As Estate Lawyers, Power of Attorney Lawyers or even Wills and Estate Lawyers, we have to keep an eye on many different topics.
Today we are going to explore the issue of ademption in Wills. First of all, a couple of terms found in wills. A “bequest” means leaving a specific item or an amount to an individual or group. In our example “I leave my gold coin collection to my son Bill”. That is different from an interest in the residue such as “I leave 25 percent of the residue of my estate, (in other words after the debts are paid), to my son Bill”.
Ademption is what occurs when, the gold coin collection in our example, has been lost, destroyed, sold or given away before the willmaker dies. In such a situation, the bequest is held to have adeemed and the gift fails. If there are proceeds from the sale of the gold coins, they fall into the residue and are distributed accordingly. The sale proceeds are not given to the named beneficiary of the bequest that has adeemed. So in our example, if the gold coin collection had been sold and turned into cash by the will maker, the son Bill will get nothing. The money from the sale of the gold coins simply falls into the pot also known as the residue and it is divided as per those instructions in the Will.
Remember that for the purpose of this blog “Attorney” does not mean lawyer it means the person appointed in the Power of Attorney.
We now have to look however, at an extremely important act, called The Substitute Decisions Act. That act is the law in Ontario that deals with people who have lost their capacity to manage their affairs or take care of their person. That is the law under which a Power of Attorney obtains its authority. What happens if the attorney would have sold the gold coin collection in our example for $100,000, and the proceeds could still be traced into a bank account. Section 36(1) changes the normal rules. If the will maker aka the Testator had sold the coins the normal rule would apply and the son would have lost the gift of the gold coins. However assume the will maker had lost their mental capacity and the attorney using the Power of Attorney had sold the gold coin collection, received the same $100,000 and then the willmaker died. Pursuant to section 36(1), the son Bill would still receive the sale proceeds, but without interest. If the $100,000 sale proceeds had been partially used for the benefit of the Donor of the Power of Attorney, then the proportion remaining would then be paid. To be specific, if the residue of the incapable person’s estate is not sufficient to pay all of the specific bequests, the person’s entitled shall share the residue proportional to the amounts to which otherwise they would have been entitled, in essence what remains.
This issue was debated, by the Ontario Court of Appeal some 20 years ago in the famous case of Canada Trust v. Gooderham. Here a very wealthy woman had multiple properties and other assets across North America. However towards the end of her life, she found herself asset rich, but cash poor. Her Will contained a bequest that her expensive summer home in Palm Beach Florida was to be given to her sister. After the will maker fell ill, her attorneys quite wisely decided that this was economically not justified. It cost a third of a million dollars per year to maintain and the wealthy woman could not even use the Palm Beach residence due to her health. The tricky part of this particular case is that the Palm Beach property was actually owned through a company, the shares of which were all owned by the wealthy woman. For reasons that are not important for this blog article, there was a lengthy and extremely expensive fight all of the way up to the Ontario Court of Appeal. Some six months after the home was sold, the woman died at age 87. The contest was between the sister and her nephews as to whether or not the Palm Beach sale proceeds belong to the sister or if it fell into the residue, and accordingly would partially have gone to the nephews. The nephew’s attempted to turn this case upon the technicality of the difference being between shares in a corporation and real estate. The learned application judge, Janet Wilson well-known to lawyers in this jurisdiction said no that is not the intention of the Substitute Decision Act and it fails to take into account the Interpretation Act s.10. It states that every Act shall be deemed to be remedial and every act shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the act according to its true intent meaning and spirit. Flowery words that in essence can simply be summed up as common sense. Why was the act written, what was its purpose and interpret the act in a fair and appropriate fashion. The Court of Appeal upheld Justice Janet Wilson’s decision. The nephews lost and the aunt/sister did receive the proceeds of the sale of the Palm Beach residence. An interesting case that is worthy of being touched upon some 20 years later as it is an excellent example of the anti-ademption rule. As Attorney lawyers these are issues we deal with regularly.
