If you are a business owner, there is a good chance that you have two wills, or at the very least your lawyer or accountant has suggested that you have two wills. The purpose behind these multiple wills has been to allow certain assets which do not require probate, such as shares in private companies, to pass through the secondary will outside of estate administration tax, or probate.
However, this planning technique has now been thrown into question with a recent Ontario Superior Court of Justice decision. In the September 11 decision of Milne Estate (Re), 2018 ONSC 4174 the court took a look at what is known as the ‘basket clause’ among estate lawyers. The basket clause is a way of drafting multiple wills which allows for the trustees to decide into which will an asset will fall, instead of determining the allocation in advance.
The issue that appears to have come into play in the Milne case is if a will that allows the executors to determine what assets are subject to the will is a valid will. A will is a form of trust under common law. In order for a trust to be valid it must satisfy “the three certainties”: certainty of intent to create the trust, certainty of the objects of the trust and certainty of the subject of the trust.
Certainty of intention to create a trust is most often satisfied through the production of a trust document, in this case being the wills.
Certainty of the object of the trust is the purpose for which the trust exists. Very briefly, the objects of a trust are generally the beneficiaries of the trust, or in the case of a will, the inheritors. There may be situations in which a purpose is the object of the trust, such as a charitable endeavour.
Certainty of the subject matter of a trust is the question that the Milne case would appear to run afoul of. It must be clear what property the trust is referring to and for which the trust through the trustees is now responsible to administer. The trustee themselves cannot have the decision-making ability to determine which properties are subject to the trust. This fails the certainty of subject.
It appears that, in attempting to create documents that were as flexible as possible and that would allow decisions to be made in the most advantageous manner after the fact (in this case, after the death of the testators whose wills were examined by the courts) the drafters went a little too far.
The question then becomes, is the use of multiple wills as a probate planning tool over? I don’t believe that to be the case. The principal issue was the lack of clarity as to which properties were administered by which will. As such, less broadly drafted documents that clearly identify properties should still be acceptable. For example, a primary will could be drafted to include all property other than private company shares. Those shares could even be listed in an addendum which is updated as shares are added or disposed of. The secondary will could then specify that it covers only private company shares. Such drafting should maintain the certainty of subject and be acceptable to the courts.
While this particular case has been appealed to the Ontario Court of Appeal, we would urge business owners to review their documents as they now stand, or if you are one of the many individuals without a will, to get the documents prepared. The conservative approach would be to use multiple wills with specifically identified properties for the time being.
If you would like assistance in reviewing your estate documents, or in planning the documents, please do not hesitate to contact our office and we will be happy to assist.
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