This Blog was written by: Kristie Smith, Estate and Trust Consultant, Scotia Wealth Management
As we have all heard many times in the estate planning community, and as Benjamin Franklin famously remarked, nothing is certain but death and taxes. From the Covid era and then ‘back to normal’; from Elizabeth II to Charles III; from record market runs to record corrections… 2022 has been a year of unpredictability, and that doesn’t look likely to change any time soon.
Does your estate plan allow for such fluctuations? Or is it responsive only to the circumstances that existed at the time your will was executed?
In Ontario, the starting point of interpretation of a will is found in s. 22 of the Substitute Decisions Act, which reads: “Except when a contrary intention appears by the will, a will speaks and takes effect as if it had been made immediately before the death of the testator with respect to … the property of the testator.”
There is no shortage of disputes stemming from ‘unforeseen’ circumstances arising between the time of execution of the will and the time the testator passes away. In one recent such example, VanSickle Estate v. VanSickle (2022 ONCA 643), the Ontario Court of Appeal confirmed that its role was not to reapportion estates to take into account the passage of time and related changes in the value of assets.
In that case, Mr. Howard VanSickle in interpreting an option granted to him in his late mother’s will to purchase her farming business, including the farmland, for a specified price. Howard was one of six surviving children, and the only one of the siblings to have worked on the hobby farm owned and operated by his parents during his adult lifetime. He, supported by one of his siblings, argued that an option in his mother’s 1985 will to purchase the 66-acre hobby farm for $85,300 (or less, if agreed with her estate trustees). Their four siblings argued that the mother no longer had a “farming business” – as her sole involvement with the property was to rent out the land to Howard for him to cash crop – and as such the option had lapsed.
Although the application judge agreed with the four siblings, finding that the “farming business” had ceased and therefore the option lapsed and the farm fell into the residue, the Court of Appeal overturned the decision. The Court of Appeal found that the option to purchase “the farming business carried on by me” did not point to the farming business operated in 1985 vs. that operated in 2019 (essentially, rental of the farm property), nor did the phrase suggest the mother intended the option to operate only if she was actively operating the farm at the time of her death.
On the issue of equity, in terms of the inheritance to be received by Howard compared to those to be received by his siblings, the Court wrote:
“One might well wonder whether the testator intended to benefit Howard quite as much as she did. The will provided a mechanism for adjusting the option price downwards if the value of the land decreased. But there was no mechanism to adjust the purchase price to account for an appreciation in land value. It may well be that it did not occur to the testator that the economy had vastly changed, resulting in a much bigger gap between her provision for Howard and the rest of her children that would have been the case in 1985. While we do not know that, we do know that she intended to benefit Howard differently from her other children because of his lifelong commitment to the operation of the farm. Further, despite the passage of 34 years, the testator never chose to amend her will. The task of this court is simply to determine whether the option to purchase is valid and was validly exercised. It is and it was.”
This issue was also in consideration in the British Columbia decision of Henderson v. Myler, wherein relatives of the deceased took the position that the stark increase in real estate value in Vancouver from the time the deceased executed her will in 2013 until her death in 2017 (an increase of approximately $1 million over that time period), meant that the residuary beneficiary (a charity) stood to receive much more than the deceased had intended. This case was discussed in this blog in 2021.
Clients often do not consider how changing asset values may impact the final distribution scheme of their estate, particularly where certain assets are passing outside the estate (e.g., by beneficiary designation on a registered account or insurance policy); or where one beneficiary is to receive a particular asset in kind, with the other beneficiary receiving the balance of the residue. These issues can be compounded by estate expenses, including tax liability for one asset being borne by the beneficiaries receiving another asset or a share of the residue.
As is certainly the case in the VanSickle litigation above, the result of such plans can be prolonged and expensive litigation, delays in estate administration and emotional fall-out between beneficiaries.
Clients whose estate plans involve treating beneficiaries distinctly, but ostensibly equally, should be cautious to ensure that no unintended consequences arise.