Tag: Suzana Popovic-Montag

25 May

Where is the Trust?

Suzana Popovic-Montag Estate & Trust Tags: , , , , , , 0 Comments

In a decision released last week, the Ontario Court of Appeal in Andrade v Andrade set aside a judgment and issued a decision that established sole beneficial ownership in a house by way of resulting trust. This decision provides an interesting analysis of the source of funds used to purchase property and the effect this can have on a resulting trust claim. It also provides an interpretation of the public policy principle that prevents a party from taking one position for tax purposes and another in respect of a claim in litigation.

Luisa Andrade (“Luisa”), a widow and mother of seven children, immigrated to Canada in 1969. Luisa’s children each left school as teenagers and began working to support the family. The children continued to contribute their wages to the family until they left the family home.

9BHIKXDFSUThe family home was purchased in 1974. Luisa signed the offer to purchase and borrowed a cash deposit of $1,000. The bulk of the purchase was financed with two mortgages. Legal title was initially placed under the names of two of Luisa’s children, Henry and Maria, because Luisa was not employed and could not obtain the mortgage on her own. Five years later, legal title was transferred to Henry and another one of Luisa’s children, Joseph. Joseph died in 2014 and his widow, Manuela, commenced a claim seeking a declaration that she was the beneficial owner of the house. Manuela was successful at trial.

The Court of Appeal held that the trial judge committed a palpable and overriding error in concluding that Luisa had no money of her own as it caused him to ignore the evidence of Luisa’s intention to remain the beneficial owner. This caused him to ultimately reject the resulting trust claim. The Court of Appeal noted that the trial judge confused the question of whether Luisa had money with the source of her money. This resulted in a mistaken characterization of the money that was given to Luisa by her children and used by Luisa to pay for the house as the children’s money. However, in accordance with the legal principles of a gift, once the money the children earned was given to Luisa, it became Luisa’s money, “even if it was expected to be used, and was in fact used, for the support of the family, including to pay the mortgages”. The Court of Appeal observed that there was no evidence that Luisa’s bank account was a trust account nor that the money was earmarked for a specific purpose. Furthermore, it was the testimony of all the children that the money they gave to Luisa was her’s to use as she saw fit.

Once the Court of Appeal found that Luisa did have money of her own, it went on to find that her intention was not to benefit the legal title holders to the exclusion of her other children.

On another note, the trial judge found that this was not an appropriate case to impose a trust due to public policy concerns. At various times, Luisa rented out the upstairs apartments of the house. Although Joseph and Henry never received any rent from the house, they declared the rental income and claimed expenses. Luisa, on the other hand, never paid rent yet she claimed a rental tax credit. Specifically, the trial judge was concerned that it would be against public policy to recognize Luisa’s estate (as Luisa had since died) as the beneficial owner of the house when she had received tax credits claiming that she was not the beneficial owner.

The Court of Appeal found that while the “clean hands” doctrine and considerations of illegal purposes may bar a claim, actions unrelated to a claim will not necessarily bar a remedy. In the case at hand, the evidence was not that Luisa placed the house in her children’s names for strategic tax purposes. Rather, Luisa had done so because she was unable to obtain the mortgage on her own. As the equitable relief sought by Luisa’s estate was in relation to Luisa’s interest in the family home, the Court of Appeal found that her tax filings were not fundamental to that cause of action.

Thank you for reading.

Suzana Popovic-Montag

18 May

An Update on Statutory Wills

Suzana Popovic-Montag Capacity, Wills Tags: , , , 0 Comments

Testamentary capacity is a prerequisite to the creation of a valid will. For those who do not possess testamentary capacity, either due to a change in cognitive abilities or because they never possessed it to begin with, this means they are unable to make, change, or revoke a will.

In many cases, these individuals did not have a valid will in place prior to losing the ability to create one. These estates are distributed in accordance with the laws of intestacy. In other cases, circumstances have changed significantly such that if the testator had retained testamentary capacity, he or she almost certainly would have changed the dispositions made in a previous will. However, as a result of the loss of testamentary capacity, he or she is no longer able to do so, sometimes giving effect to absurd results.

EGBB06MSDCTo address these difficulties, some jurisdictions have enacted legislation that permits an application to be made for a statutory will. A statutory will involves providing the courts with the authority to make, change, or revoke a will, on behalf of incapable persons. For more details surrounding the background of these legislative enactments, please see our previous blog posts on the subject here and here.

Following the enactment of legislation granting the courts with this authority, there have been discussions surrounding some of the practical effects that at the time, remained yet to be seen. An update on some of the issues is as follows:

The Mental Capacity Act 2005 (“MCA”), which came into force in England and Wales in 2007, provides the court with the ability to make, change, or revoke an incapable person’s will by determining what would be in the person’s best interests. This is considered a contrast to previous legislation which provided for a “substituted judgment” approach. One argument that has since been raised against the application of the best interests approach has been whether it is compatible with the right to equal recognition under the UN Convention on the Rights of Persons with Disabilities.

A common observation that has been made in support of the use of statutory wills is that they can, at times, be more tax effective than if a person were to die intestate. Accordingly, in some jurisdictions, the use of testamentary trusts has been applied within the creation of a statutory will. For instance, in Australia, the Queensland Supreme Court allowed a statutory will including testamentary trusts in Doughan v Straguszi [2013] QSC 295, where it was shown that the testamentary trusts would protect a wider array of family members and future interests.

Another issue is under what circumstances service can be dispensed with in cases of an application for a statutory will. In the UK, it was submitted in Re: AB [2013] EWHC B39 (COP) that this decision should be taken in accordance with s. 1(5) of the MCA which provides that “An act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in his best interests.” The court held that the principles of the MCA could not be strictly applied to such a decision and that it should be made in exceptional circumstances in accordance with the Court of Protection Rules.

Thank you for reading.

Suzana Popovic-Montag

11 May

Foreign Powers of Attorney for Care

Suzana Popovic-Montag Power of Attorney Tags: , , , , , , 0 Comments

In 2016, it is no longer out of the ordinary for Canadians to call more than one province home. It has also become more common for Canadians to move among different provinces throughout their lives. Either way, it is important to consider the implications of the validity of a power of attorney for personal care that was granted in one province and whether it will be recognized in another.

For those who have executed a power of attorney for personal care outside of Ontario, the Substitute Decisions Act provides at section 85 (1),

As regards the manner and formalities of executing a continuing power of attorney or power of attorney for personal care, the power of attorney is valid if at the time of its execution it complied with the internal law of the place where,

(a) the power of attorney was executed;

(b) the grantor was then domiciled; or

(c) the grantor then had his or her habitual residence. 

However, for those who have executed a power of attorney for personal care within Ontario and the attorney is now seeking to use it in another province, the rules as to its validity will vary.

For instance, in Quebec, the1XBAS04FMB Civil Code governs the rules surrounding protection mandates (the equivalent of a power of attorney for personal care). The most significant distinction in this regime is that a mandate given in anticipation of incapacity is conditional upon “the homologation of the mandate” (i.e. the court procedure confirming the validity of the mandate).

A mandatary (attorney) has no authority to act until this step has been completed. Therefore, any acts performed by the mandatary prior to the homologation of the mandate may be annulled. This measure is seen as a protective tool to help circumvent potential power of attorney abuse.

Thank you for reading.

Suzana Popovic-Montag

04 May

Predatory Door-to-Door Sales and Vulnerable People

Suzana Popovic-Montag Elder Law Tags: , , , , , , 0 Comments

All too often we hear stories of older persons suffering from cognitive decline who have unwittingly entered into long-term and disadvantageous contracts for services or equipment they do not even need. Sometimes, despite the best efforts of friends and family, loved ones with conditions such as dementia cannot be completely shielded from aggressive sales tactics that prey on vulnerability. This scenario has arisen repeatedly in the case of door-to-door sales and Councillors in several Ontario cities have set out to put a stop to it.

On Monday, Etobicoke Centre MPP Yvan Baker introduced a private member’s bill, the Door-to- Door Sales Prohibition Act, 2016, which seeks to ban door-to-door sales of water heaters, furnaces, water treatment devices, and the leasing or rental of air conditioners. These four products were selected as they have the highest number of complaints from consumers and have cost Ontarians over $3.1 million in 2015 alone. However, thes5F7649370Be numbers are based only on consumers who have made a report to the Ministry of Government and Consumer Services and therefore may, in fact, be much higher. The bill would also allow the Ministry of Government and Consumer Services to add additional products to the list as required. In large part, the motivation behind this bill has been to protect vulnerable people, particularly those with health issues, from being duped into contracts with no way out.

The bill itself would not lead to an outright prohibition on knocking on someone’s door for sales purposes; however, it would ensure that any contract executed as a result of
a door-to-door sale of any of the products listed, would be void. Furthermore, the bill contemplates implementing fines to be levied against both individual and commercial sellers in increasing amounts per offence. In this sense, the bill would act as a deterrent to salespersons engaging in these sorts of unscrupulous practices.

The bill still has a long way to go before it becomes law. It still must go to a second reading in June and if it passes, then to committee. From there, it would return back to the legislature for third reading.

Thank you for reading.

Suzana Popovic-Montag

27 Apr

A Cautionary Tale: Prince Dies Intestate?

Suzana Popovic-Montag Estate Planning Tags: , , , , , 0 Comments

The unexpected and shocking death of Prince last week has sent the media abuzz as they speculate about the potential cause of death. However, as the dust begins to settle, speculation has turned to the other big question: Who will inherit his vast estate valued anywhere from an estimated $150-300 million?

On Tuesday, Prince’s sister filed paperwork in Minnesota (where Prince resided and died) asking the court to appoint a special administrator to oversee his estate. This step was necessary because it appears that despite his fortune, Prince did not have a known will and therefore, may have died intestate.

Of course, it is still possible for a will to emerge after further investigations are undertaken. Some are speculating that a trust or series of trusts may have been established to avoid the public scrutiny that would have been involved in probating a will. Trusts are commonly used vehicles for celebrities who wish to maintain some semblance of privacy after death.

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However, if there was no estate plan in place, Prince’s estate will be devolved in accordance with the Minnesota laws of intestacy. Prince was not married, had no children, and was predeceased by his parents. He was survived by two ex-wives, his full biological sister and five half-siblings. Under Minnesota law, ex-wives do not qualify under intestacy rules and half siblings are treated the same as full siblings. Accordingly, Prince’s six surviving siblings stand to potentially inherit a significant fortune.

As an additional concern, there are often claims made against an estate of this magnitude, some valid and some not. Unfortunately, the absence of any testamentary document to support Prince’s actual intentions may only exacerbate and encourage this effect. These types of claims can vary significantly from dependant’s support to creditors’ claims.

The laws of intestacy seldom reflect the true intentions of a testator and can lead to many potentially avoidable complications. For instance, family dynamics are becoming increasingly complex with the prevalence of common-law spouses and blended families, just to name a few examples. As a result, while intestacy rules aim to distribute an estate among those the law presumes to be closest to you and to whom you may owe support, the practical effect is that this desired result is rarely achieved.

Thank you for reading.

Suzana Popovic-Montag

20 Apr

Voluntary Disclosure

Suzana Popovic-Montag Uncategorized Tags: , , , , 0 Comments

With a list that includes a dozen current and former world leaders, over a hundred politicians and public officials, as well as many celebrities and professional athletes, the recently leaked Panama Papers have caused quite a stir as they threaten to reveal how many people use banks, law firms, and offshore shell companies to hide assets and evade regulatory oversight or tax obligations.

Beginning in 2015, an anonymous source made 11.5 million records from Panama-based law firm Mossack Fonseca available to the German newspaper Süddeutsche Zeitung (“SZ”). These documents reveal information surrounding the ownership of offshore bank accounts and companies. As a result of the volume of documents, SZ turned to the non-profit organization, The International Consortium of Investigative Journalists (“ICIJ”), to assist with distribution. The first reports were released in early April of this year and the ICIJ has stated that they plan to publish the full list by early May 2016.

Although it is not illegal to have an offshore account (and there are many legitimate reasons why one might have one), they are often associated with attemptsE6TYDW9NTJ to hide assets or to disguise ownership of assets. For those who use offshore accounts for these improper purposes, failure to disclose certain assets can result in tax on unreported income, penalties, and arrears interest.

As the May 2016 release date approaches, many Canadians are considering the benefits of the  Voluntary Disclosure Program offered by the Canada Revenue Agency (“CRA”). In the United States, the Internal Revenue Service (“IRS”) is going so far as to encourage any U.S citizens and companies who may be involved to come forward now and participate in their own Voluntary Disclosure Program.

For an Estate Trustee concerned with the possibility that a deceased (whose estate he or she is administering) may have been implicated, this program provides an opportunity that allows a taxpayer (or Estate Trustee) to come forward and voluntarily correct any errors or omissions without being subject to the penalties (or prosecution) that might normally apply. However, among other requirements, it is essential that disclosure be made voluntarily which requires that it be made prior to becoming aware of any compliance actions being taken.

For more information on the Voluntary Disclosure Program and Estate Trustee liability, please see our previous blog post on the subject here.

Thank you for reading.

Suzana Popovic-Montag

13 Apr

No Take-Backs!

Suzana Popovic-Montag Wills Tags: , , , , 0 Comments

If you have school-aged children, you have undoubtedly heard of the ironclad playground rule “no take-backs”. Siblings often relish in reminding one another of the rule after a cherished possession has been passed along, much to the donor’s instant regret. In the schoolyard, children who dare to renege on a promise are subject to the righteous indignation of their peers.

photo-1436915947297-3a94186c8133In estate law, we see this scene play out when a testator enters into an agreement that provides that he or she is prevented from revoking his or her will. The testator subsequently changes the will in breach of the agreement and upon the testator’s death, it is argued that the testator is prohibited from doing so.

The question thus arises: can a testator, by agreement, effectively imbue his or her will with an irrevocable designation, contrary to the principle that a will remains revocable until death? According to Feeney’s “Canadian Law of Wills”, “A will is revocable even when it is expressed to be irrevocable and even if the testator covenants not to revoke it. In no circumstances will equity grant an injunction to restrain the testator from revoking his or her will.” Accordingly, a valid agreement, in which a testator has agreed not to revoke his or her will, cannot render a will irrevocable and does not prevent the testator from making subsequent changes. However, although the will itself remains valid, there are recourses available to the disappointed beneficiary.

If a will is revoked in breach of a contract that provides otherwise, the testator or estate may be held liable in damages or, in certain circumstances, specific performance may be granted. Alternatively, an equitable remedy such as unjust enrichment or quantum meruit may be available. It is important to bear in mind that this does not allow for a will (or a portion of a will) to be declared void. As the Ontario Court of Appeal held in Frye v Frye Estate (2008 ONCA 606), “[…] a contractual obligation to make or to refrain from revoking a will gives rise to an action for breach of contract and does not affect the validity of the will itself.”

This approach is in contrast to the one taken in some civil law jurisdictions. For instance, in Quebec, the Civil Code provides at article 706, “No person may, even in a marriage or civil union contract, except within the limits provided in article 1841, renounce his or her right to make a will, to dispose of his or her property in contemplation of death or to revoke the testamentary provisions he or she has made.” This provision is one of public order and a clause in a contract (aside from an irrevocable gift mortis causa made in a marriage contract) that attempts to do this may be deemed null and void.

Thank you for reading.

Suzana Popovic-Montag 

 

06 Apr

Lost and Found – $5 Billion

Suzana Popovic-Montag Estate Planning, General Interest Tags: , , , , , 0 Comments

You’re on your way out the door and as you reach for your keys where you are absolutely certain you placed them only minutes ago, you grasp at nothing but air. Sound familiar? While most people can relate to misplacing everyday items, it may surprise some to hear that experts estimate there to be approximately $5 billion worth of unclaimed assets being held in Canada just waiting to be recovered. This raises some questions from an estates law perspective. Primarily, how are these assets being forgotten; and secondly, what can be done about it?

Assets often go missing as a result of general forgetfulness or poor organization of one’s financial affairs. This sometimes occurs during the process of moving if a change of address is not updated. In other cases, lost or damaged records may affect the ability to stay up-to-date. The increasing prevalence of digital assets is another factor. Paper statements are falling out of favour and more bank accounts are held by branchless institutions making it is easier to forget.

Unfortunately, one of the most common reasons assets go unclaimed is due to poor estate planning. This can take the form of failing to identify all assets such that your Estate Trustee cannot easily identify and retrieve them for distribution. Or, it may occur as a result of declining mental health without having previously created an inventory of assets for administration. All too often, this is due to the difficulty many people associate with having those tough conversations about estate plans and final wishes with loved ones. This raises obvious concerns for those acting in a personal representative capacity. While an Estate Trustee or Attorney for Property will want to ensure they have done their due diligence in locating all assets for distribution or management, without a comprehensive list, potential assets may inadvertently be ignored.

As the cumulative tomoneytal of unclaimed Canadian assets continues to rise, many have questioned Canada’s apparent lack of unclaimed property legislation. According to this article, the Bank of Canada’s unclaimed accounts grew 52% over five years to reach $532 million. Currently, only Quebec and Alberta have comprehensive unclaimed property legislation and public databases to perform a central search for lost assets. British Columbia has a voluntary system where the province, courts, and credit unions are obligated to transfer unclaimed property to the British Columbia Unclaimed Property Society; however, trust funds, brokerage accounts, and life insurance policies are only transferred on a voluntary basis. The intention behind this type of legislation has been to promote returning lost property to its rightful owner.

In Ontario, there is a noticeable gap in addressing the issue. Without any legislation in place, many institutions are under no obligation to search for the legal owners of dormant accounts. The primary exception is federally regulated banks which are obligated to turn over unclaimed deposit accounts, term deposits, drafts, and certified cheques to the central bank after 10 years  (excluded are non-Canadian currency accounts, RRSPs, credit union balances, gold/silver certificates, contents of a safety deposit box, insurance payments, court payments, stocks and dividends, wages and real estate deposits). The Bank of Canada has its own procedures in place for dealing with unclaimed assets it holds which can be read about in more detail here and a central database is kept which can be used to search for unclaimed balances.

Attempts to pass unclaimed property legislation in Ontario have been largely unsuccessful to date. In 1989, Ontario passed the Unclaimed Intangible Property Act but it was never proclaimed into force and in 2011, the act was repealed. New legislation was promised in the 2012 budget and consultations were held; however, no new developments have come up since.

Thank you for reading.

Suzana Popovic-Montag

30 Mar

Does Crowdfunding Establish a Trust?

Suzana Popovic-Montag Estate & Trust, Trustees Tags: , , , , , , , , , , , 0 Comments

In 2014, a Toronto-based company successfully raised $1,235,389 (USD) of its $48,000 goal on Indiegogo for its wireless speaker system promising better-than-stereo sound. More recently, the website Gofundme provided the platform which allowed the parents to a 4 year old girl to raise $2,026,470 (USD) to help their child receive a potentially life-saving therapy trial.

Hardly a week goes by without a story on the success of yet another crowdfunding campaign. In what began as an alternative financing model, modern crowdfunding as it exists today has grown to become an extremely successful and potentially lucrative fundraising source. As a result, the legal question that has been raised is whether funds raised by means of crowdfunding constitute a trust, with all of the rights and obligations that this may entail.

The definition of a trust according to Black’s Law Dictionary is, “An equitable or beneficial right or title to land or other property, held for the beneficiary by another person, in whom resides the legal title or ownership.” At first glance, this is precisely what many crowdfunding campaigns seek to do. The funds raised are often held by a third party for the benefit of another. However, determining who occupies which role within the trust relationship can be difficult to navigate.

There are four parties in most crowdfunding campaigns: the donors, the website provider, the campaign creator, and the beneficiaries. As a result, it is not entirely clear whether it is the website provider or campaign creator that acts as trustee and, if it is the website provider, whether they hold these funds in trust for the campaign creator or the purported beneficiary of the campaign. As each crowdfunding campaign can vary significantly with respect to its set-up and intended purpose, determining whether a trust relationship is present is an exercise to be undertaken on a case by case basis.

For instance, some crowdfunding campaigns offer rewards in exchange for meeting a minimum donation level. In this sense, it could be argued that these rewards constitute consideration and the relationship becomes contractual in nature. In other campaigns, the funds are raised for a charitable purpose and as such, may be qualified as charitable trusts. On the other hand, campaigns established by friends and family that purport to raise funds for their loved ones, seek to provide a benefit to a private individual, as opposed to a general purpose. It is often these cases that lead to questions surrounding whether a trust has been established, or, in the alternative, whether a gift has been made.

According to this paper by Professor Oosterhoff, the law has generally provided that funds raised for a specified object give rise to a trust. Accordingly, Oosterhoff’s answer is that it depends on what the intentions of the donor were. He suggests that we need to look specifically at whether the donors intended to establish a trust or whether their relationship to the other parties can be characterized as one of contract or agency.

If a trust is established, the person(s) receiving the initial funds (whether it is the campaign creator or website provider) may find themselves in a fiduciary relationship. Trust law creates a higher standard of care and imposes and bestows rights and obligations upon both the trustee and beneficiaries. As a result, those engaged with crowdfunding campaigns, in any capacity, should be alert to this possibility and act accordingly.

Thank you for reading.

Suzana Popovic-Montag

 

23 Mar

Under the Influence

Suzana Popovic-Montag Capacity, Estate & Trust, Wills Tags: , , , , , , 0 Comments

Undue influence and testamentary capacity are two of the most common grounds used to challenge the validity of a will. Often, these cases deal with testators who are older individuals suffering from declining mental health who may also be susceptible to undue influence. However, it is interesting to consider the less common scenario of the testator whose testamentary capacity is questioned due to cognitive conditions that were self-induced.

Health Canada estimates that approximately 4 to 5 million Canadians engage in high risk drinking and the Canadian Alcohol and Drug Use Survey further illustrates the continued prevalence of illicit drugs being used among Canadians. As the test for testamentary capacity involves being able to not only know and understand one’s assets but also to be free from delusions at the time the will is created, it is not difficult to imagine how the will of an individual  suffering from chronic addiction may be more prone to attack.

The Courts have genY3IUCK0FXEerally found that regardless of whether the mental capacity of the testator is impaired as a result of one’s own actions or due to forces beyond one’s control, the legal tests for testamentary capacity and undue influence remain the same. Although external circumstances can provide a better understanding as to what was happening when the document was created, intoxication on its own will not bar someone from making a will.

This approach is consistent with how testamentary capacity is treated in cases where the testator suffered from dementia. Just as it is possible for a person diagnosed with dementia to still meet the legal test to dispose of his or her assets, it is also possible for a person under the influence of drugs or alcohol to retain testamentary capacity. The key is that testamentary capacity must be assessed at the time that the document was created. If the legal test is met at this critical point, the will can be upheld.

However, in the event that the testator’s mental state was altered to the point where he or she no longer understood or appreciated their assets, who their dependant’s were, or were under any delusions, the will can be struck down. This is precisely what occurred in the case of Re: Bradbury Estate (1996 Carswell Alta 323) (“Bradbury”). In this case, the testator was drinking heavily with friends when he drafted a handwritten will leaving everything to one of the friends. The testator was murdered just a few hours later. An expert witness testified that the blood alcohol level of the testator indicated that at the time the will was created, he would have no longer possessed any critical judgment. Given the circumstances under which the will was executed, it was apparent that the testator lacked the testamentary capacity to prepare and execute a will and the will was declared invalid.

With respect to undue influence, cognitive impairment due to substance abuse may give rise to suspicious circumstances, as it did in Bradbury. This will have the effect of rebutting the presumption of testamentary capacity. However, circumstances can vary widely and as a result, creating a will while under the influence (even at the direction of another) will not necessarily lead to a presumption of undue influence.

Thank you for reading.

Suzana Popovic-Montag

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