Tag: secondary will
Over the past few months, since the release of Re Milne, 2018 ONSC 4174, estate practitioners have been in turmoil over the decision which found that wills are trusts that must have certainty of object, subject-matter, and intention. As a result of the uproar caused by the decision, the Divisional Court expedited a hearing of the appeal of Re Milne. Four and half months later, the estates bar and individuals with multiple wills can now rest easy with the Divisional Court’s decision in Re Milne, 2019 ONSC 579.
The Lower Court Decision
At the lower court, Justice Dunphy found a primary will to be invalid where an allocation clause in the will provided the estate trustees with the discretion to determine which estate assets fell under the secondary will or the primary will based on whether probate of such assets would be required. Justice Dunphy found that such allocation clauses resulted in there being no certainty of subject-matter with respect to the primary will as assets could be allocated between the two wills after death (the secondary will, on the other hand, was worded in such a way that it was found to validly capture all of the testator’s assets).
In particular, Justice Dunphy took issue with the conferral of discretion upon the estate trustees to determine which assets, if any, would fall under the primary will. The allocation clause at issue specifically provided for the exclusion of assets from the primary estate “for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for a transfer or realization thereof.” Justice Dunphy found that this clause granted the estate trustees the power to determine which assets, if any, were subject to the will based on the “subsequent, subjective determinations of the Estate Trustees as to what is desirable.” Justice Dunphy further found that the assets that fall under a particular will must be objectively ascertainable at the time of death, and not subject to the subsequent discretion of the estate trustees.
The Issues on Appeal
The estate trustees appealed the lower court decision on the following issues:
- Did the Application Judge err in holding that a will is a trust?
- Did the Application Judge err in holding that the “three certainties” determine the validity of a will?
- Did the Application Judge exceed the Court’s inquisitorial jurisdiction? (the Court agreed that the Application Judge exceeded his jurisdiction, but found that such a conclusion was unnecessary to decide the appeal).
A Will is Not a Trust
As many will recall, the lower court decision began with the proposition that “a will is a form of trust. In order to be valid, a will must create a valid trust and must satisfy the formal requirements of the Succession Law Reform Act, R.S.O. 1990, c. S.26.” No precedent was provided for this statement and it was this finding which ultimately led to the finding that the allocation clause contained in the primary will resulted in a lack of certainty of subject matter and therefore the invalidity of the primary will.
The Divisional Court found that a will is not a trust on the following basis:
- the definition of a “will” in the Succession Law Reform Act does not state that a Will is a trust;
- a will can contain a trust, but is not required to;
- during the administration of an estate, no separate beneficial interest exists – the property comprising the residue of the estate is not held in trust for the beneficiaries; and
- historically, courts of chancery were responsible for oversight of the administration of estates and trusts, such that the law with respect to executors of estates and trustees of trusts share similarities, however, the roles remain distinct, despite conflation that now exists between the two roles.
Finally, the Divisional Court found that even if section 2(1) of the Estate Administration Act, which vests the property of a deceased person in their personal representative “as trustee for the persons by law beneficially entitled thereto”, resulted in the creation of a trust, such a trust would be a statutory trust and therefore not subject to the “three certainties.”
The Primary Will Contains Certainty of Subject Matter
Although the Divisional Court found that wills are not trusts and that even if they are trusts, they are not subject to the “three certainties”, the Court went on to consider whether the use of an allocation clause in multiple wills would result in a lack of certainty of subject matter.
The Court held, at paragraph 49, that:
The property in the Primary Wills can be clearly identified because there is an objective basis to ascertain it; namely whether a grant of authority by a court of competent jurisdiction is required for transfer or realization of the property. As a result, the Executors can allocate all the deceased person’s property between the Primary and Secondary Wills on an objective basis.
Thus the Court found that there was no lack of certainty of subject matter as the allocation clause provides an objective criteria for determining which will an asset might fall under, being the objective determination as to whether probate is required to handle the asset.
Furthermore, earlier in the decision (at paragraph 24), the Court confirmed that the discretionary nature of an allocation clause does not mean that it can be exercised arbitrarily and that executors must exercise such discretionary powers in accordance with their fiduciary obligations.
Although not explicitly stated, it appears from these findings that the Divisional Court found that allocation clauses are valid discretionary powers which may be conferred on estate trustees. Such a finding may provide further comfort to those concerned, not only about the issue of whether a will is a trust, but the separate issue of whether a testator may confer such a discretionary power on estate trustees. As it stands, the Divisional Court’s decision supports the validity of allocation clauses.
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In today’s podcast, Paul Trudelle and Sayuri Kagami discuss the recent decision of Re Milne Estate, 2018 ONSC 4174, where Justice Dunphy of the Ontario Superior Court found a Will to be invalid where it provided the Estate Trustee with the discretion to determine whether assets might fall under the Will or not. At the time of recording, it was unknown whether the decision would be appealed. It is now confirmed that the decision is under appeal.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
Drafting and administering multiple wills can be challenging. There is no shortage of potential pitfalls that can derail an otherwise well devised estate plan. Inadvertent revocation of the primary will, conflicts between multiple sets of Estate Trustees (“Trustee”), and limited liability protection for the Trustee of the non-probated will are just a few of the difficulties sometimes encountered. However, one of the most challenging aspects is determining from where the taxes will be paid. Tax apportionment can complicate the estate plan for the Testator and drafter early on in the process; or afterwards, as the Trustee is left to interpret the directions (or lack thereof) in both wills.
For instance, two carefully drafted wills which seek to distribute the assets evenly among the Testator’s children can be significantly altered if the tax apportionment clauses do not reflect this intent. Imagine that one child receives real property under the primary will and the other receives privately owned shares of an equivalent value under the secondary will. If the income tax is payable solely from the assets of the primary will, one child may no longer receive an equal value of the estate; contrary to what the Testator intended.
There is some debate on whether the distinction between a one or two estate model can help determine tax apportionment issues. The question is whether the Testator has created two distinct estates or one estate that is governed by two documents? Clare Sullivan suggests the latter; however, Martin Rochwerg and Leela Hemmings advocate for the two estate model. They describe dual wills as dividing the estate into a primary and secondary estate. This distinction may have tax liability implications when the wills do not contain any tax apportionment clauses whatsoever. When the issue is one of interpretation, the answer is a much simpler one.
In interpreting tax apportionment questions, it all comes down to the Testator’s intent. The interpretation of wills is based on the armchair rule that seeks to place oneself in the mindset of the testator. The same approach is applied to interpreting from where the taxes will be paid when the wills are unclear. In other words, a close examination of both the primary and secondary wills themselves will determine where the Testator intended the tax to be paid from. External factors such as the sophistication of the testator may also be considered when interpreting the documents. If the wills are altogether silent, the default tax rules will apply.
From a practical perspective, this means that the issue of tax liability should always be stated in unequivocal terms in the wills. The Trustee, in administering the estate, should also never blindly assume that the tax is payable out of the primary will. They should carefully read the documents before making this determination and if it is unclear, an application to the court for interpretation is an available recourse.
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An interesting decision was recently released from the Brampton Superior Court of Justice which considered whether the Court’s rectification of a will in a prior proceeding precludes the Court from requiring that same will to be proven in solemn form on a subsequent motion.
The details of the initial rectification proceeding in McLaughlin v. McLaughlin, 2014 ONSC 3161, have been extensively covered by our blog here and here (bonus points to our dedicated readership if you recall the comments of our very own Jonathon Kappy in the Law Times on this subject). Ultimately, Justice Lemon rectified the secondary will of Elizabeth Anne McLaughlin such that the revocation clause therein would not have the effect of nullifying the validity of the primary will that was executed on the same day, in addition to rectifying various other drafting errors. A finding was made after a full hearing that neither the testatrix, nor the drafting solicitor, could have failed to detect the patent errors in the secondary will if they read the will.
Despite the Applicant’s success in the rectification proceeding, the issue of his sibling’s Notice of Objection to the probate of the primary will remained before Justice Price in McLaughlin v. McLaughlin, 2015 ONSC 4230, and he was left to consider the preliminary issue of whether Justice Lemon’s prior ruling precluded the Court from requiring both wills to be proven in solemn form. Given that there were no issues with the testatrix’ testamentary capacity, the issue before Justice Price in respect of the validity of the secondary will was whether the testatrix understood and approved of its contents in light of the prior finding that she could not have read the secondary will on a balance of probabilities.
After a review of the jurisprudence on the doctrine of rectification in Robinson Estate v. Rondel, Justice Price concluded as follows,
“Rectification is concerned with correcting the drafting errors of the will, whereas the proving of a will in solemn form concerns the validity of the will. These issues are substantively different, and I am therefore satisfied that I would not, in effect, be reversing Lemon J.’s decision as to rectification of the secondary will should I find that will to be invalid.”
While Justice Price found that the Court was not precluded from considering the validity of the secondary will subsequent to its rectification, Justice Price ultimately found that the secondary will was invalid on the basis of Justice Lemon’s finding that the testatrix did not read the will nor did she have knowledge and approval of its contents.