Province gives ‘meaningful guidance’ around multiple wills
By Kirsten McMahon, AdvocateDaily.com Managing Editor
Recent guidance from Ontario’s Ministry of Finance is helpful to estate lawyers looking to minimize probate-related expenses through multiple wills, says Toronto trusts and estates lawyer Suzana Popovic-Montag.
“Ontario is notorious for its high estate administration taxes,” says Popovic-Montag, managing partner of Hull & Hull LLP. “The provincial government’s most recent budget provides some relief with respect to this burden by increasing the size of estates that are exempt from payment of estate administration tax to those valued at $50,000 or less. However, planning to minimize or avoid estate administration tax remains a primary estate planning concern for many people in the province.”
A common and effective mechanism for limiting exposure to estate administration taxes is the use of multiple wills to reduce the assets to be administered under probate, she tells AdvocateDaily.com.
“Typically, a primary will covers only those assets for which probate is required, often including real property, while a secondary will addresses the disposition of all other assets,” Popovic-Montag notes.
Prior to its successful appeal, a 2018 Ontario Superior Court Justice decision was a source of concern for estate planners throughout the province, she says.
“The decision raised the issue of the validity of multiple wills on the basis of their use of discretionary allocation clauses, which eliminate the ‘certainty of subject matter’ required for a valid trust,” Popovic-Montag says. “The lower court’s determination was made on the basis that a will is a trust in respect of which the three-certainties test applies.”
Earlier this year, the Divisional Court clarified that discretionary allocation clauses are not fatal to the validity of a will, she says.
“The fact that an allocation clause is discretionary does not mean that the power conferred by it can be exercised arbitrarily. The power of an executor to allocate must be exercised in accordance with the standards of applicable fiduciary duty,” wrote Justice Frank Marrocco on behalf of the panel.
The court recognized the impracticality of providing a definitive list of assets for which an estate certificate may or may not be required by the time of the testator’s death, often years after the preparation and execution of primary and secondary wills, Popovic-Montag says.
“The Divisional Court reviewed the issue of whether a will was, as Justice Sean Dunphy of the Superior Court of Justice had suggested, a trust. While a will may give rise to the creation of one or more testamentary trusts, a will itself is not a trust and, accordingly, the three certainties need not be satisfied in order for the will to be valid,” she says, noting that a will must instead comply with the formal requirements outlined within the Succession Law Reform Act.
While the Divisional Court’s decision supported the use of a discretionary allocation of assets between primary and secondary wills based on a determination by the estate trustee for the need of probate, Popovic-Montag says uncertainty remains around the wording.
She says in response to this confusion, the Ministry of Finance has shared the following position:
“The responsibility for determining whether an asset requires an estate certificate to transfer it rests with the estate representative. The estate representative would therefore ... make a determination as to whether the ‘house’ requires a grant of authority in order to transfer it based upon objective criterion."
“If the estate representative determines that an estate certificate is not required for the purpose of transferring the house, this asset would be excluded from the Estate Information Return. Please note that pursuant to the Minister’s power of audit and inspection under s. 4.7 of the Estate Administration Tax Act 1998, the Minister may request, among other things, information, documents and records relating to the determination,” it continues.
Popovic-Montag says this clarification provides “meaningful guidance” to lawyers in assisting clients when creating estate plans that reflect both their testamentary intentions and minimize probate-related estate expenses.