Tag: rule against perpetuities
In Clarke v. Kokic, 2018 ONCA 705 (CanLII), the Ontario Court of Appeal ruled definitively on the application of the rule against perpetuities to real property easement rights.
Stuart Clark recently blogged on the rule in his blog, “Rule Against Perpetuities – It’s not so scary”. As stated by Stuart, “At its most simple, the rule against perpetuities can be understood as not allowing an individual to control the distribution or ownership of property for longer than the “perpetuity period”, with the perpetuity period equating to a “life in being” who is alive upon the death of the testator plus twenty one years.”
In Clarke v. Kokic, the Clarkes and the Kokics owned adjacent buildings. The Clarkes had an easement over part of the Kokics’ property. The Clarkes wanted to renovate their property by widening a doorway through which the easement passed. The Kokics interfered with the right of way, and the Clarkes applied for declaratory and injunctive relief.
One of the defences that the Kokics raised was that the easement was void because of the rule against perpetuities. The Court of Appeal rejected the argument. The Court of Appeal noted that the rule does not restrict the duration of property interests, but, rather, the length of time that may elapse between the creation of a contingent interest and the vesting of that interest. An express easement vests rights at the time of the grant of the easement, and there are no contingent interests. Thus, the rule does not apply.
The Court of Appeal referred to the 1991 decision of Sutherland Estate v. Dyer (1991 CanLII 7120 (ON SC). There, the court held that the rule did not apply to the granting of a right of first refusal. The court referred to a book by Professors Morris and Leach entitled The Rule Against Perpetuities, 2nd ed. (London: Stevens, 1962) and “a statement of the rule which must surely rank amongst the most concise yet all-embracing definitions of an important legal rule in all of English legal history”:
“No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.”
The rule against perpetuities: still a little scary.
Have a great weekend.
No words strike fear into the hearts of most estates lawyers like the “rule against perpetuities”. Horrible memories of first year property law class, and dire warnings about how nobody truly understands how to apply the ancient and archaic principles which have developed over centuries, leave most lawyers wanting to avoid the subject at all costs. Although the cases can sometimes be hard to understand, the foundational principles and modern application of the rule against perpetuities is actually relatively simple.
The rule against perpetuities is an ancient common law doctrine which restricts the ability of an individual to control property over a prolonged period of time. At its most simple, the rule against perpetuities can be understood as not allowing an individual to control the distribution or ownership of property for longer than the “perpetuity period”, with the perpetuity period equating to a “life in being” who is alive upon the death of the testator plus twenty one years. A “life in being” is the lifetime of an individual who may receive, or is somehow associated to, the gift of the property. To this respect, an individual cannot control the ownership or distribution of property in their Will for longer than the lifetime of an individual who is alive upon the death of the testator and somehow associated with the gift, plus twenty one years after such an individual’s death. If a gift offends the rule against perpetuities, it is declared void.
In Ontario, the application of the rule against perpetuities is governed by the Perpetuities Act. Section 4(1) of the Perpetuities Act establishes a “wait and see” approach to determining if a gift offends the rule against perpetuities. What this in effect means is that simply because a bequest could offend the rule against perpetuities does not result in the gift immediately being declared void, as you must wait to see if the gift actually does offend the rule against perpetuities. Only in the event that the gift does ultimately vest outside of the perpetuity period is it declared void.
Take for example the hypothetical bequest of a property to a local charity so long as they use the property for the benefit of the charity. Should the charity cease to use the property for the purpose of the charity, the property would instead be distributed to the deceased’s issue (i.e. descendants) in equal shares per stirpes. The “perpetuity period” in this instance would be the lifetime of one of the deceased’s descendants alive on the deceased’s death who ultimately lives the longest after the deceased’s death (likely the youngest descendant alive upon the deceased’s death, although not necessarily) plus twenty one years after such a descendant’s death. Although it is conceivable that the charity could continue to use the property for longer than the lifetime of such a descendant plus twenty one years, such that the gift-over to the deceased’s issue could offend the rule against perpetuities and be declared void, you do not immediately declare such a gift void at the time of the deceased’s death. Rather, you must “wait and see” if the triggering event (i.e. the charity ceasing to use the property) occurs during the perpetuity period (i.e. the lifetime plus twenty one years of the descendant in question). Only upon the triggering event not occurring during the perpetuity period would the gift be declared void for offending the rule against perpetuities.
See, not so scary after all.
The recent Ontario Superior Court of Justice decision in Ozerdinc Family Trust provides a helpful reminder as to the steps lawyers should take when advising trustees of a Trust with respect to the twenty one year rule against perpetuities.
Under the provisions of the Income Tax Act, capital property is normally taxed upon its “disposition”. In the case of a Trust, according to section 104(4) of the Income Tax Act, there is a deemed disposition every twenty one years after the original settlement of the Trust as long as the Trust holds property that is subject to the rule.
Such property includes: shares of a qualified small business corporation, qualified farm property, and qualified fishing property; marketable securities (including mutual funds and portfolio investments); real and depreciable property; personal-use and listed-personal properties; Canadian and foreign resource properties; and, land held as inventory. At the same time, certain types of capital property are exempt or excluded from the operation of the rule depending on such factors as residency or the nature of the trust.
In order to avoid and/or mitigate any taxes owing as a result of the deemed disposition, there are numerous planning options available to trustees including changing the residency of the trust, or entering into a corporate freeze. Trustees may also simply decide to do nothing.
Therefore, at a minimum, trustees must consider the date of the impending deemed disposition, as well as available tax planning measures to avoid/mitigate any taxes resulting from the deemed disposition. An obligation to advise trustees of these issues often falls on the professional who assisted with the settling of a Trust.
In Ozerdinc Family Trust, Justice Marc R. Labrosse found that the defendant law firm was negligent in failing to advise the trustees of the impending deemed disposition date, as well as the available tax planning measures available to them. Although the facts in this case are nothing novel, it nonetheless acts as a helpful reminder as to the steps lawyers should take when advising trustees of a Trust.
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As Christmas Eve is just hours away, it seems fitting to focus today’s blog on family holiday traditions and estates. One such tradition has been in the Ford (not the ex-Toronto mayoral) family for the past 137 years. Yes, this is a blog about a fruitcake. Not to be confused with a Panettone, but a fruitcake baked by Fidelia Ford in 1878 that has since passed through her issue over three generations.
In 1878 Ms. Ford baked a fruitcake that would age for a year and be eaten during the next holiday season. However, Ms. Ford passed away prior and her surviving children considered the fruitcake as the most immediate link to their mother. In fact, the Ford family genealogy states that “…there wasn’t anyone to bake another, so they decided to keep it out of respect for her memory”. As such, they kept the fruitcake in her honour.
It does not appear that Ms. Ford’s Last Will left any specific instructions as to the preservation or management to the custodians of this decadent asset. Steadfastly, the fruitcake has been stored in a glass dish with only one significant intrusion when an Uncle Amos attempted to eat the fruitcake in 1964. This would of course have arisen many years after the fruitcake would have deemed to have been disposed of in accordance with the twenty one year rule against perpetuities.
Lately however, according to a recent article in The Globe & Mail the fruitcake family tradition seems uncertain as Ms. Ford’s issue seem not to want it. Like so many atypical testamentary dispositions, the author of the article states that “an heirloom for one generation becomes a headache for the next. Tradition becomes chore”.
Alas, many hours on google has left me none the wiser as to whether any testamentary trusts have been settled for the benefit of a fruitcake…or any other food for that matter. I am also none the wiser as to whether Ms. Ford’s fruitcake would have fallen into her residue or distributed according to the personal property provisions in her Will (assuming she had one).
While I cannot admit to liking fruitcake, especially the antiquated varietal, Ms. Ford’s story provides a pleasant holiday reminder to enjoy family and traditions that bring family together. And, because this is an estates blog – to ensure that all assets are addressed, including those with sentimental value, in your testamentary documents.