Toronto Estate Law Blog : Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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The cover story of the October/November 2006 issue of National, the magazine published by the Canadian Bar Association, dealt with the interesting topic of artificial intelligence (AI) software and its effect on the legal profession. I was quite surprised to learn that some global corporate law firms are selling legal opinions created by the use of expert cyberspace systems. Apparently, a client answers a series of interactive computerized questions designed to collect relevant facts, and presto! A legal opinion is produced.

The article notes that many courts and legal aid organizations are also relying on the intelligent preparation of forms and court documents to expand access to justice.

The article notes that Australia is leading the way in lawyer automation, while in Canada, it is still in its infancy.

Is AI software leading to the eventual automation of the legal profession? Will lawyers become irreplaceable? According to the article, the answer is no. Many intelligent software programs are designed to assist lawyers in giving advice to clients. In addition, by using such programs, lawyers free up more time to engage in analytical thinking and focus on creative legal solutions. Machines, thankfully, cannot reproduce such human abilities. Especially with complex matters, human lawyers will be needed and valued for their judgment and expertise.

In the estates and trust area, we have seen do-it-yourself Will and power of attorney kits. There are also electronic versions of such kits, replete with brief explanations of the law and instructions on how to execute the prepared documents. Perhaps do-it-yourself trust documents are not far behind. However, while such kits may be cost-effective in the short term, the resulting legal documents may lead to costly problems of interpretation and litigation in the long run. In Ontario, having a Will or Trust prepared by a lawyer is still relatively reasonably priced. In my view, paying extra to retain a human lawyer who will employ a personal touch and reasoned judgement, instead of using a do-it-yourself kit, automated or otherwise, is well worth the cost. Some things just don’t come in a box…or AI software.

Have a great day!

Bianca La Neve

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During Hull on Estates Episode #44, Jason Allan and David Smith discuss the duties and obligations of trustees with specific consideration to trustees of discretionary trusts. They discuss various claims available to beneficiaries against a trustee who is alleged to have acted improperly and the defences available to the trustee.

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During Hull on Estate and Succession Planning Episode #45, Ian and Suzana discuss various considerations that must be taken into account before the drafting of an Estate plan and Will takes place.

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Lack of testamentary capacity and undue influence are usually difficult to prove. However, too many clients are willing to advance such claims on the basis of a weak evidentiary record. A recent decision from the Alberta Court of Appeal, Nicholson v. Kurtz sounds a note of caution.
Two sisters appealed a trial decision setting aside their father’s Will on the basis of lack of testamentary capacity and undue influence.

The father’s previous Will had divided the residue of his estate equally between his three children. However, in 1998, the father, who was 92 at the time, retained a lawyer to prepare a new Will (“1998 Will”). The lawyer asked his client a series of questions. Some of the responses were inaccurate, but the lawyer ultimately concluded his client had capacity. The 1998 Will specifically stated that the father wanted to exclude his son “because I believe if he receives any money he will use it for liquor”. The son had been convicted of drinking and driving offences in 1987 and 1992.

The trial judge concluded that the father lacked capacity and was unduly influenced by his two daughters and set aside the 1998 Will. The Alberta Court of Appeal disagreed and reversed the trial judge’s decision. The 1998 Will was declared valid.

According to the Appeal Court, there was no medical evidence suggesting the testator lacked capacity and there was no direct evidence that the daughters influenced their father’s decision to exclude their brother. Moreover, the father’s lawyer specifically questioned his client to gauge his capacity during their first two meetings. Their third meeting lasted two and a half hours and the lawyer had no reason to conclude that his client’s capacity had changed. After reading the 1998 Will to his client, the lawyer was satisfied that it expressed his client’s wishes.

According to the Appeal Court, the finding of undue influence could also not be sustained on the record. The father’s reason for excluding his son was expressly stated in the 1998 Will. There was also clear evidence that the father’s wish to exclude his son arose several months before the 1998 Will was signed. The Appeal Court held that the trial judge simply failed to give any weight to this evidence. The trial judge also failed to give weight to the lawyer’s evidence that he discussed the possibility of the daughters’ influence with his client who expressly denied such influence. Mise en garde!!

Justin de Vries

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Recently, a client came to me regarding the purchase of a family cottage. The client was obviously excited about his new purchase, and wanted advice as to whether he should include his minor children on title. As his children would ultimately inherit the cottage, he thought it would be a good idea to include them on title from the start. My client knew that if his children were joint owners, they would continue to own the cottage after he died by right of survivorship. Not only would capital gains taxes be deferred (until the children ultimately disposed of the cottage), but the cottage would not be included as an estate asset for the purposes of calculating the estate administration tax (i.e. probate fees). It seemed like the perfect plan.

However, despite my client’s best intentions, my advice was not to put his children on title. The problem was that if the cottage had to be sold or mortgaged while his children were still minors, a court order would be required. Moreover, The Children’s Lawyer would have to be put on notice if such a court order were requested. Finally, the court would only grant an order when it was of the opinion that the sale or encumbrance of the cottage was necessary or proper for the support or education of the children, or would substantially benefit them. In the end, it was better for my client to simply wait until his children were adults before transferring his interest in the cottage to them.

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In Debora v. Debora, 2006 CanLII 40663 (ON C.A.), the Ontario Court of Appeal confirmed that a property will be considered a matrimonial home even if it is owned by a company instead of directly by a spouse.

The facts of the case make for interesting reading. The parties went through a religious wedding ceremony in 1987, but did not obtain a license to marry. They had one child born in 1989. In July, 1994, the parties went through a civil marriage ceremony. On October 19, 1993 a company, in which the husband was the sole shareholder, purchased a cottage property as an investment. He provided all of the funding. On September 11, 1995, the parties separated and became involved in contentious litigation which dragged on over a number of years.

The trial judge found that the cottage came within the definition of matrimonial home as set out in the Family Law Act. The court of appeal agreed.

According to the appellate court, the husband was the sole shareholder and controlled the company through which the cottage was originally purchased. The husband’s company did not pay for the renovation of the cottage. Moreover, money from the couple’s joint bank account was used to pay ongoing expenses. The court found that the company was essentially the alter ego of the husband and was being used by him to try to defeat the legitimate claim of his wife. The husband was not allowed to hide behind the corporate veil.

The court of appeal agreed with the conclusion that the cottage was a matrimonial home based on the finding by the trial judge that the property “was ordinarily occupied by the person and his or her spouse as their family residence”.

The bottom line is that if you want to characterize a property as an investment, it should be treat as such in both substance and form.

Justin de Vries

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Rose v. Rose is a recent Ontario case that deals with marriage breakdown, disillusioned children, and the finality of an irrevocable trust.

Brian and Janice were married and had two daughters. In 1992, Brian and Janice transferred a ski chalet and cottage into trust for the benefit of their daughters. Brian was the trustee for the trust. The trust was irrevocable. The family enjoyed the use of the chalet and cottage before and after the establishment of the trust.

Brian and Janice separated after the trust was established. Brian’s relationship with his daughters also deteriorated. The daughters ultimately became frustrated with their father as trustee and commenced an application to have him removed. They also sought an order winding up the trust and distributing the capital income to them.

For his part, Brian wanted to continue to use and enjoy the chalet and cottage despite the separation from his wife. However, the court held that the trust deed, the foundation document for the trust, could not be interpreted as authorizing Brian (or Janice for that matter) to use and enjoy the two properties without the consent of his two daughters. Furthermore, the court was not prepared rectify the trust deed to provide Brian with the use and enjoyment of the properties.

Brian also hoped to transfer the two properties back to him and his former wife. The court held that once the trust had been created, no such transfer could take place as Brian had failed to retain the power to revoke the trust.

However, the court did remove Brian as trustee. The court noted there was a great deal of hostility between Brian and his daughters. According to the court, it did not matter where the fault lay. The question to be asked when removing a trustee is whether it would be difficult for the trustee to act with impartiality, not whether in fact he would or would not do so. The court held that it would be impossible for Brian to act impartially in this situation.

Finally, the court held there was no basis for the claim by the daughters that they were entitled to call for the winding-up of the trust and for the distribution to them of the property of the trust.

Justin de Vries

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During Episode #43 of Hull on Estates, Craig and Bianca gave an overview of a previous podcast aired on December 12, 2006. They furthered this discussion on managing estate litigation matters, and considered multiple proceedings (ex. dependent support claims), how issues are set out in Orders for Directions, and evidence requirements, including documentary discovery. 

The case of Burns Estate v. Mellon, (2000), 48 O.R. (3d) 64 (C.A.) was disussed as well.

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During Episode #44, Ian and Suzana discussed last week's blog entries by Sean Graham, continued their look at Estate and Wealth Planning focusing on Disability planning (see Paul Trudelle's blog entries on the Ontario Disability Support Program) as well as the necessity for Wills and Power of Attorney. 

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Today, I want to consider limitation periods in the context of a passing of accounts.

For lawyers, limitation periods are more of a curse than a blessing. While it provides a client with certainty, the conscientious lawyer is always nervous that a limitation period is approaching or has already passed. The first question a lawyer should ask a prospective client is when a claim or cause of action first arose.

Currently, I am embroiled in a complex estate passing of accounts. The issue of whether the beneficiaries of an estate are out of time in which to claim damages pursuant to section 49 of the Estates Act is very much in play.

A passing of accounts is essentially an estate audit. The executor is required to account for his/her actions to the beneficiaries. An executor will often be required to bring a court application to have the accounts approved. Beneficiaries can object to specific transactions and/or the compensation claimed by the executor. The beneficiaries can also seek damages against the executor on a passing of accounts as a result of misconduct, neglect or default. The issue is whether the two year limitation period set in the new Ontario Limitation Act, which came into force January 1, 2004, applies to a passing of accounts and a claim for damages.

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A.A. v. B.B. and C.C., a recent Ontario Court of Appeal decision, caused quite a ripple in the media. 

See articles in The National Post  and The Toronto Star, .

The case dealt with the parentage of a five-year-old boy whose biological father and mother, plus the mother’s spouse (the “spouse”) with whom she had been in a long-term same-sex relationship, all agreed that the spouse ought to be legally recognized as the boy’s mother.

At the trial level, the Judge found that the Court had no jurisdiction to make a Declaration mandating that recognition.

The Court of Appeal overruled the trial decision, finding that the Court’s parens patriae jurisdiction allowed it to grant the Declaration. Parens patriae is an inherent jurisdiction the Court can apply to rescue a child in danger or bridge a legislative gap. The Court used parens patriae on the basis that the applicable legislation, Ontario’s Children’s Law Reform Act, did not contemplate this situation and therefore had a gap.

Interest groups argued unsuccessfully against the Declaration, while both biological parents and the spouse all wanted it granted.

In any case, the boy now has two mothers and a father.

It will be interesting to see what happens when a biological parent objects to such a request. Presumably, all three parents must provide child support, not only during their lifetimes but also on death if they fail to provide for the boy in their Wills.

Thanks for reading.

Sean Graham

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Yesterday morning marked the latest installment of Hull & Hull LLP’s Breakfast Series. Always well-attended, these presentations address ongoing and emerging Estate and Capacity issues.

Yesterday saw the successful trial run of our simultaneous webcast sponsored by Podwise Social Media Inc., giving out-of-towners a much better option.

Suzana Popovic-Montag spoke first on the taking will instructions, combining her usual sterling caselaw review with helpful thoughts on the practical problems the cases create for lawyers. Suzana’s concern that lawyers are placed in a difficult (not to mention thankless) position when having to assess testamentary capacity in close-call situations were no doubt shared by everyone.

Paul Trudelle then discussed the Ontario Disability Support Program (“ODSP”). Paul provided not only legal content on how to deal with the interests of disabled beneficiaries in Estate planning, but took it a step further to give background information about how ODSP works and some practical benefits and drawbacks of the system.

Ian Hull ended up with his thoughts on prevalent and emerging trends in administrative issues leading to litigation. No administration lawyer wants to see an estate administration end up in litigation, so Ian’s comments are ever-helpful in adding to the very long list of liability risks to keep in mind for lawyers.

A question-and-answer session was added, leading to further discussion, probably helping not only the questioners, but the presenters as well.

The presenters’ papers will be made available on our Hull & Hull LLP website. I highly recommend them all.

Thanks for reading.

Sean Graham

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John Hunt wrote an article titled “Get a financial strategy now” in the January 8, 2007 issue of Law Times, discussing the uncomfortable situation faced by many lawyers of spending a high proportion of their income in the face of the possibility of a pension-free retirement. He suggests that lawyers need extra focus on financial planning.

The article reminded me of how many lawyers I have met who have no Will, some of whom even practice in the Wills and Estates area. In some cases, they have estate plans that do not require a Will, such as holding all assets in joint ownership, but even so, there is a risk of problems with changing assets and financial profile, sentimentally valuable personal property and overlooked assets.

Coming up with an estate plan inevitably involves the contemplation of an uncomfortable certainty: one’s demise. This prospect is as unpleasant to lawyers as it is to anyone else. In the result, many lawyers are just as vulnerable to procrastination as laypersons when it comes to estate planning. They also risk all the same problems and risks of mayhem involved in dying without a Will.

Hopefully the “do as I say and not as I do” approach by lawyers to will planning is less prevalent than my experience suggests – Maybe I only run into the exceptions that prove the rule.

Thanks for reading. 
Sean Graham

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During Episode #43, Ian and Suzana discussed estate planning with a focus on financial topics such as tax planning, multiple will scenarios and family law issues.

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During Hull on Estates Episode #42, Justin and Megan discussed the case of Godwin c. Bolcso [1993] O.P.J. No. 297 and Section 32 of the Family Law Act.

This case concerns the application by a 58-year-old mother for support from four adult children. The issues covered included the definitions of "reasonable care" and "support", and insight into when support will be ordered for parents.

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January 15, 2007 articles from the National Post and the Globe and Mail describe breakthroughs in Alzheimer’s research.

This encouraging news raises the possibility that we may be closer to a cure for this terrible disease, or at least treatments to slow the onset. Families struggling daily against the ravages of dementia can now see some light at the end of a very long tunnel.

Capacity law could be greatly affected as well. Current assessments to determine capacity, such as the capacity to manage property or the capacity to execute a Will, mix elements of science (such as cat scans) with the experience and judgment of the capacity assessor. Different assessors come to different conclusions in close cases.

As science can better identify and isolate genetic causes of dementia, we can expect more accurate tests. We might even see partial or comprehensive cures for dementia diseases. If so, patients who have lost capacity might recover it. Someone unable to sign a binding Will in 2006 could theoretically regain that ability in 2008.

This opens a Pandora’s box of fascinating questions. For example, if John Doe loses capacity in 2005 and regains it in 2010, who’s to say if he would name the same beneficiaries in 2011 as in 2004? Conceivably his personality may be significantly different after recovering capacity than it was before he lost it.

A beneficiary’s joy at recovering a loved one could be tempered by losing an inheritance.

Thanks for reading.

Sean Graham

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Wolfe Goodman, Q.C., one of the foremost minds in Canadian Estates and Trusts law, recently passed away. Mr. Goodman’s accomplishments and impact were briefly described in the most recent issue of the OBA’s Briefly Speaking.

I did not know Mr. Goodman personally, but the loss of someone like him is nevertheless cause for reflection on the vital role senior lawyers play in the profession. I was blessed early on in my career to work for Melville O’Donohue, Q.C., a lawyer of some fifty years worth of experience. The practice habits I picked up from Mr. O’Donohue were invaluable and, I can only hope, long-lasting.

I suspect that literally thousands of lawyers would say similar things about Mr. Goodman.

An example closer to home is Rodney Hull, Q.C., Hull & Hull’s co-founder and likely the most accomplished estate litigator in the Province of Ontario during the last half-century. I can often get a better answer to a question after two minutes with Rodney than 5 hours of research in the library would get me.

Knowledge, judgment and experience are the probably the most valuable assets a lawyer can possess, and the most difficult to obtain, which makes lawyers like Mr. Goodman priceless and irreplaceable to the profession, and, by extension, the public as well.

Thanks for reading.

Sean Graham

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If a testator does not adequately shelter the bequests or insurance policy beneficiary designations to a disabled beneficiary, the disabled beneficiary may still have a way of sheltering the gift to him or her by taking advantage of what is known as a “disability expense trust”.

A disabled beneficiary, or member of a benefit unit, is entitled to put monies derived from an inheritance or the proceeds of a life insurance policy into a trust. These funds, up to a maximum value of $100,000, will not be considered assets for ODSP purposes.

This trust is distinct from a Henson Trust in that the funds may be received directly by the recipient and subsequently placed into the trust. Such a vehicle is available to shelter the funds were the testator failed to do so.

Any income earned on the funds and accrued will not be considered income to the disabled beneficiary if it the fund does not exceed $100,000.

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The Ontario Disability Support Program specifically provides that an absolute discretionary trust, also known as a “Henson Trust”, is not considered to be an asset of the disabled beneficiary. Thus, this gives a testator a significant planning vehicle to provide for a disabled beneficiary.

The discretionary trust must be truly discretionary, and the disabled beneficiary must have no vested right in the trust. Otherwise, the ODSP will consider the trust to be an asset of the disabled beneficiary.

To be a true discretionary trust, the trust must provide that any distributions to the disabled beneficiary are in the absolute discretion of the trustee. There must also be a gift over to a third party, so that the disabled beneficiary is not able to call for the collapse of the trust. Thirdly, the testator should provide for the distribution of any accrued income during the 21 year period, so that there is not a forced distribution of these funds.

Typically, the trustee will use the fund to purchase exempted assets for the disabled beneficiary, or to make distributions of income to the disabled beneficiary up to the $5,000 threshold, or to provide for the disabled individual once they turn 65 and are no longer entitled to benefits.

As the discretionary trust is not an asset of the disabled beneficiary, there is no limit to the amount that can be placed in the trust.

As the discretion given to the trustee is absolute, the choice of a trustee is of particular importance.

Have a great day.
Paul Trudelle

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Yesterday, I introduced the basic principals of the Ontario Disability Support Program (“ODSP”). In order to maintain benefits, the disabled individual must acquire assets that exceed the income and asset thresholds. In an estate planning context, this can be achieved, to a certain extent, by effective planning.

The ODSP exempts a number of assets from the calculation of the disabled person’s assets as defined under the relevant legislation and regulations. These exempted assets can be gifted to the disabled beneficiary, or bequested under a will, without disqualifying the individual. A partial list of assets that can be gifted or bequested includes:

• A principal residence, or the proceeds from the sale of a principal residence, provided that the proceeds are used for the purchase of another principal residence within 12 months from sale;

• An interest in a second property, if the Director is satisfied that the property is necessary for the health or well-being of a member of the benefit unit. For example, a second property that is a cottage could be considered necessary for health and well-being. Further, a second property in a country with currency restrictions that cannot be liquidated or where proceeds cannot be remitted outside of the country may also be exempted

• One motor vehicle, regardless of value, and a second vehicle if the net value is no more than $15,000 and it is required to permit a dependent of the applicant to maintain employment;

• The total cash surrender value held in an insurance policy, to a limit of $100,000;

• Prepaid funerals for an applicant or spouse;

• Registered Education Savings Plans;

• The amount remaining to be paid to a member of the benefit unit under a mortgage or agreement for sale (however, actual payments received qualify as income);

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During Podcast # 42, Ian and Suzana discussed the concept of the Family Office and its primary objectives, including:

•  the efficient transfer of family wealth to future generations
•  the centralized management of affairs; and
•  the co-ordination of the efforts of all family advisors.

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This week, I am discussing particular considerations to be kept in mind when planning an estate involving a disabled beneficiary.

As indicated yesterday, testators must keep in mind the effect that a bequest to a disabled beneficiary may have on the social benefits that the disabled beneficiary may be receiving.

In Ontario, disabled individuals may be entitled to receive Ontario Disability Support Program benefits. To qualify, the disabled individual must meet certain medical and financial qualifications.
Medically, under the Ontario Disability Support Program Act, a person is considered to have a disability if:

• He or she suffers from a continuous or recurrent physical or mental impairment;

• The impairment is substantial in nature;

• The impairment is expected to last a year or more;

• The impairment’s direct and cumulative effect on the person’s ability to attend to his or her personal care, function in the community and function in the workplace, results in a substantial restriction in on or more of these activities of daily living; and

• The impairment, duration and restriction on activities of daily living must be verified by a person with prescribed qualifications and is typically a member of a health profession that has been approved by the Director of the ODSP.

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During Episode #41, Ian and Suzana reviewed The Waters' Law of Trusts in Canada (3rd Edition) and discussed the extensive and helpful coverage of estate law and associated topics offered by the text.

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UNABASHED PLUG: On January 17, 2007 I will be speaking as part of the Hull and Hull Breakfast Series Seminars. (For information, please see our website.). I am presenting a paper entitled “The Ontario Disability Support Program: What Every Estate Solicitor Needs to Know”.

As a lead up to that presentation (and to take advantage of the research done to prepare the paper), I thought I would spend some of my blog time this week discussing some of the issues to be considered were a disabled beneficiary is involved.

When one is planning an estate that involves a disabled beneficiary, special considerations must be taken into account. Obviously, the disabled beneficiary has special needs. The testator must discuss his or her hopes and goals in providing for the disabled beneficiary with the planner in order to ensure that these needs are, to the extent possible, facilitated. In addition, the estate planner must ensure that the benefits sought to be bestowed upon the disabled beneficiary are maximized.
The estate planner must ensure that these issues are fully canvassed. The estate planner must make efforts to ensure that a proper level of comfort is established with the client, as many clients are reluctant to discuss particulars of a disabled child. Further, the client may not be aware of the significance of the disability on his or her own estate plan.

Specifically, when considering an estate plan involving a disabled beneficiary, any bequests should be considered in light of the relevant social assistance legislation.

In Ontario, a program called the Ontario Disability Support Program exists. This program provides benefits to disabled Ontarians who meet certain financial and medical eligibility requirements. Once qualified, the ODSP recipient is entitled to income supplements of up to $979 per month. In addition, and often more importantly, the recipient is entitled to drug and dental benefits. Over the course of the disabled person’s lifetime, these benefits can be substantial.

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In considering causes of estate litigation sometimes you need not look further than to your extended family if the relationships within the extended family are acrimonious. 

An extended family can include a spouse, former spouse whether legal or common-law, children and their respective spouses (and former spouses), grandchildren and their spouses (and former spouses), siblings, nieces and nephews, extra-marital partners and other dependents, whether related to you or not. It is possible that any one of the above-noted people might bring a claim against the estate, or raise a dispute. Jealousy amongst family members and/or the anticipation or expectation that they are to or will receive all or a portion of the estate, however unwarranted, may lead to family members taking unreasonable positions with respect to claims they feel they have against the estate.

In making an estate plan then, it is critical to have any and all agreements that may affect your estate plan prepared before you die. These agreements could include separation, marriage, co-habitation, partnership, employment and shareholders agreements depending on the nature and make up of your estate.

While the secrets one has from a family may be extremely touchy, emotional or just difficult to disclose or deal with, their disclosure following death may lead to demands against the estate. An extra-marital relationship, an illness of whatever kind not known to the family, a relationship with a caregiver or promises made to caregivers regarding their compensation can be examples of such secrets. For instance, a friend or family member may be assisting with one’s errands or day to day care. If promises are made to the family friend or relative that they will be “looked after” upon one’s death, then they may make a claim against your estate following your death if their relationship with you and/or compensation is not clearly known.

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During Hull on Estate and Succession Planning Podcast #41, we discussed the institution of the family constitution and the issues to consider after its institution including Power of Attorney, Wills and other documentation.

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During Hull on Estates Episode #40, Sean and Paul discussed the importance of wills, naming a Power of Attorney and other elements of succession planning that should be considered in the New Year.