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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You would expect that a minor or a party to a proceeding who is declared mentally incapable to manage his/her property and/or personal care (under sections 6 and 45 of the Substitute Decisions Act) would not be able to or required to participate in the litigation.   However, this is not so. 

Pursuant to Rule 31.03 (5)(b) of the Rules of Civil Procedure, a party under “disability” (defined to include minors and mentally incapable adults) can be examined for discovery if he/she is "competent to give evidence".  

The onus of establishing incompetence rests on the party alleging it: Barnes v. Kirk, [1968] 2 O.R. 213 (C.A.).

Application of the Rule has led to varying decisions and approaches, a few of which I note below.

Mental Incapacity

·                    a party under disability may be examined if competent to give evidence subject to the discretion of the court to impose limits where the examination would be oppressive, vexatious or unnecessary: Nyilas v. Janos (1985), 50 C.P.C. 91 (Ont. Master);

·                    an appointment for discovery should be struck out on the grounds of unsoundness of mind only in the clearest cases – the preferable course is to allow the trial judge to rule on the admissibility of the examination and the credibility of the witness: McGowan v. Haslehurst (1977), 17 O.R. (2d) 440 (H.C.);

Minors

·                    the right to examine a minor for discovery is not absolute – the court should interview the child before exercising its discretion in that regard: Bennett v. Hartemink (1983), 42 C.P.C. 33 (Ont. H.C.);

·                    a defendant was denied the right to examine a ten-year-old plaintiff where it was found that the examination would result in psychological herm to the child: Kidd v. Lake (1998), 42 O.R. (3d) 312 (Gen. Div.); and

·                    the court permitted the examination of two plaintiffs (ages 16 and 11) notwithstanding evidence that it might cause serious psychological damage: Nyilas v. Janos, supra.

Have a great day,

Natalia

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Trusts can be varied or terminated prematurely in two ways: (1) through the operation of the rule in Saunders v. Vautier; and (2) under the powers of the court given by way of the Variation of Trusts Act.  There is also potentially a third method - by a trustee’s exercise of his absolute discretionary power given by the trust document.  

This third method begs the question: is a trustee’s discretion truly absolute? Debra L. Stephens, The Ontario Children’s Lawyer, comprehensively reviews this topic, several relevant authorities and the law in other jurisdictions in her paper given at The Six-Minute Estates Lawyer 2009, entitled "Trusts: When is a Termination a Variation?".

Ms. Stephens gleans the following principles from the authorities: that payment of all of the capital of a trust to the beneficiaries is an improper exercise of discretion where it is not in keeping with the primary intention of the settler. However, it can be justifiable where it appears the circumstances of the beneficiaries are such that payment would further, rather than frustrate, the settlor’s intentions.

Ms. Stephens also notes that the circumstances surrounding the exercise of discretion will have a large impact on its perceived propriety - each case will be examined on its unique facts i.e. the wording of the trust document, the needs of the beneficiaries and the value of the trust.

It is noteworthy that The Children’s Lawyer (Ontario) takes the position that a trustee’s “termination” of a trust is, in essence, a “variation” if there are contingent interests involved. As such, even if the discretion is absolute the trustee does not have the right to transfer the capital to beneficiaries without first giving notice to The Children’s Lawyer and securing court approval. 

Obtaining the necessary consents and court approval is something I agree with in every circumstance of a trust variation or termination by way of a trustee's exercise of his/her discretion.  It is surely the best way a trustee can avoid exposure to future litigation on the matter.

Have a great day,

Natalia Angelini

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Listen to Issues the Arise with an Incapable Spouse

This week on Hull on Estate and Succession Planning, Ian and Suzana pick up on the last couple points on the Canadian Conference on Elder Law put on by the Canadian Bar Association conference in Kingston, Ontario on June 9, 2009. They discuss another topic that will come at the conference; the question of family law and elder law. They explore the issue that arises when a couple who is advanced in years, finds one of them to be incapable They also briefly discuss other blogs that are available for those who are interested and they mention a great place to start would be lawblogs.ca.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

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Removing an attorney for property is notoriously difficult. A person should only seek to remove an attorney for property when clear and compelling evidence presents itself. 

Where you feel the circumstances necessitate the commencement of a removal application, I recommend that you consider the following practical and strategic evidence-gathering steps, which may add teeth to your claim:

·                    Compile a detailed list of the attorney’s misdeeds and inactions;

·                    Consider asking The Office of the Public Guardian and Trustee to investigate;

·                    Talk to neighbours and caregivers to gather critical information;

·                    Maintain regular contact with the incapable person and try to ascertain his/her wishes; and

·                    Ask the attorney for regular progress reports.

Finally, it is worth considering applying to the court for directions regarding the conduct of the attorney before embarking on a removal application. The court may implement conditions and/or restrictions on an attorney’s activities and may also provide guidance as to whether a removal application is warranted as a next step.

For more on this topic and power of attorney litigation generally, I suggest you read Ian Hull’s book, Power of Attorney Litigation, 2000, CCH Canadian Limited.

Have a great day,

Natalia Angelini

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A trip through the Ripley’s Believe It Or Not Museum, a ride on the Maid of the Mist, catching a flick at the IMAX Theatre, posing for goofy pictures at Louis Tussaud’s Waxworks. Oooh – don’t forget the big breakfast at HoJo’s after the late night at the Casino. Ah, the cultural attractions of Niagara Falls, Canada.

Did I mention Ramses I?

Three thousand years ago, Ramses I was the founder of the Nineteenth Dynasty of Egypt. After ruling for just two years, he died and was buried in the Valley of the Kings in 1290 B.C. (same neighbourhood as King Tutankhamun, for those of you who follow these things). Grave-robbing was rampant in those days, and while the coffin of Ramses I was eventually recovered in 1881, it was found to be empty.

A collective scholarly exercise of connect-the-dots suggests that the mummified remains were ultimately sold for seven pounds (now there’s a bargain in these tough economic times!) to a Canadian physician named James Douglas who had apparently acquired the mummy for a museum owner in Niagara Falls. The remains were placed on exhibit in The Niagara Falls Museum, sharing floor space with a two-headed calf, a five-legged pig, and a collection of barrels showcasing the daredevil history of the Falls.

When the museum shut its doors in 1999, the Michael C. Carlos Museum of Atlanta’s Emory University procured the remains, and the mummy thereafter underwent a barrage of medical investigative techniques including CT scans, X-rays, computer imaging, and of course, radiocarbon dating. The puzzle pieces all fit; the position of the arms high across the chest, carbon dating to 3,000 years old, the quality of the mummification, not to mention the physical resemblance to Ramses the Great.

On October 25, 2003, after negotiations between the Michael C. Carlos Museum and Egyptian authorities, Ramses I finally returned home to Egypt where he is now on display in a special annex to the Luxor Museum.  As foretold in the Book of the Dead: "Fleeter than greyhounds, quicker than a shadow, I have traveled the Earth. I come to you without a witness against me."

Jennifer Hartman, Guest Blogger

P.S. Nothing beats breakfast at HoJos the morning after the Casino.
 

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It's Friday in late April. The May long weekend and all that cottage fuss is just around the corner.  (I like the cottage, but understandably a lot of people choose the backyard.)

In Ontario, we do not have inheritance tax like they do elsewhere, including the United Kingdom. In some cases, the several-generation home has to be sold to cover a £14,000 tax bill or, in one instance, a painting donated in lieu of inheritance tax of £700,000.

To be certain, we have taxes here. At death, often there is a deemed disposition of property unless steps have been taken in advance. An article from last year provides some thoughts on how one might plan to avoid the situation where the capital gains tax cripples an estate or the next generation.

Apparently, and maybe not surprisingly, the cottage market may be down by about 20% this season. Good news for buyers. Maybe it is also good news for those who are looking at estate planning this year. 

If the goal is to keep a cottage in the family, relative to the previous few years it might be an opportunity to trigger a disposition by transferring the property this season and, presumably, incurring a lower capital gain. Each situation requires specific tax advice. 

The economy is lousy but it might be a chance to avoid financial strain and family tension for the next generation.

Have a safe weekend, wherever you spend it.

Jonathan

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On Tuesday I blogged about mortgage fraud and suggested that financial institutions may be at greater risk because of the B.C. Court of Appeal decision: Re Oehlerking Estate, 2009 BCCA 138.

Why would they be at increased risk?

In the B.C. case, the Judge ordered that the fraudster’s title be set aside and that a new title be issued in the name of the plaintiff executrix. However, the Judge was satisfied that the financial institution had not “participated in the fraud” therefore the mortgage remained as a valid charge on title to the land. 

The B.C. Court of Appeal overturned that latter point when it declared that the mortgage is null and void as against the plaintiff and her title. 

The reasons were the same as those presented in a B.C. Court of Appeal decision released on the same day in Gill v. Bucholtz  (2009 BCCA 137). There is a thorough review of the Torrens land registry system and the development of B.C.'s Land Title Act.  Land title systems differ per province but the B.C. decision is likely persuasive.

In Gill v Bucholtz, the Court held that the B.C. Legislature adopted the policy that the cost of frauds perpetrated against mortgagees and other chargeholders should be borne not by the public (as the funders of the Assurance Fund but by lenders and other chargeholders themselves.”

Parties to real estate transactions rely on title searches. The case law shows that title searches have limitations, especially if a fraudster has used someone else’s identification to change the title document. It is up to lenders to now perform due diligence that may require that they delve deeper than the documents alone. Sometimes good old fashioned shoe leather might be put to work to check out the property in question; even a knock on the door to ensure that the owner is actually refinancing by way of a new mortgage. This extra work may come with a fee though. 

Thank you for reading. 

Jonathan

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Listen to Social Media and the Canadian Conference on Elder Law

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the idea of knowing what is going on around us in social media. They mention the Canadian Conference on Elder Law put on by the Canadian Bar Association conference in Kingston, Ontario on June 9, 2009. One of the first topics at the conference will be on assessing the capacity assessor. Ian and Suzana discuss assessing the assessor and the pros, cons and what should be expected. They talk about what they see in their practice as important elements of a good assessment and where they might see some problems.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

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In keeping with yesterday’s blog on a British Columbia real estate matter, today I focus on another BC case - Albas v. Gabriel 2009 BCSC 198 - that involves the Indian Act, a federal statute. 

For a quick recap of the interplay between provincial and federal jurisdiction regarding estate matters and First Nations people living on reserves, I refer to David Smith’s 2007 blog: The Administration of Estates under the Indian Act. 

Albas v. Gabriel involved an action by the plaintiff, as executor of the estate, for a declaration proving the deceased's Will in solemn form.  The defendant beneficiaries appealed to the Minister of Northern and Indian Affairs because the Minister has jurisdiction to approve a Will made by an Indian and to confirm the appointment of an executor to administer the estate. Specificially, the Minister’s authority is provided by section 43 of the Indian Act.

A member of an Indian Band and a resident of a reserve, the deceased operated a trailer park and he was a “locatee” of the land because he owned “certificates of possession”: valuable assets that he left equally to his daughter and two step-children. This was just one of the businesses with which the deceased was involved.

The daughter challenged both the validity of the Will and the administration of the estate. The judge determined that the daughter believed that if the Will was declared invalid, she would inherit the entire estate.

Because of the Will challenge, the Minister transferred jurisdiction over the estate to the Supreme Court of British Columbia pursuant to s. 44(1).

Ultimately, the Court found that the Will was valid because it was not forged and the testator had capacity as well as knowledge of the Will which he approved.

Enjoy your day.

Jonathan

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Listen to Henson Trusts

This week on Hull on Estates, Rick Bickhram and Sarah Fitzpatrick discuss Henson trusts (also called absolute discretionary trusts). They consider the use of such trusts to benefit disabled persons, and how best to protect the assets (typically an inheritance) as well as the right to collect government benefits and assistance."
 
Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.
 

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Often in the context of estate matters issues arise around real estate because it is often one of the largest assets comprising an estate.   A recent decision in British Columbia is a case in point.

Last week the BC Court of Appeal overturned a lower Court decision that found a defrauded financial institution was to be reimbursed by the unsuspecting widow whose home had been fraudulently mortgaged.  A direct link to the BC Court of Appeal decision is helpful. The citation is Re Oehlerking Estate, 2009 BCCA 138.

This case is especially relevant to estate law in that the widow attempted to transfer the property, held in the name of her deceased husband, to her own name in 2006 and only then realized a fraud had occurred whereby a mortgage had been taken out on the property after it was transferred to someone else. The lower Court decided the property should be returned to the widow but she was liable for the mortgage. The Court of Appeal did not agree.

There are significant issues at stake, not least of which is the increased risk to financial institutions which may lead to an appeal to the Supreme Court.  Similar cases have occurred in Ontario.

A web search on real estate fraud led me to a Criminal Intelligence Service Canada assessment of mortgage fraud, prepared in 2007.  Further, the Ontario government provides tips on its website to protect against real estate fraud.

Estate Trustees ought to be vigilant regarding mortgage and real estate fraud especially because identity theft often occurs after a recent death. 

Thank you for reading. 

Jonathan

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The Svalbard Global Seed Vault (SGSV), also known as the Doomsday Vault, is a secure seedbank located on a Norwegian island far within the Arctic Circle. The purpose of the SGSV is ‘to provide insurance against both incremental and catastrophic loss of crop diversity held in traditional seed banks around the world.’

The safety of the world’s 1,400 crop diversity collections has been a concern for many years due to risks including poor agricultural management, equipment failures, war, underfunding and natural disasters. The SGSV provides a duplication of seed samples stored in genebanks worldwide, acting as a sort of agricultural ‘spare tire’, if you will.

The SGSV was entirely funded and built by the Norwegian government and took its first delivery of seeds just over a year ago. The vault is situated 390 feet inside ‘Platåberget’, a sandstone mountain on Spitsbergen Island chosen based on its tectonic inactivity. Inside the vault, the seeds are sealed in specially designed four-ply foil packages, which are then placed inside sealed boxes and stored on shelves inside storage rooms. Refrigeration units (powered by locally mined coal) cool the seeds to –18 degrees Celsius, and in the event of equipment failure, it would take weeks for the temperature to even reach that of the surrounding sandstone. The area’s natural permafrost would further prevent the samples from thawing. Even in worst-case climate change modeling, the vault rooms will remain naturally frozen for up to 200 years. Estimates suggest that the SGSV has the ability to conserve a capacity of over 2 billion seeds for hundreds, if not thousands of years.

Now, how’s that for global estate planning?

Jennifer Hartman, guest blogger

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Estates litigation is full of wonderful little procedural differences from general civil litigation.  The most basic differences are found in Rules 74 and 75 of the Rules of Civil Procedure.  Take for example motions.  One would think a motion is fairly straightforward, but...

The general provision governing motions is Rule 37, of course, which requires motions made on notice to be served at least 4 days before the hearing (R. 37.07(6)).  But in estates litigation, often a mere 4 days is not sufficient.  The handy all-purpose Rule 74.15 Order for Assistance requires service at least 10 days before the hearing, even though a mere motion.  So does a motion (or an application) for Directions under Rule 75.06. 

Not only that, "any person who appears to have a financial interest in the estate may move" under R. 74.15 for Assistance or under R. 75.06 for Directions, so the usual standing arguments may not apply.  In estates litigation (depending on the jurisdiction), even the family dog has standing (sometimes).  I'll leave the rest for another blog, but as a reminder, R. 75.06(2) requires service on "all persons appearing to have a financial interest in the estate."  But that's a topic for another blog.

Enjoy your day.

Chris Graham

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A current Georgia case vividly illustrates the legal, emotional and moral complexity often involved in estates litigation.  According to the reports, Harvey Strother died at age 78, having succumbed to progressively severe alcoholism brought on by the tragic death of his daughter at age 23.  Strother had built up a formidable nest of car dealerships around Georgia, dying with a net worth of about US$37 million.  And a mistress 30 years his junior. 

At issue are 3 amendments to Strother's 1988 will in favour of his mistress.  The will had left the bulk of his estate to his wife, their children and grandchildren.  But one amendment gave his mistress a $7,900 monthly allowance, a second gave her health insurance and an island condo in Florida.   The third - signed about a month before Strother's death - gave her a Cape Cod cottage, a Florida boat slip and a Florida condo to her son.  By that time Strother was drinking 1.5 gallons of wine a day (about 6.8 liters, or 9 bottles of wine).

At trial, the jury upheld the first two amendments, worth about $4.5 million to the mistress.  However, the third one was invalid.  Strother, was allegedly drinking even before he signed it and brought to the lawyer's office by his mistress, and his signature was illegible. 

The family is appealing the two amendments that were upheld, one on the basis that the witnesses were not even present (the mistress is appealing the third amendment struck out by the jury).  Interestingly, the family is represented by Georgia's ex-Governor Roy Barnes, who points out that the requirement for two witnesses "is an elementary part of the law that has been there since the time of Edward II."  FYI, King Edward II, 1284 - 1327: yes, we deal with old law in estates litigation. 

Have a great day,

Chris Graham

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Listen to The Freezing of the Assets

This week on Hull on Estate and Succession Planning Ian and Suzana discuss what the freezing of the assets step means and what the typical approach is for dealing with situations in which this step needs to be taken.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

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Listen to The Role of the Office of the Public Guardian Trustee

This week on Hull on Estates, Diane Vieira and Bianca La Neve discuss the role of the Office of the Public Guardian Trustee (PGT) in passings of accounts. They talk about the role of this government body, whose job it is to protect the interests of incapable persons, charities and absentees.

They discuss the things to keep in mind when serving the PGT and common issues seen on passings of accounts

Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.

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Howard J. Feldman made a presentation on the circumstances where a net family property ("NFP") equalization can set aside an estate feeze.  He also discussed structuring the estate freeze transaction to qualify as an exclusion from the transferee child's NFP. 

To refresh: the classic estate freeze is a transaction involving a business-owning parent and his or her child.  The parent transfers the equity shares in the business to the child but retains control of the company through preferential shares ("prefs").  The prefs have a fixed redemption and liquidation value, so all capital growth is with the equity shares transferred to the child.  The parent "freezes" his own level of equity in the business, leaving future capital growth to the child.  The goal is to avoid the child receiving the equity in the company on the parent's death, because the capital gains tax liability would presumably have grown significantly.  Capital gains tax is payable when the parent transfers the shares under the estate freeze transaction, but presumably smaller than it would be on the parent's death.  

The problem is that an estate freeze during the transferor parent's marriage potentially removes assets from that parent's property for the purposes of the NFP equalization.  This can conflict with the philosophy of the NFP equalization payment, which is that marriage is a partnership and spouses' collective increase in net worth during the marriage should therefore be evenly divided between the spouses at the end of the marriage.  The parent's subsequent death or divorce can trigger a challenge by the spouse of the estate freeze. 

Among Mr. Feldman's points and recommendations:

• the form of the transaction and relevant documents is critical (see the paper for reasons)
• the solicitor must have a well-documented file and written instructions from the client, due to the risk of the transaction being challenged
• Declarations to Revenue Canada and financial institutions are not considered binding in family law
• a gift of shares under a corporate reorganization may not excluded where there is not family trust, but beware that sooner or later the leading cases may be overturned (with a plethora of qualifications and circumstances detailed in the paper)
• gifting shares or the cash to buy the shares are subject to numerous, complex considerations (no pun intended)

This barely scratches the surface of the summary and recommendations.  It is well-worth the read.  The entire Six-Minute Estates Lawyer 2009 program can be purchased here.

Have a good day,

Chris Graham

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...but every recession has lucky people too.  To save you hours of watching cable news and reading, here's a snapshot of good news and bad news on the legal profession in Canada and around the Common Law world:

• IN THE CROSS-HAIRS: with companies trying to pare their legal budgets between 6% and 35%, the #1 target for general counsels is... 
• THANKS BERNIE: a freakish confluence of circumstances, including the Madoff scandal, is allowing top rates for UK regulatory lawyers to hit a stunning USD1,440/hour.  That's professional athlete territory, only now it's being paid to people with minds. 
• FAMINE IN IRELAND: hundreds of unemployed solicitors.  Bleak prospects.  All that remains is for the potato harvest to fail.
• TRANSACTIONS: law firm mergers up 33% in the US.  This, though, is an indication of nothing definite.  Mergers ideally result in "efficiencies of scale", with a real-world meaning of fewer bodies doing the same work (we each had 2 doing the work of 1.5.  Now we can have 3 doing the work of 3) or "economies of scope" (you do this, we do that, let's merge and cross-refer).
• RED SKY AT NIGHT OR IN THE MORNING?: major US law firm posts record revenue of $668 million for the fiscal year ended March 31, 2009, up 2.2%.
• SALARY FREEZES: by a major US law firm.
• PAY CUTS NOT TERMINATIONS: a major US law firm institutes $17,500 pay cuts, others may follow.   Required measure for the entire US economy?
• THE COLD EQUATIONS: the problem simplified. (apologies to Tom Godwin)
• THEN COME THE TERMINATIONS
• "DEFERRED EMPLOYMENT" IS NOT DEFEAT: a peptalk to grads facing an economic wasteland. 
• BOOM TIMES 
• LAW FIRMS FIRING: especially US firms, unsurprisingly.
• BUT LAW FIRMS HIRING: in Canada, apparently mostly in bankruptcy and litigation.
• AND BLACKBERRY DEFIES RECESSION: attaboy!  Any good news is very good news.

Times are always interesting. 

Have a great week,

Chris Graham

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For my final blog of this week, I thought I would give further consideration to the unique legal issues arising out of life insurance beneficiary designations.

Because of the increasing complexity of insurance structures, it is not always easy to determine what "property" is held by a policyholder at the time of his death. The question is relevant when one considers that, in Ontario, Estate Administration Tax is levied on the value of "all property that belonged to the deceased at the time of his or her death." In this context, there is good reason to question when a contract between the deceased and his insurer morphs into a legal obligation owed by the insurer to the beneficiary.

While the contractual obligation between the deceased and his or her insurer has been described by at least one court as a "species of property", that property (if we are talking about term insurance) only realizes its true value after (as opposed to "at the time of") the death of the deceased policy owner. More than one commentator has noted that the value of term life insurance before the death of the deceased is arguably nominal.  However, in Re Carlisle Estate, discussed yesterday, the Court stated: "No one would suggest that the value of a winning lottery ticket is the price paid for the ticket.  The value of an insurance policy is the amount paid to the beneficiary by the terms of the policy."

Have a great long weekend!

David M. Smith

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As a segue from yesterday’s blog (which considered the issue of beneficiary designations of life insurance policies), today’s blog considers issues arising from the characterization of life insurance proceeds as trust assets in the context of an overall estate plan. Life Insurance Trusts can be created for specific purposes where the owner of the policy has clearly defined testamentary intentions respecting the use of the funds.

In his recent presentation at the Six-Minute Estates Lawyer, Robin Goodman noted a recent Saskatchewan case, Re Carlisle Estate, in which the Court considered whether a declaration in a Will creating a life insurance trust had the effect of excluding the proceeds from probate under Saskatchewan legislation. In that case the Court determined that, regardless of a clearly stated intention to the contrary, the appointment of the executor of the estate as the trustee of the insurance trust (and, more importantly, as the designated beneficiary of the insurance proceeds) meant that “no exemption from probate fees can be claimed.” However, in a gloss on this case, the decision in Sun Life Assurance Co. of Canada v. Taylor (also a Saskatchewan case) clarified that, where the insurance proceeds did not vest in the executor as beneficiary (albeit as trustee for others) but, instead, were simply held by the executor in trust for the designated beneficiaries, the insurance proceeds were not to be considered as estate assets.

As Goodman notes in his paper, it is not clear how these decisions will impact the law in Ontario. In any event, the decisions serve to give any estate planner pause to consider how best to structure an insurance trust whether inside or outside of a Will.

David M. Smith

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Listen to Administration Bonds

This week on Hull on Estates, Megan Connolly and Paul Trudelle discuss administration bonds; what they are, when they are required, why they are required and dispensing with the administration bond in certain cases. In Particular they refer to the Henderson decision, a recent decision out of the Ontario Superior Court of Justice that deals with the issue of dispensing with an administration bond and what is required.

Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.

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Listen to What Do We Expect From Our Clients?

This week on Hull and Estate and Succession Planning, Ian and Suzana discuss what we expect and what we can expect from clients. This topic was prompted by the recent changes by the Law Society to the bylaws in terms of what to ask clients. They discuss the changes and how they are important in the general practice and in specific practice.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

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Declarations of beneficiaries of Life Insurance policies are sometimes thought to be “unassailable.” However, where a deceased’s first spouse is unexpectedly the named beneficiary of a life insurance policy owned by the deceased, the second spouse may have recourse to various legal remedies in an attempt to remedy what is argued to be an unjust situation. Inevitably, a Separation Agreement between the deceased and his or her first spouse is central to any such argument.

The recent decision of the Honourable Justice Strathy in Richardson (Estate Trustee of) v. Mew considered such a situation. The case also stands as an excellent summary of the recent jurisprudence that has developed in this area.

In short, the disappointed spouse can seek the remedies of either constructive trust or rectification. Justice Strathy points out that “except in exceptional circumstances” the Insurance Act requirements for the change of a beneficiary designation must be strictly interpreted. His Honour clearly had difficulty with understanding “how the designation of a beneficiary under a life insurance policy could be anything other than a juristic reason for an “enrichment.” Although he did not find this to be a case for the exercise of the court’s jurisdiction to rectify the policy, he left open the possibility that, in the right set of circumstances (i.e. clear evidence of a mistake), the court could properly employ such a remedy.

David M. Smith

 

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Who is the third who walks always beside you?
When I count, there are only you and I together
But when I look ahead up the white road
There is always another one walking beside you
- T.S. Eliot, The Waste Land, 1922

I just finished reading a fascinating book authored by John Geiger called The Third Man Factor: The Secret to Survival in Extreme Environments. When faced with edge-of-death circumstances, numerous people throughout history have encountered what is commonly referred to as ‘the Third Man’. Confronted by life at its extremes, these people have had the sense that they were suddenly joined by a friendly, trusted presence – a guardian, if you will, who “led them out of the impossible”. The Third Man Factor details many of these remarkable experiences, highlights the common threads of extreme physical and mental distress, monotony and isolation, and explores the domains of physiology, sociology, religion, neurology and psychology to flesh out the meaning of the appearance of the Third Man.

In 1895, while attempting to complete the first solo circumnavigation of the world, Joshua Slocum’s sloop-rigged fishing boat Spray was caught in a violent storm. Slocum became convinced of another on board who steered the boat through the gale while Slocum huddled in the boat’s cabin, sick with food poisoning, but unworried. Slocum had experienced the Third Man phenomenon, someone to whom he referred as his ‘invisible helmsman’. An account of Slocum’s surreal encounter was published in the Boston Globe on October 14, 1895, under the headline “Spook on Spray”.

Other Third Man experiences include:

· Reinhold Messner, legendary Italian mountaineer and the first man to summit Everest solo and without supplementary oxygen. In 1970, after having summited Pakistan’s 8,126 metre Nanga Parbat with his younger brother Günther, the two became separated on the precarious descent, and Messner soon came to the horrific realization that Günther had been swept down in an avalanche. It was then that Messner encountered a lone phantom climber calling out to him, comforting him and eventually guiding him down the mountain to safety.
· Ernest Shackleton, British explorer, and head of the Imperial Trans-Antarctic Expedition of 1914-1916. After his ship Endurance became trapped in ice and was destroyed, Shackleton (pictured below) set off on a perilous 36-hour trek across the mountains and glaciers of South Georgia in an attempt to seek rescue. In his book, South: The Endurance Expedition, Shackleton wrote that “...it seemed to me often that we were four, not three.” He referred to this fourth man as a ‘Divine Companion’. It was Shackleton’s experience that actually inspired T.S. Eliot in The Waste Land.

· Charles Lindbergh, early aviator. In 1927, during the first solo, non-stop trans-Atlantic flight from New York to Paris, Lindbergh encountered ‘vague outlined forms, disembodied beings’ aboard the Spirit of St. Louis while desperately trying to stave off profound exhaustion. These forms not only reassured Lindbergh, but discussed navigational problems and advised him on his flight.

Hallucination? Divine intervention? Sensory illusion? Visit www.thirdmanfactor.com to join a forum for a more in-depth discussion of this phenomenon.

Jennifer Hartman, guest blogger
 

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One of the essential objectives of estate planning is to reduce the amount of probate tax payable on your death.  Ontario has a higher rate of probate tax than many other jurisdictions in Canada - it amounts to approximately 1.5% of the value of the assets in the estate (excluding real estate outside of Ontario and other exempt assets that pass to a named beneficiary or by right of survivorship).  Therefore, probate tax in Ontario on a $1 million estate will be $14,500.  

While this figure may seem high, lawyers are all too aware that this figure is nothing compared to the expense that may arise to your estate as a result of the trigger of capital gains tax, or the income tax consequences of certain assets (i.e. a second property such as a family cottage, for example)  if your affairs are not properly structured.  Furthermore, while the objective of reducing the amount of probate tax on your estate is important, its not always the case that obtaining probate should (or could) be avoided.  The act of obtaining a seal of probate from the Court can start the clock running (i.e. limitation periods) on potential claims against your estate and also certifies the validity of your Will and confirms the powers that your Will grants to your executors (estate trustees).

Assuming that your Will may be subject to probate (and accordingly exposed to the payment of probate tax), the following are some strategies that may, in the right circumstances, reduce the amount of exposure to the tax: 

1. Designating a beneficiary in a life insurance policy, RRSP/RRIF, or pension plan;

2. Multiple Wills (i.e. shares of a private company can be dealt with in a Secondary Will that does not require probate); 

3. Joint ownership of assets with right of survivorship;

4. Transferring legal title to a bare trustee, i.e. a corporation;

5. Making gifts prior to your death; and

6. Establishing an alter ego or joint partner trust.

While these tax avoidance mechanisms have advantages, they can also have disadvantages (i.e. such as the loss of control and a trigger of income tax liabilities that may occur when property is transferred to joint ownership).  Therefore its always wise to consult tax and estate professionals to ensure that the benefits of avoiding the estate tax outweigh the risks.  It may well be that 1.5% on the value of your assets doesn't seem like that much after all, compared to the alternatives available.

Sarah Hyndman Fitzpatrick

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We have become information junkies - with a vast world of knowledge accessible in seconds by a tap of your finger on your computer, BlackBerry or iPhone.  Most would agree that this is a good thing - a great thing - most of the time.  But how about in the courtroom - during a trial?  What is fascinating about this scenario is the convergence of two very distinct ideals - judicial procedure and tradition on the one hand, with the emerging benefits of readily available (and accessible) technology on the other.

Last month, a juror in a federal drug trial in Florida admitted to the judge that he was conducting his own research on the internet.  This was in direct contravention of the judge's orders and (as lawyers are aware) centuries of legal rules relating to evidence.  A lack of bias and impartiality towards the defendant, and the issues raised during a trial, is a cornerstone of our judicial process.  However, when the judge questioned the other jurors he got an even bigger shock - eight other jurors had been doing the same thing.  "We were stunned" said defense lawyer Peter Raben.  "It's the first time modern technology struck us in that fashion, and it hit us right over the head".  The judge declared a mistrial, abruptly ending eight weeks of work by prosecutors and defense lawyers.

The New York Times has reported this story, and quoted at least two other cases where the unauthorized use of technology such as iPhones and BlackBerry's have resulted in mistrials.  One judgment was overturned because a juror had used Twitter to send updates during the trial, and in another a juror had posted updates on Twitter and his Facebook account, telling his readers that a "big announcement" was forthcoming.

Jurors are not supposed to obtain information from outside of the courtroom.  There are complex rules of evidence and laws of admissibility restricting the use of such information to ensure a fair and impartial judicial process.  However, jurors can now surf the web from their iPhone during a bathroom break and discover details about a case, a defendants history or criminal record, or information relating to a medical condition or a map of a crime scene (think Google maps).  And, unless the juror is sequestered (which is not always the case), jurors could still surf the web at home to find out information pertaining to the case.   

The answers on how to deal with this conundrum are far from easy - but, as the Connecticut Law Tribune quoted from a source, "How can you learn more about this issue?" - well, "Google it on your iPhone of course".

Sarah Hyndman Fitzpatrick

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Listen to The Positive Side of the Second Marriage

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the positive side of the second marriage from a planning standpoint with a focus on capacity planning.
They discuss both property and personal care.

If you have any comments, send us and email at hullandhull@gmail.com or leave a comment on our blog.

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Listen to Estate Needs and Will Needs for Someone With a Dependent

This week on Hull on Estates, Jonathan Morse and Sarah Fitzpatrick present and mock client situation in which they discuss the estate needs and will needs for someone with a dependant.

They describe the process of finding new clients and go on to describe the process of fulfilling these needs for the client.

Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.

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New Canadian tax rules, as they pertain to the sale of property by non-residents, came into effect at the beginning of 2009.  The new procedures aim to further simplify the current clearance certificate process (which was already  "simplified" back in 2007 to avoid unnecessary delays - see David Smith's Bar-Ex commentary in 2007 on this issue here and on our blog). 

Withholding tax requirements under section 116 of Canada's Income Tax Act (the "Act") may arise whenever a non-resident is involved in a transaction.  Non-resident vendors and purchasers can be liable for payment of Canadian income tax on the disposition of certain types of Canadian based property, such as shares of Canadian companies, Canadian real estate, and beneficiaries of Canadian estates and trusts.  In the estates and trusts context, non-resident beneficiaries were previously required to obtain an Individual Tax Number, a Canadian Social Insurance number, or a Temporary Taxation Number before a clearance certificate would be issued.   In estate administrations involving non-resident beneficiaries, therefore, ITN numbers would need to be obtained (by the non-resident beneficiaries) in order for the estate trustee to obtain a section 116 clearance certificate.  This often resulted in the requirement of the estate trustee to withhold funds from the distribution (and remit to the CRA if necessary).  

My review of the new rules indicates that the purchaser now has an alternative to the current Certificate of Compliance procedures when the property in question is "treaty protected".  An associated form T2062C ("Notification of an Acquisition of Treaty-Protected Property from a Non-Resident Vendor") may now in certain cases eliminate the requirement to obtain ITN's.  To rely on the new rules, the purchaser must (1) determine that the non-resident vendor is a resident of a country with which Canada has a tax treaty; and (2) must also be satisfied that the property is treaty-protected.  If the purchaser is in fact satisfied with these requirements, withholding can be eliminated if the purchaser sends the form T2062C Notification to the CRA within 30 days of the acquisition.

In any event, whenever a non-resident disposes of Canadian based property, the application of the withholding rules of s.116 of the Act should be considered and advice from a tax professional should be obtained.   

Sarah Hyndman Fitzpatrick