Albert H. Oosterhoff is Counsel to Whaley Estate Litigation Partners
Once more unto the breach, dear friends, once more . . .[1]
Recently I blogged[2] about Re Milne,[3] a case involving multiple wills that contained what have become known as “basket clauses”. Such clauses give the executors (referred to as estate trustees in Ontario) power to allocate assets into either the primary will (for which probate is required and which therefore attracts estate administration tax (“EAT”)), or the secondary will (for which probate is not required). When the estate trustee applied for a Certificate of Appointment of Estate Trustee[4] of the Primary Will in Milne, Justice Dunphy held that the Primary Will was void because its basket clause excluded assets for which the trustees determined that probate was not required. His Honour concluded that this rendered the primary will uncertain. He came to this conclusion because he opined that a will is a form of trust and it must therefore satisfy the three certainties of intent, subject matter, and objects. In his view, certainty of objects was lacking.
I criticized the Milne judgment principally on two grounds: (a) a will is not a trust and the suggestion that it is a trust is completely without authority; and (b) in probate proceedings it is improper for a the court to engage in interpreting the language of the will to determine its validity as a matter of construction. A court of probate is only concerned to determine whether a will presented for probate is a testamentary document, is made by a testator who is competent and was not subjected to undue influence, and has been executed with the required formalities.
The decision set the denizens of the wills and estates dovecote all aflutter. There was great fear that it had the effect of invalidating many similar wills and that this could lead to negligence claims against the drafters of those wills. LawPro, Ontario’s professional liability insurer for the legal profession, also got in on the act and offered advice to the drafters. The case is now under appeal and it is to be hoped that it will be reversed.
Meanwhile, I have the pleasant task of introducing the readers to a more recent case that has restored sanity in this area of the law and has done much to calm the ruffled feathers of the estates bar.
The facts in Re Panda[5] are almost identical to those in Milne. Again it involved a Primary Will and a Secondary Will, the first was made in respect of assets that would require probate, while the second dealt with assets that did not require probate. The basket clauses in Panda were slightly different from those in Milne, but there was no difference in substance. When the estate trustee applied for a Certificate of Appointment of Estate Trustee of the Primary Will, the application came before Dunphy J. In his endorsement he said: “I am not satisfied that the Primary Will constituted a valid trust in the absence of the Secondary Will due to lack of certainty of subject matter … If this is to be proceeded with, a motion and argument is needed.”[6]
The motion for directions came before Penny J. He declined to follow Milne, granted the application, and gave his reasons in an extensive endorsement. He stated that the decision in Milne raises one procedural and two substantive issues. The procedural is:
(1) whether on an unopposed application for a certificate of appointment as estate trustee, it is appropriate to inquire into substantive questions of construction of the will or whether the inquiry is limited to “formal” validity of the will for purposes of probate.[7]
The substantive issues are:
(2) whether the validity of a will depends upon the testamentary instrument satisfying the “three certainties” test which govern the test for the valid creation of a trust; and
(3) whether, apart from the questions of the validity of the will itself, a testator can confer on his or her personal representatives the ability to decide those assets in respect of which they will seek probate and those in respect of which they will not.[8]
With respect to the procedural issue, Penny J. stated:
[15] The role of the court on an application for a certificate of appointment as estate trustee with a will is to determine whether the documents presented are the testator’s last will. The document must satisfy certain technical requirements – that is, the document must be in writing and signed at its end by the testator in the presence of two or more witnesses who subscribe the will in the presence of the testator. The court must also, as a matter of substance (or “construction”), determine whether the instrument is testamentary in nature; in other words, does it disclose an intention to make a disposition of the testator’s property upon his or her death?
[16] Broader questions of interpretation which involve ascertaining the meaning of the testamentary documents, whether the testamentary dispositions relate to assets owned by the testator at the time of his or her death, or the validity of powers of appointment or other discretionary decision-making conferred on the estate trustees, are matters of construction not necessary to the grant of probate authorizing the applicant to act as the deceased’s personal representative.
. . .
[18] In my view, the question of the validity of the conferral of the authority to decide under which of two wills (the probated will and the non-probated will) the property of the deceased will be administered, and the effect of the answer to that question on the administration of the estate, are matters of broad construction which ought not to be dealt with in the context of an application for probate per se.
Thus, Justice Penny disagreed with Justice Dunphy’s approach and concluded, rightly, in my opinion that the role of the Court when exercising its Probate function is limited.
With respect to the first substantive issue, Justice Penny also disagreed strongly with Justice Dunphy’s assertion that a will is a kind of trust and for a will to be valid it must create a valid trust and must therefore satisfy the “three certainties”. He held, correctly in my view, that a will is not a trust and therefore does not have to have to satisfy any such test.
Justice Penny then turned to the second substantive issue and took the view, again rightly in my opinion, that the question whether a testator can give the personal representatives power to determine the assets for which they will seek probate and those for which they will not, is a question of construction and not a question of the validity of the will itself. His Honour, again rightly, recognized that a question of construction should not normally be considered on an application for probate. If it needs to be considered at all, it ought to be done only in separate proceedings by the court exercising its function of construing a will.
That being so, His Honour concluded that it would be inappropriate to make any decision at this stage about the validity of the powers conferred on the estate trustees in this case, because that issue was not before him.[9]
His Honour then discussed the different ways in which provisions to minimize the reduction of EAT can be drafted. He followed this with a very helpful dictum:
[31] In the circumstances of this case, it is not at all clear to me that a direction from the testator about how the estate trustees should decide whether or not to seek probate in respect of two or more wills dealing with particular components of the deceased’s property, is any more extreme or “uncertain” than other, well-established discretionary choices frequently conferred on and exercised by estate trustees. Directing the estate trustees to determine whether a grant of authority by a court of competent jurisdiction is or is not required for the transfer, disposition or realization of property, and to act on that determination in their administration of the estate, arguably provides to the estate trustees an objective, ascertainable basis for the exercise of whatever “discretion” is embedded in that conferral of authority.
I agree with this dictum and in my blog on Milne[10] I expressed the view that testators commonly confer extensive powers on estate trustees designed to facilitate the administration of the estate in an orderly manner. Such powers have been accepted for many years and their validity is unquestioned. The powers conferred by basket clauses are similar in nature in my opinion and ought also to be considered acceptable.
However, Justice Penny rightly concluded[11] that such questions should be left for an occasion when they are properly raised as a matter of construction.
In the course of his reasons Justice Penny cited, quoted from, and adopted ideas that I had previously expressed in other materials. It is of course very gratifying when one’s work receives the court’s imprimatur. But what is much more important is that a judge sets the law to rights by clearly outlining the correct principles to be followed in particular circumstances. Justice Penny has certainly done that in this case and the estates bar can be grateful for his clear exposition of these principles.
Does this mean that the drafters of multiple wills can now go back to using “basket clauses” with impunity? No, for as Justice Penny has made clear, such clauses may raise validity issues that can only be addressed in proceedings in which the will or portions of it are presented to the court for construction. While those issues should not be considered in probate, they may and are likely to be raised in future in proceedings before the court exercising it construction function.
Accordingly, while Justice Penny’s decision is very welcome, it does not (and could not) solve the problem entirely. Indeed, it can give an estate trustee only a Pyrrhic victory by permitting a primary will to be probated, but then potentially having the basket clauses ruled invalid in construction proceedings.
Since we now have opposing decisions on the issue in Ontario, it would seem opportune for the Court of Appeal to address and resolve the problem. One would hope that in the process the court will give us strong, helpful dicta along the lines expressed by Justice Penny in paragraph 31 of his reasons
It is perhaps not untoward to reflect on the fact that multiple wills came into common use because of the introduction of the hated EAT. They have engendered a multitude of problems over the years. The Estate Administration Tax Act, 1998[12] has become more complex with each iteration and creates enormous practical difficulties for solicitors and estate trustees who must comply with it. It greatly complicates the administration of estates and the revenue it raises for the provincial coffers is relatively modest. Might the government be persuaded to repeal the legislation one wonders. That would certainly simplify estate administration.
—
[1] With apologies to William Shakespeare for applying these words from Henry V in a rather different context.
[2] “What Is a Will and What is the Role of a Court of Probate”. http://welpartners.com/blog/2018/09/what-is-a-will-and-what-is-the-role-of-a-court-of-probate/. Posted 26 September 2018.
[3] 2018 ONSC 4174.
[4] Known as applying for probate everywhere else.
[5] 2018 ONSC 6734.
[6] Ibid., para. 3.
[7] Ibid., para. 13.
[8] Ibid., para. 14.
[9] Ibid., para. 28.
[10] Supra, footnote 2.
[11] Ibid., para. 32.
[12] S.S. 1998, c. 34, Sched.
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Written by: Albert Oosterhoff
Posted on: November 17, 2018
Categories: Commentary
Albert H. Oosterhoff is Counsel to Whaley Estate Litigation Partners
Once more unto the breach, dear friends, once more . . .[1]
Recently I blogged[2] about Re Milne,[3] a case involving multiple wills that contained what have become known as “basket clauses”. Such clauses give the executors (referred to as estate trustees in Ontario) power to allocate assets into either the primary will (for which probate is required and which therefore attracts estate administration tax (“EAT”)), or the secondary will (for which probate is not required). When the estate trustee applied for a Certificate of Appointment of Estate Trustee[4] of the Primary Will in Milne, Justice Dunphy held that the Primary Will was void because its basket clause excluded assets for which the trustees determined that probate was not required. His Honour concluded that this rendered the primary will uncertain. He came to this conclusion because he opined that a will is a form of trust and it must therefore satisfy the three certainties of intent, subject matter, and objects. In his view, certainty of objects was lacking.
I criticized the Milne judgment principally on two grounds: (a) a will is not a trust and the suggestion that it is a trust is completely without authority; and (b) in probate proceedings it is improper for a the court to engage in interpreting the language of the will to determine its validity as a matter of construction. A court of probate is only concerned to determine whether a will presented for probate is a testamentary document, is made by a testator who is competent and was not subjected to undue influence, and has been executed with the required formalities.
The decision set the denizens of the wills and estates dovecote all aflutter. There was great fear that it had the effect of invalidating many similar wills and that this could lead to negligence claims against the drafters of those wills. LawPro, Ontario’s professional liability insurer for the legal profession, also got in on the act and offered advice to the drafters. The case is now under appeal and it is to be hoped that it will be reversed.
Meanwhile, I have the pleasant task of introducing the readers to a more recent case that has restored sanity in this area of the law and has done much to calm the ruffled feathers of the estates bar.
The facts in Re Panda[5] are almost identical to those in Milne. Again it involved a Primary Will and a Secondary Will, the first was made in respect of assets that would require probate, while the second dealt with assets that did not require probate. The basket clauses in Panda were slightly different from those in Milne, but there was no difference in substance. When the estate trustee applied for a Certificate of Appointment of Estate Trustee of the Primary Will, the application came before Dunphy J. In his endorsement he said: “I am not satisfied that the Primary Will constituted a valid trust in the absence of the Secondary Will due to lack of certainty of subject matter … If this is to be proceeded with, a motion and argument is needed.”[6]
The motion for directions came before Penny J. He declined to follow Milne, granted the application, and gave his reasons in an extensive endorsement. He stated that the decision in Milne raises one procedural and two substantive issues. The procedural is:
(1) whether on an unopposed application for a certificate of appointment as estate trustee, it is appropriate to inquire into substantive questions of construction of the will or whether the inquiry is limited to “formal” validity of the will for purposes of probate.[7]
The substantive issues are:
(2) whether the validity of a will depends upon the testamentary instrument satisfying the “three certainties” test which govern the test for the valid creation of a trust; and
(3) whether, apart from the questions of the validity of the will itself, a testator can confer on his or her personal representatives the ability to decide those assets in respect of which they will seek probate and those in respect of which they will not.[8]
With respect to the procedural issue, Penny J. stated:
[15] The role of the court on an application for a certificate of appointment as estate trustee with a will is to determine whether the documents presented are the testator’s last will. The document must satisfy certain technical requirements – that is, the document must be in writing and signed at its end by the testator in the presence of two or more witnesses who subscribe the will in the presence of the testator. The court must also, as a matter of substance (or “construction”), determine whether the instrument is testamentary in nature; in other words, does it disclose an intention to make a disposition of the testator’s property upon his or her death?
[16] Broader questions of interpretation which involve ascertaining the meaning of the testamentary documents, whether the testamentary dispositions relate to assets owned by the testator at the time of his or her death, or the validity of powers of appointment or other discretionary decision-making conferred on the estate trustees, are matters of construction not necessary to the grant of probate authorizing the applicant to act as the deceased’s personal representative.
. . .
[18] In my view, the question of the validity of the conferral of the authority to decide under which of two wills (the probated will and the non-probated will) the property of the deceased will be administered, and the effect of the answer to that question on the administration of the estate, are matters of broad construction which ought not to be dealt with in the context of an application for probate per se.
Thus, Justice Penny disagreed with Justice Dunphy’s approach and concluded, rightly, in my opinion that the role of the Court when exercising its Probate function is limited.
With respect to the first substantive issue, Justice Penny also disagreed strongly with Justice Dunphy’s assertion that a will is a kind of trust and for a will to be valid it must create a valid trust and must therefore satisfy the “three certainties”. He held, correctly in my view, that a will is not a trust and therefore does not have to have to satisfy any such test.
Justice Penny then turned to the second substantive issue and took the view, again rightly in my opinion, that the question whether a testator can give the personal representatives power to determine the assets for which they will seek probate and those for which they will not, is a question of construction and not a question of the validity of the will itself. His Honour, again rightly, recognized that a question of construction should not normally be considered on an application for probate. If it needs to be considered at all, it ought to be done only in separate proceedings by the court exercising its function of construing a will.
That being so, His Honour concluded that it would be inappropriate to make any decision at this stage about the validity of the powers conferred on the estate trustees in this case, because that issue was not before him.[9]
His Honour then discussed the different ways in which provisions to minimize the reduction of EAT can be drafted. He followed this with a very helpful dictum:
[31] In the circumstances of this case, it is not at all clear to me that a direction from the testator about how the estate trustees should decide whether or not to seek probate in respect of two or more wills dealing with particular components of the deceased’s property, is any more extreme or “uncertain” than other, well-established discretionary choices frequently conferred on and exercised by estate trustees. Directing the estate trustees to determine whether a grant of authority by a court of competent jurisdiction is or is not required for the transfer, disposition or realization of property, and to act on that determination in their administration of the estate, arguably provides to the estate trustees an objective, ascertainable basis for the exercise of whatever “discretion” is embedded in that conferral of authority.
I agree with this dictum and in my blog on Milne[10] I expressed the view that testators commonly confer extensive powers on estate trustees designed to facilitate the administration of the estate in an orderly manner. Such powers have been accepted for many years and their validity is unquestioned. The powers conferred by basket clauses are similar in nature in my opinion and ought also to be considered acceptable.
However, Justice Penny rightly concluded[11] that such questions should be left for an occasion when they are properly raised as a matter of construction.
In the course of his reasons Justice Penny cited, quoted from, and adopted ideas that I had previously expressed in other materials. It is of course very gratifying when one’s work receives the court’s imprimatur. But what is much more important is that a judge sets the law to rights by clearly outlining the correct principles to be followed in particular circumstances. Justice Penny has certainly done that in this case and the estates bar can be grateful for his clear exposition of these principles.
Does this mean that the drafters of multiple wills can now go back to using “basket clauses” with impunity? No, for as Justice Penny has made clear, such clauses may raise validity issues that can only be addressed in proceedings in which the will or portions of it are presented to the court for construction. While those issues should not be considered in probate, they may and are likely to be raised in future in proceedings before the court exercising it construction function.
Accordingly, while Justice Penny’s decision is very welcome, it does not (and could not) solve the problem entirely. Indeed, it can give an estate trustee only a Pyrrhic victory by permitting a primary will to be probated, but then potentially having the basket clauses ruled invalid in construction proceedings.
Since we now have opposing decisions on the issue in Ontario, it would seem opportune for the Court of Appeal to address and resolve the problem. One would hope that in the process the court will give us strong, helpful dicta along the lines expressed by Justice Penny in paragraph 31 of his reasons
It is perhaps not untoward to reflect on the fact that multiple wills came into common use because of the introduction of the hated EAT. They have engendered a multitude of problems over the years. The Estate Administration Tax Act, 1998[12] has become more complex with each iteration and creates enormous practical difficulties for solicitors and estate trustees who must comply with it. It greatly complicates the administration of estates and the revenue it raises for the provincial coffers is relatively modest. Might the government be persuaded to repeal the legislation one wonders. That would certainly simplify estate administration.
—
[1] With apologies to William Shakespeare for applying these words from Henry V in a rather different context.
[2] “What Is a Will and What is the Role of a Court of Probate”. http://welpartners.com/blog/2018/09/what-is-a-will-and-what-is-the-role-of-a-court-of-probate/. Posted 26 September 2018.
[3] 2018 ONSC 4174.
[4] Known as applying for probate everywhere else.
[5] 2018 ONSC 6734.
[6] Ibid., para. 3.
[7] Ibid., para. 13.
[8] Ibid., para. 14.
[9] Ibid., para. 28.
[10] Supra, footnote 2.
[11] Ibid., para. 32.
[12] S.S. 1998, c. 34, Sched.
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