Justice 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.

The administration of an estate by a trustee (also called an executor) can be very time consuming and involved. As a result, estate trustees have a statutory right to be paid for their services. The form and amount of compensation can vary widely based on the size of the estate, the time and skill required and the success achieved in administrating it. As a general rule of thumb, estate trustees typically take a percentage  of the gross value of the estate as compensation. The figure of 5% is widely acknowledged as a starting point. However, there are a number of ways to structure the compensation. There can be a specific amount set out in the will to be paid to the estate trustee. Likewise, the executor can take a gift or bequest as compensation. This occurs when they are left something in the will as a form of compensation.  The way the compensation is structured is very important.

Many estate trustees are surprised to learn that their compensation from the estate can attract income tax as an office or employment source. This brings with it many of the T4 and CPP requirements that, if left unreported, can attract a personal tax bill for the executor and payroll liabilities for the estate. Some people may prefer to structure the compensation as a specific gift to the estate trustee. These gifts will not be taxable but the testator (person making the will) should be careful that the gift cannot be construed as compensation for the executor’s work.The CRA generally upon close examination of an estate will deem a bequest in lieu of executor compensation as taxable income.  The practical point is the unlikelihood of a CRA audit of an estate.  If it is, the gift will become taxable. Another option that will not avoid tax, but may lower the tax payable, is to straddle compensation over different calendar years. This can lower the marginal tax rate of the estate trustee, which can result in less tax being paid.

In addition to direct compensation, estate trustees can bill travel expenses to the estate. These expenses must be related to the administration of the trust and they must be reasonable.  Reasonable travel expenses will not attract tax but there are a number of requirements that the Canada Revenue Agency (CRA) has. Estate trustees should be careful with their travel expenses and comply with the CRA requirements or else they could be subject to tax. The irony is that executors rarely claim the fees received as income.

The implications of tax on estate planning are very complex but can result in large savings. A blog post cannot fully do justice to the complexity of this field of law. If you are thinking about estate planning and want to provide the most efficient system for administrating your estate, you should seek legal advice. The lawyers at Dale Streiman Law LLP have experience with all facets of wills and estates. They are ideally suited to create the most effective succession plan based on your unique needs.

The following summary is for information purposes and very important to all Ontario residents, for Simple Wills and Powers of Attorney for Personal Care/Health and for Property are required in Ontario and if you fail to have such documents prepared, then it is a most costly exercise to have your property and/or estate left and administered by spouse or family members.

For example, a Last Will and Testament is prepared in the event of death of the person executing the will, i.e. the testator; in such a Will, the testator would name his or her spouse or family member, one or two persons to act as the Estate Trustee/Executor to manage the estate and distribute the assets of the Testator after his or her death. You may wish to name an alternative person if the first named Estate Trustee/Executor cannot act or predeceases you. Normally after payment of debts and funeral expenses, then a bequest is left of all the property of the Testator i.e. the residue of the estate after payment of debts, funeral expenses and no need to list the type of property either real estate or investments, furnishings etc. Such residue of the Testator is then left/bequeathed to his or her spouse, then if the spouse did not survive, or predeceased the Testator would normally leave the residue of the estate to the children referred to as issue per stirpes, meaning that the children if underage would be left the property, and an age of responsibility when such children should receive their share of the Testator’s estate is then inserted, such as l8, 2l, 23, 25 years or other age. The Estate Trustee is authorized to hold that child’s share and invest such proceeds and use it for the care, maintenance, education/tuition of the child, and then when the child reaches the age as selected by the parent, the child would get the monies remaining in trust. If such child predeceased the parent, the “per stirpes” expression would apply and if for example there were 3 children, one died and left 2 children, i.e. grandchildren, such grandchildren would get their father/mother’s share of the grandparent’s estate being l/3rd share and other 2 children would get their l/3rd share each. There are other clauses, such as appointment of guardian to get custody and raise children under the age of majority, common accident clause if no one survived, a Family Law Act clause so that if one of the children received share in their parent’s estate, this share or bequest would not be shared with their spouse or claimed as a Family Asset under the Family Law Act of Ontario.

If you fail to have a will, then it is a costly exercise to appoint an estate trustee, usually a member of the family with possible insurance bonds. The will with the powers of attorney documents can be amended at any time, but clients are warned that if one spouse died, the other survived, and the children are no longer dependents, i.e. they are no longer in school and working, then the surviving spouse can revoke the will and cut out the children as beneficiaries and leave the estate to a third party. This can be protected if the spouses have a marriage contract. There are other issues such as cohabitation with common law spouses and property and other issues need protect just as in a Marriage Contract and that would be contained in a Cohabitation Agreement under terms of the Family Law Act of Ontario. All clients should know that if they remarry, a pre-existing will is revoked and such domestic contract under such Act is recommended.

For Powers of Attorney under the l995 Substitute Decisions , the parties should name the spouse as their prime attorney and name alternates or substitutes for the spouse in the event that the spouse cannot act or predeceased the person giving the power of attorney, i.e. the donor.It is also important not to designate your estate but rather your spouse, and then even your children or other relation as a contingent beneficiary under any life insurance, pension, or RRSP’s or RRIF’s if such institutions permit so as to avoid the large cost of probating a will.

There are 2 separate forms of powers of attorney, one for personal care or health, whereby the appointed attorney or substitute is authorized to make personal care, health decisions, consents to operations, blood transfusions, decisions as to where the donor wishes to reside or is institutionalized, if the donor suffers from a mental disability e.g. Alzheimer’s disease. This personal care power of attorney form also includes the living will clause which can be broadened but generally states that the donor does not wish any medical procedures or extraordinary prolongation of life, or resuscitation in the event that there is no brain activity.

Property power of attorney is important in Ontario whereby the donor would name the spouse and as substitute for the spouse, 2 persons/children/relations acting jointly to handle and administer the donor’s property, since if the donor or person granting the power of attorney becomes disabled, then the Office of the Public Guardian and Trustee of the Ontario Government will in most cases assume control of the donor’s property, house, bank accounts, during such person’s disability.

The costs for such wills and powers of attorney are set out in our website and we would be pleased to meet with any parties wishing such documents prepared.

By: Elliott Dale

A Henson Trust is a methodology by which a person making a Will (the testator) makes provisions for a disabled beneficiary, usually a child, without jeopardizing the beneficiaries’ ongoing government assistance. The most common scenario is a disabled child who is receiving monies under the Ontario Disability Support Plan (ODSP). The ODSP program will reduce its benefits dollar for dollar, if the recipient receives a benefit over a prescribed limit under a Will. Namely the problem was how to leave money to a beneficiary receiving disability benefits without barring them from receiving those ongoing benefits or suffering a corresponding reduction. The Henson Trust, named after a 1987 Ontario Divisional Court case, created an approved arrangement now commonly referred to as a Henson Trust and found in many Wills.

A Henson Trust is the creation of a completely discretionary trust, in the hands of the executors of one’s Will. It gives those executors complete and utter discretion to distribute as much of the income and capital of the estate or an amount set aside for one particular beneficiary as they see fit. It is that absolute discretion during the lifetime of the beneficiary that allows the Henson Trust to be characterized as never actually being received by the disabled beneficiary.

More simply put, it never belongs to the disabled beneficiary because it is distributed only if and when the executor wants to. If it is not within the disabled beneficiary’s control, it is not theirs and therefore does not interfere with the beneficiary’s receipt of ODSP or any government plan.The challenge of course is very carefully choosing an executor who will act as the trustee/administrator of the Henson Trust.

Not only must one very carefully choose an executor that one has absolute faith in, but the testator must keep one eye very carefully on the age of the executor/trustee. Often the partial or complete solution is naming a sibling of the disabled beneficiary as the executor. The risk of course is naming one of the executor’s siblings as the trustee of the Henson Trust only to find that person becoming disabled or dying long before the end of life of the disabled beneficiary.

In large estates, the solution, in the absence of such family members or a trusted executor, can be the appointment of a corporate trustee.Discuss this issue with your lawyer who is experienced in the drafting of Wills and understanding the interrelationship between a Henson Trust and the receipt of ODSP benefits.

By: Fred Streiman

Under the Succession Law Reform Act, a deceased is forced to make adequate provision for their dependents upon their death. Section 58 of the Succession Law Reform Act states:

Where a deceased.has not made adequate provision for the proper support of his dependents,the court.may order such (support) as it considers adequate

Dependents means the spouse, the parent, a child or a sibling of the deceased whom the deceased was providing support or was under a legal obligation to provide support immediate before his or her death.

A spouse includes the same definition as can be found in the Family Law Act, namely a common law partner with whom the deceased had lived continuously for no less than three years or in a relationship of some permanence and had a child together.

It is important to note that any such application must be made within six months from the date that the deceased’s Will is probated.

The court has the ability to look at many different factors in determining what is appropriate but in the end, common sense is suppose to prevail. The court has wide latitude in making almost any kind of an Order. It can order a lump sum, periodic payments, payments to third parties or even mortgages against property.One also should note that you cannot contract out of this right. It does not matter what a separation agreement states, this right cannot be extinguished or bartered away.

It is important to note that what forms part of the deceased’s estate is quite wide and wider than what one would have thought have. Assets that the deceased held as joint tenants forms part of the assets. Life insurance proceeds is another common example. The court can freeze any money that it believes forms part of that estate from being administered or distributed.Recently, the Superior Court of Justice in Ontario also injected a component of a moral obligation over and above that of simple dependency. Justice Di Tomaso in the Stevens v. Fisher case, held that a common law spouse who arranged no coverage and left nothing in their old Will to their common law spouse of eleven years, had clearly not made adequate provision for their dependent. Not only that, for eleven years, the common law spouse had been a devoted caregiver and wife. There was an old insurance policy for $84,000.00 which the deceased had named as a beneficiary his previous common law spouse.

The court was not impressed and ordered virtually all of the insurance policy left by the deceased be paid to Ms. Stevens, the devoted common law spouse of eleven years.It may very well be that the deceased simply forgot to do a new Will and to change the beneficiary of his insurance policy.These claims are complex and require the assistance of a lawyer experienced in estate litigation. The lawyers at Dale Streiman Law LLP would be pleased to assist in any claims following under this interesting legal umbrella.

By: Fred Streiman

In a previous blog post[1], I discussed the role of estate trustees and the consequences they face when they fail to live up to their fiduciary duty. The estate trustee is responsible for carrying out the last wishes of a person who died. Their fiduciary duty imposes responsibilities to look after the estate in a trust worthy manner with an eye to the interests of the beneficiaries. This is even more important when the estate trustee is looking after the estate for the benefit of children. This is the scenario that existed in Walling v Walling where the deceased appointed his brother as trustee over his estate. The deceased’s sons were minors at the time, therefore the will required the estate trustee to look after the estate until the youngest boy reached 21, at which point the trustee was obligated to turn over the estate to the boys. Unfortunately, this never happened and the children were forced to bring legal action to recover their father’s estate.

This case is important because it highlights the court’s power to impose significant penalties, even penalties that go beyond what the plaintiff is asking for, when the facts demand it. Punitive damages are a special type of money award that the courts can give. Typically, damages are awarded for specific harm, punitive damages are different though. They are designed as a punishment for conduct that the court deems particularly offensive to society. Their use is fairly rare in Canada but they will be used when the facts show a clear need.

This case warranted punitive damages because the trustee was exclusively responsible for a severe harm done to the children. By denying them their inheritances, the estate trustee made it difficult financially and limited their post secondary education opportunities. Furthermore, the trustees actions in excluding the children from their father’s funeral and denying them any significant sentimental mementos were particularly offensive. He was in a position of power and trust and he broke that trust to exploit the vulnerable children. The judge looked at the facts and award $100,000 in punitive damages. This was double the amount requested by the boys. The judge said it was warranted because a lower award would not properly reflect the court’s abhorrence of this type of conduct. Additionally, the judge was to use this award as a clear deterrent to others who may try similar actions in the future.

In litigation, there are rarely any certainties about the outcome the judge will provide. The court’s focus is upon justice and the judge’s decision will bear that in mind. In situations where a judge thinks a large amount is required they can go beyond what the parties have requested. Doubling punative damages in this case was warranted because of the specific effects that the estate’s actions had upon the children. This is certainly a rare occurrence, but it happens with enough regularity that people should take note of it.

The lawyers at Dale Streiman Law have practiced estate litigation for decades and are experts in all facets of estates law. They can help resolve any estate disputes in a timely and cost effective manner.

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.