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Category: Wills Estates and Powers of Attorney

A COMMERCIAL APPROACH TO THEIR DOMESTIC ARRANGEMENTS PART 2

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Date: 20 Aug, 2021| Author: Fred Streiman

The Presumption of Resulting Trust

Part 2 of 2

MY OBJECTION IS BASED ON A NUMBER OF GROUNDS

Clearly there is a moral to this story, which is if you do not want to find yourself swimming in shark infested waters, do your very best to ensure that there is something in writing and indeed as much as possible in writing to confirm who gets what in the event of a separation.  Everyone enters into a domestic arrangement based upon an expectation of permanence.  But no one is blind to the fact that this is almost as likely not to occur as succeeding.  At the very least, the lawyer acting for the two gentlemen when they bought their home should have made sure that the real estate lawyers reporting letter to them confirmed what was the intention between the two of them should they go their separate ways.  In an ideal world, a formal domestic contract should have been prepared.  It is this writers’ experience this rarely occurs at the start of a first relationship unless a parent insists upon one before they will hand over any money.  At the very least, if one is facing such a situation, speak to a lawyer who has knowledge of these matters for some guidance.  This decision is relevant both in Family Law, and Wills and Estates. In this case, we had the two men able to give their own evidence as to what their intentions and expectations were.   Imagine the dramatic increase of difficulty in proving intention when one of the parties is dead and their estate and executors are attempting to prove the presence or absence of the intention to gift.

What the court is doing is permitting the parties to be lazy and not attend to obvious difficulties at the outset of their relationship.  They should have been alerted simply by virtue of the fact that they were contributing wildly different amounts towards the price of the home.  Surely the psychiatrist, a highly educated individual should have thought as he poured over the years a half a million dollars into a property that there should have been some contract that protected him in the event that he and his partner separated. The court by permitting an after-the-fact rule of equities, such as the presumption, simply encourages litigation, uncertainty and societal difficulty.  We are referring to a 33 year relationship.  If the Court of Appeal asks that one considers the intention of the psychiatrist when he advanced the money, it is not fair to just ask is this a gift or is this a loan?  The question might very well have put to him should be….”If this relationship lasts less than 3 years is this a gift or a loan?”    What if the question is “What is your intention if this relationship lasts 33 years?”   From that perspective, the length of the relationship in this author’s humble opinion was indeed a relevant question, which was answered by the trial judge. The situation is very different if the parties were of unequal bargaining positions.  However, in this case, the party with more money and potentially more education and a greater degree of sophistication was the party who is now alleging the loss. Sorry but the courts are simply enablers of people who are not looking after their affairs.

A COMMERCIAL APPROACH TO THEIR DOMESTIC ARRANGEMENTS PART 1

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Date: 20 Aug, 2021| Author: Fred Streiman

The Presumption of Resulting Trust

Part 1 of 2

There are laws floating out there that are the equivalent of silent sharks ready to devour reasonable expectations.  One of those laws is the presumption of resulting trust.  In the recent Ontario Court of Appeal decision in MacIntyre v. Winter, the court permitted the shark to devour what a 33 year common law relationship had created.  The legal concept of the presumption of resulting trust has been discussed in other blog articles and I recommend them to the reader.  This law was not made by any legislature or parliament.  It was never debated publicly before a committee.  No political party ever campaigned on its existence.  It is entirely a judge made law stretching back many years.  However, this law is alive and well in Ontario.  The law was given a blood transfusion by the 2007 Supreme Court decision in Pecor v. Pecor.  Boiled down to its simplest meaning, the presumption of resulting trust holds the following.  Equity presumes bargains, not gifts.  In other words, the starting point is you get nothing for free even if you have been in a relationship for 33 years unless you can prove that it was a gift.

In the MacIntyre case, we have two men co-habiting for 33 years.  Both had some mental health issues although one was a high functioning psychiatrist.  The psychiatrist of course had greater financial means including financial assistance from his family.  The parties bought a succession of two houses, which were registered in both of their names as joint tenants. The concept of joint tenancy produces a right of survivorship upon the death of the first.  In other words, if your co-owner dies first, the house is all yours.  The psychiatrist contributed over the course of their relationship almost $500,000.00 more than his partner towards the purchase of these two homes.  Despite the fact that there was not a drop of evidence confirming either of the opposing positions of this common law couple, the Court of Appeal reversed the trial judge’s decision and found that the presumption of resulting trust did apply.  In essence, the court held that it was necessary for the trial judge to investigate the intention of the psychiatrist when he contributed more money towards the purchase of the two homes.  Did the psychiatrist intend to make a gift of that money to his then partner by registering the property in both names?  The court held that there was no evidence, nothing in writing, nothing independent to corroborate the position taken by either of the two men and then held that the shark would be allowed to bite.  In essence, the presumption of resulting trust was found to apply.  The court held that it should begin from a starting point that this was not a gift and that it was money that should be repaid to the psychiatrist in the event of a breakdown of the relationship.  This was despite the fact that indeed it was the intention of the psychiatrist that should he die first, that his partner would become the sole owner of the entire home.  The court held that there was no difficulty in splitting these two different intents.  Intending to grant a right of survivorship was deemed to be a separate intention from what would have occurred if the parties separated.

I am certain that other commentators will not have the same adverse reaction to the applicability of the presumption to a 33-year common law relationship.  The law would be very different had these people ever formally married.  There has been much conjecture that the law in Ontario will eventually change to erase the different property of common law and formally married partners.   The title of this blog article comes from a direct quote in the decision.  The very senior Justice Nordeimer writing for the Court of Appeal held the following;  “Our courts are strewn with cases where people in a relationship wound up in litigation because they did not take a commercial approach to their domestic arrangements from the outset”.  I find that statement heavy with irony and lacking in recognition of human emotion.  What could the psychiatrist have been thinking when he injected the majority of the money towards the purchase of two homes yet registered title in both names equally.

The court citing another decision of the Ontario Court of Appeal, MacName, held that it was the responsibility of the psychiatrist’s partner to prove that it was a gift, and to do so he needed to satisfy three conditions, which are:

  1. An intention to make a gift on the part of the donor with no consideration or expectation of renumeration.
  1. An acceptance of a gift by the donee.
  1. A sufficient act for delivery or transfer of the property to complete the transaction.

The court held, that there was no evidence either way, so the presumption applies.  The psychiatrist’s partner was ordered to re-pay the psychiatrist out  the sale proceeds of the home almost $500,000.00.   See part 2 of this blog for a further analysis.

CAN ONE USE A POWER OF ATTORNEY TO CHANGE A LIFE INSURANCE BENEFICIARY DESIGNATION

CAN ONE USE A POWER OF ATTORNEY TO CHANGE A LIFE INSURANCE BENEFICIARY DESIGNATION
Date: 20 Aug, 2021| Author: Fred Streiman

The short answer seems to be no.  Donor means the person making and giving the Power of Attorney.  Testamentary means – through one will or upon your death.   In the Ontario case of Richardson v. New, the court held that a beneficiary designation is the same thing as a testamentary disposition.  This was upheld later by the Ontario Court of Appeal.  In English, one of the few restrictions upon what an attorney can do under a Power of Attorney is that they may not make a Will for the donor.  The courts by calling a beneficiary designation, in essence, a testamentary act are saying that this is the same thing as making a Will.  Specifically, an attorney is required under the Substitute Decisions Act to act in the best interests of the donor.  Clearly changing a beneficiary designation that will only take effect after the donor’s death will have little to do with the best interests of the donor.  This is very different from where the donor does have mental capacity but does not have the physical ability to make the beneficiary change requested.  In those circumstances, someone changing a beneficiary designation is simply acting as an agent and clearly does have the authority to change a beneficiary designation under those very limited factual circumstances.

This situation was discussed in the Hanson Estate, a decision of the Ontario Superior Court of Justice which held that the Substitute Decisions Act was not involved at all and that it was simply an act by an agent and as such was perfectly acceptable.

EXECUTOR MUST ENSURE HOME INSURER KNOWS OF DEATH

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Date: 20 May, 2021| Author: Fred Streiman

At the outset of every estate, we warn our client/executors to investigate the home insurance status of the property formerly occupied by the deceased.

Sometimes the deceased will have been the last person living in the home and it is now vacant. It is crucial that the executors in writing advise the insurers of the death of testator (the person who made the Will) and the occupation status of the home. Most home insurance policies have a vacancy exclusion clause. Namely, if no one is living in the home there is no insurance coverage.

Insurance companies generally will provide insurance coverage to an estate either in return for a higher premium or if arrangements are made for regular inspections of the property.

Not only must the notice to the insurer be made in writing, the insurer’s written confirmation of ongoing home coverage is crucial.

If you are an executor and fail to attend to this detail, you may very well be personally liable if the estate suffers any loss due to an absence of insurance.

In the recent Ontario Superior Court decision of Gregson v. CAA Insurance, the Court summarily granted judgement in favour of the insurer. In that case, the homeowner became mentally incapable and was eventually transferred into a retirement home where she died. The home had been vacant for a significant period of time and a loss was suffered due to water damage. When the deceased’s estate trustee attempted to make a claim, it was denied based upon the vacancy exclusion found within the insurance policy. This case simply brings home a long-standing rule that insurer’s first reaction upon receiving a claim is to attempt to determine whether or not there is coverage or there is a method by which they can deny such coverage.

Again, we repeat, this is an important obligation of an executor/estate trustee.

REVOLUTIONARY CHANGES IN THE LAWS REGARDING WILLS IN ONTARIO – PART 3 WILLS NO LONGER REVOKED BY MARRIAGE

REVOLUTIONARY CHANGES IN THE LAWS REGARDING WILLS IN ONTARIO - PART 3
Date: 13 May, 2021| Author: Fred Streiman

Amongst the elderly and vulnerable there is a serious problem known as predatory marriages. The common scenario is that an elderly widow or widower marries someone generally much younger while not really understanding what or why they are doing it. The motivation of the predatory spouse is that when the elderly spouse dies, often with no Will at all, the predatory spouse will have acquired a substantial interest in their late husband/wife’s estate. The mental capacity test for marriage is far far lower than the capacity required to make a Will. The new Accelerating Access to Justice Act, once it is finally proclaimed, will eliminate an existing provision of the Succession Law Reform Act. That provision now states that any Will is revoked by a subsequent marriage unless that Will contains magic words stating that this Will is made in contemplation of my marriage to…. Plainly put imagine the following common scenario. Predatory gold digger marries an elderly person whose existing will is cancelled automatically by marriage, and the gold digger gets a huge share of the elderly person’s estate upon their death. Note that this amendment will not be retroactive and only applies to deaths that occur after the proclamation of the law.

NEW RULES WITH RESPECT TO SMALL ESTATES

NEW RULES WITH RESPECT TO SMALL ESTATES
Date: 13 May, 2021| Author: Fred Streiman

Effective February 12, 2021, the laws with respect to “small” estates have changed dramatically. The law is so new that while it is effective February 12, 2021, it has only recently been enacted. This is part of the Accelerating Access to Justice Act. This is done by amendments to the Rules of Civil Procedure, specifically rule 74.1. The concept is to make estates having a total value of less than $150,000.00 simpler and easier to administer. Actually using the process will determine whether or not this goal will be realized. One must remember that the estate tax applies after the first $50,000.00. The forms are available online, however, they still require the involvement of a lawyer as the Application needs to be commissioned. Another debate is whether or not one can use this process for just the assets governed by the primary Will. A primary Will is part of a very complicated estate planning process in which efforts are made to eliminate the need for probate. It is far too early to indicate whether or not this indeed will be effective, but it is important for all concerned to keep this provision in mind.

REVOLUTIONARY CHANGES IN THE LAWS REGARDING WILLS IN ONTARIO  – PART 2 HOW TO FIX A WILL AFTER DEATH

Law
Date: 07 May, 2021| Author: Fred Streiman

A number of other Provinces have substantial compliance laws.  In other words, a Judge, after the fact and after the maker of the Will – the testator – has passed away, the ability to fix errors in the Will.  I am not speaking of the process of rectification that is discussed in another blog.  A prime example of rectification is when the client told the lawyer to include something in the Will and solely as a result of the error of the lawyer, that provision was not made.  Under those circumstances, the court may rectify that error.

The substantial compliance provision that we are discussing now is remedying an error in the formal process.  The court will be given the power once the Accelerating Access to Justice Act receives royal proclamation, which is not likely to occur until 2022,  to declare a Will to be valid even though some formalities were not observed.  An example would be if only one witness signed or if the witness simply printed their name and forgot to attach their signature.  In those circumstances, the persons putting forward the Will can ask the court to declare the Will as being valid so long as the court believes that the Will does accurately set out the testamentary intention of the deceased.  Again, in plain English, the concept is that there may have been a slight formal “screwup”, but this document put forward as a Will indeed does accurately reflect what the maker of the Will meant it to say.  Please note that the absence of a wet signature, in other words, pen actually hitting paper,  is not an error that can be remedied under this proposed provision.  Also this will not be a retroactive law.  In other words, whenever the law receives royal proclamation, it only applies to Wills made after that date.

REVOLUTIONARY CHANGES IN THE LAWS REGARDING WILLS IN ONTARIO

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Date: 06 May, 2021| Author: Fred Streiman

As we had touched on in an earlier blog, one of the ramifications of COVID-19 has been to trigger changes to the way courts and laws are applied throughout the Province.  One of the areas that are being updated under the Accelerating Access to Justice Act is the laws with respect to Wills.  The changes specifically are being made to the Succession Law Reform Act and the Substitute Decisions Act.

Once the plague hit the world, the Government of Ontario acted relatively quickly and enacted emergency regulations as of April 7, 2020.  One of those regulations permitted for the first time witnessing of Wills through an audio-visual platform, such as ZOOM or SKYPE.  The regulations were soon clarified to allow virtual signings to be done in counterpart.  In other words, the client at one end of the process signed one set and the lawyer and the other witness signed an identical copy at the same time.

These rules are about to become a permanent fixture of the law of Ontario.  One must note that for remote witnessing to be valid, at least one of the witnesses must be a lawyer or a licenced paralegal.  The law will be retroactive to April 7, 2020.  The new Act refers to contemporaneous execution, which has been interpreted to mean that the Wills must be in counterpart.  That reqires the process as we discussed above and not circulating the same copy to be signed on separate dates.

While the Act has received royal assent, it still needs the final step by the Government to activate it, namely a royal proclamation.  That should happen relatively shortly.  One should note that the law specifically does not permit digital signatures.  What is called for is what is referred to as a wet signature.  Literally ink on paper.  This author does not disagree with that requirement. The signing of a Will is still a very formulaic process and attention to detail and ensuring that a Will is properly signed is one of the components of creating a valid Will.  In another blog, we will discuss possible remedies.

UNDUE INFLUENCE

Date: 08 Feb, 2021| Author: Fred Streiman

Another common method of attacking the validity of a Will is an allegation of undue influence.  For a claim of undue influence to be effective, one would need to prove that the intent of the person making the Will had been overwhelmed and replaced by the person exerting the undue influence.  Imagine the scenario of a caregiver forcing an elderly person in their care to change their Will and leave all to themselves in the place of the person’s children.  The starting point for the law in this area is the decision of the eminent estate lawyer and later judge, Justice Cullity.  He set out the test in his seminal decision of Scott v. Cousins.  Undue influence is not simply influenced or persuasion.  In essence, it must go beyond that and reach the level of coercion.  In other words, it is not simply influenced or even persuasion, such as by a child attempting to convince a parent to divide up their estate in one fashion or another.  That is not the point.  As discussed originally in the 1885 English case of Wingrove v. Wingrove, the concept is only when the will of the person who is making the Will is coerced into doing that which he or she does not desire to do, that is what amounts to undue influence.  There is a presumption in favour of undue influence that arises out of certain family relationships and that applies to various transactions that take place during the testator’s life, (see the blog articles on the presumption of resulting trust) but they play no part in the law of wills.  The persons against whom such presumption arises in those transactions are typically those that a testator might naturally wish to share in their estate.  As an example, adding one child to the parent’s bank account, will likely not be held to be a valid transfer or gift.  But leaving that child all or part of an estate in a will is not subject to attack so easily.

Such persons are entitled to press what they think are their proper moral claims.  Undue influence is not simply bad influence but must amount to coercion.  Persuasion and advice do not amount to undue influence, so long as the free will of the testator to accept or reject is not lost.  Appeals to the affection or ties of the relative, or seeking gratitude for past services or even pity all may be fairly pressed upon the testator.  The testator may be led, but not driven and the testator’s Will must be the product of their own desires, not the record of what someone else wants.  There is no undue influence unless the testator if they could speak would say, this is not my wish, but I must do it.

The onus of proving undue influence rests on the person alleging the undue influence, all of which is to be proven on the balance of probabilities.  The influence imposed by some other person on the deceased must be so overpowering that the document reflects the Will of the influencer and not of the deceased.  A tall order, but there are certain circumstances that give rise to a presumption that undue influence may very well exist.

Not a simple test, and to prosecute such an attack requires experience and finesse based on evidence.

Estate Administration – Income Taxes

Date: 05 Feb, 2021| Author: Fred Streiman

I want to first acknowledge that any errors in this blog article are my sole responsibility, but I tip my hat to Ms. Estelle Wieler CPA, CA, CEA (Certified Executor Advisor) of Calvin G Vickery CPA Professional Corporation for her guidance.

One of the most important duties of an executor is ensuring that the final tax return of the deceased is filed, often referred to as a terminal return.

That tax return covers the deceased’s final year from January 1 to the date of death, which is why it is sometimes called a “stub year”.

In most Estates, this responsibility also includes filing tax returns for the Estate. The Estate is a taxable entity, just like a corporation or person. If it earns income, it must file a tax return.

Our firm’s practice is to strongly recommend to all of our Estate clients that they seek the services of a qualified accountant. This task is beyond the capabilities of all but the most learned of our clients and certainly that of simple tax preparation services and bookkeepers.

The rules and forms of an Estate tax return are quite different from a personal tax return.

It is important that we separate the different types of taxes. There is the provincial estate tax, which is generally calculated at 1.5% of the value of an estate that is being probated.

Then there are the final income taxes that are triggered by the death of a person and in the absence of a spousal rollover will trigger a deemed disposition upon death. In English, it is as if the deceased had sold everything the day before they died and the profit or tax sheltering that they had organized in their lifetime is exposed to the waiting hand of the taxman/woman.

There is another tax and that is upon any income earned by an Estate. An Estate before distribution can earn interest income. If it holds real estate, that real estate may appreciate and possibly attracts even more income and the responding income tax.

Under the present tax laws, an estate is able to enjoy graduated tax rates for the first three years of its existence. Graduated rates are the same income tax rates that we as private individuals get to enjoy. As we climb the income ladder, the government takes an even greater share of income tax. Estates for the first year three years of its “life” enjoys the same benefits. However, beyond the three year limit, any estate income is taxed at the highest marginal rate presently approximately 53%.

One possible strategy is to attribute the estate’s income to the actual beneficiaries and have them declare the estate’s income to take advantage of their lower tax rate rather than the estate’s exposure. CRA does seem to find it acceptable administratively to allow the estate’s accountant to choose the best option between whether to tax income inside the estate or allocate it to the beneficiaries as long as certain basic rules are followed (which are too complicated to expand on here). When it is allocated to the beneficiary, the estate’s accountant must indicate that this is being done on the estate tax return and a tax income slip is issued to the beneficiary. However, this strategy is rarely taken for a number of reasons. Firstly, the first 36 months of an estate, the estate also has the graduated rates that we have indicated. So, unless a beneficiary has so little income that he or she has not used their personal tax credits, it is generally better to tax the income within the estate itself. There are even additional negative consequences of having the income declared by the beneficiaries. This flow-through income may very well affect the beneficiaries dependent claim. Further, all of the low income support that one potentially could receive such as the Ontario Trillium Benefit, GST Credit etc. or perhaps even disability support, such as under the ODSP maybe negatively be affected. Clearly, this is a very complicated question, and an accountant’s guidance is required. In conclusion generally, unless the estate has continued to drag on beyond its 36 months graduated tax rate period, one almost always taxes an estate income within itself and it is not generally allocated down to the beneficiaries during that time.

All of this is driven by CRA‘s administration rules which are generally observed for the smaller sized estate. For estates that are of significant value, one must tread carefully. As more senior CRA agents are generally involved, they administer the rules far more strictly.

One should also note that an estate does not enjoy a capital gains exemption for a principal residence, except in very limited circumstances that do not apply to most estates. The home that you have owned and lived in may have dramatically appreciated, but it is deemed to be tax free for you because of that capital gains principal residence exemption. The estate has no such shield from the open hands of the taxman.

Conclusion, this is complicated stuff and as lawyers, it is our job to simply alert you in broad strokes to those concerns and to emphasize to you the importance of having the input of a qualified accountant.

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