Estate dispute – Doug Carroll

Writing a separate document to change or add to a Will

At issue

For many people, the execution of a Will is a solemn and rare occasion, with the document promptly packed away in some safe location to await its eventual application.

Others may have a more dynamic view of Will execution, expecting and even planning periodic or frequent additions or amendments. Those in a terminal medical condition may at times become especially active in reviewing their estate intentions.

When actions are taken with the benefit of professional guidance, it is highly unlikely that the authenticity or interpretation of such documents will come into question. However, when a person acts without involvement of a professional – and perhaps with no-one else involved at all – uncertainty can arise.

While codicils are accepted in all provinces, writings that fall short of that are less dependable. Ontario generally requires formal execution to give testamentary effect, while most of the other provinces explicitly empower courts to review and rule on documents that do not meet the formalities required for Wills.

Use of a codicil

Whereas a newly executed Will revokes all prior Wills (absent a clear statement to the contrary within it), a codicil adds to or amends the prior Will but otherwise leaves it in force. The Codicil will make explicit reference to the original Will, and in terms of process the execution requirements are exactly the same as applies to Wills.

British Columbia Wills, Estates and Succession Act, s.58

With WESA coming into force in 2014, BC moved away from its former ‘strict compliance’ requirements for creating, altering, or revoking a will.

Section 58 is what is commonly called a curative provision. It allows a court the discretion to accept or ‘cure’ a document or writing as a valid testamentary statement despite that it does not meet formal execution requirements.

Estate of Young, 2015 BCSC 182

Sharone Young was 69 years old, living alone in North Vancouver. She had been in declining health for a number of years, dealing with cancer and the aftermath of a stroke. She died in her home on July 10, 2014.

Ms. Young had a validly executed Will from 2009 in which she named Canada Trust as her executor. After Ms. Young’s death, two documents were found on her dining room table: a signed document dated June 17, 2013 and an unsigned document dated October 15, 2013. Both documents addressed the gift or disposal of furniture and personal effects to certain people, with the October document being more general and adding some priority of choice among some of those people.

Evidence was also received that Ms. Young had lunch with her neighbour on June 17, 2013, and provided to her a copy of the document of that date.

The judge outlined the legal framework for analysis, which of course centered on the application of WESA s. 58. With no case law yet in BC, she considered the similarly worded Manitoba provisions, though even there most of the case law pre-dated the most recent amendments. Still, she summarized from those cases the two principle issues to address:

Is the document authentic?, and
Does is reflect testamentary intention?

With respect to the June document, the judge viewed the signature as Ms. Young’s conscious signal of her knowledge and approval of its contents. That was supported by having shared an exact copy with the neighbour and conspicuously leaving the original on the dining room table where it would be easily found. All this led to the conclusion that it was both authentic and expressed her testamentary intentions.

The judge was not as persuaded with the October document. As mentioned, it was unsigned, was never shared or mentioned to anyone so far as the evidence showed, and appears to have been no more than a letter expressing non-binding wishes.

Practice points

Per my usual comment, the best route to certainty is for a person as testator to follow formal processes, generally with the assistance of a capable professional.
At a minimum, an offered document will be questioned as to its authenticity and whether it shows testamentary intention.
To repeat, Ontario has a more formalistic regime, while most of the other provinces allow greater court discretion. Still, there remains a range of approaches even at that discretionary end. An executor should obtain legal advice specific to the deceased’s province to be certain whether a particular document may affect the estate.

Jointly owned investments with adult children – Complications abound, so be careful

Joint ownership is one of the most common ways for two or more people to hold property. This includes real estate, as well as personal property such as bank and investment accounts.

The reason investors do this is for simplicity, including the ability to transfer assets to the other owner should one die. With the deceased’s estate bypassed, there could be a probate tax savings of as much as 1.5% of the property value in some provinces.

In the case of spouses who intend to pass property to one another on a first death, this can be a cost-effective and efficient way to transfer property. But when non-spouses are involved, complications arise.

Adding adult children

It can be problematic to add an adult child as a joint owner. In particular, income taxes may be unintentionally triggered, the property may become exposed to the child’s creditors (at least in part), and there is exposure risk if a child’s marriage breaks down.

Beyond that, there can still be significant grey areas. Merely recording title as joint ownership does not necessarily make it so. The actions and intentions of the transferor parent, and surrounding circumstances can affect the nature and extent of the ownership interests being transferred.

These concerns most often surface after the death of the parent, when siblings or other estate beneficiaries may contest the child’s claim to ownership. An Ontario Court of Appeal case from earlier this year illustrates how this can lead to hostile and costly disputes.

Competing sibling and estate claims

Arthur and Hilda Sawdon held most of their bank accounts jointly. After Hilda died in 2004, Arthur was frustrated by delays obtaining the release of the one account that had been in Hilda’s name alone. To avoid this problem for his own estate, he decided to transfer his bank accounts into joint ownership with two of his five adult children. He told them all five should receive equal entitlements.

In 2006, just before the last account transfer, Arthur executed a will naming the Watch Tower Bible and Tract Society of Canada (Watch Tower), a religious charity for Jehovah’s Witnesses, as the residual beneficiary of his estate.

Arthur died in 2007, and a dispute arose over the contents of the bank accounts: about $1 million.

Watch Tower relied on the Supreme Court of Canada’s ruling in Pecore. In principle, when a parent adds an adult child as joint owner, it is presumed that the child holds title as a trustee for the parent’s estate. Watch Tower’s sole witness was the lawyer who drafted Arthur’s will, who claimed Arthur intended the bank accounts to form part of the estate.

Undisclosed to Arthur, the lawyer was an elder with the Jehovah’s Witnesses, and had acted as Watch Tower’s counsel in the past. The trial judge found his evidence neither credible nor reliable.

The appeal court distinguished the facts in Pecore, based on evidence of Arthur’s expressed intentions and his experience with and knowledge of joint ownership. Rather than there being a trust for the estate beneficiaries, from the time the account was opened, the two children on title held the beneficial right of survivorship in trust for all five children.

The estate trustee (who was also one of the sons on title) was awarded partial indemnity of his costs from the estate, with the balance to be recovered from Watch Tower directly. Total costs were about a quarter of a million dollars. It took almost seven years from Arthur’s death to reach this court resolution.

RRSPs, RRIFs and insolvent estates

At issue

Where there is a beneficiary designation on a RRSP or RRIF, the funds in the respective account at the annuitant’s death will be paid to the named beneficiary. Specifically, it is the gross funds that the financial institution will pay out, with the associated tax liability being borne by the estate of the deceased. If the estate does not have sufficient assets to pay the tax liability, the Canada Revenue Agency can seek payment of the associated taxes from the beneficiary.

Depending on circumstances, this can cause troublesome complications for a beneficiary, and also for the executor of such an estate.

2011-04022391I7 (E) – Insolvent Estate of a Deceased RRSP Annuitant

A deceased’s estate has primary liability for the income tax associated with inclusion of RRSP proceeds in the deceased’s terminal year income. Under ITA s.160.2(1), a beneficiary is jointly and severally liable, and CRA may look to the beneficiary to pay the proportional taxes when an estate is insolvent.

This liability applies whether the beneficiary is a Canadian resident or non-resident. The law cannot however be enforced against a non-resident, as courts of one country will not generally enforce the revenue laws of another country.

2011-0429101C6 (E) – 2011 STEP Conference – Q20 – Insolvent Estates

CRA responded on a series of questions involving insolvent estates.

The Crown has priority over other general estate creditors, though it will stand behind secured creditors. Once an estate is assigned into bankruptcy however, the Crown priority ceases to apply.

With respect to a RRIF that is paid from a financial institution to one or more named beneficiaries, any personal liability of the executor of the deceased’s estate will be limited to the assets under his or her control and that he or she has distributed. Presumably a direct payment to a plan beneficiary from the institution without intervention of the executor would not be determined to have been under the executor’s control.

Where an executor contemplates using estate assets to object to an income tax assessment, there is a risk that the executor could be liable for taxes if the estate is or becomes insolvent. If the executor engages an accountant on behalf of the estate for this purpose, there is a risk that the executor could be personally liable for that cost. Similarly, if the executor engages an accountant using his/her personal funds, there is no certainty that the estate will be obliged to reimburse the executor. A suggested alternative in this CRA letter is for the executor to assign the estate into bankruptcy, leaving it to the bankruptcy trustee to decide whether to object or appeal.

Practice points

A named beneficiary should bear in mind the potential tax implications when receiving RRSP or RRIF proceeds. Before committing those received funds to a large expenditure (eg., travel, a capital purchase or lump sum mortgage payment), the beneficiary should have an understanding of the deceased’s financial circumstances. Such a beneficiary should proceed cautiously if there is a concern about the deceased’s solvency and/or the realizability of assets now held in the estate.
Prior to accepting the role, a named executor may wish to look into the financial status of the deceased, and in turn the prospects for the estate. To the extent the estate is or becomes insolvent, the executor may merely be acting to realize assets for the benefit of estate creditors, and not estate beneficiaries.