The Ontario Superior Court recently issued a decision that revisited the use of multiple wills (i.e. primary and secondary wills) as a means of decreasing probate tax, adding to the recent debate that arose around the use of such documents following an earlier decision.
The deceased executed two wills: a Primary Will and a Secondary Will. The beneficiaries and estate trustees were the same in both wills.
The Secondary Estate as defined in both wills included:
- shares in two numbered companies which did not require probate to be transferred
- “any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction in [sic] not required for the transfer, disposition or realization thereof”
The Secondary Will authorized the Trustees of the Secondary Will to disclaim any property which would otherwise form part of the Secondary Estate within 90 days of the death of the testator. Any property which was disclaimed in this way was to form part of the Primary Estate to be dealt with under the Primary Will.
As we’ve previously blogged about, a grant of probate (now known as a “certificate of appointment of estate trustee with a will”) is needed in some estates. Where it is needed, an estate trustee (or trustees) must apply to court for probate and will have to pay the relevant estate administration tax (i.e. probate fees).
Probate is needed, for example, where a bank requires documentation to allow an estate trustee to deal with the bank account of the deceased or if a house is being sold and a buyer requires assurance that the sale is bona fide.
“Basket Clauses” and Multiple Wills
So-called “basket clauses” are used in estate planning to provide flexibility in apportioning assets and to save in probate fees. If assets do not require probate they are put in a secondary will and not taxed. The reasoning behind this is that all assets end up listed, and if it ends up that one or more of those assets do require probate, it can then move to the primary estate and be taxed.
Basket clauses have been used in Ontario for at least 20 years until a recent Ontario decision called their use into question.
Re Milne Estate– Recent Caselaw on Multiple Wills
The issue of primary and secondary wills was addressed in the above mentioned Re Milne Estate decision in which the wills at issue used similar cryptic language.
In that case, the judge framed the issue as “whether the will is valid if there is uncertainty as to the subject-matter of the trust created by it.” The judge ultimately found the Wills to be invalid on the basis that Wills are a form of trust, and must therefore meet the three certainties of a valid trust:
- Certainty of intent to create the trust
- Certainty as to the subject-matter of the trust
- Certainty as to the objects of the trust or the purposes to which the property is to be applied
In the previous decision, the court found that there was an issue with certainty of subject matter since the language used provided the will trustees with discretion to assign a given asset to a given will depending on whether or not probate was required in order for the trustees to be able to deal with that asset.
In the judge’s view, it was not enough to say that the assets subject to the trust would be determined later and then be governed by one or the other will rather than being “…ascertainable by objective criteria ascertainable in advance.”
According to the judge:
The testator must settle upon the Estate Trustees assets that are specifically identified or are objectively identifiable by reference to the intention of the testator and not the subsequent decision of the Estate Trustees.
The Re Milne Estate decision caused great commotion amongst estate lawyers who were concerned about the thousands of Ontario estates that would potentially be impacted (the debate even resulted in an alert from LawPRO).
The Issues in Re Panda Estate
In this case the court noted that the issues were as follows:
- Whether, on an unopposed application for a certificate of appointment as estate trustee, it is appropriate to inquire into substantive questions of construction of the will or whether the inquiry is limited to “formal” validity of the will for purposes of probate
- Whether the validity of a will depends upon the testamentary instrument satisfying the “three certainties” which govern the test for the valid creation of a trust; and
- Whether, apart from the questions of the validity of the will itself, a testator can confer on his or her personal representatives the ability to decide those assets in respect of which they will seek probate and those in respect of which they will not
Review of the Will at the Probate Stage
The court noted that, on application for probate, the role of the court is to determine whether the documents presented are actually the testator’s last will and testament. To do so, a judge must determine whether the formal requirements under the Succession Law Reform Act (SLRA) were met and whether the documents are testamentary in nature (i.e. whether they indicate an intention to dispose of the testator’s assets after his/her death).
The court noted that, at probate stage, a judge should not be thinking beyond such an analysis and should not be addressing, for instance, broader questions of interpretation.
The Three Certainties
The court noted, with respect to whether the validity of a will depends upon the testamentary instrument satisfying the “three certainties”:
I must respectfully part company with [the judge in Re: Milne Estate] over his assertion that a will is a form of trust and that, in order for a will to be valid, it must create a valid trust. No authority was cited for this proposition. I believe it is incorrect as a matter of law.
Not one of the authoritative texts on wills asserts that a will is a trust. Not one of these texts, when setting out the criteria for a valid will, cites the necessity to satisfy the requirements for the creation of a valid trust; that is, the “three certainties.” Rather, to establish validity for purposes of probate, a will must conform to certain formal requirements (noted above), provide for distribution or administration of property and take effect upon death. Nor am I aware of any judicial precedent which concludes that a will is invalid because it, being a trust, failed to satisfy the three certainties.
The court went on to note:
A will is a unique instrument. A will shares some of the attributes of a contract and some of the attributes of a trust but it is neither; a will is its own, unique creature of the law.
Estate Trustees’ Authority to Administer the Estate
The court noted, about the concerns laid out in Re Milne Estate, that the real issue seemed to be the validity of the direction from the testator to the estate trustees in determining whether a “grant of authority by a court of competent jurisdiction” is or is not required for the transfer or disposition of the testator’s property.
The court re-iterated that, in its view, such an issue should not arise on probate since it involves the issue of construction. In addition, there was no suggestion, in this case, of controversy over the scope of authority of the estate trustees.
Furthermore, it would be inappropriate to make any determination, at this stage, about the scope and validity of the powers conferred on the estate trustees since the scope, exercise, and validity of those powers was not what was at issue before the court.
The Court’s Conclusions
Ultimately, the court did not follow the decision in Re Milne Estate, noting:
A will is not a trust. The validity of a will for purposes of an application for probate falls to be decided upon the application of a clear set of criteria which do not include the need to satisfy the “three certainties” required for a valid trust and, specifically, the certainty of subject matter. The testator’s direction in the will to his personal representatives – to administer certain property under the secondary will where a grant of authority by a court of competent jurisdiction for the transfer, disposition or realization is not required – does not, in any event, render the will itself invalid or “uncertain.”
The application for a certificate of appointment of estate trustees was granted.
Where Do We Go from Here?
The court provided some insightful commentary on drafting wills in a way that reduces probate tax:
The estates bar is not of one mind on how to draft provisions that facilitate reduction of estate administration tax by placing one set of the testator’s assets under a will intended for probate and leaving another set of assets to be administered without the need for probate. While, as some commentators argue, detailed lists are preferable in terms of certainty, they can become problematic when certain assets take on a different form between when the wills are drafted and the testator’s death. To deal with this problem, some suggest consideration be given to adopting language of the very kind used in this case. This would balance the desire to maximize opportunities for reducing estate administration taxes with the desire to avoid language which is “circular” or “too vague” (such as describing non-probate assets as “those not requiring probate at the time of death”).
Where the detailed list approach is used, others recommend, to deal with the situation where an asset in the non-probate will turns out to require probate, including a clause that entitles the estate trustees of the secondary will to renounce their interest in that asset, causing it to fall into the general will with respect to which probate will be sought.
How Can an Estate Lawyer Help?
At Derfel Estates Law, our outstanding Toronto estates lawyers regularly represent clients in probate and estate administration If you have been appointed an executor, we can advise and guide you on all aspects of estate administration, including determining whether or not probate is required, or assisting you if it is.
We pride ourselves on providing our clients with personalized and transparent services. We take the time to thoroughly understand your specific concerns and desired outcome, will craft an appropriate strategy with the goal of achieving that result.
Call us at1-844-2-DERFEL or contact us online to schedule a consultation.