Negotiation of chattels and fixtures: Are they included or not?

Date: 14 Sep, 2015

Thumbnail-LogoWhen you walk into a new home, you are not just looking at the colour of paint or choice of flooring. The furniture, mirrors, light fixtures, and appliances, all play into the aesthetics and feel of a home and may be one reason you buy a specific home over another. You might like the upgraded appliances or the rustic pantry in the kitchen. One thing to consider though is whether the furniture, appliances and fixtures you see come with the house or whether they are “extra”. Each residential Agreement of Purchase and Sale in Ontario contains a chattels and fixtures clause. When you go to look a new home you must determine, with the use of experienced realtors, whether an item is considered a chattel or fixture, and whether such is included with the purchase price or excluded.

In Ontario, all fixtures are deemed to remain with the property unless the seller excludes them. A vendor can take a chattel with them unless they include them in the agreement. It can be confusing to differentiate. A good rule of thumb is to ask whether the item is attached to a wall or space or can it be easily removed, almost temporary. If it only attached by a plug or a hook such as a mirror or picture, it would likely fall under chattel but if it is built in or requires tools to remove it, it likely falls under the category of fixture.

If you are a vendor, even if the answer seems obvious, clarify with your agent if there is something you want to keep to ensure that it is clearly written in the agreement. If you are a purchaser, do not assume that all you see will be yours and ensure your agent understands your needs. It is better to be overly cautious than move in on closing to discovery missing items you thought would be there. The more detail listed in the agreement the better. The parties are best to record by make and model the chattels to remain and what are to be excluded. Often, a good realtor can negotiate what fixtures and chattels are included or excluded in an agreement.

Specific attention should be paid to the hot water tank, furnace, alarm system or other equipment as these may be subject to rental contracts or leases. Your offer should clearly state whether or not the furnace and/or other equipment is being included in the purchase price. If you are a vendor, and if the furnace/a/c/equipment is being financed, you may be surprised to learn that you have to pay the entire balance off before closing. A warranty is made by the vendor that all included chattels are being transferred “free and clear of all encumbrances”, thus all the equipment being transferred has to be fully paid off.

In summary, diligence and detail is key to ensure all parties understand what they are buying, and what they are selling to avoid any disappointment, cost or large out of pocket payouts before closing.

By Shana Dale

Estate Administration Form – NEW FORM

Date: 01 Sep, 2015

Thumbnail-LogoCompleting and filing this form is a new bureaucratic step. All involved, including the Provincial Government administering it, are cutting their teeth on the process as it evolves. One of our clients contacted the information line and asked what value they should input for the real estate owned by the deceased at the date of death. The erroneous answer that they received was whatever the MPAC valuation was. This is wrong. The MPAC valuation is often below the market value. While this may save the estate 1.5% in the estate administration tax, it leaves the estate open to much more in capital gains. Remember that while the deceased up until the date of death was able to enjoy a principal residence capital gain exemption, no such exemption exists for an estate namely from the date of death up until the date of the sale of the home.

As an example, in todays over inflated real estate market, it is not impossible for a property to increase by $50,000.00 in value from the date of death to the date of sale. All of that appreciation would be a capital gains, taxed at the highest market rate, roughly speaking $12,500.00 in tax. For further details on this point, you need to consult with the estate’s accountant, but be alive to the conflict between what is in the estate’s best interest by saving a 1.5% tax rate versus an effective 25% marginal tax for capital gains.

Wills and Estates – Cancelling a Will for Racism

Date: 16 Apr, 2015

Thumbnail-LogoJustice Cory Gilmore of the Ontario Superior Court recently made a decision overturning a Will that she found had been motivated for racist reasons.  In the decision of Spence v. BMO Trust Company, Justice Gilmore found that the testator (person who made the Will) had left nothing to one of his daughters because she had had a child with a man who was of a different race.

Available for the Judge, which was not by way of Affidavit evidence and which was not contradicted  in any way, was the reason for the testator exclusion of his daughter of whom he had been long been estranged from.

The Will on its face contained no such racist language.  The established law which this decision runs contrary to, is that one is not supposed to look outside the four corners of the written Will itself, and not to look at the testator’s motives or state of mind (aside from competency) when drafting their Will.

In other words, no one would complain about Justice Gilmore’s decision had the Will stated the racist reasons within it.

The estate legal community is in a tizzy over this decision in which the Judge in essence found the Will to be void and simply divided up the estate amongst the testator’s two surviving children in accordance with the terms of the Secession Law Reform Act.

It will take some time to see whether or not the decision of Spence v. BMO Trust Company is the leading edge of judicial intervention in changing Wills that perhaps they should not.

There is a legal maximum that hard facts make bad law, but this very well be an example of that.

Stay tuned as we watch to see if this is an anomaly or a trend setter.

Predatory Marriage, Elder Abuse and the Court’s Power to Fix Wrongs

Date: 06 Mar, 2014

Elder abuse targets some of the most vulnerable members of Canadian society. The abuse does not have to be physical; finance abuse is also a very serious threat to seniors. When this is combined with predatory marriage, Canadian seniors face real threats to the personal safety, financial security and the legacy that they intent do leave behind. Luckily, the courts have a number of tools at their disposal to counteract this form of abuse. In this blog post I want to canvas several ways in which the courts can combat financial and estate abuse.

The case of Juzumas v Baron provides an interesting case study on how the court can correct the wrongs perpetrated through predatory marriage. The facts of the case show a pattern of abuse towards an elderly Lithuanian Canadian, Mr. Juzumas. He was targeted by Ms. Baron and her son through conduct that Justice Lang characterized as reprehensible. Ms. Baron initially provided housekeeping services for free to Mr. Juzumas. As things progressed, she increasingly took control of Mr. Juzumas life. She began taking $800 a month in fees for the housekeeping services. This moved up to $1200 over time. The two eventually married, not out of mutual affection, but because she wanted to secure a survivor’s pension. The two never lived together and Ms. Baron verbally abused her husband regularly. When she discovered he had executed a will that would have denied her his largest asset, the house, she became furious. She orchestrated a transfer of the house to her son. Mr. Juzumas did not speak English, did not understand the transfer, and seemed genuinely surprised when he was told about it sometime after it was executed. Ms. Baron completely dominant Mr. Juzumas and he was dependent upon her, largely because he was terrified of ending up in a nursing home.

The court utilized the contract law doctrines of unconscionability and undue influence to render the transfer of the house unenforceable. The court also said there was evidence of non est factum (not my deed or not my deal) and that there was a lack of consideration (no money was given for the house). The facts of this case show that it was not just a bad deal that Mr. Juzumas wanted out of, there was serious wrong doing that made the contract unenforceable.

Ms. Baron also made a claim for quantum meruit, which is basically a claim for compensation for work that you have already done. In this case, Ms. Baron claimed that the months of housekeeping deserved compensation. The judge rejected this claim on several grounds. Firstly, there was never an agreement that she be paid. Secondly, she took compensation at $800 and then $1200 for most of the time. Thirdly, and most importantly, she cannot claim this type of relief because she is a wrong doer. As the judge put it, she does not have clean hands, her reprehensible behavior disqualifies her from any compensation she may have been owed.

Finally, Ms Baron also made claims to the house based on family law principles. She claimed the house was a matrimonial home, the value of which is subject to the equalization process. The judge rejected this claim on the basis that she never slept in the home, let alone ordinarily occupied it, therefore it was not a matrimonial home. The fact that it is not a matrimonial home means that Mr. Juzumas could deduct the value of the home at the date of marriage from the value of the home at separation for his net family property calculation. Ms Baron would have been able to claim a portion of the appreciation in value of the home through the equalization process. However, the judge found that the parties were validly married and separated all within the same day. Therefore, there was no appreciation in the value of the house to divide. The judge very skillfully used the family law to deny Ms. Baron any claim to Ms. Juzumas’ property.

This case provides a rare bright spot in the area of financial abuse of elderly Ontarians. The court was able to utilize the principles of contract law, family law and equity to deny Ms. Baron any compensation that she tried to take through her reprehensible behavior. This case involved a number of different fields of law. There were family law, contract law, wills and estates law and real estate law elements overlaid on top of a clear case of elder abuse. The interplay between these fields can be complex and requires significant expertise to sort through. The lawyers at Dale Streiman Law LLP have been leaders in these fields for decades. They have expertise on these issues and have successfully served client throughout southern Ontario.

By: Fred Streiman & Stephen Duffy
Fred-Streiman

Succession Planning: Lowering Your Beneficiaries Tax Bill on the Cottage

Date: 06 Mar, 2014

Succession planning is a field of law that deals with wills, probate and estate planning after a person dies. This field of law is largely governed by the Succession Law Reform Act in Ontario but there are a number of other factors that should be considered. One very important consideration is tax, specifically capital gains tax. This is a tax on the increase in value of a capital asset, such as a cottage, while it was owned. When a person is left property in a will, and they are not the deceased’s spouse, capital gains must be paid. The rate on inclusion for tax purposes has changed over the years, but it is safe to say that this tax bill can be large. This is especially true for the family cottage.

There is a common scenario in this type of case. A family cottage was purchased for a few thousand dollars decades ago. Over the years the price has ballooned to hundreds of thousands of dollars or maybe more. This appreciation in value attracts a large tax bill which could force the beneficiaries to sell the family cottage in order to pay it off. This defeats the purposes of passing on the family cottage to the next generation. However, it does not have to be this way. With proper succession planning the testator (person making the will) can arrange their affairs in a way that significantly lowers the tax liabilities that the property will attract.

As an example, there are two simple techniques for lowering capital gains obligations that the beneficiaries will owe on the cottage. The first is to gift the cottage to them now. This will attract an immediate capital gains tax which will be lower than the future tax (assuming rates stay the same and property values continue to increase). The second is to take out insurance through a life insurance policy that will cover the expected tax liabilities when the estate is settled.

These are just two examples of the ways that tax implications can effect succession planning. A blog post cannot fully address all the issues surrounding the interplay between tax law and succession planning. Every situation is different and there may be better solutions for you. The lawyers at Dale Streiman Law LLP can help customize a succession plan perfectly tailored to your needs.

By: Fred Streiman and Stephen Duffy
Fred-Streiman

Executors, Trustees and Breach of Fiduciary Duty: What Happens When an Estate Trustee Ignores Their Responsibilities?

Date: 06 Mar, 2014

An estate trustee is often called by the more traditional name of executor (male) or executrix (female). Their role is to carry out the terms of the last will and testament of the testator (the person who made the will). Estate trustees can be left with significant responsibilities in relation to the testators estate. Because their role is carried out after the individual has already passed away, the estate trustees relationship to the estate is characterized by a high degree of trust. This type of relationship is called a fiduciary relationship.

In Canadian law, the word fiduciary is often used to distinguish something as a special relationship. These relationships are common in Canada and some of the most prominent examples are the relationship between parent and child, corporate director to corporation, and business partner to business partner. Fiduciary law is a large area of law that covers topics ranging from aboriginal rights to corporate law. Within the estate planning context, a fiduciary relationship exists between estate trustee and the estate itself. The estate trustee is important in carrying out the final wishes of the deceased. For this reason, the law takes any breach of a trustees responsibilities very seriously.

Two cases from the Ontario Superior Court of Justice illustrate how the court is willing to punish rogue trustees that fall below the high standard the law sets. In Zimmerman v McMichael Estate[i], the estate trustee, Adam Zimmerman, used the estate of the late McMichaels (of The McMichael Art Gallery) as a personal bank account. He depleted the estate of millions of dollars through questionable expense claims. Mr. Zimmerman repeatedly failed to keep proper records for his expense. Nor could he provide sufficient answers to questions concerning expenses billed for steak dinners, mens clothing and sailing trips in Bermuda. His conduct fell well below the standard that a trustee owes. Therefore, Mr. Zimmerman was not owed any compensation for his time as trustee and he was required to repay nearly a million dollars to the estate as well as all the legal costs.

In The Estate of Paul Penna[ii], Barry Landen showed a similar level of neglect for his duties as estate trustee. He was eventually sentenced to 14 months incarceration for contempt of court. The saga began soon after the death of Paul Penna, who left Mr. Landen in charge of his $24,000,000 estate. Mr. Landen used the money to finance a lavish lifestyle complete with a house in Forest Hill and season tickets to the Toronto Maple Leafs. When his deceit was exposed he repeatedly refused to comply with court orders designed to protect the estates assets. Justice Greer eventually found Mr. Landen in contempt of court and ordered that he be imprisoned for 14 months.

The court in these two cases sent a stern warning to estate trustees and anyone owing a fiduciary duty. At all times, they must ensure that:

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  • They carry out their duties with honesty and due care and attention.
  • They personally carry out the responsibilities which have been delegated to them
  • They ensure that they do not have a conflicting interest with their duties
  • They are not obligated to be perfect but they must act in the best interest of their beneficiaries. Failure to do so can result in strict punishments.

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If you have a question about an estate trustee, rogue fiduciaries or the responsibilities of an executor, contact Dale Streiman Law LLP. They have decades of experience that makes them experts in all facets of estate law.