Tag: Stuart Clark
I have blogged this week about the general availability of “pour over clauses” and whether you can leave a bequest in a Will to an already existing inter vivos trust. In my blog yesterday I discussed “facts of independent significance” as one of the potential arguments that has been raised to attempt to uphold “pour over clauses”, and how the concept was rejected by the British Columbia Court of Appeal in Quinn Estate v. Rydland, 2019 BCCA 91. In today’s blog I will discuss another argument that was raised in Quinn Estate to try to uphold pour over clauses; the doctrine of “incorporation by reference”.
The doctrine of incorporation by reference at its most basic allows a Will to refer to a separate document which provides for dispositive provisions, with such a separate document being “incorporated” into the Will to be carried out by the executor as part of the administration of the Will. The most common example of incorporation by reference would be a memorandum directing who is to receive various personal items from the testator, with the Will directing the executor to distribute the personal items in accordance with the terms of the separate memorandum.
The general test for whether a document can be incorporated by reference into a Will is:
- It must be clear that the testator in the Will referred to some document then in existence; and
- the document in question must be beyond doubt the document referred to.
When incorporation by reference is raised as part of an attempt to uphold a pour over clause it appears to be the argument that so long as the inter vivos trust was in existence at the time the Will was signed, and the trust is clearly identified by the Will, that it should be able to meet the test for incorporation by reference such that the “pour over clause” can be saved.
In Quinn Estate the court ultimately rejects the attempt to save the pour over clause under the doctrine of incorporation by reference, appearing to emphasize there is a fundamental flaw in the attempt to incorporate a trust by reference into a Will insofar as it does not appear to be the testator’s intention to actually incorporate the terms of the trust into the Will, but rather simply to make a distribution to the separate trust. When something is “incorporated by reference” into a Will it means exactly that, insofar as the terms of the separate document are said to be incorporated into the Will and read as a single document. This concept appears fundamentally at odds with any attempt to make a bequest to an already existing trust under a pour over clause, as the testator never likely intended to have the terms of the trust incorporated into the Will to be administered by the executor as part of the Will, but rather to have the executor make a bequest to the trust to be administered separately from the estate. In emphasizing this point the British Columbia Court of Appeal in Quinn Estate states:
“Strictly speaking, resorting to incorporation by reference to incorporate the original trust document into the will belies the essential nature of a pour-over clause: here it is perfectly clear that the will-maker had no intention of incorporating the trust into his will. He rather demonstrated the obvious intention of making a gift to the trust.”
As my blogs this week have shown, any attempt to leave a bequest in a Will to an already existing inter vivos trust using a “pour over clause” is highly problematic.
Thank you for reading.
Yesterday I blogged about the general use and availability of “pour over clauses” and whether you can leave a bequest in a Will to an already existing inter vivos trust. Although the answer to that question is “it depends”, as cases such as Quinn Estate v. Rydland, 2019 BCCA 91, have shown the court is generally reluctant to uphold these kinds of bequests due to the potential of amendments being possible in a way that contradicts statutory requirements, such that any individual considering a potential bequest to an already existing trust should proceed with extreme caution.
In ultimately refusing to uphold the bequest to the inter vivos trust in Quinn Estate the court provides an excellent summary of the typical arguments that are used to try to uphold “pour over clauses”, and why, in their opinion, they should not be available to save the bequest. One of these potential arguments is the doctrine of “facts of independent significance”.
The doctrine of “facts of independent significance” in effect provides that subsequent and independent facts of “significance” can have an effect on the interpretation and/or administration of Wills notwithstanding that such subsequent facts may not otherwise meet the formal requirements to amend or alter a Will. Examples that are often cited to are clauses such as those that would provide that property is to be divided “amongst my partners who shall be in co-partnership with me at the time of my decease” or to the “servants in my employ at my death“. As both of these classes of individuals can change after the Will has been executed, such that the individuals who may ultimately receive the gifts may be different at the time of death versus when the Will was executed, this can be seen as a potential exception to the general rule that the Deceased’s intentions must be clear at the time the Will was executed and cannot be altered unless in compliance with the strict statutory requirements.
In the case of pour over clauses, the potential argument to utilize the doctrine of facts of independent significance would appear to be that as the court allows certain bequests to be upheld notwithstanding that the circumstances surrounding the bequest could change after the fact, the potential of an inter vivos trust being varied after the signing of the Will should not automatically void the bequest.
The court in Quinn Estate ultimately rejected the potential use of the doctrine of “facts of independent significance” to save pour over clauses. In coming to such a decision the Court of Appeal notes:
“Applying the doctrine to validate a pour-over clause would also differ in character to the existing applications recognized in the Anglo-Canadian jurisprudence. The traditional applications of the doctrine validate de facto amendments to the will only with regard to limited “facts”. The terms “partner” and “car” are inherently limited. A trust document recognizes no such limit. Extending the doctrine to pour-over clauses would grant testators unlimited power to amend the disposition of their estate without following the strictures of WESA. In my view, this is not an extension the common law should permit.” [emphasis added]
Although the Quinn Estate decision was a decision of the British Columbia Court of Appeal, as the Ontario statutory regime also does not appear to specifically contemplate the use and availability of “pour over clauses” it is likely that the same concerns referenced by the British Columbia Court of Appeal would be present in any attempt to uphold the use of pour over clauses under the doctrine of facts of independent significance in Ontario.
I will blog tomorrow about the concept of “incorporation by reference” as it relates to pour over clauses. Thank you for reading.
Trusts are generally divided into two categories; “inter vivos” or “testamentary” trusts. Inter vivos trusts are broadly defined as trusts that are established by a settlor while they are still alive, typically pursuant to a deed of trust, while testamentary trusts are established in the terms of a Will or Codicil. Generally speaking there is no overlap between an individual’s Will and any inter vivos trust, with any inter vivos trust existing separate and apart from the settlor’s “estate”. But does this have to be the case? Could you theoretically, for example, leave a bequest in a Will to an inter vivos trust that you previously established, thereby potentially increasing the assets governed by the trust upon your death, or must a trust which governs estate assets be a “testamentary trust” established by the Will? The short answer is “it depends”, although any individual considering such a bequest should proceed with extreme caution.
A clause in a Will that provides for the potential distribution of estate assets to a separate inter vivos trust is often referred to as a “pour over” clause, insofar as the assets of the estate are said to “pour over” into the separate trust. The availability and use of “pour over” clauses in Ontario is somewhat problematic.
The fundamental issue with the use of “pour over” clauses that allow a bequest to be made to a trust is that the formalities that are required to make or amend a trust are much lower than the formalities that are required to establish a Will, with trusts often containing provisions that will allow for their unilateral amendment or revocation after their establishments. The statutes which establish the parameters that are required for a Will to be valid are very strict, with a Will only being able to be later amended or altered if it too meets very strict criteria. The potential concern in allowing a distribution from a Will to a separate trust that can easily be amended after the execution of the Will is that it could create the scenario in which an estate plan could be altered after the Will was signed in a way that would not meet the strict formal requirements that would otherwise be required for a Will to be altered or amended.
In Ontario the formalities required for a Will to be valid is established by section 4(1) of the Succession Law Reform Act. A Will that has been signed in accordance with the formal requirements of section 4(1) can only be altered or amended by a Codicil that itself has been signed in accordance with the formal requirements of section 4(1), or if the alterations to the Will meet the requirements of section 18 of the Succession Law Reform Act. Unlike alterations and/or amendments to a Will, an alteration or amendment to a trust does not need to meet any formal statutory requirements for it to be valid, with the only requirements being those stipulated in the trust document itself and/or under the rules in Saunders v. Vautier. As a result, an inter vivos trust to which a bequest was directed using a “pour over” clause could theoretically be changed numerous times after the signing of the Will either with or without the involvement of the testator, thereby bringing into question whether the bequest actually represents the deceased’s testamentary intentions at the time the Will was signed.
In Quinn Estate v. Rydland, 2019 BCCA 91, the British Columbia Court of Appeal upheld the lower British Columbia Supreme Court decision, 2018 BCSC 365, which found that a “pour over” clause which purported to distribute certain estate assets to a trust that was settled by the Deceased during his lifetime was inoperable, with the funds that were to be distributed to the trust instead being distributed on an intestacy. In coming to such a decision the court appears to place great emphasis on the fact the trust in question could be amended unilaterally after the fact and in fact was amended in such a fashion after the execution of the Will.
The court in Quinn Estate provides an excellent summary of the considerations to make when determining whether a “pour over” clause can be upheld, including the concepts of “facts of independent significance” and “incorporation by reference”. I will discuss the concepts of “facts of independent significance” and “incorporation by reference” as they relate to pour over clauses in my remaining blogs this week.
Thank you for reading.
The COVID-19 pandemic has thrown much of what we take for granted on its head. If recent reports are accurate we can potentially add to that list an individual’s right to control their own medical treatment as codified in the Health Care Consent Act (the “HCCA”).
There have been reports in the news recently about advanced planning currently underway about what would happen to the provision of health care if the worst case scenario for COVID-19 should occur and the hospitals are overwhelmed. Included amongst these reports are discussions that certain provisions of the HCCA may temporarily be suspended as part of a new triage system which would allow medical professionals to prioritize who received treatment.
Section 10 of the HCCA codifies that a health care practitioner shall not carry out any “treatment” for a patient unless the patient, or someone authorized on behalf of the patient, has consented to the treatment. The Supreme Court of Canada in Cuthbertson v. Rasouli, 2013 SCC 53, confirmed that “treatment” included the right not to be removed from life support without the patient’s consent even if health practitioners believed that keeping the patient on life support was not in the patient’s best interest. In coming to such a decision the Supreme Court of Canada notes:
“The patient’s autonomy interest — the right to decide what happens to one’s body and one’s life — has historically been viewed as trumping all other interests, including what physicians may think is in the patient’s best interests.”
The proposed changes to the HCCA would appear to be in direct contradiction to the spirit of this statement, allowing health care practitioners to potentially determine treatment without a patient’s consent based off of the triage criteria that may be developed. This “treatment” could potentially include whether to keep a patient on a lifesaving ventilator.
Hopefully the recent downward trend for COVID-19 cases holds and the discussion about any changes to the HCCA remains purely academic. If not however, and changes are made to the HCCA which could remove the requirement to obtain a patient’s consent before implementing “treatment”, you can be certain that litigation would follow. If this should occur it will be interesting to see how the court reconciles any changes to the HCCA with the historic jurisprudence, for as Rasouli notes beginning at paragraph 18 many of the rights that were codified in the HCCA previously existed under the common law, such that any changes to the HCCA alone may not necessarily take these rights away for a patient.
Thank you for reading.
This week on Hull on Estates, Stuart Clark and Jennifer Philpott discuss the unorthodox use of Pecore v. Pecore, 2007 SCC 17, in the recent decisions PGT v. Cherneyko, 2021 ONSC 107, and Calmusky v. Calmusky, 2020 ONSC 1506.
Should you have any questions, please email us at firstname.lastname@example.org or leave a comment on our blog.
Re Crowley Estate, 2021 ONSC 582, raises an interesting question surrounding the potential impact of counsel missing a procedural deadline in association with a Notice of Objection to the issuance of a Certificate of Appointment (i.e. probate), and whether missing such a deadline is fatal to the Objector’s ability to generally proceed with a challenge to the Will.
The Notice of Objection process is governed by rule 75.03 of the Rules of Civil Procedure. It generally provides that at any time before the issuance of a Certificate of Appointment any individual who appears to have a financial in the estate may file a “Notice of Objection” to the issuance of a Certificate of Appointment. The impact of filing of the Certificate of Appointment is to in effect to pause the probate process, with the applicant Estate Trustee being required to vacate and/or deal with the Notice of Objection before probate can be issued. The process by which the Notice of Objection is generally dealt with is that upon being advised of the Notice of Objection the Estate Trustee is to serve a “Notice to Objector” upon the Objector in accordance with rule 75.03(4), which then provides the Objector with 20 days from the date on which they are served with the Notice to Objector to serve and file a “Notice of Appearance”. If the Notice of Appearance is served by the deadline, the matter proceeds to a motion for directions in accordance with rule 75.03(6), where the court would be asked to provide directions regarding how the objections that were raised are to be adjudicated before the court. If no “Notice of Appearance” is filed by the deadline the Notice of Objection is automatically vacated, and the probate application may proceed as if no Notice of Objection had been filed.
In Re Crowley Estate, the Objector filed a Notice of Objection to the issuance of probate, and was in turn served with a Notice to Objector by the Applicant. The date on which the Objector was served with the Notice to Objector was November 20, 2020, which would have resulted in a deadline of December 10, 2020 for the Objector to serve the Notice of Appearance. The Notice of Appearance was not served however by the Objector until December 15, 2020. The matter was directed by the Registrar to a Judge, who in turn asked the parties to make written submissions regarding the matter. The Applicant’s lawyer took the position that rule 75.03 was “unforgiving” with respect to its deadlines, and that as the Objector had missed the deadline to serve the Notice of Appearance the court was now required to proceed with the probate application as if no Notice of Objection had been filed. Objector’s counsel advised that the reason for the missed deadline was due to health related concerns surrounding COVID-19, appearing to note in any event that even if the Notice of Objection was vacated the Objector would be proceeding with a challenge to the validity of the Will, noting that the Objector had subsequently commenced a separate Application to address the concerns surrounding the validity of the Will on January 7, 2021.
The court ultimately extended the deadline for the Objector to file the Notice of Appearance under rule 3.02, which allows the court to extend any time prescribed by the rules on such terms as are just. In extending the deadline, Justice Boswell notes that the Objector clearly always intended to pursue the objection, and that there is no clear prejudice to allowing the extension. Perhaps interestingly however, although the comment does not appear to have played a decisive role in the final ruling, Justice Boswell references that even if the Certificate of Appointment was issued the Objector would likely have been at liberty to seek the return the Certificate of Appointment under rule 75.05, appearing to give credence to the Objector’s position that they would have been at liberty to proceed with their challenge to the validity of the Will regardless of the missed deadline for the Notice of Objection.
Thank you for reading.
The commencement of an Application for support as a dependant under Part V of the Succession Law Reform Act (the “SLRA”) can be an extremely stressful event for the Applicant. Not only is the Applicant likely commencing court proceedings against fellow family members and/or close friends of the deceased, but there may also be a sense of urgency to the Application to ensure that steps are taken before the estate has otherwise been administered and/or distributed to those who would be entitled to the estate but for the support Application. As a result of these concerns it is not uncommon for the Applicant in the early stages of the Application to seek some form of court intervention to stop and/or stay the administration of the estate until the Application has been adjudicated, thereby ensuring that there are assets remaining in the estate to satisfy any support award should it ultimately be made. But is such court intervention actually necessary?
Under section 67 of the SLRA, once an Estate Trustee has been served with an Application for support under Part V they are automatically required to cease all distributions from the estate unless certain conditions are met. Specifically, section 67(1) provides:
“Where an application is made and notice thereof is served on the personal representative of the deceased, he or she shall not, after service of the notice upon him or her, unless all persons entitled to apply consent or the court otherwise orders, proceed with the distribution of the estate until the court has disposed of the application.”
Section 67(3) provides that any Estate Trustee that makes a distribution in violation of section 67(1) once they have been served with an Application under Part V of the SLRA is personally liable to pay any shortfall should a support order ultimately be made. As a result, any distribution made by the Estate Trustee once an Application for support has been commenced would be at great potential personal liability, as they could personally be required to pay any support order.
Although section 67 of the SLRA automatically stops any external distributions being made once an Application for support has been commenced, it does not stop the internal administration of the estate itself. As a result, the Estate Trustee would, for example, still be at liberty to collect and/or liquidate any estate assets, including any real estate. They just could not distribute those funds to the beneficiaries once the assets had been liquidated. In the event the Applicant should seek a particular asset as part of their support order, such as the transfer and/or use of particular real property, additional steps would need to be taken by the Applicant to ensure that the Estate Trustee did not dispose of the asset while the Application remained before the court. These additional steps would likely be in the form of an order under section 59 of the SLRA, while allows the court to issue an order “suspending” the administration of the estate either in whole or in relation to a particular asset (i.e. the real estate) for such time as the court may decide.
Thank you for reading.
Hull on Estates #602 – Can You Appoint a Litigation Guardian for Unborn and Unascertained Beneficiaries?
This week on Hull on Estate, Stuart Clark and Garrett Horrocks discuss the distinction between appointing a “litigation guardian” or seeking a “representation order” when dealing with the interests of unborn and unascertained beneficiaries in estate and trust litigation.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
Corporations and Estates – What happens when a Will gifts an asset that is actually corporately owned?
The use of privately held corporations to manage an individual’s assets or business interests seems to be an increasingly common strategy and tool. Although the use of privately held corporations offer a number of potential advantages to the individual both during their lifetime and as part of their estate planning, it does raise a number of novel issues for the administration of the estate which may not exist if these assets had been directly owned by the individual. Such potential issues manifested themselves before the Ontario Court of Appeal in the relatively recent decision of Trezzi v. Trezzi, 2019 ONCA 978, where the court was asked to determine the potential validity of a bequest in a Will of property that was not directly owned by the testator personally but rather owned by them through a wholly owned private corporation.
As privately held corporations are often wholly owned by a single individual owner the individual in question would be forgiven for thinking that any assets that are actually owned by the corporation are their own. Such a misconception could carry with it some significant legal issues however, as it ignores the important fact that at law the corporation and the individual owner are two distinctly separate legal entities, and that although the individual owner of the corporation can exercise almost absolute control over the corporation as the sole shareholder, and could through such control likely direct the corporation to take any action regarding any asset the corporation may own (subject to any obligations of the corporation), they do not personally “own” any asset that is in fact owned by the corporation. Such a distinction is potentially important to keep in mind when a person who owns assets through a private corporation is creating their estate plan, as they should be mindful of whether any specific asset which they wish to bequest is owned by them personally or through the corporation.
In Trezzi the testator left a bequest in their Will to one his children of all equipment and chattels that were owned by a construction company that was wholly owned by the testator. This bequest was challenged by certain of the residuary beneficiaries, who argued that as the equipment and chattels in question were not actually directly owned by the testator, but rather the corporation, the testator’s bequest of such items had failed and that the items in question should instead continue to form part of the corporation and be distributed in accordance with the residue clause to their potential benefit.
The Court of Appeal in Trezzi ultimately upheld the bequest in question; however, in doing so, noted that the language was potentially problematic and encouraged counsel to be more careful when drafting in similar circumstances (even including potential precedent language to follow from the Annotated Will program). In upholding the bequest the Court of Appeal was in effect required to do an interpretation application for the Will, noting that they placed themselves in the position of the testator and considered what his intention would have been when including the provision in question. The court ultimately concluded that it would have been the testator’s intention with such a provision that the executor was to wind up the corporation in question, with the assets being distributed to the beneficiary in question as part of such a process. In coming to such a conclusion the court states:
“While it is true that Peter, as the sole shareholder of Trezzi Construction, did not directly own the corporation’s assets, that does not complete the analysis. In substance, Peter’s shares in Trezzi Construction became part of the estate, and Peter effectively directed his executors to wind-up the company and to distribute its assets in accordance with his will, even though he did not own those assets directly. As already noted, the key question thus boils down to whether this was indeed Peter’s subjective intention in his will…” [emphasis added]
Although cases like Trezzi show that under certain circumstances a bequest of assets which are not directly owned by the testator but rather through a corporation can be upheld such a result cannot be guaranteed, as the Court of Appeal in Trezzi was required to resort to the rules of construction and place themselves in the position of the testator to uphold the bequest in question. As a result, a testator would be wise to take extra care when dealing with an estate plan that includes the potential bequest of assets that are corporately owned to ensure that the ownership of such assets is properly described and the executor is provided with any necessary authority and direction to deal with the corporately held assets on behalf of the estate.
Thank you for reading.
You would be forgiven for thinking that the entire process for an Application to Pass Accounts is set out in rule 74.18 of the Rules of Civil Procedure as the rule appears to provide a comprehensive step by step guide to how an Application to Pass Accounts is to proceed before the court. Although rule 74.18 likely contains the most cited to and fundamental steps and principles for how an Application to Pass Accounts is to proceed, you would be wise to remember and consider the applicable provisions of section 49 of the Estates Act as they may offer additional insights and tools for a passing of accounts beyond those found in the Rules of Civil Procedure.
Yesterday I blogged in part about section 49(4) of the Estates Act, and the general availability to convert more complex objections that are raised in the Notice of Objection into a separate triable issue thereby potentially opening up more typical litigation processes such as discovery and the calling of witnesses at the eventual hearing of the matter. Although the ability to direct certain complex objections to a separate trial is an important tool under section 49(4) of the Estates Act, it is not the only potential tool or thing to consider under section 49 of the Estates Act when involved in an Application to Pass Accounts.
These additional tools and considerations for an Application to Pass Accounts as found in section 49 of the Estates Act include section 49(3), which provides the court with the ability to consider any “misconduct, neglect, or default” on the part of the executor or trustee in administering the estate or trust within the Application to Pass Accounts itself, and may make any damages award against the executor or trustee for such misconduct within the Application to Pass Accounts itself without a separate proceeding being required. As a result, if, for example, a beneficiary should raise an allegation of negligence in the Notice of Objection against the executor for something such as a complaint that certain real property that was owned by the estate was sold undervalue, the court under section 49(3) of the Estates Act has the power to consider such an allegation and, if ultimately proven true, may order damages against the executor for any loss to the estate within the Application to Pass Accounts process itself. Without section 49(3) the beneficiary may otherwise have been required to commence a new and separate Action against the executor to advance these claims and/or be awarded damages.
Section 49 also contains answers to numerous procedural questions which may come up in an Application to Pass Accounts which otherwise are not mentioned in the Rules of Civil Procedure, including section 49(9) which provides what the executor is to do when an individual has died intestate and you are unable to locate any next of kin to serve, and section 49(10) which provides the court with the ability to appoint an expert to review and opine on the accounts on behalf of the court when the accounts are particularly complex.
Thank you for reading.