Tag: real property
On March 30, 2020, Noah Weisberg blogged about the estate trustee’s duty to invest during COVID-19, a time when market fluctuations have become the norm. Today, I consider how pandemic-induced changes in the housing market may impact an estate trustee’s management of real property held by an estate.
Real properties – including primary residences, cottages, and vacation properties – are often some of the largest assets an estate trustee will deal with during the course of their administration of an estate. Unless otherwise stated in the deceased’s will, the estate trustee has a fiduciary duty to sell the estate’s real property for its fair market value and is expected to do so in a timely manner.
However, the exact timing for the market and sale of real property can depend on many factors. It is common for a will to grant an estate trustee the discretion to choose whether to sell or retain assets. As it pertains to real property, this power allows the estate trustee to hold onto a property until such time as they can achieve the best possible sale price on behalf of the beneficiaries. At the same time, the estate trustee needs to be mindful of the costs incurred by the estate in having to maintain the property. Beneficiaries of the estate may also put pressure on an estate trustee to sell the property and convert it to money sooner rather than later.
Like most industries, the real estate market has been impacted by COVID-19. An estate trustee should be attentive to whether recent changes in the housing market make it an ideal or inopportune time to market a particular property for sale, while also bearing in mind the factors described above.
If an estate trustee decides to list a property for sale in today’s uncertain housing market, there are a few things they can do to help protect themselves against future claims from beneficiaries. First, the estate trustee should have the property appraised for its fair market value by a professional appraiser who is an independent third party. For added protection, the estate trustee may want to have the beneficiaries sign off on the property’s price. The estate trustee should also make an effort to keep the beneficiaries apprised of each step of the sale process. Lastly, the estate trustee should take care to keep detailed records of all advice received and steps taken in the event that they need to justify their actions at a later date.
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An important and useful tool in any estate planning toolkit is the ability to transfer title to real property between spouses, which typically occurs for nominal consideration and/or natural love and affection. These types of transfers are recognized at law. In certain circumstances, transfers of this nature may be used by spouses seeking to defeat, hinder, delay, or defraud creditors. The Fraudulent Conveyances Act (“FCA”) provides the legislative authority to set aside transfers of property that are entered into with the intent to defeat the claims of a creditor.
Such was the case in Anisman v Drabinsky, 2020 ONSC 1197. On September 11, 2015, Mr. Drabinsky and his wife, Ms. Winford-Drabinsky, transferred their joint ownership of their home to Ms. Winford-Drabinsky alone (the “Drabinsky Property”). At the time of said transfer, Mr. Drabinsky had several unpaid judgments against him as well as ongoing monthly debt payments that were nearly double his monthly income. One such judgment, dated November 2018, was in favour of the Plaintiff for monies owed by Mr. Drabinsky.
In an effort to recover monies owed to him, the Plaintiff obtained a Certificate of Pending Litigation against the Drabinsky Property. It was not until April 2019 that the Plaintiff testified that he learned of the transfer through a title search conducted on Mr. Drabinsky in preparation for his examination in aid of execution respecting the unpaid judgment. On June 18, 2019, some three years and nine months after the impugned transfer of title, the Plaintiff commenced an action seeking to reverse the transfer of title in the Drabinsky Property.
In his defence, Mr. Drabinsky argued that the transfer itself was not fraudulent, but that in any event, the Plaintiff’s claim was statute barred given that the 2-year limitation period provided for in the Limitations Act, 2002, SO 2002, c. 24 (“Limitations Act”) had expired.
In considering the validity of Mr. Drabinsky’s limitation defence, the court considered two key principles regarding limitation periods: discoverability of claims and the applicable statutory authority. With respect to the latter, the court considered whether it was the 2-year limitation period pursuant to the Limitations Act, or the 10-year limitation period in the Real Property Limitations Act (“RPLA”), that applied. The RPLA applies to actions to “recover” land. The question then became, does an action to set aside a conveyance of real property fall within the category of claims to “recover land”?
The court ultimately found that it was the 10-year limitation period in the RPLA that applied to the present action. In reaching its decision, the court relied on the case of Conde v Ripley, 2015 ONSC 3342, which found that claims made to set aside a conveyance of real property under the FCA are on their face, a claim to recover land. The court went further to say, “the Legislature has seen fit to… differentiate between actions involving recovery of land and other types of actions” given that the Limitations Act addresses claims in contract or tort, while the FCA addresses the recovery of real property.
However, as identified in this article, this line of reasoning contradicts earlier decisions that differentiated between the recovery of land itself and the recovery of debts connected to that land (see Wilfert v McCallum, 2017 ONSC 3853 and the Ontario Court of Appeal case of Zabanah v Capital Direct Lending Corp, 2014 ONCA 872), leaving the law in a state of uncertainty.
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As it is Valentine’s Day, our discussion today will consider, naturally, love and affection.
Real property can be gifted to loved ones. If there is no consideration of monetary value, then there will be no Land Transfer Tax payable on the transaction. In the Land Transfer Tax Affidavit, which must be filed when any transfer is registered in Ontario, the transfer is said to be for “natural love and affection”.
Although not specifically exempt from taxes, a transfer for “natural love and affection” is considered to be a transfer for nil value, and therefore, no Land Transfer Tax is payable.
“Love”, as most poets know, is hard to define. There is no definition in the tax legislation. Further, it is not clear what “unnatural” love or affection is.
In certain cases, gifts to non-arms’ length parties may also not attract Land Transfer Tax. For example, a gift to a charity may not be subject to Land Transfer Tax.
If the gift includes the assumption of a mortgage or other liabilities by the receiver, then the value of the mortgage or liability assumed by the receiver is of value to the donor, and must, in most cases, be included in the Land Transfer Tax Affidavit. Land Transfer Tax will be payable on the value of the mortgage or liability assumed. I say “in most cases” because there is an exemption where the transfer is between spouses or former spouses: see R.R.O. 1990, Regulation 696.
Further, if the receiver is not a spouse and the land was subject to a mortgage that was paid off by the receiver, Land Transfer Tax will be payable on the value of the mortgage paid off.
When gifting real property, keep in mind that while Land Transfer Tax may not be payable, this does not mean that income taxes are not payable. In many cases, the gift will trigger a deemed capital gain on the part of the donor.
For more information, see the Ontario Ministry of Finance bulletin, here, and the Government of Ontario publication, “A Guide for Real Estate Practitioners: Land Transfer Tax and the Registration of Conveyances of Land in Ontario”, here.
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Section 9(1) of the Estates Administration Act, R.S.O. 1990, c. E 22 (“EAA” ) provides, among other things, that real property vests in persons beneficially entitled to that property under a will if that property was not disposed of, conveyed to, divided or distributed among the persons beneficially entitled by the personal representative within three years after the death of the deceased (unless a caution has been registered on title). The EAA does not provide further clarification on when vesting takes effect if a property is subject to a life interest, and further, what happens to that property upon the termination of the life interest.
The recent decision of Lewis Pelicos, Executor and Trustee of the Estate of James Pelicos v. The Estate of Stelios Pelicos, 2019 ONSC 5304 provides clarity on when vesting takes place in circumstances where real property is subject to a life interest.
In that case, the Applicant’s father, James, died testate. The beneficiaries of James’ estate were his two sons, Steven and Lewis (the Applicant). James’ last will and testament required his two sons, Steven and Lewis (the Applicant) to hold his residential property in trust for his wife, Lillian, for her lifetime. Steven passed away some years later, leaving only the Applicant as the beneficiary of his father’s estate. The Applicant was also the executor and trustee of his father’s estate.
Following the death of the life tenant, the Applicant wished to sell the property, but required the court’s direction on whether Steven’s estate would be entitled to a share of the proceeds of sale. The answer to that question depended on whether the property vested in the beneficiaries of James’ estate on his death, or the death of the life tenant.
The Applicant brought an application seeking the court’s directions, with the issues stated as follows:
(1) Can it be inferred that the property falls into the residue of the estate upon the termination of the life interest?
(2) In the alternative, do the beneficiaries of James’ estate take their interest on the testator’s date of death, or the date of death of the life tenant?
The court ultimately found that the property vested in both Steven and the Applicant as of the date of death of the testator, and as a result, the property did not fall into the residue of the estate upon the death of the life tenant.
To learn more about Vesting of Real Property, check out this blog:
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When speaking of the gifts left in a Will, people often hear the terms “legacy”, “bequest” and (less frequently) “devise” thrown around interchangeably. But what specifically do these terms refer to?
A “bequest”, which can be used interchangeably with “legacy”, refers to testamentary gifts of personal property. While both terms are used, the Succession Law Reform Act uses the term “bequest” in referring to these types of gifts. There are three types of bequests: general bequests, specific bequests, and demonstrative bequests.
General bequests refer to gifts that are to be provided out of the estate generally. It does not refer to any particular thing. Thus a gift of “$10,000.00 to my friend F” is a general bequest. The money is to be raised from any of the general assets of the testator.
Specific bequests refer to gifts of particular property or which are to be funded by particular assets. For example, gifts of “my car” or “the cash held in bank account X” are both specific bequests as they refer to particular property which the recipient is to receive. Where the asset is no longer in the possession of the testator at the time of death, the gift will fail.
A demonstrative bequest is a hybrid between general and specific bequests where a gift of money is left with the intention that it is to be funded primarily out of certain assets. But where the assets are insufficient to meet the gift, the gift is to then be funded out of the general estate. A gift of “$10,000.00 to be paid first from the proceeds of sale of my car” would be a demonstrative bequest.
Unlike a “bequest”, a “devise” refers to a testamentary gift of real property. Society and the law have long distinguished between real property and personal property. This can be seen, for example, in the traditional availability of specific performance as a remedy for breaches of contracts involving real property. In such situations, real property was accepted as something unique enough to require specific performance, rather than mere monetary damages.
The primacy of real property over personal property can equally be seen in estates law in situations where there are insufficient assets in the estate to satisfy all debts, bequests, and devises. In such a situation, the principles of abatement provide the following order of abatement: general bequests, demonstrative bequests, specific bequests, and finally devises.
To learn more about the principle of abatement, see this recent blog.
With the continuing distinction between real property and personal property, the difference between devises and bequests remains important. Which brings us back to the title of this blog; Can you bequeath your home to a stranger in Ontario? Nope, that would be a devise.
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Today on Hull on Estates, Jonathon Kappy and Umair Abdul Qadir discuss vacant possession of real property belonging to an estate and the recent decision in Filippelli Estate v Filippelli, 2017 ONSC 4923.
You can read more about this decision on our blog here.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
We have previously blogged about the limitation period that applies to claims for dependant support under Part V of the Succession Law Reform Act (“SLRA”), and the circumstances in which the Court will exercise its discretion to extend the period.
In the recent decision of MacDonald v Estate of James Pouliot, 2017 ONSC 3629, the Honourable Justice Nightingale considered whether the limitation period could be extended for a dependant’s support claim where the real property owned by the deceased had already vested in a beneficiary, by operation of section 9 of the Estates Administration Act.
Limitation period for dependant support claims
Under subsection 61(1) of the SLRA, no application for dependant support can be made more than six months after probate has been granted.
However, subsection 61(2) provides the Court with the discretion to allow an application to be made at any time “as to any portion of the estate remaining undistributed at the date of the application.”
As we have previously blogged, the Court has generally interpreted section 61(2) to allow claims that are made more than six months after probate as against the assets that remain undistributed as of the date of the application. In one recent decision, the Court granted leave even though the assets of the estate had been distributed due to the conduct of the estate trustee.
The issue in Pouliot
In Pouliot, the Applicant (“Mary”) was in a common-law relationship with the Deceased for 22 years. The Deceased died intestate on September 10, 2013.
The primary asset of the Estate was a house (the “Home”) that Mary and the Deceased purchased together in 1999. Although each contributed to half of the cost of the Home, title to the Home was in the name of the Deceased. The Court found that Mary and the Deceased shared the expenses of the Home during their relationship. Following the Deceased’s death, Mary continued to live at the Home and made all of the monthly mortgage payments on the Home.
As the Deceased died intestate, and given that common-law spouses do not inherit on an intestacy, the Deceased’s son was the sole beneficiary of the Deceased’s Estate. The Deceased’s son (the “Estate Trustee”) obtained probate on June 8, 2015. Mary commenced her Application on November 10, 2016, seventeen months after probate was granted.
Mary’s Application sought a declaration that she had an equal interest in the Home by way of a constructive or resulting trust. Mary also sought support as a dependant pursuant to Part V of the Succession Law Reform Act. The Estate Trustee opposed Mary’s Application, arguing that it was statute-barred due to section 61 of the SLRA and section 9 of the Estates Administration Act.
Under section 9(1) of the Estates Administration Act, real property that has not been disposed of, conveyed to, divided or distributed amongst the persons who are beneficially entitled to it within three years after the death of the deceased owner automatically vests in such persons. Mary’s Application was commenced more than three years after the Deceased’s death.
In the circumstances, although Mary was successful in her claim that she held an equal interest in the Home, Justice Nightingale held that “the applicant’s SLRA claim in this proceeding is barred as it relates to the only property of the estate that has already vested in the respondent….”
The Court concluded that there were no assets in the Estate against which an order for support could be made in Mary’s favour.
Thank you for reading,
Umair Abdul Qadir
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The recent Ontario Superior Court of Justice decision of Zecha v Zecha Estate, 2017 ONSC 1972, 2017 CarswellOnt 4882, raises the issue of how separation agreements ought to be interpreted in circumstances where one party to the contract has predeceased the other.
In this case, a separation agreement was entered into by the plaintiff and her husband, who had since died. With respect to the sale of the couple’s matrimonial home, the separation agreement, dated May 31, 2012, stipulated as follows:
- The plaintiff and the deceased would advise one another of all offers to purchase the matrimonial property;
- If the plaintiff received an offer to purchase the property for less than $1,500,000.00, the deceased could require that the plaintiff accept the offer, but, upon compelling her to do so, would be responsible for paying any shortfall between the sale amount and $1,500,000.00;
- If the property had not been sold within 18 months of the date of the agreement (and the plaintiff had not declined an unconditional offer to purchase the property for a price higher than $1,500,000.00):
- The deceased would assume carriage of the sale;
- The plaintiff would cooperate with the sale process and sign any documents to give effect to the sale; and
- If the property sold for less than $1,500,000.00, the deceased would be responsible for any shortfall between the purchase price and $1,500,000.00.
The plaintiff listed the matrimonial property for sale on October 29, 2012. On April 30, 2014 (23 months after the execution of the separation agreement), the plaintiff entered into an agreement of purchase and sale, and sold the property for $1,180,000.00. There was no evidence before the Court that the plaintiff had advised the deceased that she had received or accepted an offer to purchase the property for less than $1,500,000.00. The deceased died on November 28, 2014, and the plaintiff commenced proceedings against the deceased’s estate for the difference between the sale price of $1,180,000.00 and $1,500,000.00, relying upon the terms of the separation agreement.
At trial, the plaintiff submitted that, pursuant to the terms of the separation agreement, she was entitled to $320,000.00, representing the difference between the sale price of the property and $1,500,000.00, because the property had been sold more than 18 months from the date of the separation agreement. The deceased’s estate asserted that the plaintiff could not enforce the terms of the separation agreement, as she had not complied with its terms as to which party would control the sale of the property if it took place more than 18 months after execution of the separation agreement. Pursuant to the separation agreement, the deceased was only responsible for paying the shortfall if (a) he had compelled the plaintiff to accept an offer to purchase the property for less than $1,500,000.00 within 18 months of the date of the separation agreement, or (b) he had assumed control of the sale of the property 18 months after the date of the separation agreement and accepted an offer to purchase the property for less than $150,000.00.
The Court found that the separation agreement was a properly executed contract and should be interpreted as a whole, giving meaning to all of its terms and avoiding an alternative interpretation that would render a term ineffective (in a manner consistent with commercial law principles). Accordingly, the Court dismissed the action, declining to order payment of the $320,000.00 shortfall by the estate to the plaintiff. The Court stated that the plaintiff had interpreted the terms of the contract too narrowly, in an attempt to obtain a greater payout from the proceeds of sale of the matrimonial property. The Court found that, pursuant to the separation agreement, the deceased had a clear right to decide if an offer to purchase the property for less than $1,500,000.00 would be accepted at the time of its sale, being more than 18 months after the execution of the separation agreement, and the plaintiff could not rely upon the corresponding provisions of the separation agreement.
Circumstances like these, in which one party to a separation agreement has died and the assistance of the Court is required in interpreting the contract for the purposes of considering a claim made (or if an entitlement is apparently limited) under the contract, are not uncommon. It can be important for estate lawyers who may encounter this issue to understand how separation agreements are most likely to be interpreted by the courts.
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In a recent decision of the Queen’s Bench of Alberta, Verhulst Estate v. Denesik, 2016 ABQB 668, the Honourable Madam Justice Shelley considers whether a tenant in common can acquire another tenant in common’s interest through adverse possession.
Given the limited case law on this issue in Alberta, Madam Justice Shelley reviews the existing case law in the other Canadian provinces, including Ontario.
Mr. Denesik and Mr. Verhulst, were business associates who acquired three parcels of land as part of a joint venture in 1995. The parcels consisted of a 159 acre woodlot (the “larger parcel”), and two smaller river lots totalling 96 acres (the “river lots”). Denesik and Verhulst held title to all three parcels as tenants in common.
Denesik and Verhulst began logging the three parcels, and the proceeds from the logging operation were used to pay off the mortgage secured against the parcels. The logging operation ceased in or around 1996. Shortly thereafter, Denesik moved a mobile home onto the larger parcel. Denesik did not pay anything to Verhulst for his use and occupation of the property, however, he did pay the property taxes up until 2015. Verhulst lived in the city with his family, and held his interest in the parcels as an investment without in any way occupying the parcels.
Verhulst passed away in 2008. Verhulst’s Estate applied for an order of partition and sale in relation to the three parcels. Denesik then applied for a declaratory judgment for title to the land, based on a claim in adverse possession.
At First Instance
The matter was heard at first instance by Master Schlosser, who concluded there was no time at which Verhulst was dispossessed and Denesik ’s action of putting a trailer onto a portion of the larger parcel in 1996 was insufficient to establish a claim to the entirety of the larger parcel, much less the river lots [See, Denesik v Verhulst Estate, 2016 ABQB 36].
Denesik appealed the decision. The main issue for consideration on the appeal, not specifically addressed by the lower court, is whether a tenant in common can acquire another tenant in common’s interest through adverse possession.
Justice Shelley noted that Alberta was the only province in Canada (with the exception of Quebec) which did not have specific legislation enabling an adverse possession claim.
In Ontario, s. 11 of the Ontario Real Property Limitations Act, R.S.O. 1990 c L-15, provides a legislative scheme, which sustains adverse possession claims as between joint tenants or tenants in common [para 32]. See, Zigelstein v. Stobinski (1985) 51 O.R. (2d) 562.
In the absence of legislation enabling adverse possession in Alberta, Justice Shelley was required to consider the issue in the context of the Torrens land titles system. Ultimately, she found that given Alberta’s lack of explicit authorization for a claim between tenants in common, it would be extremely difficult if not impossible, to establish such a claim in Alberta [para 51].
Citing the Ontario decision in Zigelstein, Justice Shelley went on to say that even if an adverse possession claim is possible, for it to succeed, it is likely that the actions of one tenant in common would need to arise to the level of something akin to ouster. Not wishing to make use of the property does not equate to an intention to abandon ownership.
Justice Shelley dismissed the appeal, stating that Verhulst’s indifference arose out of his intended use of the parcels of land as an investment vehicle, and was not an indication that he had given up possession or an ownership interest.
Find this topic helpful? Please also consider these related Hull & Hull LLP Blogs:
- Joint Tenancy, Survivorship and Adverse Possession
- Severance of a Joint Tenancy by Course of Dealing
- Partition and Sale
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Proposed Changes to the Land Transfer Tax Act
The Ontario government introduced Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016 (“Bill 70”) for first reading on November 16, 2016. It is currently in its second reading. Bill 70 is an omnibus act that includes significant changes to the Land Transfer Tax Act (LTTA). This change applies only to the Ontario legislation, and does not affect Toronto’s Municipal Land Transfer Tax by-law, which imposes a tax on Toronto transfers in addition to the Ontario land transfer tax.
Once passed, Bill 70 will change the Land Transfer Tax (LTT) rates for commercial property transactions after January 1, 2017 for property exceeding the value of $400,000. The increased rate will not apply to single family homes. Bill 70 does include a grandfathering clause, so the new rates will not apply to agreements of purchase and sale made before November 14, 2016.
Will these changes affect estate administration?
Most simple estates, which may include properties such as a family home or a cottage, will remain unaffected by these changes. Estates with commercial properties may be affected by the increased rates.
Not all transfers of estate property attract LTT. If the real property is gifted directly to one or more beneficiaries under the terms of a will, then no land transfer tax is payable under the LTTA. Likewise, if real property is transferred to a beneficiary to satisfy an interest on an intestacy, no tax is paid pursuant to the LTTA. It is important to note that whether or not land transfer tax is payable under the LTTA, a Land Transfer Tax Affidavit must be completed.
If real property is sold to a third party for the purpose of paying debts or distributing the proceeds between one or more beneficiaries, land transfer tax must be paid under the LTTA. After January 1, 2017, the value of commercial real property over $400,000 will be taxed at 2%, up from 1.5%. If the estate is in a position to close a commercial property transaction before the year end, it may possible to avoid this rate increase.
You can read the proposed changes to the LTTA and to check on the status of Bill 70 at the Legislative Assembly of Ontario website.
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