An Absolute Discretion Does Not Mean Whatever You Want Aka Limits On What An Executor Can Do

AN ABSOLUTE DISCRETION does NOT MEAN WHATEVER YOU WANT
Date: 22 Mar, 2022

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:

  1. The decision is so unreasonable that no honest or fair dealing trustee could have come to that decision;
  1. The trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make: or
  1. 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.

TWO STATUTES TO CONSIDER

Two Status To Consider
Date: 14 Mar, 2022

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.

PRESUMPTION OF UNDUE INFLUENCE HOW TO DEFEAT THE PRESUMPTION ESSENTIALS OF A FIDUCIARY RELATIONSHIP

PRESUMPTION OF UNDUE INFLUENCE
Date: 07 Mar, 2022

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.

 

START WITH NO ONE GETS ANYTHING FOR NOTHING HOW DO I PROVE IT REALLY WAS MEANT TO BE A GIFT?

Dale Strieman Gift 2
Date: 21 Feb, 2022

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.

  1. Evidence of the transferor’ s intention and actions after the transfer;
  1. The wording in relevant bank or financial institution documents;
  1. Control and use of the funds in the accounts;
  1. The terms of any power of attorney granted to the recipient;
  1. The tax treatment of the accounts; and
  1. 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.

WHAT IS A GIFT MAHAR and GIFTS

what is gift Mahar
Date: 14 Feb, 2022

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.

PRESUMPTION OF UNDUE INFLUENCE THE DOCTRINE OF UNCONSCIONABLE PROCUREMENT

PRESUMPTION OF UNDUE INFLUENCE THE DOCTRINE OF UNCONSCIONABLE PROCUREMENT
Date: 17 Jan, 2022

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.

SUBSTANTIAL COMPLIANCE BE CAREFUL WHAT YOU WISH FOR

SUBSTANTIAL COMPLIANCE
Date: 20 Dec, 2021

Until now, it has been easy to ignore court decisions that have emanated from British Columbia. British Columbia’s law of substantial compliance was so different than Ontario’s that those cases had no meaning here. However, with the sweeping changes coming as of January 1, 2022, the decisions being made in British Columbia are important for Ontario lawyers and persons making their Wills here.

In the 2021 British Columbia Supreme Court decision Wolk and Wolk, a person who was in a recovery program for severe substance abuse made a Will in which he benefitted his parents dramatically. His Will was signed by the testator/willmaker, his parents, and one other witness. Of course in British Columbia as in Ontario, a Will needs to be witnessed by two persons neither of whom are receiving any benefit under the Will. Clearly, that rule was breached in this case.

Up until January 1, 2022, in Ontario that would have been the end of the matter. The law was black and white and if you did not follow the few formalities required under the Succession Law Reform Act, the Will was invalid. The simple solution was to use the services of a lawyer. If the lawyer screwed up, the lawyer’s insurance company would compensate the party that lost out.

Ontario’s new laws, which on their surface appears to be far more sympathetic to correcting these type of errors, will permit long-drawn-out court cases and the prohibitively expensive legal fees that accompanies them to determine whether or not the imperfect Will really is an accurate reflection of the intention of the willmaker.

The specific facts of the Wolk case are not particularly relevant. There was a significant amount of outside evidence that the willmaker truly did wish his parents to benefit and the court validated the Will.

My point is that out of an apparent effort to reform the law, this author believes it is a gigantic step backward. It moves will creation from certainty to uncertainty. From the modest expense of a lawyer drafting a Will properly the first time to the huge expense of having a court case and the associated legal fees being incurred. The behavior of people not using the services of a lawyer is being rewarded. This is not a diatribe in favor of lawyers making money by preparing Wills. I can assure everyone that the legal fees of a court case are many orders of magnitude greater than the modest amount that lawyers generally charge for the drafting of Wills.

The estate bar, that is those lawyers that specialize in this area, are looking forward to the additional work coming our way as a result of this misguided reform.

IS A SUICIDE NOTE A HOLOGRAPHIC WILL

IS A SUICIDE NOTE A HOLOGRAPHIC WILL
Date: 17 Dec, 2021

As we have described elsewhere, a holographic Will is a valid Will if entirely in the handwriting of the testator/willmaker and is signed by them. There may be no other writing or printing on the pages. There was no need for many of the normal formalities of a Will, including the witnessing by two individuals. As we have described with the upcoming changes in which allow the court to declare valid a Will even though it does not meet all the statutory formalities, this area of law will soon swing wide open as of January 1, 2022.

In the 2020 case of McGrath v. Joy, we have the tragic yet interesting facts situation in which a 49-year-old committed suicide. In his suicide note, he indicated that he wished to make a number of changes to his existing Will primarily disinheriting his second wife. The question arose as to whether or not the suicide note was a valid holographic Will.

The validity of holographic wills, especially in light of the upcoming changes will be a field day for litigators as it involves the dramatically wide-open discretion of the court. In this particular case, the court said no it was not a valid holographic Will, based upon the reasoning that the testator/willmaker did not have the appropriate testamentary capacity. As we have explained elsewhere, testamentary capacity simply means that the willmaker knew what they were doing and intended to make a document that finally disposed of their assets on their death. A suicide note does not in itself demonstrate testamentary incapacity. However, in this case, there was evidence that the deceased had been abusing alcohol and drugs for many years, including the day in question when he took his own life. The handwriting was sloppy nearly illegible and contained a profanity-laced diatribe against his wife. The court found so many suspicious circumstances surrounding the preparation of the suicide note that the court decided that the person attempting to prove the holographic Will had failed.  Their test was to prove on a balance of probabilities that the deceased had the requisite testamentary capacity.

So suicide in and of itself does not prove a lack of capacity.  But it obviously rings alarms that need to be listened to.

EX WIFE WANTS SUPPORT FROM EX HUSBAND’S ESTATE

EX WIFE WANTS SUPPORT FROM EX HUSBAND’S ESTATE
Date: 14 Dec, 2021

In the 2021 decision of Virey v. Virey, the court looked at its ability to grant a dependent relief claim even in the face of a full and final divorce judgment and minutes of settlement that stated emphatically that support would end upon the former husband’s death. However, the facts of the case were so compelling, that the court exercised its jurisdiction under the Succession Law Reform Act, section 63(4) that allows it to make an award for support despite an agreement to the contrary.

The former wife would have been left with only $1,100 per month in OAS and CPP benefits in contrast to monthly expenses of $4,500. The ex-wife was 94 years of age and lived in a seniors residence. She had been married to her former spouse for over 40 years and they had nine children together. The court had the discretion to ignore the court order and the binding agreement and it did so feeling it was appropriate in all of the circumstances.

We always warn our clients that various releases contained in marriage contracts and separation agreements are not always binding if the statutes permit the court to ignore them. This is one of those circumstances.

EXOTIC ATTACKS ON WILL VALIDITY THE USUAL vs THE UNUSUAL

EXOTIC ATTACKS ON WILL VALIDITY
Date: 10 Dec, 2021

The traditional grounds of attack against a Will are:

1. The Willmaker aka Testator lacked testamentary capacity, in other words, was not mentally well enough to make a will

2. Undue influence, in other words, the Willmaker was coerced, in essence, forced into making a Will against their will

3. A lack of knowledge and approval of the Will, in other words, the Willmaker signed a document not really appreciating what it was; and

4. Failure to comply with the formal requirements under the Succession Law Reform Act.   Such as the Willmaker forgot to sign it.

However, there are other far more exotic and less frequently used grounds which we will now discuss.

MISTAKE by the Willmaker as to the meaning of the Will

One such ground is a mistake on the part of the Willmaker. This is very different from an error made by the lawyer who drafted the Will on behalf of the testator. One should examine our blog article on Rectification. In this instance, we are talking of where the Willmaker simply did not appreciate or understand the legal impact of what they were signing, even after it had been explained to them or had an opportunity to have that explanation given to them.  Linking up with one of the four traditional grounds outlined above, if one who objects to the Will can prove that the testator did not understand the contents of the Will, then the Will’s validity indeed can be challenged successfully based upon a lack of knowledge and approval of the Will. However, if after explanation is received and you misunderstood, you may be out of luck.  If one looks at the 2010 decision of Re the Estate of Blanca Esther Robinson, it was alleged that the now-deceased testator did not appreciate the meaning of relatively clear wording. We do not need to go through the specific facts of that case, but the court failed to set aside the Will.  The court held that it would not fix a Will correcting a testator’s mistaken belief about the legal effect of a clause, which the testator had reviewed and approved.

Public Policy

The clearest example of that is a Will of which contains provisions that are clearly driven by motives that are contrary to public policy. The most obvious example is a provision in a Will that is based on racial discrimination. The discrimination must be patently obvious from the Will itself rather than from evidence given outside of the four corners of the Will. There is a prominent Ontario Court of Appeal decision in Spence v BMO Trustco in which a Will simply disinherited one child. The recipient child objected saying that the reason for it was that she had married a person of a different race, which was something that the testator/Willmaker was opposed to. While the trial judge agreed with the objecting child (see our blog article titled Wills and Estates – Cancelling a Will for Racism), the Court of Appeal said no, there was nothing on the face of the Will that is racially prejudicial in itself and the court will not admit extrinsic evidence since the will was clear, unambiguous and unequivocal.  I would ask our readers that to look at my recent blog article on the Armchair Rule on Will interpretation. There is some wiggle room here in which it is not necessarily a precondition to examining extrinsic factors when the provisions of the Will are clear and unambiguous. However, judge-made law frequently differs as it reflects the human origin of its source.

Mutual Wills  – Constructive Trust

I would recommend our blog article on Mutual Wills.  This is a further elaboration of this concept. A Mutual Will is different from a Mirror Will. It is extremely common for married couples to basically make Mirror Image Wills of the others. What differentiates a Mirrored Will from a Mutual Will is that the latter represents a deal that cannot be broken. An example of a Mutual Will is a spouse leaving everything to the other and upon the death of the last spouse, then all to their children. However, a Mutual Will unlike a Mirror Will must reflect that there was a binding agreement between the parties that upon the death of one, they will not change after the first spouse’s death the terms of their Will. If they do so, then their assets are subject to attack by the children who have lost out under a revised Will and they may seek a constructive trust.

As we explained in our Mutual Will blog, it is important for a finding of binding Mutual Wills that there must be clear evidence of such an agreement and there is no better place for that evidence to be put forward then in the Mutual Wills themselves. If there is indeed a non-compliance with a Mutual Wills agreement, that on a tactical basis is not a ground upon which the validity of the Will should be challenged, but rather the appropriate remedy would be to start a lawsuit against the estate for breaching the Mutual Wills agreement.

Breaking other contracts or obligations under them

It is not uncommon in a separation agreement to agree that a certain asset will be transferred onto the parties’ children upon death or to the former spouse. Alternatively, a testator/Willmaker may have entered into a shareholders agreement. If the will is contrary to the provisions of an outside contract, there will be trouble. However, like the Mutual Wills discussion above, this is not a reason for a Will challenge but rather grounds for a lawsuit against an estate to enforce the contract.