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Capacity in the Estate Context

November 28, 2012 by Charles Wagner

I was invited to speak at a Law Society of Upper Canada CLE seminar that took place on October 30, 2012. It featured many people who I consider some of the best practioners in this area. My paper[1] analyzed whether Justice Cullity, in Banton v. Banton,[2] expanded the test on insane delusions. At the actual presentation, Jordan Atin, the Chair of the program, asked Ian Hull and me to address a potpourri of issues. My topics included capacity, undue influence, managing client expectations, and evidence in the context of estate disputes. Ian Hull spoke on strategy in estate litigation among other topics. At the conclusion of the seminar I received a number of requests to provide my notes or something more formal to those who enjoyed the presentation. They felt the time was short and wanted specifics of some of the source material I referred to for use in their practice. This blog is, in part, a response to those requests and provides a review and sources for my comments on capacity and undue influence.

When challenging a will, testamentary capacity is often the key issue. Let’s first review the seminal English case Banks v. Goodfellow[3] which has been adopted in Ontario[4]. This case stands for the proposition that the testator has testamentary capacity if:

the testator understands the nature of making a will and its effects;
the testator understands the extent of the property being disposed of;
the testator understands the nature of the act and its effects;
the testator appreciates the claims to which he or she ought to give effect; and
finally, no insane delusion influences his or her will in disposing of the property and brings about a disposal of which, if the mind had been sound, would not have been made.

In the authoritative text of Feeney’s Canadian Law of Wills[5] the learned author answers the question “what is testamentary capacity” as follows, “To use the time-honoured phrase, a person must be “of sound mind, memory and understanding” to be able to make a valid will. When a will is contested on the ground of mental incapacity, the propounder must prove that the testator understood what he or she was doing: that the testator understood the “nature and quality of the act.” The testator must be able to comprehend and recollect what property he or she possessed, the persons that ordinarily might be expected to benefit, the extent of what is being given to each beneficiary and, finally, the nature of the claims of others who are being excluded.”

For the purpose of this blog I prefer not to revisit in detail the issue of delusions. I have addressed that topic extensively in the paper I delivered at the CLE event which is available online for the reader at this link Insane Delusions – Has The Test Been Expanded? Suffice to say that the test for delusions is two pronged. Firstly for a testamentary document to be set aside there must be a delusion. For it to be a delusion the belief held must be one that no one could reasonably believe. Secondly, mental disease is not enough. For the will to be set aside the decision by the testator to disinherit a person must be rooted in the delusion. It behooves us to remember that in Banks v. Goodfellow[6] the testator believed that he was molested by evil spirits, but the will was upheld because there was no connection between the delusions and the dispositions made by the testator.

A very important question regarding the issue of testamentary capacity is at what time in the process is the capacity of the testator relevant? The rule is set out in Parker v. Fieldgate – the key moment is the time the testator provides instructions.[7] What is also important is that at the time of execution the testator needs a sufficient level of capacity to comply with the formalities of execution.[8] A will may be set aside for failure to comply with the formalities of execution[9].

A foundation point in these sorts of discussions is that the testamentary document should genuinely reflect the decisions of the testator[10]. Was there coercion? Did the testator know and approve of what was set out in the will? These two issues are referred to as undue influence and “knowledge and approval”. To be clear it may very well be that a person has testamentary capacity but the testamentary document can be set aside for other reasons. For example, it may be set aside because of coercion and/or fraud (i.e. undue influence). The testamentary documement may be set aside because the testator did not understand the wording or there perhaps it will be rectified because there was an error when drafting the will such that the testator’s intentions were not set down accurately. In that sort of case it is arguable that the testator did not know or approve of the testamentary document. This topic of rectification is one that is beyond the scope of this blog, but merits careful review. As a starting point, I refer the reader to Rectification – the Equitable Remedy to Fix Errors in a Will.

One basis for challenging the validity of a Will is the allegation of undue influence. If there are suspicious circumstances surrounding the testator then the normal presumption, that a Will is valid if properly executed, is rebutted. It is now up to the person claiming that the new testamentary document is valid to prove that there was no coercion or undue influence on the testator.[11]

The equitable doctrine of undue influence was developed[12],not to save people from the consequences of their own folly but to save them from being victimized by other people. These cases may be subdivided into two groups. In the context of a will challenge the question is whether there was any coercion by a beneficiary on the testator. Whether the influence is “undue” is a matter of fact and there is arguably a sliding scale depending on the vulnerability of the testator and his/her dependence on the person exercising the influence. Has the person being accused of exercising undue influence exercised some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, some sort of fraud?

The second group deals with disputes surrounding gifts that took place prior to the demise of the testator. At issue is whether the person accused of undue influence has gained some personal advantage because of the reliance of the donee on the recipient of the benefit. In Ontario, Canada those who are appointed as Attorney for Property are designated by statute as a fiduciary. Other parties may also be considered fiduciaries depending on the role they played in the testator’s lives[13]. As articulated by Professor Waters in Law of Trusts in Canada, Second Edition (Carswell: 1984, Toronto): “It is a fundamental principle of every developed legal system that one who undertakes a task on behalf of another must act exclusively for the benefit of the other, putting his own interests completely aside”. So what happens when a fiduciary gets a gift? There is a presumption of undue influence.[14]

Mr. Justice Cullity[15] set out the following factors to consider in an undue influence claim:

the willingness or disposition of the persons to have exercised undue influence;
whether an opportunity existed;
the vulnerability of the testator[16];
the degree of pressure that would be required;
absence of moral claims of the beneficiaries;
whether the will departs radically from the dispositive pattern of earlier wills.

When investigating if someone knew and approved of the testamentary document these are some red flags to watch for including blindness, illiteracy, inability to understand English,[17] unexplained radical departure from previous wills, sequestration of testator, manipulative behavior by the main beneficiary to obtain all of the deceased’s assets, the presence of a new lawyer or the absence of independent legal advice, and whether statements or actions of the testator subsequent to the making of the alleged will were fundamentally inconsistent with its terms.

The capacity to grant or revoke powers of attorney and capacity to manage one’s property and personal care is a different test. These disputes often arise when families wrestle over control of aging parents’ assets or the responsibility for their care. Ever increasingly the behaviour of financial predators, caregivers, friends and family members lead to disputes regarding the capacity of seniors to make gifts and even the capacity to marry. The latter becomes all the more significant because marriage can involve revocation of previous wills[18], entitlement to property and support rights under Part II and Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26. When discussing the different types of capacity it is important to remember that the definitions of capacity are task specific. From highest to lowest they are:

Testamentary capacity.[19]
Capacity to manage property has a lower threshold than testamentary capacity.[20]
Capacity to manage personal care has a lower threshold than the capacity to make a will or manage property.[21]
The threshold for capacity to appoint or revoke a power of attorney is lower than the threshold for testamentary capacity and or the capacity to manage property or personal care.[22]
Capacity to make a gift or enter into a contract is a sliding scale depending on the size of the gift.[23]
The threshold for the capacity to marry seems to the lowest. I caution the reader that this may be subject to change and there are several excellent papers and books written that should be reviewed when confronted with this situation[24]

This short blog was based on my notes, with respect to capacity, from the CLE event. It is not meant to provide anything more than an overview of the topic on capacity as well as access to some of the very excellent books and papers on the topic.

[1] C. Wagner and N. Herrmann, Insane Delusions – Has The Test Been Expanded? (Toronto: LSUC Estate Litigation Practice Essentials, 2012).

[2] 1998 CarswellOnt 3423, 164 D.L.R. (4th) 176, 66 O.T.C. 161.

[3] Banks v. Goodfellow (1870), All E.R. Rep. 47 (Q.B.) is the seminal case. See page 565, which sets out the test. It has been adopted by Canadian courts. See Popke v. Bolt (2005), ABQB 214 (Alta. Q.B.), and Larocque v. Landry (1922), 52 O.L.R. 479 (Ont. C.A.). I would also refer the reader to Justice Laskin’s summary of the elements of capacity in Schwartz v. Schwartz, [1970] 2 O.R. 61 (Ont. C.A.). The testator must be sufficiently clear in his understanding and memory, to know on his own and in a general way, (a) the nature and extent of his property, (b) the persons who are the natural objects of his bounty, and (c) the testamentary provisions he is making; And he must be capable of (d) appreciating these factors in relation to each other, and (e) forming an orderly desire as to the disposition of his property.

[4] Banks v. Goodfellow has expanded on the factors that will demonstrate that a testator has the “sound and disposing” mind necessary to make a valid will. Justice Charron, of the Ontario Court of Appeal, summarized these requirements in Hall v. Bennett Estate, noting that in order to have a sound and disposing mind a testator:

• must recollect the nature and extent of his or her property; *must understand the extent of what he or she is giving under the will;

• must remember the persons that he or she might be expected to benefit under his or her will; and * where applicable, must understand the nature of the claims that may be made by persons he or she is excluding from the will.

[5] Feeney, Thomas G. & Jim Mackenzie. Feeney’s Canadian Law of Wills, 4th ed., looseleaf (Toronto: Butterworths, 2000), paragraph 2.6

[6] See Footnote 3 for the citation.

[7] Parker v Fieldgate (1883), 8 P.D. 171. The rule, in Parker v. Felgate provides that even if the testator lacked testamentary capacity at the time the will was executed, the will is still valid if: The testator had testamentary capacity at the time he or she gave the lawyer instructions for the will; (b) The will was prepared in compliance with those instructions; and (c) When the testator executed the will, he or she was capable of understanding that he or she was signing a will that reflected his or her own previous instructions.This, keeping in mind the requirements for due execution as set out in the Succession Law Reform Act, R.S.O. 1990, c. S.26

[8] Section 4.(1) of the Succession Law Reform Act, R.S.O. 1990, c. S.26 states, “Subject to sections 5 and 6, a will is not valid unless,

(a) 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;

(b) the testator makes or acknowledges the signature in the presence of two or more attesting witnesses present at the same time; and

[9] Please see Have Ontario’s Courts Dispensed with Strict Compliance with the Formalities of Execution? – this is article found at http://www.hg.org/article.asp?id=27886

[10] I make this comment with some trepidation given the recent case law on rectification. Often disappointed beneficiaries ask the court to fix the mistake where the lawyer who drafted the will may admit that he inadvertently drafted the will contrary to the instructions of the deceased. The legal term for this request is “Rectification”. Courts use this equitable remedy very carefully. Exactly what type of evidence a judge may consider is being debated in the courts. How sure does the court have to be to fix the mistake? Is the court limited in how it can fix the mistake? In exercising the remedy is the court limited to only being able to delete certain parts of the will? Can a judge add missing words? I refer the reader to Rectification – the Equitable Remedy to Fix Errors in a Will .

[11] See analysis of Vout v. Hay 1995 CarswellOnt 186, 7 E.T.R. (2d) 209, 125 D.L.R. (4th) 431, [1995] 2 S.C.R. 876, 183 N.R. 1, 82 O.A.C. 161 at http://www.wagnersidlofsky.com/articles/grounds-for-challenge.php

[12] as was pointed out by Lindley L.J. in A/Icard v.Skinner. 36 Ch. D. 145, [1886-90] All E.R. Rep. 90 (C.A.),

[13] I found the looseleaf text “Fiduciary Duties in Canada” By: Mark Vincent Ellis a useful reference for this issue.

[14] For those advocating that a challenged gift is valid I refer you to section 2(4) of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 which deals with onus of proof, contracts and gifts. The section provides, “In a proceeding in respect of a contract entered into or a gift made by a person while his or her property is under guardianship, or within one year before the creation of the guardianship, the onus of proof that the other person who entered into the contract or received the gift did not have reasonable grounds to believe the person incapable is on that other person.” Query whether a gift is valid if the recipient of the gift had reasonable grounds to believe the incapable person to be capable? I know of no determinative judicial review of this section.

[15] See Scott v. Cousins (2001), 37 E.T.R. (2d) 113 (Ont. Sup. Ct. J.),

[16] For an excellent article on this topic see Assessment of Testamentary Capacity and Vulnerability to Undue Influence Kenneth I. Shulman; Carole A. Cohen; Felice C. Kirsh; Ian M. Hull; Pamela R. Champine Am J Psychiatry 2007;164:722-727.

[17] See “Testator Does Not Speak English by Charles B. Wagner

[18] See section 15(1) of the the Succession Law Reform Act, R.S.O. 1990, c. S.26.

[19] The threshold for testamentary capacity is the highest. See Penny v. Bolen, 2008 CanLII 48145 (ON.S.C.) at para. 19: “There are different tests for the capacity to make a Power of Attorney for personal care and for property. A person may be incapable of managing property but capable of making a Power of Attorney for Property. With respect to Powers of Attorney for Personal Care the capacity threshold is much lower than for Power of Attorney for Property which is lower than the capacity required to execute a will.”

[20] The test for determining the capacity to manage property is found at section 6 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 . Capacity to manage property is defined as: (a) The ability to understand the information that is relevant in making a decision in the management of one’s property; and (b) The ability to appreciate the reasonably foreseeable consequences of a decision or lack of a decision.

[21] Under section 45 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 , the test for determining capacity required for managing personal care is: (a) The ability to understand the information that is relevant to making a decision relating to his or her own health care, nutrition, shelter, clothing, hygiene or safety; and (b) The ability to appreciate the reasonably foreseeable consequences of a decision or lack of decision. A person who is sixteen years of age or older is presumed to be capable of making personal care decisions.

[22] Please see section 8 of the 47 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 . For property the threshold requires (a) knowledge of what kind of property he or she has and its approximate value; (b) awareness of obligations owed to his or her dependants;(c) knowledge that the attorney will be able to do on the person’s behalf anything in respect of property that the person could do if capable, except make a will,

subject to the conditions and restrictions set out in the power of attorney; (d) knowledge that the attorney must account for his or her dealings with the person’s property; (e) knowledge that he or she may, if capable, revoke the continuing power of attorney; (f) appreciation that unless the attorney manages the property prudently its value may decline; and (g) appreciation of the possibility that the attorney could misuse the authority given to him or her.

[23] The test for capacity to give a gift changes if the gift is significant in value, in relation to the donor’s estate. In such cases, the applicable capacity test changes to the test for capacity to make a will, that is , testamentary capacity. In the English case of Re. Beaney, the judge explained the difference in tests for capacity to give gifts or make gratuitous transfers as follows: At one extreme, if the subject-matter and value of a gift are trivial in relation to the donor’s other assets a low degree of understanding will suffice. But, at the other, if its effect is to dispose of the donor’s only asset of value and thus for practical purposes to pre-empt the devolution of his estate under his will or on an intestacy, then the degree of understanding required is as high as that required to make a will, and the donor must understand the claims of all potential donees and the extent of the property to be disposed of. See Kimberly Whaley, “Comparing the Various Tests of Capacity” Law Society of Upper Canada, 13th Annual Estates& Trusts Summit (November 18, 2010). See http://www.whaleyestatelitigation.com/

[24] A must read for anyone dealing with this issue is the book “Capacity to Marry and the Estate Plan” in 2010, with co-authors: Kimberly Whaley, Dr. Michel Silberfeld, Heather McGee and Helena Likwornik, the February 9, 2012 paper “The Capacity to Marry and Divorce” presented at the OBA Institute Trusts and Estates Law Seminar on February 9, 2012 and the decision of Justice Cullity in Banton v Banton. This is a case that addresses this threshold issue. Section 7 of the Ontario Marriage Act prohibits a person from issuing a license to or solemnizing “the marriage of any person who, based on what he or she knows or has reasonable grounds to believe, lacks mental capacity to marry by reason of being under the influence of intoxicating liquor or drugs or for any other reason.” Common law capacity to marry was essentially equivalent to the capacity to enter into any binding contract, and certainly at a lower threshold than testamentary capacity.

IS DISINHERITENCE BECAUSE OF SEXUAL ORIENTATION LEGAL?

August 19, 2011 by Charles Wagner

Will a Canadian court vary or set aside a will when a parent disinherits a gay/lesbian child because of his/her sexual orientation? The law may be different depending on the province.

In Canada, the law balances the idea of testamentary independence against public policy concerns. While cherishing testamentary freedom, the law intervenes when it finds provisions in the will offensive to public policy and or equity. In Ontario, this restriction on testamentary freedom has been expressed by laws passed to protect spouses (under Part I of the Family Law Act [FN1]) and dependents (under Parts II and V of the Succession Law Reform Act [FN2]).

Two true stories from British Columbia: In both Patterson v. Lauritsen [FN3] and Peden v. Peden Estate [FN4], a parent disinherited or reduced the inheritance of a child because the parent did not approve of the child’s homosexuality. The Court in each of these cases held that, in today’s society, homosexuality is not a factor that would justify a judicious parent disinheriting or limiting benefits to a child.

Would the same thing happen in Ontario? Maybe – maybe not. In the British Columbia cases, even though the parents had capacity and were not subject to undue influence, their wills were open to challenge on the ground that the parents had disinherited their children without, what the court considered to be, reasonable cause. While the Ontario Court of Appeal has stated that the “moral considerations” underpinning the British Columbia approach apply in Ontario, to my knowledge, there has been no case to date where an Ontario Court has varied a will to benefit a non-dependent disinherited adult child [FN5]. In Ontario, except where a will offends public policy, it is still open to debate whether a capable parent, acting voluntarily, is entitled to disinherit a child - however whimsical, mean-spirited, or controlling such action may seem.

A comment made by an Ontario judge in 1995 is of interest insofar as it suggests where an Ontario court may draw the line. In Fox v. Fox Estate [FN6], a decision of the Ontario Court of Appeal, the father named his wife the executrix under his will. The income was to be used for the grandchildren with the capital for the son. The will also gave the mother an unfettered discretion to encroach on the capital of the estate for the benefit of her son’s children. She took all the capital, eliminating her son’s inheritance because he was involved with a non-Jew. The judge commented, “….in response to a query from the bench, counsel in this case were not prepared to argue that any court would today uphold a condition in a will which provides that a beneficiary is to be disinherited if he or she marries outside of a particular religious faith”. The Court viewed the mother’s behaviour as being mala fides and contrary to public policy.

Testators that ignore the changing winds of public policy do so at their own peril. In M v. H, [FN7] the Supreme Court of Canada compelled Ontario to change the definition of “spouse” as set out in the support provisions of the Family Law Act. Prior to that case, common-law heterosexual couples were included in the definition of spouse, but gay and lesbian couples were not. The Supreme Court of Canada ruled that, for the purposes of support under the Family Law Act, a spouse includes “…either of two persons …”. The court ruled that limiting the definition of “spouse” to heterosexual couples, for the purposes of support, was discriminatory and not justifiable. In Canada today same-sex marriages are legal. It is therefore entirely possible that an Ontario court would set aside a provision in a will that disinherited someone because of his/her sexual orientation, on the grounds that such disinheritance offended public policy.

Charles B. Wagner is a partner at Wagner Sidlofsky LLP. This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation. The author gratefully acknowledges the assistance of Michelle Kotzer in the preparation of this article.

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FN1. Family Law Act, R.S.O. 1990, c. F.3

FN 2. Succession Law Reform Act, R.S.O. 1990, c. S.26

FN3. Patterson v Lauritsen (1984) CarswellBC 381, 58 BCLOR 182, [1984] 6 WWR 329, 17 ETR 316. Available on line at Patterson v. Lauritsen, 1984 CanLII 353 (BC SC)

FN4. Peden v Peden Estate (2006) CarswellBC 2801, 2006 BCSC 1713, [2007] WDFL 1837. Available on line at Peden v. Peden, Smith et al., 2006 BCSC 1713 (CanLII)

FN5. See Justice Cullity’s 1998 decision of Banton v. Banton, 1998 CanLII 14926 (ON SC) and in particular paragraph 36 where he states, “It is hardly necessary to say that the principle of freedom of testamentary disposition is in the background to the issues relating to the validity of the wills of December 21, 1994 and May 4, 1995. If George Banton had capacity and was not subject to undue influence at the time of the execution of one of those wills, its validity and effect are not open to challenge on the ground that he thereby disinherited his children. In this jurisdiction, unlike others in Canada and elsewhere, unless the children are dependants, a capable parent acting voluntarily, is entitled to do this however mean and ungrateful it may seem, or how selfish the motive; hence the focus in this case, as in so many others, on testamentary capacity and undue influence.”

Compare this with the decision of the Court of appeal in Cummings v. Cummings CanLII 9339 (ON CA). At paragraph 40, Blair J. A. states, “[40] In my view these questions have been resolved by the decision of the Supreme Court of Canada in Tataryn v. Tataryn Estate 1994 CanLII 51 (S.C.C.), [1994] 2 S.C.R. 807. There, the Court held that a deceased’s moral duty towards his or her dependants is a relevant consideration on a dependants’ relief application, and that judges are not limited to conducting a needs-based economic analysis in determining what disposition to make. In doing so, it rejected the argument that the “judicious father and husband” test should be replaced with a needs-based analysis: see para. 23. I see no reason why the principles of Tataryn should not apply equally in Ontario, even though they were enunciated in the context of the British Columbia Wills Variation Act R.S.B.C. 1979, c. 435, in which the language is somewhat different from that of the Succession Law Reform Act.

I also recommend the reader to see Susan J. Woodley’s paper entitled “The (Almost, Possible, Probable) Right of an Adult Child to Receive Support”, presented at the Ontario Bar Association 2009 Institute of Continuing Legal Education.

FN6. Fox v. Fox Estate 1996 CanLII 779 (ON C.A.), (1996), 28 O.R. (3d) 496, 10 E.T.R. (2d) 229 (C.A.),

FN7. M. v. H. [1999] 2 S.C.R. 3. I refer the reader to an aritlce written by Mary C. Hurly entitled “Sexual Orientation and Legal Rights”. The article appears on the Parliament of Canada Website and can be found at Sexual Orientation and Legal Rights (PRB 08-49E) . When considering the impact of the decision and how it reflects on public policy in Canada her conclusion speaks to how a court may view the public policy issue. “Judicial and legislative reforms, particularly since the M. v. H. decision in 1999, have effected a significant shift in Canadian society with respect to recognition of the legal status and claims of same-sex conjugal couples. The watershed nature of this shift is illustrated, most notably, by federal legislation sanctioning same-sex marriage.

Opponents of these reforms continue to argue that the extension of same-sex rights in general, and same-sex marriage in particular, undermine the traditional family and family values. At the same time, some gay and lesbian couples (like some heterosexual couples) do not want either the legal obligations or the benefits that flow from spousal status or marriage. As the 2002 report of the former Law Commission of Canada and other indicators suggest, the question of whether the matter of entitlements based on the marital or conjugal nature of a partnership should be re-examined remains open.”

DNA Testing and Estate Litigation

February 11, 2011 by Charles Wagner

“She is not my daughter.”

The court heard evidence that the late Kerry Kelly did not believe Shauna was his daughter. (FN1) Kerry believed that Shauna’s mother “… cheated on me with no sex protection”. The judge believed Pamela Proulx, Kerry’s sister, who said that Kerry never recognized Shauna to be his biological daughter. Aunt Pamela applied to court to obtain a DNA test of Shauna and compare it to a sample of Kerry’s DNA to see whether Shauna was Kerry’s biological daughter. Shauna opposed the application. Let us review some of the reasons why the DNA test was worth fighting about and the legal arguments used by each side.

Kerry died intestate which means that he passed away without a legal will. According to the law of Ontario (FN2) where an unmarried person dies intestate his children receive the estate. (FN3) For all purposes, the law of Ontario is that a person is the child of his or her natural parents with the only exception being adopted children (FN4). Since Kerry did not have a will Shauna’s entitlement to an inheritance turned on her being the biological child of Kerry. So now we understand why Aunt Pamela wanted Shauna to take a DNA test and why Shauna resisted taking one. If the DNA test proved that Shauna was not Kerry’s real daughter then she does not get an inheritance from Kerry’s estate. On what grounds could Shauna argue that she did not have to take the DNA test?

Shauna argued that that under s. 8 of the Children’s Law Reform Act Kerry was presumed to be the father of Shauna because he was married to Shauna’s mother at the time of Shauna’s birth and he was also listed as Shauna’s father on the Statement of Live Birth. Shauna argued that it was up to her aunt to rebut that presumption of paternity and, until she did, no DNA test should be ordered.

Aunt Pamela relied on section 10 of the Childrens Law Reform Act which provides that in a court case in which a child’s parentage is at issue the court may order that DNA tests take place and if that person refuses to submit to a DNA test the court may draw such inferences as is appropriate. There is no mention in section 10 that Aunt Pamela had to rebut the presumption of parentage. Now that you have heard both sides – what do you think Justice Coats ordered?

Justice Coats ordered that the DNA test take place. In his view DNA testing was objective, impartial and scientific evidence and it was in the interests of justice for the court to consider the best evidence. He preferred DNA testing to the contradictory and less certain evidence offered by the parties and other family or community members. Does that mean that judges will always order DNA testing? Not necessarily.

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FN1. This name of this case is Proulx v. Kelly, 2010 ONSC 5817 and can be found on line at http://www.canadalawbook.ca/summaries/pdf/10334117.pdf

FN2. See Part II of the Succession Law Reform Act, R.S.O. 1990, c. S.26 and “Law of Intestacy in Ontario” found at http://www.wagnersidlofsky.com/articles/intestacy-in-ontario.php

FN3. This is not a simple matter. For example, see section 47(2) of the Succession Law Reform Act, R.S.O. 1990, c. S.26 which deals with the situation where a child dies before his parent. For example, if father had 3 children A, B and C. Assume A had 2 children of his own. A died before father. If father died without a will then his estate would be divided in three equal shares. 1/3 to B, 1/3 to C and 1/3 to A’s children. With respect to Ontario Intestacy law even if A died before his father the intestate inheritance law acts still gives A his share of the estate just as if A did not predecease his father. The late A’s portion of his father’s estate goes to A’s children.

FN4. See section 1 of the Children’s Law Reform Act

Resulting Trusts, Clean Hands and Who Gets the Cottage

January 16, 2011 by Charles Wagner | 1 comment

Albert was always a bully and Dad loved him best. Judy became a successful doctor and, in part to get away from her dysfunctional family, she moved to Montreal. When Dad died, Judy was happy to see that her father left his $1,000,000.00 estate equally to both his children. But, Albert had other ideas.

Albert went to court and claimed that 20 years ago he bought a cottage which was now in their father’s name. That cottage, now worth 400,000.00, was transferred to Dad 20 years ago because Albert was being investigated by the Canada Revenue Agency for failing to pay taxes for five years. Albert feared that the Canada Revenue Agency would take the cottage away so he transferred the property to his father for $50,000.00 except Dad never paid Albert a dime. Albert claimed that his father had held the cottage in a resulting trust for him and it now had to be transferred back to Albert. With the evidence presented there could be no doubt that Albert paid for the cottage, maintained the property and that the father participated in the scheme to protect the asset from the Canada Revenue Agency.

In our fictional scenario Albert could argue that in Ontario there is a legal presumption that people make bargains and not gifts. Accordingly, if Albert paid for everything the court should presume that he has a beneficial interest in the cottage. This is the basis of his resulting trust(FN1) claim.

Judy might argue that even if Albert’s story was true he still does not deserve to get the cottage when the whole thing was based on a scheme by Albert to cheat Revenue Canada. As Professor Waters stated in his text Waters’ law of Trusts in Canada, “The basic principle is that a person may not have the assistance of equity if the person does not come with clean hands”.(FN2). Arguably, if Albert tried to cheat on his taxes he did not have clean hands and should not benefit from the equitable remedy of a resulting trust. How could it be fair for Albert to have it both ways? To the Canada Revenue Agency Albert said the cottage belonged to Dad and now to Judy he is saying it belonged to him. Given his intention to cheat Canada Revenue Agency does Albert deserve the benefit of an equitable remedy?

In Holland v Holland (FN3) Justice Reilly of the Ontario Superior Court of Justice faced a similar question. A husband transferred a cottage into his wife’s name in exchange for $15,000.00. No money changed hands and the whole thing was a plan to avoid having an asset that would be seized for unpaid taxes. When the couple split up the husband claimed to have a beneficial interest in the cottage. This is an excerpt of the judge’s decision “…a declaration of resulting trust is an equitable remedy. In order to obtain such remedy, the applicant must approach the court with clean hands. In this case, Mr. Holland did not do so. ….It is for Mr. Holland to persuade the court that he is entitled to an equitable remedy and I conclude he has failed to do so.”

Would this reasoning in a family law dispute apply to an estate litigation matter? Maybe. Having dealt with these types of cases I can only repeat that these are very complicated matters and some courts have taken the view that despite the improper intention, if no one was in fact defrauded (for example, if it turned out that Albert never really owed Canada Revenue any money) then he might get the cottage back.

Charles B. Wagner is a partner at Wagner Sidlofsky LLP. This Toronto office is a boutique litigation law firm whose practice is focussed on estate, commercial and tax litigation.

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FN1. There is a difference between a resulting trust and a constructive trust. A constructive trust has nothing to do with the intention of the parties. It is a flexible tool used by the courts to redirect funds or property which has been wrongly taken. It is an equitable remedy used by the courts to address an unjust enrichment. Waters, Law of Trusts in Canada, 2nd ed. (Toronto: Carswell, 1984) at p. Defines a resulting trust as an equitable trust that arises whenever one party buys property and has it gratuitously conveyed to another or into the joint names of himself and another.”:

FN2. See Waters’ Law of Trusts in Canada, 3rd Ed. 9 — Revocation: Setting the Trust Aside
9.II — Setting the Trust Aside B. Fraud by Settlor.

FN3. Holland v. Holland 2007 CarswellOnt 7195, [2008] W.D.F.L. 49, 49 R.F.L. (6th) 97, 161 A.C.W.S. (3d) 767. Justice Reilly’s decision considered a number of cases involving a transfer of property where the intent was to defeat creditors. Most persuasive was His Honour’s quote of Lord Denning in Tinker v. Tinker, [1970], 1 All E.R. 540 at 542:
“… I am quite clear that the husband cannot have it both ways. So he is on the horns of a dilemma. He cannot say that the house is his own and, at one and the same time say that it is his wife’s. As against his wife, he wants to say that it belongs to him. As against his creditors, that it belongs to her. That simply will not do. Either it was conveyed to her for her own use absolutely; or it was conveyed to her as trustee for her husband. It must be one or the other. The presumption is that it was conveyed to her for her own use; and he does not rebut that presumption by saying that he only did it to defeat his creditors. I think that it belongs to her.”

Are Adult Children Legally Entitled To Inheritance?

January 6, 2011 by Charles Wagner

While their father loved both Samantha and Reuben equally, in his will, and in accordance with his culture, all the assets of the father were left to the male heir. Is this legal?

The legality of father’s will may depend on which province’s law applies. If the law of British Columbia governed there is a very good chance that Samantha would succeed and the Court would order the estate be split equally. If Ontario law applied and there were no other legal issues raised concerning the validity of the will then Samantha would have a less likely chance to win. Why the uncertainty? Let’s look at three cases to explain, Tataryn v Tataryn (FN1), Cummings v. Cummings (FN2) and Johnson v. Huchkewich(FN3).

Tataryn was a case in British Columbia. It was ultimately decided by the Supreme Court of Canada. In summary, the deceased’s will favoured one son and disinherited the other son and gave less money to the deceased’s wife. The court varied the will based on the deceased’s moral obligation to his wife and disinherited adult son. In British Columbia, unless there is some debt or the favoured child is a dependent, or there is a valid reason for disinheriting a person, each child has a moral and legally enforceable claim against the estate.

The importance of “moral claims” as set out in the Tataryn case was adopted by the Ontario Court of Appeal in 2004 in Cummings v Cummings. In this unfortunate case a second wife was litigating against dependent adult children of a first marriage. The son, Paul, suffered from a progressively debilitating incurable neuromuscular disease known as Becker’s muscular dystrophy. Paul, was arguably entitled to the all of the small estate. Citing Tataryn, Justice Cullity explained, “The issue of the weight to be given to moral considerations is relevant in this case: it is posed quite directly by the [second wife’s] concession that she is not in need of support. On a strictly needs-based approach, I might well be justified in ordering that the entirety of the net testamentary estate be transferred to the support of Paul…I do not think that this would be the correct disposition of the case. I believe that, apart from any residual value that is to be attributed to freedom of testamentary disposition….moral considerations continue to play a part in the analysis.”

So has Ontario followed British Columbia’s lead? Maybe, maybe not.

I have reviewed many related Ontario cases post Cummings. To the best of my knowledge no Ontario court has understood Cummings to mean that the moral claim of a disinherited adult non dependent child was legally enforceable. As you recall both the adult children in Cummings were dependants which means that the father was providing support or was under a legal obligation to provide support immediately before his death. It may be that the courts apply the moral obligation only for dependents. For example, in a recent Ontario case, Johnson v. Huchkewich, one disinherited daughter challenged her mother’s will. The judge did not even address whether a child’s moral claim constitutes a legal claim. The only relevance of “moral claims” was how it reflected on capacity. The daughter argued that her mother lacked the ability to assess and appreciate the moral claims of her children and therefore did not have capacity. The judge did not accept that argument.

So will the winds of non dependent adult children’s moral claims from British Columbia blow through Ontario? It still remains to be seen. However, there are a number of lawyers who believe it’s coming. In her article on this topic, prepared for the Law Society of Upper Canada’s continuing legal education program, Susan Woodley (a very well respected member of the bar in Ontario) answered the question this way, “almost, possibly, probably”.

This short review of the case law should not be taken as legal advice. Based on my experience in dealing with these cases, they often turn on the specific facts. If you have a legal question relating to something similar, you are best advised to seek out competent legal counsel to determine your best course of action.

Charles B. Wagner is the managing partner at Wagner Sidlofsky LLP. This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

FN1 Tataryn v Tataryn 3 E.T.R. (2d) 229 S.C.C.

FN2 Cummings v. Cummings ( (2004), 5 E.T.R. (3d) (81) (Ont. S.C) (Cullity, J.); see Cummings v.Cummings (2004) 5 ETR (3rd) 97 (Ont. C.A.)

FN3 Johnson v. Huchkewich, 2010 ONSC 6002

Second Marriages and Risks to the Estate

November 29, 2010 by Charles Wagner

Joseph was 60 years old when lost his wife to cancer. On line he met an Israeli called Rebecca, a 40 year old widow. They emailed each other, grew to care for one another, and decided to marry. Rebecca and her children moved into Joseph’s home. Joseph’s adult children from his first marriage feared that Rebecca and her children were going to take away their inheritance. Joseph assured his children that Rebecca signed an agreement under which she gave up all her claims under the Family Law Act and could not claim support against his estate when Joseph died. Joseph assured them that he left his children all of his money. Should the children have relaxed? Maybe – Maybe not.

Revocation by marriage
Unless Joseph made a new will after he remarried or in contemplation of marriage Joseph’s old will was revoked by his marriage to Rebecca. By virtue of the laws of intestacy(FN1) , despite the contract, Rebecca would receive a preferential share (the first $200,000.00) and a distributive share (1/3) of the balance.

Family Law Act Considerations
So let’s assume Joseph makes a new will. Can his children rely on the fact that their father had Rebecca sign a domestic contract? Rebecca’s lawyer may argue that Joseph failed to disclose significant assets when the domestic contract was signed. Furthermore, her lawyer may argue that Rebecca’s English was minimal and she did not have independent legal advice so there is no way she understood the nature and consequences of signing this contract. Accordingly, the contract may be set aside and Rebecca could exercise her right under section 6 of Ontario’s Family Law Act. That would entitle Rebecca to receive an equal division of net family property under section 5 of the legislation.

Succession Law Reform Act Issues
Now let’s imagine that at Joseph’s insistence Rebecca hires a lawyer who speaks Hebrew so she cannot later claim she did not understand the contract. Joseph’s lawyer makes full and frank disclosure of all of his assets in the agreement. Can the children now relax? Unfortunately – the answer is not yet. Under the legislation a domestic contract is only one factor the court has to take into account and the court has the discretion to ignore the contract(FN2). For example, in Butts Estate v Butts(FN3) a husband and wife signed a separation agreement providing for $500 per month support. No one disputed that this was to be a final agreement. Despite the fact that there was a contract where both parties fully understood the terms of that agreement the court decided that the support provided was insufficient and increased the support payments to be paid by the estate to the separated wife by $1000 per month.

There is a very old joke that death is not the end – it is the beginning of estate litigation. While the scenario outlined above is fictional it nonetheless reflects a growing trend. People often feel they were treated unfairly and go to court despite signing a contract where they agreed not to make any claim. Based on my experience in dealing with these cases, and what should be evident from this review. each situation’s facts may make a world of difference to how a court might view a case. Whether a party is seeking is getting married or there is a dispute after death there is no replacement for seeking out the advice of a competent experienced lawyer who knows how to protect your interests.

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FN1. See section 16 of Succession Law Reform Act, R.S.O. 1990, c. S.26

FN2 See See Part V of the Succession Law Reform Act, R.S.O. 1990, c. S.26 and in particular section 62(1)(m) which lists the factors taken into account. By virtue of an “agreement” being only one factor the courts have made awards of support even though there was a domestic contract. As well, section 63(4) which provides that an order under this section may be made despite any agreement or waiver to the contrary.

FN3. Butts Estate v Butts (1999), 27 E.T.R. (2d) 81 (Ont.GenDiv.) For an excellent reviewon this topic see Archie Rabinowitz’s article Dependant’s Support Applications – The Statute that Continues to “Speak”

Do Mistresses Have a Right to Inheritance?

October 21, 2010 by Charles Wagner

Can you imagine burying a spouse and then being sued for support by his mistress? For those who believe in primacy on marriage and that marriage obligates its partners to fidelity, the idea of rewarding a mistress to a portion of the family’s an inheritance is unjust. Others argue that financial obligations should flow from the intensity and duration of life partner relationships regardless of the partners’ marital status. What do the courts think?

In Nowell v. Town Estate (http://bit.ly/nowell ) the deceased had a 24 year extramarital affair. During the week he lived with his wife, but on the weekends this man spent time with his mistress, gave her gifts worth about $125,000 and promised to support her. The mistress contributed to the man’s work as an artist without compensation. Left nothing in the will she sued the estate. Do you think she deserved any money? The Ontario Court of Appeal did.

The judges recognized that a 24 year relationship was more than casual and for the last 13 years it was quasi-spousal. The judges felt the mistress should be fully compensated because the estate was unjustly enriched. Mr. Town accepted his mistress’ help, did not pay for it, and he benefited financially. The court was influenced by the fact that the mistress made Mr. Town the focal point of her life and that through the years Mr. Town assured his mistress that he would look after her. While this did not create a legal relationship it proved the nature of the relationship. The court still awarded her $300,000.

In Mahoney v. King 1998 CarswellOnt 2348 a mistress successfully sued a married man for support because the court found that she was a common law spouse. Arguably, a mistress suing her paramour’s estate could use this case as a precedent. As a “spouse” the mistress would qualify as a dependant and would be entitled to support under the Succession Law Reform Act, R.S.O. 1990, c. S.26 if her paramour did not provide her with adequate support. There are those like the late law professor James G. McLeod who disagreed with this decision. He took exception to the idea that a woman who had an affair with a married man who lived with his wife may be a “spouse”. While Professor McLeod understood the argument of making an unjustly enriched estate compensate a mistress like in Nowell v. Town Estate he felt that to suggest that a mistress was a spouse for support purposes takes away whatever meaning is in the word “spouse”.

The different views of a mistress entitlement to support under the law should tell you that this issue is not a simple one. My short review of these cases should not be taken as legal advice. Based on my experience in dealing with these cases they often turn on the specific facts. If you have a legal question relating to something similar, you are best advised to seek out competent legal counsel to determine your best course of action.

Death Can Cheat a Creditor

June 30, 2010 by Michelle Soer

A creditor may enforce a judgment for the payment or recovery of money by garnishment. Garnishment is a procedure whereby moneys owing to the debtor (garnishee) by a third person attach directly to the creditor (garnishor). Garnishment attaches to moneys held in a RRSP.[1] In life, there is little question that RRSP’s vest in the owner of the RRSP.[2] At death, section 2(1) of the Estates Administration Act states that any real and personal property of a person that vests in that person during life, is transferred to the personal representative of that person at death, regardless of whether the property is disposed of by will or any other testamentary disposition. [3]

In Amherst Crane Rentals Ltd. v. Perring, 2002 CarswellOnt 2362, the Deceased died in April 1998, leaving his wife as estate trustee and sole beneficiary of his estate. His wife was also designated the beneficiary of two RRSPs held by deceased, totaling about $115,700. The wife received the RRSPs in May, 1998. The estate made a voluntary assignment into bankruptcy in April, 1999. In October, 1999 the trustee in bankruptcy demanded payment of proceeds of RRSPs from wife. The wife refused and in November and December of 1999 the wife collapsed the RRSPs and paid the net proceeds into her bank account. The trustee in bankruptcy assigned its claim to a creditor.

The creditor then brought an application for a declaration that proceeds of RRSPs were held in trust for it.

The lower court dismissed the application and held that upon the death of an owner of RRSPs the proceeds of these RRSPs transfer to the designated beneficiary and not the estate. The Honourable Justice Cameron stated that the death of the owner of the RRSPs terminated a creditor’s right to claim interest from the RRSPs. Simply because the legislation does not specifically exempt RRSPs from creditor’s hand does not result in the conclusion that creditors have a claim to RRSP proceeds where there is a designated beneficiary.

The lower court referred to section 72 of the Succession Law Reform Act which deals with dependant’s relief. This section allows a court to include assets not normally considered estate property for the purposes of valuing the estate and to satisfy valid dependant support claims. The provision confirms the social policy that a deceased’s dependants deserve support and implies that an RRSP with a designated beneficiary would, absent the section, not be part of the estate of the deceased. If an RRSP is immediately considered part of the estate, section 72(1)(g) of the Succession Law Reform Act would be “meaningless.”[4] The Court of Appeal agreed with the lower court and dismissed the appeal.[5]

So what does all of this legal jargon mean for beneficiaries of a deceased’s estate?

In effect, the court has sidestepped the issue of priorities in the Bankruptcy and Insolvency Act in favour of beneficiaries. The court held that RRSPs do not form part of the estate of the deceased but flow directly to the designated beneficiary. Moreover, a creditor cannot seek payment of its debt directly from the beneficiary of the RRSPs as a creditor cannot claim any interest in proceeds that do not form part of the estate of a debtor.

The lower court and the court of appeal recognized that often times people designate their spouses as beneficiaries of their RRSPs as these are vehicles for tax-deferred savings over the years. This designation is frequently for the recognition of the unpaid work the surviving spouse has done to contribute to the deceased’s life. The court of appeal went further and stated that a spouse is not a volunteer beneficiary but rather “a spouse has given consideration or a quid pro quo during the lifetime of the other spouse, and in return, receives the RRSP proceeds for support after the death of the other spouse.”[6] Moreover, in many situations RRSPs are the only assets that a beneficiary may receive upon the death of a spouse or family member.[7] Life partners of the deceased have “provided support to their spouses with the expectation that they will be supported after the death of their spouses.”[8]

Stated in the words of the Honourable Justice Cameron: “Death terminates the creditor’s rights to claim the property. He is then too late.”[9]

[1] Frank Bennett, Bennett on Collections, 5^th ed. (Toronto: Carswell, 2003) at 228.

[2] Amherst Crane Rentals Ltd. v. Perring, 2002 CarswellOnt 2362 (Ont. Sup. Ct.), para 8.

[3] R.S.O. 1990 c. E.22.

[4] Supra, note 2 at para 15.

[5] Amherst Crane Rentals Ltd. v. Perring, 2004 CanLII 18104 (ON C.A.).

[6] Ibid at para 30.

[7] Supra note 2 at para 25.

[8] Supra note 5 at para 33.

[9] Supra note 2 at para 29.

When is Probate Not Needed

May 4, 2010 by Charles Wagner | 3 comments

It is important for people who wish to stop estate assets from being distributed to know that a certificate of appointment (“Probate”) is not always necessary to effect the transfer of assets. For example,

When there is jointly-owned real property or bank accounts those assets pass to the surviving joint tenant by right of survivorship. In this instance the only thing needed by the surviving joint tenant is to have a death certificate. There may still ways to prevent the transfer depending of the facts specific to the situation.
Real Estate, under certain circumstances, may be transferred under a will without probate. See Bob Aaron’s article at http://www.thestar.com/article/248950 and the Memo to Land Registrars from Kate Muray dated October 30, 2000 at Registrar’s Memo where land registars are provided guidelines under what circumstances they are authorized to waive the requirement of a certificate of appointment of estate trustee when approving the transfer of property.
Insurance Policies, RRSPs may designate a beneficiary and probate may not be necessary to access those funds.
Shares in a private corporation. In order to avoid probate fees sophisticated investors use multiple wills. Since a great deal of wealth may be concentrated in the shares of these private corporations the testator may have made a separate will to deal with these shares and probate would not be necessary. For those interested in this topic I refer you to the Granovsky Estate case.

For those who wish to stop the distribution of non probatable assets it is important to know that more might be required then simply blocking probate by filing a notice of objection. If the asset in question is real property then one should contact a lawyer and investigate the possibility of obtaining a certificate of pending litigation or caution against title. If one seeks to stop the transfer of shares then one must go to court and seek judicial intervention. Those who ignore these possibilities do so at their peril.

Stopping Probate

May 2, 2010 by Charles Wagner

Why would someone want to stop a probate application? How can probate be stopped?

Imagine that Mom is senile and in the nursing home. She is at death’s door and her daughter Debbie brings in a lawyer to draft a new will in which Mom names Debbie as her executor and bequeaths her home and all her money to Debbie. When Mom dies, her son Ian is upset especially since the previous will divided everything equally between him and Debbie.

WHY STOP PROBATE? In Ontario when the deceased left a Will, Probate is called a “certificate of appointment with a will”. In our case scenario if the court issues Probate Debbie, as estate trustee/executor, has authority to administer the provisions of the Mom’s will. Ian will want to stop probate because otherwise his sister will inherit Mom’s home and get all of Mom’s money. Without probate:

banks are unlikely to release the Mom’s money or give the executor access to the deceased’s safety deposit box;
public companies will not transfer shares to the estate;
insurance companies are loathe to pay out on policies without first seeing a certificate of appointment; and
the land registrar ordinarily does not permit the transfer of land based only on the will. It is for this reason that, more often than not, executors apply for and receive a certificate of appointment with a will.

This certificate of appointment gives these institutions the certainty that the document in question truly is the last will and testament of the deceased and permits the executor to carry out his duties.
So – the bottom line is if there is a will challenge the challengers want to prevent the Will from being probated.

HOW TO STOP PROBATE IN ONTARIO
If the court has not granted probate then the first step should be filing a Notice of Objection to prevent the Will from being probated. The Notice of Objection will set out the nature of our client’s financial interest and the grounds for the objection. As long as the objector follows the necessary legal steps, as a result of filing the notice of objection the applicant for a Certificate of Appointment of Estate Trustee (the Probate application) cannot obtain probate without the issues in dispute being litigated or resolved. For more information on this process see Rule 75.03 of the Rules Of Civil Procedure – R.R.O. 1990, Reg. 194.

If Probate was already granted then the parties challenging the will have stop the executor from administering the estate and the only way to do that is to bring a motion for the return of the certificate of appointment or for the court to revoke the certificate of appointment.

Return Of Certificate Of Appointment Rule 75.05 Ian could bring a motion asking the court to make his sister return the certificate of appointment (the Probate) because he is challenging the will.
Revocation Of Certificate Of Appointment Rule 75.04. Ian could also bring an application to have the Probate Revoked. To do so he would have to have an apparent financial interest in the estate and be able to satisfy the court that :

                o the certificate was issued in error or as a result of a fraud on the court;
                o the appointment is no longer effective; or
               o the certificate should be revoked for any other reason.