In last week’s blog we wrote about a business owner whose will provided for an employee to be able to purchase his business rather than leaving it to his family. In this week’s blog we cover a similar situation with a critical wrinkle. In this situation, the deceased left his business to his brother rather than his wife and children.  The court arrived at a similar position as in last week’s blog, but this week’s case has some wrinkles that make it worth covering on its own.

The will

The deceased was the owner, and sole shareholder of a construction company (“the business”). The deceased’s will provided that in the event of his death, the business as well as its land and assets were to be left to his brother rather than his wife and children.

During the original trial, the court referred to section s.5(2) of the Ontario Family Law Act, explaining “that when a spouse dies, if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one-half the difference between them.” Meanwhile section 6(1) of the Act sates that if the deceased has a will, the reviving spouse “shall elect to take under the will or to receive the entitlement under s. 5.”

Sole shareholder

It was the wife and children’s argument that their father did not own the assets given to his brother, rather the business did. The deceased was simply a shareholder of the business. The court summarized the family’s argument as follows,

“(The mother and children) assert that these gifts are invalid because a shareholder of a corporation owns only the shares of that corporation (which the shareholder can bequeath), but does not own the corporation’s assets (which the shareholder cannot bequeath). They claim that upholding these gifts would involve disregarding the separate corporate personality of (the business), and that because these gifts are invalid, they fall into the residue of the estate.”

The court agreed with the application judge’s finding that “the testator has made provision for all of the assets of (the business), not merely the assets to go to (the brother). In my view, this indicates that the testator effectively turned his mind to, and directed, a winding-up of (the business) and an in specie distribution of the assets.”

The court’s finding is backed up by the province’s Business Corporations Act which allowed the deceased to wind up and distribute the corporate assets as he saw fit. In essence, while the deceased did not have the power to give away the business’ assets, he did have the authority to instruct the business to do so.

If you are considering filing an application to challenge a will, contact the estates lawyers at Derfel Estates Law before you proceed. We can help you determine whether you are eligible to bring such a claim, can help you understand your options and rights, and can represent you throughout the challenge process. Call us at 416-847-3580 or contact us online to schedule a consultation.