In Ontario, a deceased’s Will is registered with the Ontario Superior Court of Justice and an application is made for a “Certificate of Appointment of the Estate Trustee with a Will.” This process is referred to as probate. Probate also requires the payment of the estate administration tax (“EAT”) (formerly referred to as “probate fees”). The EAT is approximately 1.5 percent of the entire value of the deceased’s estate that is covered under the Will.
In order for the estate executors to distribute property from the estate, financial institutions will often require the certificate of appointment. It is possible to transfer some types of property (eg, private company shares, art, antiques, jewelry) without a certificate of appointment.
To avoid having to include property, for which probate is not required, in the calculation of the EAT, lawyers began drafting two wills for individuals—a primary will, which is submitted to the Court for probate and covers assets which require probate to be transferred, and a secondary will, which is not submitted to the Court and which covers assets for which probate is not required to be transferred. This strategy is commonly referred to as “dual Wills” or “Primary and Secondary Wills.” Using this strategy, the savings to the estate can be substantial, particularly in cases where private company shares are involved.
This practice was challenged, but accepted, in Granovsky Estate v Ontario in 1998.[1] Since that time, dual Wills have been an accepted practice in Ontario.
In drafting dual Wills, some practitioners would define the assets which were included in the Secondary Will to include “any assets that the executors, in their absolute discretion, considered possible to administer without probate.” Until recently, this drafting practice has not been tested in court.
Re Milne
John and Sheilah Milne passed away in October 2017. Each deceased left a primary and a secondary Will. Not long after the Milnes passed away, their executors began two applications for “Certificate of Estate Trustee with a Will Limited to the Assets Referred to in the Will” for the Primary Wills. The applications came before Justice Dunphy,[2] who required written submissions and an oral hearing to determine whether the Primary Wills were valid and should be submitted for probate. Justice Dunphy sought submissions on whether the Wills were invalidated because they included “basket clauses” which provided the executors with the discretion to allocate assets into either the Primary or the Secondary Will. The Milnes were advised to include a “basket clause” to leave the decision to their executors to determine which assets held at death would form part of the Secondary Estate.
Justice Dunphy ultimately held that a will is a form of trust and a will must satisfy the “three certainties” (certainty of intent, subject-matter and objects) to be a valid trust and that the primary wills at issue did not satisfy the certainty of subject-matter because the estate executors had discretion to exclude assets from the primary wills and include them in the secondary wills.
The Milne decision was heavily criticized by most trust and estate practitioners. There are two main critiques. First, Justice Dunphy incorrectly characterized a Will as a trust. A Will gives rise to a trust, but it is not a trust. And second, the decision goes beyond what is required of a court of probate. When a Will is being probated, the court’s task is to determine whether the Will is testamentary in nature. The court is not supposed to go beyond that inquiry and seek to answer whether the Will is a valid Will (that is a task left to courts of construction).
The Milne decision was overturned on appeal.
Re Panda
A decision with facts similar to those in Milne was released in early October 2018. In Panda Estate (Re),[3] the executors of Panda’s estate applied to the court for a Certificate of Appointment of Estate Trustee With a Will Limited to the Assets Referred to in the Will. The application was unopposed. Justice Dunphy rejected the application on the grounds that he was not satisfied that the Primary estate constituted a valid trust “in the absence of the [s]econdary [e]state due to lack of certainty of subject matter. The executor/trustee cannot retroactively exclude assets from the estate and certainty as to what is in the estate ab initio is lacking.”[4]
The resulting motion was heard by Justice Penny, who granted the application. In allowing the application, Justice Penny took issue with the analysis in Milne. Justice Penny provided that 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 and Testament. The document must satisfy certain technical requirements (must be in writing, signed at the end by the testator in the presence of two or more witnesses). The court must also determine whether the instrument is testamentary in nature (ie, does it disclose an intention to make a disposition of the testator’s property upon his or her death). More significantly, Justice Penny disagreed that a Will is a trust and mentioned that Justice Dunphy did not cite any authority for that proposition.
Conclusion
The inconsistency caused by Milne and Panda will likely be resolved by the appeal of Milne. In the meantime, dual Wills are still a valid planning tool, however, practitioners should be mindful of both cases. Until the Milne appeal is resolved, practitioners should consider omitting basket clauses from Wills. With or without a basket clause in the Secondary Will, the probate savings to the Estate can be substantial. This type of strategy should be considered in particular for those individuals who own private company shares.
[1] 1998 CanLII 14913 (ON SC).
[2] See Milne Estate (Re), 2018 ONSC 4174.
[3] 2018 ONSC 6734.
[4] Paragraph 3 in Panda.