Tag: Will Interpretation
A recent decision of the Alberta Court of Queen’s Bench highlights the importance of carefully reviewing settlement agreements prior to their execution.
In Anderson Estate (Re), 2020 ABQB 428, the Alberta Court of Queen’s Bench revisited a settlement that had been negotiated during a judicial mediation.
Mr. Anderson had left a Last Will and Testament executed roughly one month prior to his death that directed that the residue of his estate be distributed to his three children, who were the parties to the litigation. The Will addressed certain advances made to his children during his lifetime, the disposition of real property, and declared the testator’s intent that the parties be treated equally.
One son, who later brought the motion with respect to the interpretation of the agreement, had previously disclaimed real property gifted to him under the Will because the value assigned to the property in the Will itself was significantly higher than the appraised value of the property (with a discrepancy of $2 million), such that he would take a correspondingly lower distribution from the residue of the estate to reflect his acceptance of the gifted property. The judicial mediation process had been initiated with the intention of resolving interpretation issues in respect of the Will arising from the son’s disclaimer of the property. The terms of the Will and the settlement agreement were not straightforward, but the settlement provided in part that the son would receive at a value of $4 million a different property than that bequeathed to him under the Will that he had disclaimed.
Pursuant to the terms of the settlement agreement, the matter returned to the case management judge for the determination of its proper interpretation. The son sought an interpretation of the agreement that provided that he had substituted his receipt of one property for the other at a notional cost corresponding to advances tied to the first property.
Justice Jones reviewed the law in general relating to ambiguities appearing in contracts, such as the settlement agreement that the parties had executed (at paragraphs 35 through 40, briefly summarized below):
- true legal ambiguity arises where a phrase is reasonably susceptible on its face to more than one meaning;
- courts can consider surrounding circumstances that include everything that affected the language of the document from the perspective of a reasonable person;
- extrinsic evidence, however, is intended to serve “as an objective interpretative aid to determine the meaning of the words the parties used”, with limitations set out by the Alberta Court of Appeal in Hole v Hole, 2016 ABCA 34;
- the goal of the courts is to give effect to the objective intentions of the parties, rather than to “second-guess the contract”;
- even in the absence of ambiguity, a judge is to consider relevant surrounding circumstances in interpreting the contract.
The judge found that the settlement agreement was not susceptible to more than one meaning, stating as follows (at para 84):
A retrospective determination that one entered into an agreement on terms less commercially favourable that one now thinks should have prevailed does not evidence ambiguity.
This decision may serve as a reminder to take care in ensuring that the meaning of a settlement agreement is properly understood by all parties and clearly set out without room for ambiguity. Remaining silent on certain points that should properly be addressed during the dispute resolution process may limit the rights of the parties to pursue them, even where the settlement agreement will otherwise lead to the distribution of an estate that may be perceived as unfair.
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In a recent Ontario Superior Court of Justice decision, the Court considered certain extrinsic circumstances surrounding the making of the Will, as well as the reading of the Will as a whole, in reaching a decision regarding its interpretation.
In Love v Wheeler 2019 ONSC 4427, a spouse of a deceased beneficiary sought a declaration that a beneficiary’s estate was entitled under a testator’s Will to an undivided half-interest in property and that the other beneficiary wrongfully appropriated it.
Frances Irene Wheeler died in 2012. She bequeathed a parcel of land to her two sons, Harold William Wheeler and Martin Douglas Wheeler. Her Will stated that this property was to go to Harold and Martin “jointly or the survivor of them”.
The Court grappled with the question of whether Frances meant to leave the property to Harold and Martin as joint tenants or as tenants in common. Certainly, in a joint tenancy, there would be a significant benefit to the survivor of the two brothers, as the other half interest would pass on a right of survivorship, rather than form a part of the deceased brother’s estate.
This is exactly what happened in this case. Martin died in 2015 and in April, 2017, Harold had the title to the property transferred into his own name, on the argument that it was owned by him and Martin, as joint tenants.
Deborah Love, Martin’s common-law spouse of 16 years, commenced an application before the Court, as against Harold. One of the grounds for Deborah’s position was that the extrinsic evidence surrounding the making of the Will, including a prior Will of February, 2009, supports a finding that Frances intended her sons to inherit the property as tenants in common.
The Court’s Decision
In reaching its decision, the Court emphasized its role in giving effect to the testamentary intention of the testator, as expressed in a Will. Justice Chozik gave consideration to the “armchair” rule, which requires a judge to place him or herself in the position of the testator at the time when the last Will was made, and to consider and weigh the circumstances which then existed and which might reasonably be expected to influence the testator in the disposition of her property.
Justice Chozik found that Frances intended to leave the property in question to her sons, as tenants in common. This intention was held to be clear from the Will when it is read as a whole, taking into account some of the extrinsic circumstances surrounding the making of the Will.
This decision certainly emphasizes how important it is that the Will clearly stipulates the terms of each bequest, particularly when it comes to large assets, such as real property.
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In Royston (Trustees of) v Alkerton, 2016 ONSC 2986, the executors of the estate of Recia Royston (“Recia”) sought the opinion, advice or direction of the court regarding the interpretation of a residue clause in Recia’s Will. The clause in question read as follows:
My Trustees shall divide the residue of my estate equally among my children alive at my death; but if any child of mind dies before me, leaving issue alive at my death, my Trustees shall divide the part to which that deceased would have been entitled if alive on [sic] at my death among that child’s issue in equal shares per stirpes.
Recia had five children: Michael, Peter, Laura, Alan, and John. Both Alan and John predeceased Recia. Alan had two children, Jacob and Jennifer; John had no children.
The question for the court was whether Jacob and Jennifer were entitled to the share of Recia’s estate to which their father, Alan, would have been entitled if alive. Laura’s position was that Recia intended the clause to capture only those of her children alive at the time of the execution of the will on May 13, 2014 (the “2014 Will”), namely Laura, Michael, and Peter.
The court found that Recia intended the plain meaning of the term “my children” in the clause in question, which would accordingly include all of Recia’s children. Recia had chosen to restrict her residue clause in certain ways – for instance, by specifying that it should benefit her children alive at her death, and that the children of any predeceased children should take in equal shares per stirpes. However, although she could have, she did not exclude Alan’s children, nor was there any indication that she intended to treat her children then living, or their issue, differently from the issue of her then deceased child.
The court also considered a prior will made in 1993, which contained a clause with different wording than the residue clause in the 2014 Will, but that the court held expressed the same intent. As there was no suggestion that Jennifer and Jacob were not entitled to share under the 1993 Will, this evidence corroborated a finding that they should similarly benefit under the 2014 Will.
The court also looked to another clause in the 2014 Will, and found that it was consistent with an intention on Recia’s part to benefit all of her children alive at her death, or their issue. This other clause stated that if any beneficiary died before attaining the age of 21, without issue, their share should be divided amongst Recia’s issue in equal shares per stirpes – which would include Jacob and Jennifer – thereby supporting the finding that Recia intended Jacob and Jennifer to benefit from the share of the estate that would otherwise have gone to Alan.
The court also made some comments with respect to the admissibility of direct extrinsic evidence, and ultimately did not admit much of the evidence from Laura, Jacob, Jennifer, and Recia’s brother, Larry Cohen, who was one of the executors of her estate. Following the case law in Rondel v Robinson Estate, 2011 ONCA 493, Barlow v Parks Estate,  OJ No 266, and Re Burke, 1959,  OR 26, the court considered the circumstances surrounding the preparation and execution of Recia’s will in its interpretation of the clause in question.
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In Eve v. Brook, 2016 ONSC 1496, a dispute arose largely due to the Estate Trustee’s sale of certain shares in a private company owned by 50% by the Deceased and 50% by his brother, Earl.
With respect to the sale of shares, the Will states, somewhat unusually:
“I direct my executors to consult with the other shareholders/owners of any business or property I own at the time of my death and to co-operate with such shareholders and partners to ensure that my executor can transfer, in specie, shares and interests to my beneficiaries in such a way as to restrict or exclude my beneficiaries’ involvement in the business, including conversion of shares into nonvoting shares and having my estate execute agreements having the effect of binding my beneficiaries.” (in clause 3 of the Will)
The Will also contains certain specific powers given to the estate trustee. These include “To sell or otherwise dispose of, at the time or times and in the manner that my trustees in their discretion decide upon, assets, investments, or money.” (in clause 4 of the Will)
Notably, there is a specific prohibition in the articles of incorporation of the company against a transfer of shares without the consent of a majority of the directors. Accordingly, Earl’s consent would be needed.
The Estate Trustee sold the Deceased’s shares to Earl, at the objection of the plaintiff, being the daughter of the deceased and a 50% residual beneficiary of the estate. She alleged that the sale was not authorized by the Will and was, in any event, improvident. She wanted the shares transferred to the beneficiaries in specie.
The trial Judge concluded that the Estate Trustee was authorized by the Will to sell the shares, and in so doing reviewed the differing interpretations of the Will as between the Estate Trustee and the plaintiff. If the Estate Trustee’s interpretation was correct, the Will only created a requirement that the Estate Trustee first consult with the other shareholders to obtain their views as to a potential change in ownership, then the Estate Trustee had no choice but to sell the shares given that Earl would not have agreed to the in specie transfer to the beneficiaries. On the other hand, if the plaintiff’s interpretation was correct, and the clause was so vague and ambiguous that it ought to be read out of the Will, the sale could still proceed by virtue of clause 4.
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In a recent Ontario Court of Appeal decision, Holgate v Sheehan Estate, 2015 ONCA 717, the court was asked to consider an appeal from a motion for determination of an issue under Rule 21.01(1)(a) of the Rules of Civil Procedure. The Rule 21 motion arose in the context of a trial with respect to the interpretation of the will and codicil of John Holgate, and particularly the meaning of the word “use”. The appeal also dealt with the trial judge’s jurisdiction to hear the mid-trial Rule 21 motion, but this blog will deal with the former issue.
Mr. Holgate had passed away and was survived by two sons from his first marriage (the “sons”) and his second wife, (“Mrs. Holgate”). Mr. Holgate’s will and codicil provided for a life interest in two trusts to Mrs. Holgate. Following Mrs. Holgate’s death, Mr. Holgate’s children were entitled to the remainder of the two trusts. The wording of the two trusts provided that the trust assets were to be held for “the sole use and benefit of my wife MAY HOLGATE during her lifetime”.
The sons brought an action against their father’s estate, Mrs. Holgate’s estate and Mrs. Holgate’s daughter personally, claiming that Mrs. Holgate’s life interest allowed her to use the money but not save it. They alleged that Mrs. Holgate had not only used trust assets, but had also saved money, thereby depleting the capital of the estate to their detriment and contrary to their father’s intention.
Three days into the trial, the trial judge invited counsel to bring a mid-trial motion either for determination of an issue or for directions in order to determine this critical issue with respect to the interpretation of the will and codicil, namely the meaning of the term “use”. Counsel agreed to bring a Rule 21 motion and asked whether the wording of the will and codicil precluded Mrs. Holgate from accumulating wealth from the trusts in her own name.
The trial judge concluded that:
- nothing in the will or codicil prevented Mrs. Holgate from saving and accumulating wealth;
- the language of the will came as close as possible to conferring an absolute gift on Mrs. Holgate; and
- neither of the trusts included any limitations on the use of the assets by Mrs. Holgate.
On appeal by the sons, the Court of Appeal agreed with the trial judge’s interpretation, that the words and phrases used in the trusts indicate a clear intention on Mr. Holgate’s part to allow his wife unrestricted access to the funds. They also cited Dice v Dice Estate, 2012 ONCA 469, which held that “[t]he golden rule in interpreting wills is to give effect to the testator’s intention as ascertained from the language that was used”.
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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.
Thank you for reading.
Listen to Estate Administration
This week on Hull on Estate and Succession Planning, Ian and Suzana continue their discussion on what to expect in the early stages of estate administration.
Today, Rodney Hull Q.C. gives us some practical advice on dealing with actual interpretation problems …
(1) THE RULE IN BROWNE v. MOODY,  A.C. 635 (P.C). – Direction to pay after a life interest – vesting of interest.
(2) THE CLAUSE – “Income from a trust to a son for life, and on son’s death, the fund to be divided among the daughters and granddaughter of the testatrix in equal shares, with gift over in the event that any of the daughters and the granddaughter predecease the testatrix or the son leaving issue, such issue to take the interest to which the person so dying would have been entitled had she survived the testatrix.”
(3) THE FACTS – The testatrix left a son, three daughters and one granddaughter.
(4) THE QUESTION – What interest do the beneficiaries take and when does the interest arise?
(i) On the death of the testatrix?
(ii) At the date of the Will? or
(iii) At some other time?
(5) WHERE TO START RESEARCH –
(i) Theobald on Wills – page 602 – paragraphs 43 – 26.
(ii) Feeney’s Canadian Law of Wills – paragraphs 17.8 – 17.47.
(iii) Sheard, Hull and Fitzpatrick, Canadian Forms of Wills, page 221.
Although Will provisions can be quite unique, assistance often can be sought from similar provisions in other documents. A review of the case law can therefore be of assistance as well.
We’ll deal with another such provision tomorrow.
All the best – Suzana.