Estates bar navigates competing decisions

“The situation you have now in the law is that the law is unsettled on this point. You actually have precedent going each way. You have a situation in which one judge has said, ‘These primary and secondary wills may fail,’” says Patrick Aulis, principal lawyer at Aulis Law Firm PC in Toronto, who acted on the Panda case for the applicants, Asok Panda and Sunita Rajak.

Lawyers say the pair of diverging decisions raises a legal question that could affect thousands of wills, if a will is a type of trust.

Dunphy’s September decision said a will is a form of trust.

“As with any trust, a valid will must satisfy the ‘three certainties:’ certainty of intent to create the trust, certainty as to the subject-matter or property committed to the trust and certainty as to the objects of the trust or the purposes to which the property is to be applied.”

Penny said in the Panda decision that he disagrees with the assertion that a will is a form of trust.

“No authority was cited for this proposition,” wrote Penny. “A will is a unique instrument. A will shares some of the attributes of a contract and some of the attributes of a trust but it is neither; a will is its own, unique creature of the law.”

In particular, the confusion surrounds certain types of wills that were thrust into question by Dunphy earlier this year due to their use of language called a basket clause.

Basket clauses, and a similar type of clause called disclaimer clauses, have the purpose of providing as much flexibility as possible in apportioning the assets that don’t need probate into a secondary will and, therefore, saving as much probate tax as possible, says Jordan Atin, counsel at Hull & Hull LLP, who was not involved in the case.

“A basket clause basically says, ‘Look, if I don’t need probate for this asset, then put it in the secondary will and don’t pay tax on it,’” Atin says.

“This disclaimer clause says, ‘I’m going to list all the assets that go into the secondary will because they are all the assets that don’t need probate, but if I’m wrong, and one of these assets do need probate, just have it fall back into the primary estate.’”

The use of basket clauses in Ontario has existed since 1998, but Milne Estate (Re), 2018 ONSC 4174, released by Dunphy in September, said a will using a basket clause was invalid because it failed to “describe with certainty” any property that is subject to the will.

Rather, the wills in the Milne case, which is being appealed, left the discretion to the trustees.

The Panda wills used “similar language” to the Milne wills, Penny wrote, although Aulis says the Panda wills did not have the same type of discretion granted to trustees.

In the Panda primary and secondary wills, the estate trustees and the beneficiaries were the same in both wills.

The secondary estate included shares in two companies that did not require probate as well as “any other assets for which my Trustees determine a grant of authority by a court of competent jurisdiction in not required for the transfer, disposition or realization thereof,” Penny’s decision said.

The secondary will also authorizes the trustees to “disclaim any property which would otherwise form part of the secondary estate within 90 days following the death of the testator” where “any property so disclaimed is to form part of the primary estate to be dealt with under the primary will.”

Penny wrote in the Nov. 13 decision that the will’s estate trustees in the Panda case applied for a Certificate of Appointment of Estate Trustee in response to an endorsement by Dunphy, who had rejected the trustees pending a further motion.

But Penny wrote that Dunphy’s assertion in Milne Estate (Re), 2018 ONSC 4174 was “incorrect as a matter of law.”

Penny wrote that there were “substantive issues” with Dunphy’s decision. First, Penny wrote in Panda, there was a procedural issue as to whether it was appropriate to probe the way a will is constructed in an unopposed application that focuses on the validity of the document itself (such as, Atin says, getting the correct signatures in place).

Penny also said there was an issue with whether the will must meet the “three certainties” trust test, as well as the issue of who should be able to decide whether to seek probate for certain assets.

Aulis says that while wills usually form trusts when they crystallize upon the death of the testator, it’s not always the case, such as when an estate is bankrupt.

Atin says there are wills that deal with issues that are unrelated to creating a trust for their property, such as instructions for the treatment of their remains or appointing guardians for young children.

Stephen O’Donohue, principal at O’Donohue & O’Donohue Barristers & Solicitors in Toronto, says his understanding of the law is in line with Penny’s decision, but he says he still awaits the clarification from the Divisional Court on the Milne appeal.

“I think [Panda] is an excellent decision,” says O’Donohue, who was not involved in the case. “We are dealing with a very narrow concept: Do executors have the power to make this determination after the testator has died? I’m of the view that yes, they do have that power.”

Until the Divisional Court weighs in, Atin says, neither Penny nor Dunphy’s decision is binding on other cases within the same level of the Ontario Superior Court of Justice.

“A lot of primary and secondary wills have the same sort of basket clause that says the trustee has discretion, so a lot of them are vulnerable — most of them are vulnerable,” says Aulis. “Ultimately, we are all sitting around waiting for the appeal. . . . Most estate practitioners are hoping that the Milne case is overturned; probably that’s quite likely.”