It is often said that an Attorney for Property can do anything on behalf of the grantor’s behalf except make a will. This is on account of section 7(2) of the Substitute Decisions Act (the “SDA“), which provides:
“The continuing power of attorney may authorize the person named as attorney to do on the grantor’s behalf anything in respect of property that the grantor could do if capable, except make a will.” [emphasis added]
Although at first glance it would appear that the potential tasks that an Attorney for Property could complete on behalf of a grantor are almost absolute, with the Attorney for Property being able to do anything on behalf of the grantor except sign a new will, in reality the tasks that an Attorney for Property may complete relative to the grantor’s estate planning is more restrictive than this would suggest at first glance. This is because the definition of “will” in the SDA is defined as being the same as that contained in the Succession Law Reform Act (the “SLRA“), with the SLRA in turn defining “will” as including not only typical testamentary documents such as a Last Will and Testament or Codicil, but also “any other testamentary disposition“. As a result, the stipulation that an Attorney for Property can do anything on behalf of the grantor “except make a will” would include not only a restriction on the Attorney for Property’s ability to sign a new Last Will and Testament or Codicil on behalf of the grantor, but also a restriction on the Attorney for Property’s ability to make “any other testamentary disposition” on behalf of the grantor.
It is fairly common for individuals such as spouses to own real property as joint-tenants with the right of survivorship. When one joint-owner dies ownership of the property automatically passes to the surviving joint-owner by right of survivorship, with no portion of the property forming part of the deceased joint-owner’s estate. Although such an ownership structure may make sense when the property is originally purchased, it is not uncommon for circumstances to arise after the property was registered (i.e. a divorce or separation) which may make one of the joint-owners no longer want the property to carry the right of survivorship. Should such circumstances arise, one of the joint-owners will often “sever” title to the property so that the property is now held as tenants-in-common without the right of survivorship, making efforts to attempt to ensure that at least 50% of the property would form part of their estate should they predecease the other joint-owner.
Although severing title to a property is fairly straight forward while the owner is still capable, circumstances could become more complicated should the owner become incapable as questions may emerge regarding whether their Attorney for Property has the authority to sever title to the property on behalf of the grantor, or whether such an action is a “testamentary disposition” and therefor barred by section 7(2) of the SDA.
The issue of whether an Attorney for Property severing title to a property is a “testamentary disposition” was in part dealt with by the Ontario Court of Appeal in Champion v. Guibord, 2007 ONCA 161, where the court states:
“The appellants argue that the severing of the joint tenancies here constituted a change in testamentary designation or disposition and is therefore prohibited by s. 31(1) of the Substitute Decisions Act because it is the making of a will.
While we are inclined to the view that the severance of a joint tenancy is not a testamentary disposition, we need not decide that question in this case. Even if it were, we see no error in the disposition made by the application judge, because of s. 35.1(3)(a) of the Substitute Decisions Act.” [emphasis added]
Although the Court of Appeal does not conclusively settle the issue in Champion v. Guibord, the court appears to strongly suggest that they are of the position that an Attorney for Property severing a joint-tenancy is not a “testamentary disposition” within the confines of the SDA.
Thank you for reading.
Howard J. Feldman made a presentation on the circumstances where a net family property ("NFP") equalization can set aside an estate feeze. He also discussed structuring the estate freeze transaction to qualify as an exclusion from the transferee child’s NFP.
To refresh: the classic estate freeze is a transaction involving a business-owning parent and his or her child. The parent transfers the equity shares in the business to the child but retains control of the company through preferential shares ("prefs"). The prefs have a fixed redemption and liquidation value, so all capital growth is with the equity shares transferred to the child. The parent "freezes" his own level of equity in the business, leaving future capital growth to the child. The goal is to avoid the child receiving the equity in the company on the parent’s death, because the capital gains tax liability would presumably have grown significantly. Capital gains tax is payable when the parent transfers the shares under the estate freeze transaction, but presumably smaller than it would be on the parent’s death.
The problem is that an estate freeze during the transferor parent’s marriage potentially removes assets from that parent’s property for the purposes of the NFP equalization. This can conflict with the philosophy of the NFP equalization payment, which is that marriage is a partnership and spouses’ collective increase in net worth during the marriage should therefore be evenly divided between the spouses at the end of the marriage. The parent’s subsequent death or divorce can trigger a challenge by the spouse of the estate freeze.
Among Mr. Feldman’s points and recommendations:
- the form of the transaction and relevant documents is critical (see the paper for reasons)
- the solicitor must have a well-documented file and written instructions from the client, due to the risk of the transaction being challenged
- Declarations to Revenue Canada and financial institutions are not considered binding in family law
- a gift of shares under a corporate reorganization may not excluded where there is not family trust, but beware that sooner or later the leading cases may be overturned (with a plethora of qualifications and circumstances detailed in the paper)
- gifting shares or the cash to buy the shares are subject to numerous, complex considerations (no pun intended)
This barely scratches the surface of the summary and recommendations. It is well-worth the read. The entire Six-Minute Estates Lawyer 2009 program can be purchased here.
Have a good day,
Listen to Administration of the Assets of the Estate
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss things to consider when administrating the assets of an estate and point out burdens of being and executor.
Listen to Pre-probate Checklist
They then wrap up their ongoing discussion about some useful steps to remember when administering an estate.
Listen to "Family Cottage Cases of Ownership Transfers"
Read the transcribed version of "Family Cottage Cases of Ownership Transfers"
In this week’s episode of Hull on Estate and Succession Planning, Ian and Suzana share a few stories involving cases of ownership and the family cottage.