The Ontario Court of Appeal in Leonard v. Zychowicz, a decision released in March of 2022 outlined the cost and difficulty of successfully attacking a Will.
As an example of the incredible expense and time involved in such an attack, this was an appeal decided two years after the original final order (made after the hearing of an application), which in turn took place approximately nine years after the death of the person making the Will, the “Willmaker”.
The Willmaker had in 2002 named her niece Ms. Leonard as the sole executor and beneficiary. Some five years later she made a new Will removing Ms. Leonard and replacing her with another niece Ms. Zychowicz. The appeal was an uphill battle. The decisions of trial judges are generally given great deference by the appeal court. The trial judge needed to have made a palpable overriding error in the assessment of the evidence, ie she really screwed up on the evidence. This is the test if the decision was based upon a set of facts or a mix set of facts and law. On the other hand where there is an error in principle, such as the trial judge failing to consider all of the parts of the relevant legal test, then the Court of Appeal is entitled to substitute their own decision.
The Court of Appeal held that the application judge made no errors, had correctly assessed the law and the test at hand. Also the evidence fully supported the application judge’s decision.
By way of explanation, an application versus a trial is reflective of the kind of evidence put before the court to make a decision. An application generally but not always lacks hearing live evidence. Evidence before the court is usually submitted only in the form of written affidavits.
The case was also one of dueling experts. Both parties put forward highly regarded geriatric experts who render after-the-fact opinions upon the Willmaker having the appropriate capacity to make a Will. On behalf of the challenging niece, we had Dr. Shulman who has an extremely high-profile in this area. On the opposing side, we had Dr. Pachet on behalf of the Respondent Zychowicz.
Dr. Shulman’s opinion was fatedly flawed as it was based upon a set of facts put before him by Leonard’s lawyer. The position of Zychowicz that the Willmaker certainly knew what she was doing when she made a change to her Will was supported by a great deal of external evidence, including the lawyer who drafted the new Will. It is important to note that this long drawn-out matter involved a cost order that may very well be simply a token. While the cost order was $75,000, this author has no doubt that the costs were far greater. This estate was worth only $500,000 in total. While not a pittance, the legal fees between the two parties had to easily have approached $200,000.
The Court of Appeal as is its habit, granted relatively modest costs. They ordered the loser to pay the winner $15,000, including of disbursements and taxes. Again the true legal fees of both parties had to have been at least $50,000.00.
We will look closer at the law in Part 2 of this Blog.
Removing an executor also known as an estate trustee is a difficult mountain to climb and we have touched upon the law surrounding that issue in other blog articles. I refer one to our recent blog article on Walters v. Walters titled An Absolute Discretion. This website also features two other blog articles titled Applying to Remove an Estate Trustee.
The Superior Court of Justice in Clayton v. Clayton, a August 2021 decision of the Honourable Madam Justice Sylvia Corthorn reviewed this sensitive issue. This case featured a family patriarch dying in 2002 leaving an estate valued at over eight million dollars.
The Will contained the usual terms of granting the executors an absolute discretion on administering the estate, at other times described as an unfettered discretion. To the average person, that would be interpreted as being a blank cheque permitting the estate trustees to act without any review or second-guessing.
The fact situation if one reads between the lines is a husband and wife with three children. The father was quite successful financially, which accounted for the significant estate that he left behind.
The wills described below are interesting in that the husband clearly did not think his wife was worthy of simply inheriting everything and when she died then dividing the estate amongst the children. If the husband had followed this “standard” practice the wife could have gifted or lent money as she saw fit during her lifetime. All of this court conflict and a family that will never be healed could have been avoided.
Instead this is what the family patriarch did.
The father’s lawyer prepared a relatively sophisticated set of Wills, which created two separate trusts. Firstly, a family trust that allowed the executors at their absolute discretion to sprinkle both income and capital amongst the family members, including their spouses and children. The second trust was a trust simply for the wife so that income could be distributed to her during her lifetime. Upon her death and as of the time of the court decision, she was still alive although aged and beginning to suffer psychiatric setbacks, the two trusts would be divided amongst the children equally. Two of the three children seemed to be quite accomplished and were named along with the mother as one of the trustees. In the event of a disagreement amongst the executors, the majority ruled and all decisions must include the decision of the widow. However, one of the three children one can assume was clearly a black sheep of the family. He was not named as an executor and this son who had been married three times was to receive over the years significant payments from the estate. He was paid a $5,000 per month stipend along with various capital distributions to assist him.
However at the same time, the executors with no real paperwork or documentation, began to lend money to various members of the family. Compounding this, the situation with respect to the management of the estate fell apart when the widow’s mental capacity began to deteriorate.
Also the executors for 10 years never either formally applied to pass their accounts or provided the black sheep son with any specific details of the financial administration of the estate.
After 10 years had elapsed, all the family’s accountant provided the black sheep son were a set of unaudited financial statements with no supporting documentation.
The black sheep son applied to have his siblings and mother removed as estate trustees.
As we had described in earlier blog articles, the test for removing an executor especially one that has been granted explicit and unfettered discretion is extremely high. In this case, the court easily found that such a threshold had been met. The law is reviewed in great detail and the case and those decisions contained therein are extremely helpful for any serious student of this area of the law.
Once again the law of wills and estates leave a trail that leads back to England. The law for the removal of an executor is first set out in Lettersted v. Broers, an 1881 decision that holds that the main guide in determining whether or not an executor should be removed is the welfare of the beneficiaries. This has been supplemented by section 37 of The Trustees Act and there are a number of Ontario decisions that expand upon this greatly. One can do no better than the decision of Justice Ricchetti in Virk. As we have described elsewhere, an absolute discretion does not mean you can do whatever you want. The court held in this particular case that the trustees/executors had engaged in several forms of conduct that were so unreasonable as to amount to conduct in which no honest or fair dealing trustee would have engaged.
They were removed and replaced by a trust company.
There is no more basic yet more misunderstood term in real estate than the difference between joint tenancy vs. tenants-in-common.
These are the two most common methods for multiple people or companies owning a single property. There is a vast difference between the two, despite the similarities in their names. Joint tenancy or Joint Tenants means there is an automatic right of survivorship between the multiple owners. If two or more people own a single property as joint tenants, upon the death of one of them, their ownership interest automatically flows to the others irrespective of the deceased’s Will. Far and away the most common example is that of the family home. The vast majority of couples purchase their homes and take title as joint tenants. Upon the first of the spouses to die the other becomes with very little legal work or formality the sole registered owner of that property. One’s Will has no effect and is irrelevant.
Tenants-in-common has no right of survivorship. When one of the multiple owners who hold a property as tenants-in-common dies, their interest goes wherever their Will says it goes. This is appropriate for business or partnership relationships. Tenants-in-common permit different percentage ownership interests in a property unlike joint tenancy. In Joint tenancy every owner must have the same percentage ownership
The difference is immense and careful attention needs to be paid to this.
In early 2022, the Ontario Court of Appeal released an important decision titled Walters vs. Walters Estate. The case is a family tale of disharmony. Unusually, this case was not about a second marriage. In this case the Mother died, survived by her husband of 60 years and two adult sons. The sons and father did not like each other. One can assume that there had to have been a great deal of family history for this type of friction to have evolved.
In boilerplate language, the wife’s Will said keep all of my estate after I die in a fund for the benefit of my husband and pay the interest and even as much as of the capital as is necessary to care for him. Upon his death, the balance of the estate would go to the children. The clause which one will find in most Wills contains in retrospect two contradictory terms. On one hand the will stated that in essence, the executors in their absolute discretion shall decide how much money should go to their father. In contrast, the same clause contains the marching orders that their father’s comfort and welfare are their mother’s first consideration. The case revolved around the husband’s demand that his sons, as executors, release to him sufficient money to live in an unofficial retirement setting. The sons who strongly disliked their father delayed matters. Their lawyer asked for details of their father’s needs and his own financial ability to pay for them. While technically correct, it breached the spirit of the wills phrase “..my husband’s comfort and welfare on my first consideration.” Further, the monthly amount requested was reasonable. Father & sons duked it out in court.
The sons pointed and relied upon their unrestrained discretion. The father pointed to the intent of his comfort and welfare being primary as contained in his late wife’s Will.
Which one wins? Not surprisingly the father. The absolute discretion came with guiding language. The sons breached their duty as executors and were removed.
This case is a careful summary of the law on executor’s duties and the limits on their discretion.
In the order listed by the court, it stands for the following:
(a) The armchair principal of Will interpretation, The Will makers’ intention is determined by the words in the Will itself and its surrounding circumstances at the time the Will was written.
(b) The court cannot easily interfere with an executor’s exercise of their discretion.
(c) The court can interfere if there is a breach of fiduciary duty or if the executor has acted with a lack of good faith.
(d) Good faith can mean not being influenced by extraneous matters. A clear example is a decision based on racial prejudice.
(e) Waters’ Law of Trust in Canada (for non lawyers, think of the fattest most complicated legal textbook imaginable), yet it is the Bible on the law of trust in Canada. Waters said the court can interfere with an executor (who are generally all trustees) even if the Will gives them a free hand to make decisions, if:
- The decision is so unreasonable that no honest or fair dealing trustee could have come to that decision;
- The trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make: or
- The trustees in having done nothing cannot show that they gave proper consideration to whether they ought to exercise the discretion.
(f) Maybe and maybe not, determining the financial resources of the father was relevant.
(g) The sons’ distrust of their father was an extraneous factor in other words a breach of their fiduciary duty.
(h) All of this was decided without a trial. It was heard as an application. Just written sworn statements (affidavits) and lawyers standing up on their hind legs and making submissions to the court. There were no cross-examinations. No Perry Mason moments.
(i ) The available evidence was dad was almost broke and the money dad wanted was in line ($3,875 monthly) with other retirement homes.
(j ) The cost award was a bit of a joke. $26,000 all in for the application and $5,000 all in for the appeal. I have no hesitation in speculating that the legal fees easily exceeded $100,000 per side and I would not be surprised if they exceeded $200,000.
Some statutory considerations for setting aside a gift a.k.a. actual legislation and not judge made law, are set out below. There are a number of actual Statues that have a serious effect on gifts and their validity, and we summarize two of them as follows.
1. Fraudulent Conveyances Act. If a gift is given with the intent to defeat or defraud creditors those gifts are void. An example of this is in the case of Habibi v Arabi which was an example in a family law case in which approximately 15 million US dollars was transferred by the husband to his father ostensibly as a gift. Sorry the money goes back and you will have to share it with your ex wife.
2. Substitute Decisions Act. The Substitute Decisions Act is the go-to law when one deals with Powers of Attorney. It is the Substitute Decisions Act that creates Powers of Attorney. One simply needs to look at sections 2(3) and 2(4) of the Act. One can start with the premise that everybody has capacity to take any of their actions unless there are reasonable grounds to believe otherwise. Alternatively, if one is subject to a guardianship of property, the onus of proof that the recipient or a person who entered into a contract with them had capacity is not there starting one year before the creation of the order of guardianship. In other words, the Act presumes that everybody has the ability to make a gift or contract unless an order for guardianship exists. The presumption of capacity, that is that you knew what you were doing, is eliminated for a period starting one year before the finding of guardianship.
We have elsewhere in our blog articles talked about these issues, but the presumption of undue influence is an important consideration for both Wills and gift-giving. The presumption comes up in cases where the potential for domination inhibits the relationship between the transferor and the transferee. In other words, from the person giving to the one receiving. The presumption states that when transfers are made in these special relationships, which include fiduciary relationships, they will have been presumed to have been induced by undue influence. Where the presumption applies, courts do not require proof of coercion to create a finding of undue influence. In English as an example– when an adult child gets $100,000 from their elderly parent, the starting point is that the adult child took advantage of their parent
We start with the extremely important and famous case of Lack Minerals Limited v International Corona Resources Limited, a decision of the Supreme Court of Canada. In that decision, the Supreme Court of Canada held that a fiduciary relationship exists where:
1. The fiduciary has scope for the exercise of some discretion or power;
2. Where the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiaries legal or practical interest; and
3. Where the beneficiary is peculiarly vulnerable to or at the mercy at the fiduciary holding the discretion or power.
There are some obvious examples of this such as lawyer and client, parent and child, guardian and ward relationships. The court will look at these relationships through the lens of the transferor’s age, illness, cognitive decline and reliance on the transferee.
The idea of presumption of undue influence meshes with the argument that the transferor lacked capacity to make a gift or transfer. Evidence of diminished mental faculties is useful both as a basis to set aside the gift by indicating that the donor lacked the concept and understanding of making a gift and further to trigger the presumption of undue influence. Once the presumption is triggered, the onus shifts to the recipient to prove on a balance of probabilities that the donor made the gift because of his or her full free informed thought.
As an example of the gift between parent to child to assist them in purchasing a home, one could attack that gift saying either a parent did not know what they were doing or lacked the mental capacity to do so or alternatively were at the mercy of the child such as the child withholding the essentials of life unless such a gift was made.
How does one respond to a claim of a presumption of undue influence. There are many ways to do so, but some of the most obvious are the following.
1. Proving no actual influence was used in the transaction.
2. There was no opportunity to even influence the donor.
3. The donor received independent legal advice or had the opportunity to obtain independent advice.
4. The donor was strong-willed enough to resist any undue influence,
5. The donor knew and understood what he or she was doing; and
6. Undue delay in making such a claim leading to in essence acquiescence or confirmation on the part of the donor. (simply put no one complained long after knowing of the gift).
Our law firm has been involved in cases in which gifts in excess of a million dollars have been given to the caregivers of the deceased that he had only known for the last 18 months of his life. There were immediate red flags that that would trigger a presumption of either undue influence or perhaps an attack indicating that the donor lacked the mental capacity to make such a gift. However in that particular instance after an exhaustive review of the information available, the donor clearly was shown to be a strong-willed individual who had all of his financial acumen right to the very end of his life. That gift was not even attacked in the end.
We have already touched elsewhere on the concept of the presumption of resulting trust. There is an old English legal maxim “equity assumes bargains and not gifts”. In essence, no one gets anything for nothing as the starting point for all actions in life.
At one point, there was no such presumption attaching to gifts between parent and child, but that has fallen into judicial disfavour. For gifts given during a person’s lifetime, the responsibility lies upon the recipient to rebut the presumption of resulting trust. If one cannot defeat that presumption, then the law will presume that the recipient was holding the property in trust for the donor. As a simple and ridiculous example, if your parents give you a gift of $50,000 to assist you in the purchase of your first home, that gift is subject to attack and return unless you can prove that a gift was indeed the true intent of your parents. In these circumstances, we always recommend that such a gift be accompanied by some documentary evidence, which can be as simple as a letter confirming the intention of the giving parent.
The concept is to provide evidence as to what the donor’s intention was at the time of the transfer and there is nothing better than evidence created at the time of the gift itself. If no such evidence is available, other material may be put forward. The leading case in all of this is in Pecore v Pecore, a decision of the Supreme Court of Canada in 2007. Even a simple Google search on this issue will bring up the notorious case of Pecore. The courts have decided that these are the types of evidence that should be looked at when attempting to determine what was the donor’s actual intention.
- Evidence of the transferor’ s intention and actions after the transfer;
- The wording in relevant bank or financial institution documents;
- Control and use of the funds in the accounts;
- The terms of any power of attorney granted to the recipient;
- The tax treatment of the accounts; and
- Testimony of the lawyers, financial advisors and bank tellers dealing with the transferor’s intention.
The net effect is a field day for lawyers as one can begin a search for an almost inexhaustible sources of information as to why A gave money to B.
We can give no better advice than to put something in writing at the time of the gift, or better yet have a lawyer prepare something as simple as a Deed of Gift.
We have already posted several blog articles on the issue of when is a gift not a gift. This even extends to the concept of beneficiary designations and while we will not repeat those concerns, we recommend those blog articles to our faithful readers.
The 3 PARTS OF A GIFT
As stated elsewhere, we know from the Ontario Court of Appeal’s important decision in McNamee v. McNamee that the requisite elements of a gift are the following:
1. The donor intended to make a gift without expecting anything in return.
2. Acceptance of the gift by the donee (the one on the receiving end).
3. An actual act of delivery or transfer of the property to complete the gift itself.
If any of these parts are missing, there is no gift, and the donee must return what they have received.
MAHAR & GIFTS
There is an important decision in family law titled Abdollah Pour v. Banifatemi. This is primarily a family law case, but the issues and important ingredients relating to a gift are front and center in this decision. It also involves a Mahar which is an Islamic marriage contract. In this case, the young couple married in 2012 and separated the following year. On the wedding day, the parents of the groom transferred a one-half interest in a house to the bride as part of the Mahar. The marriage failed, and the parents of the husband tried to take back the 50% interest, arguing that the Mahar was different from an irrevocable gift. The court looked at the matter closely and when it was all said and done felt indeed an irrevocable gift had been given and the Court of Appeal from whom a review was sought agreed.
MENTAL CAPACITY TO MAKE A GIFT
Another alternative in attempting to attack a gift is to say that the gift-giver aka the donor lacked the requisite mental capacity at the time. What is the test for capacity to make a gift? It is relatively simple. It is primarily:
1. The ability to understand the nature of the gift; and
2. The ability to understand the specific effect of the gift in the circumstances.
The court looks at the matter far more closely if the gift represents a significant value relative to the donor’s assets. In those cases, the test rises to the equivalent of testamentary capacity. In plain English, the same abilities that a person would be required to have from an intellectual capacity perspective to make a valid Will. Testamentary capacity law can be traced all the way back to the 1870 English case of Banks v Goodfellow.
Not simple and never assume a gift is a gift until a qualified lawyer has reviewed all the facts.
This is an old doctrine, but it resurfaced in the 2019 decision of Geffen v Gaertner. In that decision, two children received greater gifts of wealth from their parents than their two siblings. The disappointed children started a lawsuit to set aside the gifts on the basis of unconscionable procurement.
Unlike various presumptions that we have talked about elsewhere, the onus is on the party attacking the transaction to prove on a balance of probabilities that the gift was unconscionably procured. To do so, the attacker must prove (1) that a significant benefit was received (a no-brainer, no one would ever start an expensive lawsuit unless a lot of money was involved) and (2), the active involvement on the part of the recipient in arranging the transfer.
Once one can prove that such an unconscionable procurement took place, then suddenly a presumption is triggered. What this does is it now puts the recipient on their back foot and it is up to them to now prove that the giver of the gift really did understand what he or she was doing in making a gift.
In the Geffen decision, the recipient in the view of Justice Kimmel felt that the hand of the gift recipient was far too visible in all actions that had been taken. The recipient had been involved in absolutely every aspect of the transfer, indeed had prepared the majority of the documents needed to make the transfers and gifts by his mother. He was also the one who communicated with the lawyers on the work needed to give effect to the gift. In those circumstances, there was a presumption that the mother did not truly appreciate the nature, effect and consequences of the transactions so as to render them fair and reasonable. Sorry, the money goes back.