<![CDATA[Clifton Kok LLP Legal Counsel - The Estates Nutshell]]>

<![CDATA[Clifton Kok LLP Legal Counsel - The Estates Nutshell]]>Mon, 15 Apr 2024 15:26:22 -0700Weebly<![CDATA[Charitable Bequests*]]>Mon, 04 Jul 2016 19:27:46 GMThttp://cklegal.ca/the-estates-nutshell/charitable-bequestsIt is quite common for testators to grant charitable bequests in their wills. If a testator is doing so as part of an estate plan to reduce income taxes, then a number of issues should be considered.

In general terms, a charitable bequest must be to a registered Canadian charitable organization in order to receive a tax credit in relation thereto. Certain other organizations may also qualify for the tax credit based on specific criteria, such as a sufficient connection to Canada, but confirmation should be obtained beforehand to ensure that the organization to which the bequest is given will qualify for the desired credit.

In most situations, a testator will specify in his or her will which charities are to benefit from the bequests and the amount that is to be given to each organization. Occasionally, however, a testator will provide that his or her trustee is to select the charities. It should be noted that where the testator chooses the charities the tax credit is available in the year of the testator’s death and is applicable to the testator’s terminal return. If the trustee selects the charities then the tax credit is only available to the estate.

A final consideration is ensuring that there is clarity on what is to occur in the event that one or more of the charitable organizations no longer exists at the time the bequest is to occur. If the organization no longer exists and there are no further instructions then the trustee will be forced to apply to the court and request relief pursuant to the doctrine of cy-près. The cy-près doctrine allows the court, when the original objective of a testator becomes impossible, impracticable, or illegal to perform, to amend the terms of the will as closely as possible to the original intention of the testator in order to prevent the trust from failing. The result is that the court will order that the bequest be paid to an organization with objectives as similar as possible to the named defunct organization.

To avoid the possibility that a trustee may have to go to such lengths, a will should invariably address what is to occur to a charitable bequest in the event that the donee organization is no longer in existence at the time of the bequest. A clause can be included which directs that the cy-près doctrine is to apply. Alternatively, the testator can simply provide that in such occurrence the gift fails.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Memoranda*]]>Wed, 29 Jun 2016 17:19:40 GMThttp://cklegal.ca/the-estates-nutshell/memorandaVery often a testator wants to leave specific items of personal property, such as jewelry, silverware, etc., to specific individuals. Where there is a rather lengthy list of such items, rather than setting the instructions out in the Will a testator may choose to set them out in a memorandum. For estates purposes, a memorandum is simply a document that sets out particular items of a testator’s personal property and the beneficiaries who are to receive such items. There are two types of memoranda that can be prepared, and which type should be used will depend on a testator’s wishes and circumstances.

A “legal memorandum” is incorporated by reference into the Will and, as such, is legally binding upon the executor of the estate. The memorandum must be prepared and executed prior to the signing of the Will and also must be clearly identified and referenced in the Will. Such a memorandum forms part of the Will and is subject to the same rules as the Will with respect to making amendments and revocation. In general terms, a legal memorandum is preferable in situations where the property is of significant value, where changes to the memorandum are unlikely, and/or where there is a desire or need to impose a legal obligation on the executor to adhere to the memorandum’s instructions.

The other type of memorandum is knows as a “precatory memorandum”, and it is not legally binding upon the executor. This type of memorandum can be prepared and executed at any time after the Will has been executed, and no specific reference is made in the Will to any specific memorandum. Instead, a provision is generally included in the Will stating that if the testator prepares a precatory memorandum then it is the testator’s wish that the executor and beneficiaries abide by and honour that memorandum even though there is no legal obligation to do so. The advantage of this type of memorandum is that it can be changed at any time by the testator without needing to comply with the strict requirements that pertain to a legal memorandum. Generally, a precatory memorandum is appropriate in situations where the property at issue is more keepsake in nature and has greater sentimental than monetary value. As well, a precatory memorandum may make sense where a testator is uncertain what gifts he or she intends to make but wants to finalize his or her Will in the meantime.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Bequests*]]>Wed, 29 Jun 2016 01:47:43 GMThttp://cklegal.ca/the-estates-nutshell/bequestsA “bequest”, also known as a legacy, is a disposition in a Will of a testator’s personal property, or of a sum of money belonging to the testator. There are three types of bequests that can be made: specific, general, and demonstrative.

A specific bequest is a gift of a particular thing which is specified and distinguished from all of the testator’s other property. An example of a specific bequest is a particular watch or a work of art.

A general bequest is a set monetary gift that is payable out of the general assets of a testator’s estate. An example of a general bequest is a gift of a specified amount of money.

A demonstrative bequest is a monetary gift with a direction that it be paid out of a particular fund. An example of a demonstrative bequest is a gift of whatever funds are held in a particular bank account at the time of the testator’s death.

A disposition of real property in a Will is known as a “devise”.

The type of bequest that is made becomes important in the event that a specific asset cannot be located or if there are insufficient funds in the estate to satisfy all of the bequests. If a specific bequest cannot be located, perhaps because it was destroyed or disposed of during the testator’s lifetime, the doctrine of “ademption” applies. Generally, the result of ademption is that the gift fails and no gift is made to the beneficiary in its place. There is an exception to this principle that relates to guardians for property and is provided by the Substitute Decisions Act, 1992, S.O. 1996, c. 30. Where a guardian for property disposes of property that is, at the time of such disposal, subject to a specific testamentary bequest then the beneficiary will be entitled to receive an amount equal to the proceeds of the disposition. There is an exception to this exception, however, and that is where a provision is included in the Will that states that a contrary intention is to be applied.

The doctrine of “abatement” occurs when a reduction of the bequests set out in a Will is required because there are insufficient assets in the residue of the deceased’s estate to satisfy all of the gifts once the debts and liabilities of the estate have been paid. In an abatement scenario, the types of bequests at issue determine the order of abatement. In general terms, general bequests reduce first and they do so rateably. The next to abate are demonstrative bequests followed by specific bequests, again with each reducing rateably. The term “rateably” simply means that the reduction is allocated among all beneficiaries in the same class in proportion to their interests. Specific bequests are reduced before a reduction is applied to a devise of real property.

A last concept that should be touched upon in a discussion of bequests is the doctrine of “lapse”. It is very important that a testator considers the possibility that a beneficiary will predecease the testator. In general terms, if a beneficiary does predecease a testator then the gift is said to lapse, or to fail. If the gift is a bequest then such gift will fall into the residue of the estate and be dealt with accordingly. If, however, such predeceased beneficiary was entitled to a share of the residue then the result will be an an intestacy with respect to that portion of the estate.

The doctrine of lapse does not apply in all situations. There is an anti-lapse provision in the Succession Law Reform Act, R.S.O. 1990, c.26, that states that if the predeceased beneficiary is a child, grandchild, brother, or sister of the testator, and the predeceased beneficiary leaves a spouse or issue who survives the testator, then the gift does not lapse. Instead, the gift is to be distributed as if it had been the property of the deceased beneficiary and the deceased beneficiary had died intestate (except that the preferential share of a surviving spouse is excluded). In other words, the gift would be divided with one equal share going to a surviving spouse and one equal share going to each surviving child. If a testator does not want the potential for gifts to lapse, or the anti-lapse provision to apply, then he or she can express a contrary intention in the Will by either making gifts conditional on the beneficiary surviving the testator or stipulating a gift over to another beneficiary in the event that the original beneficiary predeceases the testator.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Executors & Trustees - Part IV*]]>Mon, 27 Jun 2016 18:48:28 GMThttp://cklegal.ca/the-estates-nutshell/executors-trustees-part-ivPeople sometimes think it is an honour to be appointed an executor and, while that may often be the case, it is also a time consuming role that is steeped in responsibilities and potential liabilities. Although not legally required, a testator should invariably obtain the consent of anyone that he or she wishes to appoint as an executor. An executor appointed in a Will has no legal obligation to fulfill that role and, prior to commencing that role, is free to choose to renounce it. Where an executor so renounces, if more than one executor was named in the Will then the remaining executor(s) would apply for the Certificate of Appointment of Estate Trustee With a Will. Where there is only one named executor in the Will and he or she renounces the appointment, an application must be made to the court for an administrator of the estate to be appointed. The court will prefer, in order, a surviving spouse, children, grandchildren, great-grandchildren, father, mother, and siblings of the deceased.

The Trustee Act provides that where there are multiple executors and one dies then the powers and duties of the deceased executor will vest in the survivor(s) unless the Will contains a provision to the contrary. If the sole or remaining executor of an estate dies before the estate has been fully administered and an alternate executor is named in the Will then such alternate would apply to the court for a Certificate of Appointment of Succeeding Estate Trustee With a Will. If no alternate executor is named in the Will, however, then on the death of the sole or remaining executor, the executor that is named in the sole or remaining executor’s Will (the “new executor”) will succeed the deceased executor once the new executor obtains probate of the deceased executor’s Will. If this occurs, the executorship of the original deceased’s estate is said to have “devolved”.

An executor and/or trustee who has been appointed in a Will may be removed from such office, or may be prohibited from acting, if he or she is incapable because of a conviction for committing an indictable offence, bankruptcy, insolvency, or due to a mental incapacity. In such instances, the Trustee Act empowers a court to remove the person in question and to appoint one or more replacements.

An executor and/or trustee who has commenced acting in that capacity but who no longer wishes to act in that capacity can make an application to the court to be removed. As well, a co-executor and/or co-trustee, or any person who has an interest in the estate (usually a beneficiary), can make an application to the court for the removal of an executor or trustee if such person has breached his or her duties by misconduct, negligence, or inappropriate actions. As a fiduciary, an executor and/or trustee must at all times act in the best interests of the beneficiaries.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Executors & Trustees - Part III*]]>Sat, 25 Jun 2016 15:16:22 GMThttp://cklegal.ca/the-estates-nutshell/executors-trustees-part-iiiIn certain circumstances a testator may wish to appoint a special executor whose responsibilities are limited to specific purposes. A simple example would be where a testator owns a valuable collection and, pursuant to the Will, such collection is to be sold with the proceeds to go to the beneficiaries. In such instance, a special executor can be appointed to deal strictly with the disposition of the collection, and the appointee would then account to the principal executor of the estate.

A testator may also want to appoint someone in the role of executor but not want that person to have the additional responsibility of administering an ongoing testamentary trust. In such situations, one or more other persons can be appointed to the role of trustee and a provision can be included in the Will stating that the transfer and delivery of the trust property to the trustees constitutes a full discharge to the executor, and that the executor is under no obligation to see that the terms and conditions of the trust are carried out.

A testator may wish to provide unlimited powers to an executor in administering the estate, or may choose to place limitations on what he or she can do. With respect to investing the assets of the estate, the Trustee Act imposes a “prudent investor” standard of care, which requires that an executor and/or trustee exercise the care, skill, diligence, and judgment that a prudent investor would exercise in making investment decisions. A trustee must consider the following criteria in planning the investment of trust property, in addition to any other criteria that is relevant to the circumstances:

General economic conditions;
The possible effect of inflation or deflation;
The expected tax consequences of investment decisions or strategies;
The role that each investment or course of action plays within the overall trust portfolio;
The expected total return from income and the appreciation of the capital;
Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
An asset’s special relationship or value, if any, to the purposes of the trust or to one or more of the beneficiaries.

As well, a trustee must diversify the investment of trust property to an extent that is appropriate to the requirement of the trust and to general economic and market conditions. It is not a breach of trust for a trustee to rely on professional advice or to delegate to a professional agent if a prudent investor would do so under comparable circumstances. An trustee may not authorize an agent to exercise function on his or her behalf, however, unless the trustee has prepared a written plan or strategy comprising reasonable assessments of risk and return, together with a requirement that the agent report to him or her at regular stated intervals.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Executors & Trustees - Part II*]]>Fri, 24 Jun 2016 15:09:14 GMThttp://cklegal.ca/the-estates-nutshell/executors-trustees-part-iiIf a testator so chooses, a single person can be appointed as both executor and trustee of his or her estate. Alternatively, more than one person can be appointed in either or both roles, or the testator can name a trust company carrying on business in Ontario, or there can be some combination of the two.

Executors and trustees must act unanimously unless the Will provides otherwise. If unanimity is required then, from a practical perspective, consideration should be given to the appropriate number of executors and/or trustees – too high a number should be avoided. If multiple executors and/or trustees are appointed, a testator can choose to specify in the Will that majority rules. As well, the testator may choose to state that a certain executor and/or trustee will carry a decision in the event of a tie. If only one person is appointed as executor and trustee then an alternate person should invariably be appointed to address a situation where the named person predeceases the testator or is unwilling or unable to act.

A person must have reached the age of majority (18 years old) in order to act an executor or trustee. That being said, a minor person can be appointed an executor and/or trustee in a Will upon attaining the age of majority provided that an adult person and/or a trust company is also appointed. The minor can be named to either act together with the other appointed executor(s) and/or trustee(s) or to replace him, her, or them. If, at the time of a testator’s death, a minor person is the sole appointed or remaining executor and/or trustee then the Estates Act provides that a Certificate of Appointment of Estate Trustee With a Will shall be granted to the guardian of the minor, or to such other person as the court deems fit, until the minor attains the age of majority.

With respect to where an executor and/or trustee resides, administering an estate and any related testamentary trusts can be time-consuming and multifaceted. There are significant practical challenges to effectively being able to carry out such offices from any meaningful distance, and testators should reflect on those challenges before appointing one or more executors and/or trustees who reside far away. In addition to the practical hurdles, pursuant to the Estates Act an executor may be required to post a bond as security if he or she resides outside of the Commonwealth (for example, in the United States).

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Executors & Trustees - Part I*]]>Thu, 23 Jun 2016 16:44:34 GMThttp://cklegal.ca/the-estates-nutshell/executors-trustees-part-iThe role and importance of trustees and executors in estate administration cannot be overstated. Even if the intent is to speak generally and reduce things down to the “nutshell” version, this is a very big topic. As such, we will look at executors and trustees over several entries with this being the first.

The terms “executor” and “trustee” are often used together and sometimes interchangeably, but there is a distinction between the two offices. Very often the same person is appointed to both offices in a Will, and this adds to the blurring of the two roles.

The executor is responsible for the administration of the testator’s estate following his or her death. In basic terms, the executor’s responsibilities include locating and securing the testator’s assets, paying the debts and liabilities of the estate, and distributing any remaining assets of the estate in accordance with the instructions set out in the Will. Generally, if a testator’s estate is not overly complex and complexities do not emerge during its administration the estate may be distributable within one year of the testator’s death. This period of time is often referred to colloquially as the “executor’s year”.

While every estate requires someone in the role of executor, not every estate requires someone in the role of trustee. A trustee is only required where the testator’s estate is not immediately distributed outright to the beneficiaries, and the whole or part of the estate is to be held in trust pursuant to the provisions of the Will. As the word suggests, a trustee’s role is to administer any ongoing trusts. Unlike the executor’s role which is generally completed within a year or two of the testator’s death, a trustee’s responsibilities can continue for many years, particularly if the trust relates to a young child or is held for the lifetime of the beneficiary.

When deciding who to appoint as an executor and/or trustee, a testator should consider many factors. Included in these factors is the candidate’s familiarity with the testator’s personal affairs, understanding of finances and the relevant assets, place of residence, and his or her age (particularly if the potential exists for extended testamentary trusts).

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Assets & Liabilities*]]>Wed, 22 Jun 2016 18:07:24 GMThttp://cklegal.ca/the-estates-nutshell/assets-liabilitiesAn important component of estate planning is obtaining a clear idea of the nature and value of the assets and liabilities that are involved. This analysis can be an awkward and perhaps uncomfortable process for a testator, but it does not need to be. In addition to being a key component in establish testamentary capacity, the process of assessing the testator’s assets and liabilities can shed much light on the appropriate estate plan and can direct planning decisions.

A key question regarding a testator’s assets and liabilities is obviously whether he or she has sufficient assets, once all liabilities have been paid, to meet his or her obligations and distribute the estate as he or she intends. If there are not sufficient assets to do so, particularly, where young children are involved, it may become apparent that additional insurance should be obtained to ensure that the testator’s spouse and dependents are appropriately provided for.

Another important consideration is whether any of the testator’s assets require special treatment. For example, if there is intellectual property (such as published works) or the testator owns some type of unique collection then it may be necessary to appoint a special trustee for such property. As well, it may be appropriate to deal with such property separately in order to reduce or eliminate taxes payable in relation to administering the estate.

The nature of the testator’s assets should also be considered in order to analyze the tax consequences that will arise as a result of the testator’s death. People are often very concerned about minimizing probate fees payable by the estate but they fail to give adequate consideration to the taxes that will be payable upon death. If a testator owns primarily assets that produce income (i.e., term deposits, bonds, etc.), then taxes payable at death will not be of significant concern because taxes are paid annually on the income earned on such assets. If, however, the testator owns significant capital property (i.e., stocks, real property, etc.) and such capital property has significantly increased in value from the time it was acquired then it is possible that substantial taxes will be payable on account of capital gains at the time of the testator’s death. It is worth noting that a testator’s principal residence is exempt from capital gains and should therefore not factor into the foregoing analysis.

The nature of a testator’s liabilities also bears consideration. Are the liabilities secured or unsecured? Were they incurred for the testator’s own benefit or did the testator guarantee obligations of another? Of critical importance is determining whether a liability is insured or uninsured. The answers to these questions will provide tremendous assistance in determining an appropriate estate plan.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Types of Ownership*]]>Tue, 21 Jun 2016 16:28:22 GMThttp://cklegal.ca/the-estates-nutshell/types-of-ownershipIn very general terms, assets may be owned solely by a testator, or owned in conjunction with one or more persons. If property is owned with another person, the property can either be held either by the parties as joint tenants with a right of survivorship or as tenants-in-common.

Where an asset is owned by a testator with another person as joint tenants with a right of survivorship, then upon the testator’s death his or her interest in the asset will pass automatically and immediately to the surviving owner. Contrastingly, where a testator owns an asset solely, or with another person as tenants-in-common, then upon the testator’s death his or her interest in the asset will pass to his or her estate and will be dealt with in accordance with the testator’s Will.

One exception to the above-noted principles is provided by the Family Law Act, R.S.O. 1990, c. F.3, and has to do with ownership of a matrimonial home. Where a spouse dies owning an interest in a matrimonial home as a joint tenant with a right of survivorship with a third person (i.e., not his or her spouse), then the joint tenancy is deemed to have been severed immediately before the time of death. The consequence of this provision is that ownership of the matrimonial home will be treated as being one of tenants-in-common (rather than joint tenancy), and the spouse’s interest in the home will pass to his or her estate. Accordingly, such interest will be dealt with in accordance with the testator’s Will or, if the spouse dies intestate, in accordance with the laws of succession contained in the Succession Law Reform Act, R.S.O. 1990, c.26.

It goes without saying that the distinction between the types of ownership and the consequences thereof is critical for estate planning purposes. In short, a deceased’s person’s interest in assets he or she held solely, or as tenants-in-common with another person, will pass through his or her estate and will generally be subject to probate tax. Interest in assets held by a deceased person jointly with a right of survivorship, however, will not pass through his or her estate and will not be subject to probate tax. For this reason, one of the simplest estate planning techniques employed by the vast majority of couples is to own or hold key assets such as real property and bank accounts jointly and with a right of survivorship.

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

]]><![CDATA[Defining Children & Issue*]]>Mon, 20 Jun 2016 16:25:01 GMThttp://cklegal.ca/the-estates-nutshell/defining-children-issueWhere a Will makes distributions to a particular class of beneficiaries, it is very important to ensure that the class is adequately defined in the Will.

A common example of this occurs where a Will makes a gift to the testator’s “children” or “issue” that are living at the time of the testator’s death. Unless the Will states otherwise, a reference to the testator’s “children” or “issue” with no further qualifications will include children who are born both inside and outside of marriage. As such, the executor would have an obligation in such case to search the public records to ensure that he or she is dealing with all persons that fall within the class of beneficiaries.

To avoid the executor from having to complete such a search, it has been common practice in Ontario to include a provision in the Will that limits the scope of “children” and “issue” to only those children who were born within a marriage, who were born within a common-law relationship but whose parents subsequently marry, or who were legally adopted. However, with the increasing number of children that are being born within common-law relationships and whose parents never subsequently marry, the wording of the standard provision has generally been expanded to include such children, provided that the relevant parent of the child has shown a settled intention to treat the child as his or her own.

This is a sensitive issue for many people and a testator may be hesitant to discuss the matter openly and directly. It is important, however, that a testator recognizes the need for ensuring that any classes of beneficiaries that are referenced in the Will are sufficiently defined. Failure to be clear in this regard can make an executor’s job far more difficult (best case scenario) and can be a lightning rod for conflict and challenges (worst case scenario).

Thanks for reading “The Estates Nutshell” – questions and comments are very welcome at estates@cklegal.ca.

*Thanks for the contents of this article are due in part to the very excellent Gibbs et. al., The Practical Guide to Ontario Estate Administration, 5th ed. (Thomson Canada Ltd., 2006)

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