This month marks the beginning of the Will Power campaign, led by the CAGP Foundation and the Canadian Association of Gift Planners.
Will Power is designed to show Canadians the power they have to make a difference with their Wills by leaving charitable gifts.
Many Canadians feel that if they leave a charitable gift in their Will, it will take away from gifts and support for their loved ones, who they also wish to benefit as part of their estate plan. But according to CAGP and the CAGP Foundation, leaving even 1% of one’s estate to charity can still “have an enormous impact on your cause, while still leaving 99% of your estate to your family…You don’t have to choose between your loved ones and the causes you care about when planning your Will.” The Will Power website has a helpful legacy calculator, which can help with visualizing what it means to leave a gift to charity, and still be in a position to benefit your loved ones.
Some people may think that they need to have a very large estate to be able to make a meaningful gift to charity. But regardless of the size of the gift, it can still make a difference. Will Power estimates that if only 3.5% more ordinary Canadians included a gift in their Will in the coming decade, the result would be $40 billion in gifts to charitable causes.
Another aspect of charitable giving to consider is the tax benefit of doing so. Depending on the nature of your assets at the time of your passing, and any estate planning steps, there could be significant taxes payable on death. Making a testamentary gift to a cause that is important to you could result in a reduction of the amount of taxes to be paid.
For more information, and helpful links, you can check out this press release from Will Power.
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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.
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I recently had a chance to attend a very interesting continuing legal education program organized by the Ontario Bar Association called: “Rights and Limitations on an Attorney under a Power of Attorney”.
The program was chaired by Natalia Angelini of our office and Kimberly A. Whaley of WEL Partners. Professor Albert Oosterhoff, Professor David Freedman, Thomas Grozinger and John Poyser presented their views on various questions surrounding beneficiary designations.
An interesting debate took place at the end of the program on the question of whether beneficiary designations are testamentary instruments.
Professor Oosterhoff presented his view that, beneficiary designations are not in fact testamentary acts and should therefore be considered inter vivos acts. One of the reasons cited by Professor Oosterhoff in this regard that I found compelling is the fact that a beneficiary designation does not have to comply with the formalities required of a Will. The fact is that a beneficiary designation is often executed in passing and the same considerations do not apply to such a decision as typically would apply to the making of a Will.
Then again, a testator can make a handwritten Will in passing which will be just as valid as if made in accordance with the formal requirements. However, the fact that it is made quickly and in passing does not necessarily mean that it is not a valid Will.
Another reason cited by Professor Oosterhoff in support of his position was that, in his opinion, beneficiary designations take effect when they are signed. By way of a further explanation, Professor Oosterhoff clarified that a beneficiary designation is not dependent upon the designator’s death for its “vigour and effect”, despite the fact that performance does not actually take place until the designator’s death.
This opinion was not universally shared by the panel and some of the attendees of the program. One significant issue that was raised was that if beneficiary designations are indeed not testamentary acts, there could be potential tax consequences necessitating legislative reform.
It will certainly be interesting to see whether a new case or legislative reform will shed some light on this question. I can certainly see the appeal and the logic behind Professor Oosterhoff’s view.
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It is not uncommon for the lawyer who drafted a testator’s will or codicil to subsequently be retained by the Estate Trustees after the testator’s death to assist with the administration of the estate. The rationale behind the drafting lawyer being retained to assist with the administration of the estate appears fairly self-evident, for as the drafting lawyer likely has an intimate knowledge of the testator’s estate plan and assets they may be in a better position than most to assist with the administration of the estate.
While retaining the drafting lawyer to assist with the administration of the estate is fairly uncontroversial in most situations, circumstances could become more complicated if there has been a challenge to the validity of the testamentary document prepared by the drafting lawyer. If a proceeding has been commenced challenging the validity of the testamentary document, there is an extremely high likelihood that the drafting lawyer’s notes and records will be produced as evidence, and that the drafting lawyer will be called as a non-party witness as part of the discovery process. If the matter should proceed all the way to trial, there is also an extremely high likelihood that the drafting lawyer would be called as a witness at trial. As the drafting lawyer would personally have a role to play in any court process challenging the validity of the will, questions emerge regarding whether it would be proper for the drafting lawyer to continue to represent any party in the will challenge, or would doing so place the drafting lawyer in a conflict of interest?
Rule 3.4-1 of the Law Society of Ontario’s Rules of Professional Conduct provides that a lawyer shall not act or continue to act where there is a conflict of interest. In the case of a drafting lawyer representing a party in a will challenge for a will that they prepared, an argument could be raised that the drafting lawyer is in an inherent position of conflict, as the drafting lawyer may be unable to look out for the best interests of their client while at the same time looking out for their own interests when being called as a witness or producing their file. There is also the potentially awkward situation of the drafting lawyer having to call themselves as a witness, and the associated logistical quagmire of how the lawyer would put questions to themselves.
The issue of whether a drafting lawyer would be in a conflict of interest in representing a party in a will challenge was dealt with in Dale v. Prentice, 2015 ONSC 1611. In such a decision, the party challenging the validity of the will brought a motion to remove the drafting lawyer as the lawyer of record for the propounder of the will, alleging they were in a conflict of interest. The court ultimately agreed that the drafting lawyer was in a conflict of interest, and ordered that the drafting lawyer be removed as the lawyer of record. In coming to such a conclusion, the court states:
“There is a significant likelihood of a real conflict arising. Counsel for the estate is propounding a Will prepared by his office. The preparation and execution of Wills are legal services, reserved to those who are properly licensed to practise law. Counsel’s ability to objectively and independently assess the evidence will necessarily be affected by his interest in having his firm’s legal services found to have been properly provided.” [emphasis added]
Decisions such as Dale v. Prentice suggest that a lawyer may be unable to represent any party in a will challenge for a will that was prepared by their office as they may be in a conflict of interest. Should the circumstance arise where the drafting lawyer is retained to assist with the administration of the estate, and subsequent to being retained someone challenges the validity of the Will, it may be in the best interest of all parties for the drafting lawyer to indicate that they are no longer able to act in the matter due to the potential conflict, and suggest to their clients that they retain a new lawyer to represent them in the will challenge.
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The general rule, one that most people are probably familiar with when they think of a Will, is that the testator has to have the requisite capacity in order to be able to execute it. But what does that mean?
Generally, it means that a person should be of sound mind and understanding and have sufficient capacity to appreciate the various dispositions of property that would be put into effect with his or her execution of the Will. In other words, the testator must:
(1) understand that they are giving their property to one or more objects of his or her regard;
(2) have the capacity to comprehend the extent of their property and the nature of the claims of others to whom they are giving nothing under the Will.
In the case of a deceased who committed suicide, a question that may arise is whether a person who is about to commit suicide has the appropriate testamentary capacity to be able to execute a Will?
In that regard, it is important to remember that the onus is on the person who is propounding the Will – in other words applying to the court for an order that the Will is valid. In the usual course, there is certainly no presumption against the testamentary capacity of a testator. Indeed, it is quite the opposite. However, in cases where a proposition is made that a death (suicide) note is the last valid will and testament of a testator, it is more likely that someone may object. That is especially the case where an expected beneficiary is disinherited under such a circumstance.
As soon as capacity is called into question, the onus lies on the party propounding the Will to affirm testamentary capacity.
Suicide, in itself, does not equate to testamentary incapacity – although it is a circumstance that may be considered. In fact, a testator may have testamentary capacity even if they are not of entirely sound mind. That means that prior to committing suicide, a person can very well have testamentary capacity. If that is the case, then a death note can be considered a Holograph Will, which in Ontario, in accordance with section 6 of the Succession Law Reform Act, has the following requirements in order to be valid:
(1) It must be entirely in the testator’s hand writing; and
(2) It must be signed by the testator.
There is no requirement for witnesses in the case of a Holograph Will and it must be that the testator intended to dispose of their property after death.
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