and no capacity for another, as capacity is time and situation specific. Capacity to enter into a marriage, is the lowest threshold of capacity. As such, a person can be entirely capable to enter into a marriage but may be incapable of managing his or her own financial affairs.
In addition, a person likely does not just lose capacity in a day; it is a gradual process such that there is a “grey zone” between having capacity and having no capacity at all. It is in that “grey zone” that a predator will take advantage because a person may start forgetting things but is otherwise capable for all intents and purposes.
Because of that, many are of the opinion that Ontario laws make seniors an easy target for “predatory marriages”. Will there be a change in the law coming our way, in light of the growing phenomenon of such marriages? Only time will tell.
For more information regarding this growing concern and the manner in which this issue has been treated by the courts, please see a paper by Kimberly Whaley of WEL Partners on Predatory Marriages.
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Today I wanted to discuss a basic, but important concept when it comes to Wills: revocation. There are a number of ways in which a Will can be revoked, and it is crucial that everyone with a Will, or who will make a Will in the future, understands what those methods are, and the requirements that must be met in order to successfully revoke a Will. An incomplete understanding of revocation can lead to unintended consequences if a testator mistakenly believes either that a prior Will has been revoked, or that a prior Will that he or she believed to have been revoked, remained valid and operative.
According to section 15 of the Succession Law Reform Act, R.S.O. 1990, c. S.26,
15 A will or part of a will is revoked only by,
(a) marriage, subject to section 16;
(b) another will made in accordance with the provisions of this Part;
(c) a writing,
(i) declaring an intention to revoke, and
(ii) made in accordance with the provisions of this Part governing making of a will; or
(d) burning, tearing or otherwise destroying it by the testator or by some person in his or her presence and by his or her direction with the intention of revoking it.
Ontario has a strict compliance regime, meaning that the statutory requirements for actions such as executing and revoking a Will must be followed carefully, and that the courts do not have the discretion to declare a document valid that does not do so. Accordingly, if an attempted revocation of a Will does not strictly comply with the statute, it may not be valid.
For instance, one method of revoking a Will is by a writing declaring an intention to revoke and made in accordance with the requirements of the making of a Will. This means that, even if the document revoking the prior Will is not itself a Will, it must nonetheless comply with those requirements, whether it be a formal Will witnessed by two people, or a holograph Will. A testator who does not seek legal advice on revoking his or her Will may mistakenly believe that, for example, a typewritten signed statement would validly revoke a Will, when, in fact, it would not.
Destroying a Will, another method of revocation, must also be done in a particular way to satisfy the requirements of the Succession Law Reform Act. As discussed in Probate Practice (5th ed.), the two elements of destruction and intention to revoke must both be present. The destruction itself must also be done either by the testator personally, or by someone else in the testator’s presence and by his or her direction. Therefore, even if the testator directs another person to destroy his or her Will, if the testator is not present at the time of such destruction, it will be insufficient to revoke the Will in question.
Additionally, the requisite capacity to revoke a Will is the same as that required to execute a Will in the first place.
While this blog only briefly touches upon a few specific issues that may arise in relation to revoking Wills, it is clear that without a proper understanding of how to validly revoke a Will, a testator can easily stray offside of the statute, resulting in a potentially invalid revocation. As with the execution of a Will, revocation can also have significant effects on a testator’s testamentary dispositions, and it is important to seek advice from a trusted legal professional prior to taking any steps that may lead to unintended, and unfortunate, consequences.
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Marriage is commonly understood to have the effect of revoking a will. The public policy rationale is simple: legal obligations are imposed on spouses to provide support to one another. A will predating the marriage that does not reflect this obligation would force the surviving spouse to have recourse to statutory remedies. Better to simply start from scratch from the commencement of the marriage and make a will that (presumably and hopefully) adequately provides for the surviving spouse.
The Common Exception to Revocation by Marriage
Marriage does not, however, always have the effect of revoking a will. There is an exception which gives a nod to the possibility that the testator who is about to marry may have the foresight to make an appropriate will “in contemplation of marriage.” Accordingly, pursuant to s. 16(a) of the Succession Law Reform Act, if there is a declaration contained in the will to such effect, it will not be revoked and will remain in force on the death of the testator.
The Lesser-Known Exception to Revocation by Marriage
Just as the testator has the power to avoid revocation by marriage by advance planning, the surviving spouse is empowered by the statute as well. Although not so well known, Section 16(b) of the Succession Law Reform Act allows the surviving spouse to elect “to take under the will, by an instrument in writing signed by the spouse and filed within one year after the testator’s death in the office of the Estate Registrar for Ontario.”
Presumably, it is a somewhat rare circumstance for a surviving spouse to elect under s. 6(b). In most circumstances, a Will benefiting the surviving married spouse that is made in advance of the marriage would contain the “in contemplation of marriage” declaration, thereby negating the need to elect. However, by addressing the circumstance of a Will that does not include the declaration yet still benefits the surviving spouse to his or her satisfaction, unnecessary litigation and recourse to statutory remedies is avoided.
For the uninformed, s. 6(b) of the SLRA can result in unintended consequences. Consider a situation in which a testator, incorrectly assuming that his Will which solely benefits the woman who became his wife was automatically revoked by marriage, separates but does not divorce. He assumes he will die intestate, leaving his estate to his children from a prior marriage. However, on his death, his separated but not divorced wife is empowered under the SLRA to choose to benefit under a Will which the testator did not realize was open to be relieved from revocation by the surviving wife’s right of election.
As is usually the case, unintended consequences can be avoided by knowledge and information. In the context of a matrimonial dispute, all possible ramifications of an unexpected death should be considered.
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According to Statistics Canada, between 2006 and 2011 the number of common-law couples rose 13.9%, more than four times the 3.1% increase for married couples.
The trend is clear – more people are choosing to skip the formalities of a marriage and move in together. No cost, no ceremony, no family fights about who’s invited – plus, it’s really the same as marriage, isn’t it?
Not so fast…
Common law couples need to think very carefully about the what their union means from a financial perspective, especially as time passes, their assets grow, and children enter the picture. Because in many cases, it’s not the same as marriage.
Yes, from a tax perspective, the Canada Revenue Agency treats married couples and common-law couples the same. But looking beyond tax events to other life events, such as separation and eventually death, the treatment may be very different indeed.
This recent article provides an excellent summary of what can happen to assets when a common-law couple separates.
In terms of estate matters, the article below provides a clear overview of how estate laws differ across the country – and the impact of these differences on common law couples when one spouse dies.
In today’s world, it’s great to have a choice in how we form couple relationships. My only advice is that couples ensure they’re making an informed choice – and that they have a clear understanding of what their marriage or common law decision could mean in the future.
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A recent decision of the Saskatchewan Court of Appeal paraphrases an interesting provision (s.17) of the Saskatchewan Wills Act: “Once a testator cohabits continuously for two years and then makes a will, the law presumes the testator has turned his or her mind to the question of disentitling one’s spouse and, if the parties subsequently marry, the marriage does not revoke the prior will.”
In Santiago v Trottier 2016 SKCA 113, the daughter of the deceased (Dawn) appealed the lower court’s finding that her father’s will was revoked by his marriage. Roy Trottier died in 2012, survived by his wife, Paulette, and his two children from a previous relationship. In 1998, Roy and Paulette began to cohabit. Around the same time, Roy made a will in which his two children were appointed executors and primary beneficiaries, with some specific bequests to Paulette. Roy and Paulette married in 2012, after Roy was diagnosed with cancer. Roy died shortly thereafter.
Section 17(3) reads as follows: “[revocation by marriage] does not apply where the testator marries a person with whom he or she is cohabiting and has cohabited in a spousal relationship continuously for two years.”
Dawn’s argument was not without merit. Her submission was that, on a plain reading of the statute, Paulette and Roy had married each other after having cohabited in a spousal relationship continuously for many years. As such, Dawn submitted that subsection 17(3) should operate to prevent the 1998 will from being revoked by the marriage.
The Court of Appeal upheld the decision of the lower court, which found that the marriage did in fact revoke the 1998 will. The decision is complicated by the fact that the cohabitation provision was proclaimed in force in 2001, after the 1998 will was made. Both the lower court and the appeal court found that the making of the 1998 will prior to the spousal relationship was a key factor. Essentially, the lower court and appeal court concluded that the presumed intention of common law and married spouses to contemplate their obligations to one another would be defeated if Dawn’s argument prevailed. To quote from the appeal decision: “…the Chambers judge settled upon an interpretation that best conforms to achieving equality between married and common law couples.”
It is important to review a will or estates plan periodically, particularly after major life events, such as marriage, cohabitation, or the birth of a child. We have previously blogged on the effect of marriage on a will and estate planning after a second marriage.
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Section 15 of the Succession Law Reform Act (“SLRA”) sets out those events which may revoke a will: (a) marriage (subject to s.16), (b) another validly executed will, (c) writing a declaration with animo revocandi (intention to revoke), validly executed, or (d) destruction of the will by the testator or by another in the presence of and at the direction of the testator.
However, revocation may not always be absolute.
We recently blogged on the concepts of revival and republication of wills. Revival refers to the practice of “saving” a previously revoked will, whereas republication simply makes an older valid will operate as if it had been executed at a later date.
Another way of “saving” an ostensibly revoked will is by proving that the revocation was subject to a condition that has not been fulfilled. If a testator’s revocation is subject to a condition that is never fulfilled, the doctrine of dependent relative revocation can be invoked.
Although not expressly set out in the SLRA, a revocation by destruction or by a later will or codicil may be conditional. If the testator revokes a will with the intention of replacing it with a new will or reviving an old will, the intention to revoke is conditional on the validity of such other will. The doctrine of dependent relative revocation prevents an estate passing as an intestacy. Conditional revocation is discussed in detail in Chapter 4 of Probate Practice.
Contemporaneous intention is key: “to bring the case within the principle, it must appear that the testator considered the substitution of some valid disposition as part of the act of revocation at the time when the act was done” (Probate Practice (5th ed.) at p. 170).
Therefore, in order to establish that the principle applies to a particular case, the evidence must show that the testator considered the substitution of another valid testamentary document as part of the revocation. There must be a close connection between the revocation and substitution in order for the doctrine of dependent relative revocation to apply. It is insufficient that a testator intends to make another will at a later time yet dies before doing so.
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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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