August 2012

You are currently browsing the monthly archive for August 2012.

Have Ontario’s Courts dispensed with Strict compliance with the Formalities of Execution?

August 12, 2012 by Charles Wagner

Imagine that Johnny is dying.  The doctors tell him to get his affairs in order.  The patient’s only living relative is an elderly aunt whom he despises.  Johnny wants to give all his money to his Church but, without a Will, by virtue of Ontario’s laws of intestacy that aunt will inherit everything.  A lawyer prepares a Will setting out Johnny’s testamentary wishes.  Johnny walks into the lawyer’s office, reads the will, and says it’s perfect.  There is no doubt as to Johnny’s intent as the lawyer has taken the precaution to videotape the whole process.  Johnny picks up the pen, is about to sign and dies.  Is the Will valid in Ontario?  It is almost certainly not valid [FN1], but there remains some doubt.  If everyone knows Johnny’s true testamentary intentions what rationalization exists for not accepting the unsigned document as a valid Will?

The legislatures, courts and Law Reform Committees in Canada have provided different policy reasons to justify strict compliance with the formalities of execution.  It’s been suggested [FN2] that the formalities of execution:

  1. Ensure that the Will was executed by the person purporting to be the testator and prevents a ne’er-do-well from impersonating the testator or someone from forging the testator’s signature;
  2. Avoid fraud, undue influence and coercion;
  3. Enhance the testator’s appreciation of the importance of the document;
  4. Make the administration easier with respect to granting probate; and
  5. Prevent opening the flood gates to various claims respecting documents that are purportedly wills.

In Ontario the rules with respect to wills, known as the formalities of execution, are set out in the Succession Law Reform Act, R.S.O. 1990, c. S.26 [SLRA].  The formalities of execution require that a will be in writing (s.3) and signed by the testator (or by some other person in the testator’s presence and by the testator’s direction), with the testator acknowledging their signature in the presence of two or more attesting witnesses present at the same time. Further, the will must then be signed by the two or more witnesses in the presence of the testator (s.4).  Section 4(1)(a) of the  SLRA is clear and unambiguous.  A will is not valid unless, at its end, it is signed by the testator or by some other person in his or her presence and by his or her direction [FN3].   Do Ontario courts have discretion to dispense with the formal requirements imposed by the SLRA ?  Several Ontario cases suggest the answer may be yes.

In Sisson v. Park Street Baptist Church [FN 4], the Court upheld a will where two witnesses were present when the testator executed the will, but only one witness signed the will. It is important to note that in Sisson the application was not opposed and the witness that had not signed had failed to do so inadvertently.  In Malichen Estate [FN 5] a husband and wife inadvertently executed each other’s wills. The Court upheld both wills.  Before jumping to any conclusions that these cases are reflective of a trend for Ontario courts to recognize substantial compliance  it is important to note that in both these cases the errors were inadvertent. Moreover, many believe these cases were decided incorrectly.  O’Flynn J. in Sills et al. v. Daley reviewed Sisson, Malichen and declined to follow them.  Instead, he followed Hindmarsh v. Charlton, Ellis v Turner, Bolton v Tartaglia and Re Murphy Estate.

In paragraph 40 of Sisson v. Park Street Baptist Church [FN 6], Justice Murphy of the Ontario Court of Justice stated, “that the absence of legislation on point should not stop the court from developing the common law where, in circumstances like this, there has been substantial compliance, given that the dangers which two witnesses are to guard against does not exist here.”  Justice Murphy’s judicial activism on this issue stands in stark contrast to Justice Cullity’s approach in Etorre [FN 7] where in response to a submission seeking substantial compliance His Honour stated, “….I would be reluctant to apply the principle of substantial compliance in the absence of a legislative mandate, or its endorsement by an appellate court.”[FN 8]  It seems that most other cases in Ontario adopt Justice Cullity’s approach [FN 9]. From Justice Cullity’s perspective courts must comply with the directions of the legislature and are not at liberty to change the law introducing uncertainty.  As the court stated in Hindmarsh v Charlton [FN 9a]  “…we must obey the directions of the legislature, and are not at liberty to introduce nice distinctions which may bring great uncertainty and confusion”

When considering the issues in this debate it is important to remember that the SLRA. provides certain instances where a testamentary disposition is valid without compliance with the formalities of execution.  These include:

  1. Holograph wills which are wills wholly in the testator’s writing, and signed by the testator without the necessity of subscribing witnesses [FN 10];
  2. Wills prepared by member of forces on active duty [FN 11]. Wills prepared by members of the forces, such as the Canadian Forces, on active duty do not need to be witnessed; and
  3. Gifts Mortis Causa [FN 12];

Hillary Laidlaw’s article, “Sills v Daley and the doctrine of substantial compliance:  Is close enough good enough?”[FN 13] provides a very interesting perspective on this debate.  She quotes John Langbeins’ article [FN 14], in support of substantial compliance.  Lanngbein asserts, “The rule of literal compliance… is a snare for the ignorant and the ill-advised, a needless hangover from a time when the law of proof was in its infancy”.

It is clear that the logic of the “substantial compliance” argument has impacted on the Canadian legal landscape.  A number of provinces have enacted legislation specifically giving judges the discretion to dispense with the formalities of execution, as long as the document in question substantially complies with the formalities of execution required by its local provincial legislation and is in accordance with the testator’s wishes. Examples of such legislation include the Saskatchewan Wills Act [FN15], Manitoba Wills Act [FN16], Nova Scotia [FN17] and soon British Colombia [FN18].  Ontario has not amended its legislation to provide for substantial compliance.

Right now, in Ontario, there remains a level of uncertainty because certain judges have appeared to step outside what seems to be the clear intent of the governing legislation.  This issue will be resolved only when either Ontario’s legislature or the Ontario Court of Appeal or legislature eventually deal with the issue.

Our short review of the law should not be taken as legal advice.  Based on our experience in dealing with these cases, they often turn on their specific facts.  If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

The authors are Charles B. Wagner and Liliana Ferreira. Liliana is an associate and Charles is certified by the Law Society of Upper Canada as a specialist in Estates &. Trusts Law and is a partner and at Wagner Sidlofsky LLP. This Toronto Law office is a boutique litigation firm whose practice is focused on estate, commercial and tax litigation.

 

____________________________________________________

FN 1.     In Ontario, almost all the cases that address this issue stand for the proposition that full compliance with the formalities of execution is required for a will to be valid.  The two exceptions are Sisson v Park Street Baptist Church (1999), 24 E.T.R. (2d) (Ont. Gen Div.) [Sisson] and Malichan Estate 6 E.T.R. (2d) 217, (Ont. Gen. Div.).

FN 2.     Please See the Alberta Law Reform Institute, “Wills and the Legal Effects of Changes Circumstances” Final Report No.98 August 10, 2010 found at http://www.law.ualberta.ca/alri/docs/fr098.pdf   Alberta Law Reform Institute – Wills:  Non-Compliance with Formalities, Formal Report No. 84 June 2000.  Alberta Law Reform Institute, “Wills:  Non-Compliance With Formalities.  December 1999 found at http://www.law.ualberta.ca/alri/docs/cm008.pdf  ; Estate Litigation basics – 2010 Update CLE BC found at http://www.cle.bc.ca/PracticePoints/WILL/11-ProbateActions.pdf .  See Hillary Laidlaw’s article, “Sills v Daley and the doctrine of substantial compliance:  Is close enough good enough?” found at http://www.stepjournal.org/pdf/TQR2004i4p6.pdf .

FN 3.  Brian A. Schnurr, Estate Litigation, 2nd ed., chapter 18.13; Papageorgiou v. Walstaff Estate, [2008] 2620, 42 E.T.R. (3d) (S.C.J.).

FN 4.  Sisson.

FN 5.  6 E.T.R. (2d) 217, (Ont. Gen. Div.).

FN 6.  Sisson.

FN 7.  Ettorre Estate, Re (2004), 2004 CarswellOnt 3618, 11 E.T.R. (3d) 208 (Ont. S.C.J.) [Etorre].

FN 8.  See paragraph 37 of Etorre and Hidmarsh v. Charlton (1861) H.L. Cas. 160.

FN9.   See Sills v. Daley (2002), 3 E.T.R. (3d) 297 (S.C.J.) and  Papageorgiou v. Walstaff Estate, [2008] 2620, 42 E.T.R. (3d) (S.C.J.).

FN 9a.   Hindmarsh v. Charlton (1861), 8 H.L Cas. 160 at 166-167.  For more on the issue of judicial activism in Canada I refer the reader to  “Remarks of the Right Honourable Beverley McLachlin, P.C.” which can be found at http://www.scc-csc.gc.ca/court-cour/ju/spe-dis/bm04-11-12-eng.asp .  In her address she tries to address the following question, “What then of the accusation that courts have gone beyond their proper role? The charge is made that activist judges – politicians cloaked in judicial robes – have gone beyond impartial judging to advocate for special causes and achieve particular political goals, and that this is undemocratic.”

FN 10.  Section 6 of the Succession Law Reform Act, R.S.O. 1990, c. S.26.

FN 11.  Succession Law Reform Act, R.S.O. 1990, c. S.26. , sections 5 and 6;

FN 12.  Section 72(1)(a) the Succession Law Reform Act, R.S.O. 1990, c. S.26;

FN 13.  See pdf copy of the article at http://www.stepjournal.org/pdf/TQR2004i4p6.pdf ;

FN 14.  John H. Langbein “ Substantial Compliance with the Wills Act” (1975) 88 Harv. L. Rev. 489;

FN 15.  The Wills Act, Chapter W-12.1, 1996, section 37.

FN 16.  The Wills Act, C.C.S.M., c. W150, section 23.

FN17.  Wills Act, R.S.N.S., 1989, c. 505, section 8A

FN18.   Wills, Estates and Succession Act, S.B.C. 2009 c. 13 (Bill 4) (not yet in force), section 58(3)

Dependant’s Relief, Support and Gifts Mortis Causa

August 8, 2012 by Charles Wagner

Suppose Jane knew she was dying and gave the keys to her cottage to her favourite niece.  Jane’s lawyer transferred title of the cottage to the niece. After Jane’s death, her husband, Mark started a law suit against the estate for support.  He claimed to be a dependant and sought to have the capital value of the cottage deemed to be part of the net estate for purposes of ascertaining the value of estate.  His lawyers claimed that the gift was invalid.  Let’s take a moment to review Mark’s claim.

In his seminal text, Waters’ Law of Trusts in Canada, 3rd Edition, Professor Waters states,

“For a gift mortis causa to arise there are three requirements: 1. an intention to give immediately, but subject to the condition that absolute title shall vest in the donee only on the donor’s             death; 2. Delivery in the appropriate form, though in this case a chose in action can be given by delivery of the document by which it is represented, and; 3. a contemplation of death at the time of the intent and delivery.”[FN 1]. 

Spouses and children who are disinherited often commence applications for dependant’s relief under Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26.  Even if a party qualifies as a dependant, it is important to ensure that there is sufficient assets in the estate to fund support.  To that end, section 72 of the Succession Law Reform Act, R.S.O. 1990, c. S.26 includes assets which ordinarily are normally excluded to fund that support.  One such asset is a  “gift mortis causa”.

The first question Mark must ask is whether the “gift” was just a gift or was it a gift mortis causa.  It’s an important distinction because, except under certain circumstances,  Jane is allowed to give her belongings away during her lifetime.  A regular gift is not considered to be a section 72 asset.   Let’s see how the case law understands the meaning of “gift mortis causa”.  The explanation of gifts mortis causa dates back to the late 1800s. In Cain v. Moon [FN2], the court provided the classic definition. The court stated:

 “It is…conceded that for an effectual donatio mortis causa three things must combine: first, the gift or donation must have been made in contemplation, though not necessarily in expectation, of death; secondly, there must have been delivery to the donee of the subject-matter of the gift; and, thirdly, the gift must be made under such circumstances shewing that it is to take effect only if the death of the donor follows…[FN3]“

Although there have been very few Canadian decisions which expand upon this definition, the Court of Appeal has provided some guidance. Whether a donation is made in ‘contemplation, though not necessarily in expectation of death’ can be hard to identify. The Court of Appeal has stated that the donor must be in extremis at the time of making the gift [FN 4]. Essentially, a person must be beyond the hope of recovery and near death to be in extremis.   In our case, Jane knew she was dying.  She knew she had no hope of recovery and was near death, so the first part of the test was met.

The second element of the test relates to the laws of gifts; more specifically, there must either be actual or constructive delivery of the gift by the donor. For example, if the donor handed a Picasso to the donee, that would constitute actual delivery. An example of constructive delivery, on the other hand, would be the donor handing the donee keys to his Ferrari (as opposed to the Ferrari itself).   In our case, not only did Jane give her niece the keys to the cottage – she transferred title. The second prong of the test has been met.

Finally, and perhaps most challenging, is the third element. This part of the test states that the gift can only take effect if the death of the donor follows the gift having been made. Bayoff Estate [FN 5] is an interesting case on point. In that case, the deceased was diagnosed with cancer and his demise was imminent. The keys to a safety deposit box were given to the donee. The first two elements of the test for gifts mortis causa were easily fulfilled.   However, the court had to delve into the difficulties of the third prong of the test. The court noted that the deceased had not indicated that the gift was conditional on death in the required sense. Bayoff did not, either by words or by action, suggest that the gift was to take effect only if he died. The court also noted that the gift was made during the donor’s lifetime, but title would not vest until the donor died. In its conclusion, the court stated:

 Bayoff did not, either by words or actions, suggest that the gift was to take effect only if he died.  He had just finished signing a Will in contemplation of his death.  It is likely that any gifts which he intended to take effect on death were included in his Will.  The gift of the contents of the safety deposit box, in my opinion, was intended to be a gift inter vivos [FN 6].

In this case, the court focused on the timing that the will was made in its determination of whether the gift was indeed a gift mortis causa. Based on this conclusion, the gift in question was not a “gift mortis causa”.  If we apply this test to our fact situation, title to Jane’s cottage was transferred to her niece during Jane’s lifetime.  It was intended to take place when the transfer was made – not on Jane’s death.  Hence – it is not a gift mortis causa and will not be included as a section 72 asset.  Mark , the spouse/dependant,  will not be able to treat the capital value of the cottage as part of his wife’s estate for the purpose of funding his dependant’s relief claim.  The transfer was just an inter vivos gift [FN 7].

Whether the gift in question will be considered a section 72 asset for the purpose of dependant’s support under the Succession Law Reform Act, R.S.O. 1990, c. S.26 is not a simple issue.  Our short review of the law should not be taken as legal advice.  Based on our experience in dealing with these cases, they often turn on their specific facts.  If the reader believes this topic to be relevant to a legal matter in which they are involved, nothing replaces retaining a competent lawyer who will do a thorough analysis of the law and the fact situation to provide proper advice.

 The authors are Charles B. Wagner and Joanna Lindenberg.  Joanna is an associate and Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.  This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

_____________________________________________________________

FN 1.  Waters’ Law of Trusts in Canada, 3rd Ed., 6 — Constituting or Setting up the Trust, 6.XI — Exceptional Modes whereby the Trust Becomes Completely Constituted [Waters]

FN 2.  [1896] 2 Q.B. 283 at 286.

FN 3.  Ibid.

FN 4.  Thompson v. Mehan [1958] O.R. 357.

FN 5.  Re Bayoff Estate S.K.Q.B. 23. [Bayoff].

FN 6.  Bayoff, supra note  4 at 10.

FN  7.  See Waters whose explanation on this issue is informative.  He states,  “It should be recalled that for a gift inter vivos to be valid at common law there must be an intention to give immediately, and a deed of gift or actual delivery. Delivery passes the donor’s dominion over the property to the donee, and must therefore be in the appropriate form to pass the full title in the property in question. For a gift mortis causa to arise there are three requirements: 1. an intention to give immediately, but subject to the condition that absolute title shall vest in the donee only on the donor’s death……”

What is a Resulting Trust

August 4, 2012 by Charles Wagner

“I don’t care who paid for the property – it’s in my name.”  But that’s the middle of the story – let’s start at the beginning.

Situations arise where legal  title may be in one person’s name , but the courts presume there was a decision to create a trust so that the equitable or beneficial ownership really belongs to another.  Let’s take a look at the recent  British Colombia Supreme Court  case of  Borkenhagen v. Kessler (FN 1).  It is a worthwhile read for those interested in area of estates and trusts because it reviews the basic tenets of resulting and constructive trusts.

Mr. and Mrs. Borkenhagen purchased a rental property which they agreed to rent to Mr. Borkenhagen’s elderly aunt, Mrs. Kessler. The terms of the agreement were that the aunt would pay a modest rent, approximately equivalent to the rent that she was paying in her previous apartment, and the aunt could remain at the rental property for as long as she liked. Prior to the purchase of the rental property, it was discovered that the bylaws and strata had a restriction requiring anyone who lived in the unit to be an owner and over the age of 55. Neither of the plaintiffs was over the age of 55 and as such the aunt was the only one that could satisfy the requirements for ownership. It was decided that all three parties would go on title to the property as joint owners. The relationship between the parties soured, the aunt severed the joint tenancy and asserted that she was the legal and beneficial owner of 1/3 of the rental property. The plaintiffs on the other hand, sought a declaration that they were the sole and legal beneficial owners of the property.

The parties each relied on Kerr v. Baranow (FN 2), which dealt with the issue of unjust enrichment and the “common intention” resulting trust.  A resulting trust is created when title to a property is in the name of a party that did not provide any value for the property, and that party is then required to return the property to the true owner (FN 3). The Court determined that the focus of analysis with respect to a resulting trust is the actual intention of the transferor, in this case, the plaintiffs. On the review of the evidence, the Court found that the plaintiffs’ intent was that their aunt would occupy the rental unit as a renter and not as an owner. The aunt did not contribute to the purchase price of the rental property and did not assume any of the normal obligations associated with ownership.  The purpose of the aunt’s title was simply to satisfy the strata requirements. The Court found that in this instance, there had been a gratuitous transfer and the presumption of a resulting trust had not been rebutted. As such, the Court found that the aunt held her 1/3 interest in trust for the plaintiffs, reaffirming that the concept of a resulting trust stems from the idea that people make bargains – not gifts.

The Court arrived at the same result when applying the principles of unjust enrichment and constructive trusts. A constructive trust is imposed when there has been unjust enrichment, regardless of the intention of the parties. Unjust enrichment occurs when there has been (1) an enrichment to the defendant; (2) a corresponding deprivation to the plaintiffs; and (3) there is an absence of any juristic reason for the enrichment. The Court found a constructive trust in favour of the plaintiffs based on the fact that the plaintiffs had paid all of the purchase money, and that the aunt did not have any obligations that an owner would normally have, such as paying property taxes. Therefore the aunt would be unjustly enriched if she was allowed to retain her 1/3 interest in the property.  The Court did find that there was an agreement between the parties which permitted the aunt to remain at the property until she wished to leave, but it did not amount to a juristic reason for the enrichment nor the defendant’s acquisition of title to the property.

Every situation is fact specific and you might think that your facts resemble this case enough to jump to a legal conclusion. That would be a mistake. This short review of the law is not meant to be legal advice. In our experience dealing with these cases, the Court’s decisions turn on the specific facts. If the reader has a legal question dealing with a similar problem the reader would be well advised to seek out competent legal counsel to determine the best course of action.

The authors are Charles B. Wagner and Liliana Ferreira. Liliana is an associate and Charles is certified by the Law Society of Upper Canada as a specialist in Estates &. Trusts Law and is a partner and at Wagner Sidlofsky LLP. This Toronto Law office is a boutique litigation firm whose practice is focused on estate, commercial and tax litigation.

 

________________________________

FN1      2012 BCSC 467I

FN2      2011 SCC 10

FN 3     Pecore v. Pecore, [2007] 1 S.C.R. 795.  The Supreme Court of Canada defined a resulting trust as follows:  “A resulting trust arises when title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner. While the trustee almost always has the legal title, in exceptional circumstances it is also possible that the trustee has equitable title.”   Pecore is the seminal case that deals with the presumption of a resulting trust that arises when children hold joint accounts with their elderly parents.  The presumption is that upon the parent’s demise the money does not pass by right of survivorship to the child – rather   it is held in a resulting trust for the estate.