Today’s blog was written by Justin W. de Vries and Jacob Kaufman
A will need not be probated. The power of an estate trustee derives from the will itself. However, in certain cases, a grant of probate (now awkwardly called a certificate of appointment of estate trustee with a will) is needed and the estate trustee will have no choice but to apply for probate and to pay the accompanying estate administration tax. For example, to sell a house on the open market requires probate to assure the buyer that she is, in fact, dealing with the personal representative of the estate and buying the house from the estate (i.e. the sale is bona fide).
While death and taxes may be life’s only certainties, people generally dislike paying taxes. As such, executing multiple wills in order to avoid paying estate administration taxes has become a common estate planning tool. For example, a primary will contains all the assets that will need to be probated (e.g. real estate). By contrast, a secondary will contains the assets that do not need to be probated (typically shares in a private corporation), which can result in considerable savings in not paying the estate administration tax.
However, into the carefully calibrated world of estate planning, Justice Dunphy, who sits on the Estates List of the Superior Court of Justice in Toronto, just lobbed a grenade and the fallout will likely be acute. The question of how multiple wills should be drafted in order to ensure that both a primary will and a secondary will are valid and what assets are covered by what will was considered by Justice Dunphy in the Milne Estate. The central issue raised by the case was whether a will was valid if there was uncertainty as to the subject-matter of the trust created by the will.
In this case, John and Sheilah Milne both died on the same day with mirror primary and secondary wills (i.e. both sets of their wills were identical).
The primary will (the singular will be used throughout) stated:
all property owned by me at the time of my death EXCEPT…. [certain named assets and] any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for a transfer or realization thereof.
The secondary will expressly did not revoke the primary will. The assets in the secondary will were:
all property owned by me at the time of my death INCLUDING … [certain named assets and] any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction is not required for the transfer or realization thereof.
The court took no issue with individuals having multiple wills – “a common and normally unobjectionable estate planning tool”. The court also acknowledged that wills did not need to be probated. However, a will sets up a trust. The court therefore considered whether the primary will satisfied the “three certainties” in order to create a valid trust; namely, certainty of intent (it must be clear that the testator intended to create a trust), certainty of object (it must be clear who the beneficiary (i.e. objects) are), and certainty of subject-matter (it must be clear what property is part of the trust).
It was certainty of subject-matter that occupied the court’s attention and whether it was clear what property was subject to the primary will. The estate trustees argued that certainty of subject-matter was satisfied, as the “excluded assets were sufficiently defined in the Primary Will to permit their identification by the Estate Trustees”.
However, the estate trustees’ argument fell flat with the court. The court held that the three certainties must be satisfied at the time the trust was created (i.e. at the time the testator died). According to the court, it could not be determined with certainty which assets were governed by the primary will at the time of the testator death. “It is not enough to say that the assets subject to the trust will be determined later and will then be governed by one will or the other… The testator must settle upon the Estate Trustee assets that are specifically identified or are objectively identifiable by reference to the intention of the testator and not the subsequent decision of the Estate Trustees”.
In essence, the court held that the estate trustees were using their discretion to determine the assets which would be subject to the trust – which was impermissible. That did not mean that all assets have to be described in detail in order for certainty of subject-matter to be met. However, there had to be an objective process by which an asset could be identifiable pursuant to the intention of the testator – and not a retroactive decision by the estate trustee. According to the court, the certainty of subject-matter was not a matter of construction after the fact or an estate tax issue, but one of validity.
There was, the court found, a fundamental problem with the validity of the primary will. The secondary will virtually applied to all the property of the testator without any exclusions. The primary will sought to carve out a “variable subset of the property that is and remains subject to the Secondary Will without subtracting such property from the secondary estate and to do so based on the subsequent, subjective determinations of the Estate trustees as to what is desirable”. According to the court, this cannot be done.
Not all is lost, however, as going forward, multiple wills can be drafted to accord with the court’s decision. For example, secondary wills could expressly apply to certain non-probate assets only (such as shares in private corporations) while the primary will would apply to all other assets that required probate without exception. No doubt, estate solicitors will put on their creative hats and address the issue of certainty of subject-matter raised by the court.
However, the main concern is for primary and secondary wills drafted before Justice Dunphy’s decision. Individuals who followed their lawyer’s advice and drafted primary and secondary wills in good faith may now be saddled with estate plans that produce higher estate administration taxes than anticipated. It is for good reason that estate solicitors recommend that clients check back with them every 5 to 10 years to address any changes in the law.
That being said, the decision will be appealed such that the Ontario Court of Appeal will have the last word on the three certainties and whether the certainty of subject-matter has been adequately addressed in primary and secondary wills. Stay tuned.