Family life can be complicated, especially when it comes to entitlement to finances. In some cases, conflict looms so large that it causes significant hardship when someone dies and their estate is administered. In a case before the Ontario Court of Appeal earlier this year, a family’s conflict led to lengthy litigation regarding the establishment of a mutual Wills agreement and secret trust.
Parents had mirrored Wills
The Gefens, Elias and Henia, were Holocaust survivors who had been married for 65 years. They immigrated to Canada in 1951 and had three sons: Harvey, Harry, and Yehuda.
Elias and Henria had mirror Wills. A mirrored Will is a Will that is entered into at the same time as another, with the exact same terms as that other Will. This is typically used in spouses or common-law partners who name the other beneficiary. So, upon Elias’s death in 2011, his estate passed to Henria, who was the sole executor.
Family conflict resulted in a secret agreement
Two months before Elias’s death, he and Harvey signed a document indicating a mutual Wills agreement between Elias and Henia. A mutual Wills agreement is a contract between two testators that prevents one from changing a Will without the other’s consent.
Elias had been suspicious about how Harvey was managing his real estate assets. He instructed a lawyer to investigate his business interests and to take the necessary steps to protect his estate. To this end, Elias eventually granted power of attorney over his property to a third party, much to the chagrin of Henia and Harvey. This led to the mutual Wills agreement, which was handwritten by Harvey and made without the help of legal counsel. The agreement requested the immediate revocation of the power of attorney and the restoration of power of attorney to Henia. Finally, the agreement stated:
“I further confirm that my latest will as prepared by Noah has not knowingly been changed by myself to date nor will it be changed during my life. My wife Henia has told me that she also will not change the will either & that our intentions that the estate be divided equally between our 3 sons after our death stands.
In my condition I am tired & confused & do not understand everything & I want only Noah to be my lawyer so this will not happen again, any legal documents notwithstanding.”
Mother made several large gifts to one son
In the last year of his life, Elias became upset at Harry and Yehuda, whom he believed cared too much about family finances. The family conflict was distressing to Elias, according to the physician who took care of him at the time of his death. Eventually, family visits to the hospital where he was being cared for were restricted for this reason.
From 2011 to 2013, Henia gave her son Harvey several inter vivos gifts. She did not believe her other sons, Harry and Yehuda, should receive anything from her or Elias’s estate. In fact, she sued Harry and Yehuda in 2013, which led to lengthy litigation. Yehuda died in 2016 and left no issue. He was represented by his surviving partner and estate trustee, Lucia.
Trial judge declined to recognize mutual Wills agreement or secret trust
The trial of this case did not take place until 2018 and 2019. Over the six-week trial, Henia, Harvey, and Harvey’s daughter Ashley were the subject of claims by Harry and Yehuda’s Estate. Henia had a claim with regard to the ownership of a condominium against Yehuda’s Estate.
The trial judge concluded that Harry and Yehuda’s Estate did not establish a mutual Wills agreement or secret trust. She also did not void some of the inter vivos gifts Henia had given to Harvey.
The evidence weighed against the existence of a mutual Wills agreement
The Ontario Court of Appeal began its analysis by looking at the mutual Wills agreement. The trial judge held that Harry did not meet the evidentiary burden to prove the agreement’s existence.
On appeal, Harry submitted that the trial judge weighed his evidence on a level beyond a balance of probabilities, which is the reason why she concluded there was no mutual Wills agreement. However, this argument was rejected by the Court of Appeal. The trial judge required that the mutual Wills agreement “be proven by clear, cogent, and compelling evidence in part because a mutual Will agreement interferes with the testamentary freedom of a testator[.]” There was simply overwhelming evidence against the existence of the mutual Wills agreement. For instance, Henia had not actually signed the document. The Court, therefore, rejected this ground of appeal.
There could be no secret trust created if the mother was not bound by the mutual Wills agreement
Next, the Court considered whether a secret trust had been created. A secret trust is created “when a testator leaves property to a person and that person secretly agrees with the testator to hold the property for the benefit of another person.”
While formal statutes do not support secret trusts, they can be enforced by equity. The reason for a secret trust is that certain gifts to one sibling over another may create family conflict. So the testator opts for secrecy, even after death.
At trial, Harry and Yehuda’s Estate explained that the trust was only attached to assets in Elias’ estate. Specifically, Harry wanted to go after assets from Elias’ estate that wound up with Harvey. He held that those assets were to be held in trust by Harvey for his brothers.
The Court of Appeal upheld the trial judge’s decision that there was no secret trust. After all, Elias had not transferred anything to Harvey. His assets were vested in Henia after his death, who was not bound by the mutual Wills agreement. Ultimately, it was up to Henia to decide to whom she would leave her estate.
The transfers after the father’s death were merely gifts
The trial judge found unconscionable procurement of Henia’s assets by Harvey after Elias’s death. This finding was not the subject of the appeal. Harry’s counsel conceded that if this finding were made, the assets would simply revert to Henia and not to Harry or Yehuda’s Estate. Instead, Harry argued that the transactions from Henia to Harvey should have been set aside.
The Court found that all transfers were consistent with Henia’s desire to give Harvey and Ashley her portion of the family’s holdings. Henia’s gifts to Harvey were to compensate him for his property management services and to forgive his debts. Her gifts to Ashley were simply gifts to her grandchild. Therefore, the gifts remained intact. For these reasons, the Court found no error in the trial judge’s decision.
Contact Derfel Estate Law for Effective Estate Litigation Services
At Derfel Estate Law, our experienced team of estate lawyers provides skilled advocacy for clients involved in a variety of estate and trust disputes, including Will challenges and issues related to executors or trustees. We are conveniently located in Toronto and proudly serve clients throughout the Greater Toronto Area and Ontario. To schedule a confidential consultation, contact us online or by phone at 416-847-3580.