The Ontario Divisional Court ruled in late January to set aside a lower court’s decision in Milne Estate (Re) that threw the longstanding estate-planning strategy involving the use of multiple wills into disarray.
This past September, Justice Sean Dunphy of the Ontario Superior Court of Justice ruled that a primary will is invalid when estate trustees are given the discretion, through an allocation clause, to determine which assets would fall under either a primary or a secondary will. That decision, which is made after the testator’s death, is based on whether the assets would be subject to probate fees. The judge found that there was no certainty under which will the assets were covered because they could be split between the two wills after the testator’s death at the discretion of the estate trustees.
Furthermore, Justice Dunphy ruled that “a will is a form of trust” and has to satisfy formal requirements set out in the Succession Law Reform Act (SLRA) to be valid. However, this finding was not based on precedent.
Thus, there were several issues appealed, one being whether the application judge erred in deciding that a will is a trust. In turn, the Ontario Divisional Court judges allowed the appeal to take place on the basis that a will is not a trust based on the definition of a will in the SLRA. In addition, the Ontario Divisional Court found that a will can contain a trust, but it is not a requirement. Similarly, the judges found that the use of allocation clauses are valid discretionary powers that may be conferred on estate trustees.
A strategy involving the use of multiple wills
A will outlines how the testator’s property is to be distributed to a beneficiary or beneficiaries. Following the testator’s death, it must be determined whether a will has to be submitted to the court for probate (or a certificate of appointment of estate trustee), the process in which the will and the estate trustee are certified. Part of this process involves estate administration taxes or probate fees paid on the assets included in the deceased’s will.
Probate fees are required in certain circumstances. The strategy involving the use of multiple wills has minimized the probate fees payable as well as the delay associated with obtaining a certificate of appointment of estate trustee – and concerns around privacy in respect of certain assets.
The primary will generally contains the assets that must go through the court and the public probate process. The secondary will generally pertains to assets that do not have to be submitted to court for probate. This strategy has become a crucial estate-planning tool – and one that the courts have found to be acceptable to lower probate fees.
Impact for advisors and their clients
The Ontario Divisional Court’s decision in the appeal highlights a couple of key considerations that advisors should keep in mind when helping clients in estate-related matters. First, ambiguity ought to be avoided as much as possible to avoid potential issues relating to the validity and/or interpretation of the will; and second, care should be used when preparing allocation clauses, revocation clauses and other terms in a multiple wills scenario, no matter how standard, to ensure that the wills are capable of operating together.
The use of allocation clauses in multiple wills is valid and provides objective criteria for determining under which will an asset might fall and whether probate fees are required on certain assets. However, the allocation clauses cannot be exercised arbitrarily. Executors must exercise discretion in accordance with their fiduciary obligations and need to act as a reasonable, ordinary person would in dealing with the assets identified.
Ian Hull is co-founder of Hull & Hull Barristers and Solicitors in Toronto and a certified specialist in estate and trust law and civil litigation. He represented the Toronto Lawyers Association, which was granted intervenor status and supported the position of the appellants.