Gill v. RSPCA

In The High Court of Justice

Chancery Division

Mr. James H. Allen, Q.C.

(Sitting as a Deputy Judge of the High Court)

Decision delivered: October 19, 2009

This case, from England, has become the subject of assorted commentary including an interesting article in the February, 2010 issue of Step Journal by Mark Keenan a partner and member of the Contentious Trusts & Probate Group of the law firm Mishcon de Reya, London, England. The Respondent, being a well known charity, has apparently come under some public scrutiny for fighting the case.

It concerns the issues of knowledge and approval of the contents of a will, undue influence and proprietary estoppel.

The Claimant was the lone daughter of farming parents. The father was a domineering bully, set in his ways and unwavering in his opinions and convictions. The mother’s mental state was the subject of much of the trial and decision. The Court accepted that she suffered from agoraphobia. She rarely left her house and rarely communicated with anyone other than her husband and daughter. She was substantially dependent on her husband. Her fear of losing that dependency was found to affect her ability for independent thought.

The mother and father had mirror wills, leaving everything to each other. The survivor’s estate went to the RSPCA. An explanatory provision in the brief wills confirmed that the Claimant was left nothing because she had been well provided for during their lives.

The wills were prepared by a lawyer that had no recollection of the mother and father or of the circumstances surrounding the planning, drafting or execution of the wills. He had no file and no notes of meetings. The Court accepted the evidence of the lawyer as to his standard practice in estate planning and further accepted that he had probed them as to their reason for excluding their daughter from their wills, which resulted in the explanatory provision being inserted in the wills. The Court further accepted that the lawyer would have mailed the draft wills for review in advance of signing, and at the time of signing would have read over the wills in their entirety and explained the meaning of each provision to them.

The Claimant was not estranged from her parents. The evidence was that both parents loved and cared for her and that she helped them out extensively around the farm. She was found to have made major life decisions of her own related to her education, work, marriage and residence based on her desire to be near and help out her parents on the farm, including the decision to purchase the adjacent derelict property which she and her husband renovated to become their home.

The father died first. After her mother’s death the Claimant sought to overturn her will.

Notwithstanding the mother’s extreme phobias, anxieties and insecurities the Court accepted that she knew and approved of the contents of the will.

Although the father died first and there was an opportunity for the mother to change her will before she died, the Court found that the mother was under such pressure from her husband to make the will that it overpowered her volition such as to make it contrary to her wishes. The pressure amounted to coercion and the will was set aside on the basis of undue influence.

An interesting aspect of the case is the Court’s alternative finding that even without undue influence there was sufficient evidence of assurances from the parents, which were relied upon to the detriment of the Claimant, that she would be left the farm after they both died, to apply the doctrine of proprietary estoppel. The Court concluded that the appropriate remedy would be the transfer of the farm and all associated farm property to the Claimant.

Mr. Keenan has, in his article, raised two interesting practice issues from this decision.

First, the need to be alert to potential challenges to a will make it good practice for lawyers to meet a husbandand wife separately when taking instruction for wills where there are unusual circumstances, including the exclusion of a close family member from the distribution of the estate. It is possible, though not a certainty, that the lawyer who took instructions in Gill could have discovered the undue influence being exerted upon the wife had he taken instruction separately. This is of course a departure from traditional practice, where husband and wife are seen together, give instruction together and sign together. Where there are no unusual circumstances the traditional practice may be sufficient.

Second, as our courts have repeatedly confirmed in the not too distant past, it is incumbent on lawyers to ensure that they compile and preserve meaningful attendance notes when meeting clients to draft wills, which need is magnified where there are unusual circumstances.

Of no less significance is the recognition that proprietary estoppel provides a potential ground to substantiate the claim for equitable relief of a disappointed beneficiary who has been left out of a Will. As such, practitioners need to ensure a thorough interview of any disgruntled beneficiary left out of a will to determine whether there are facts sufficient to ground a claim in proprietary estoppel.

This case comment was originally published in “Headnotes and Footnotes”, for the Manitoba Bar Association. It was valid and accurate as of the date it was submitted. © John Delaney 2009.

Garron Family Trust (Trustee of) v. R.

2009 TCC 450

Tax Court of Canada

Judgment: September 10, 2009

The Tax Court of Canada considered the issue of trust residence in a case that involved a complex reorganization of a holding company of a Canadian corporation that was in the business of manufacturing and assembling parts for the automotive industry.

The reorganization and decision are complicated. The decision should be reviewed for details. Briefly, the reorganization was a freeze that included issuance of newly issued common shares for nominal consideration to newly incorporated Canadian holding companies. Shares in the new holding companies were issued to Trusts for nominal consideration. The newly incorporated holding companies were wholly-owned by the Trusts.

The holding company was sold in an arm’s length transaction and the Trusts disposed of the majority of their shares in capital stock of the newly incorporated holding companies. Capital gains in excess of $450,000,000.00 were realized. The Trusts were assessed for taxes on the gains in 2000.

The Trusts appealed the tax assessments. The Trusts sought an exemption to payment of taxes in accordance with the tax treaty between Canada and Barbados. That decision turned on whether the Trusts were resident in Canada.

The sole Trustee of each Trust was St. Michael Trust Corp., which is incorporated and licensed in Barbados, and regulated by the central bank of Barbados. The terms of the Trust included the appointment of a protector who had the ability to remove and replace the Trustee at any time. The majority of beneficiaries of the Trusts over a certain age had the ability to replace the protector at any time.

The Trusts relied on Thibodeau Family Trust v. The Queen, a 1978 decision of the Federal Court Trial Division. The Trusts argued that Thibodeau stood for the proposition that the residence of the trustee determines the residence of the trust and that since the corporate Trustee of the Trusts was resident in Barbados the Trusts were not residents of Canada for tax purposes.

The Minister of National Revenue argued that the residence of those who have the actual management and control of a trust determines residence of the trust, that Canadian beneficiaries of the Trusts managed and controlled the Trusts and that therefore the appropriate residence of the Trusts was Canada.

After consideration of Thibodeau and a number of other cases the judge concluded that the appropriate judicial test for determining the residence of a trust should be the same test that is used for determining the residence of a corporation, being one of central management and control. The judge further considered what is meant by management and control.

The judge found that the role of the corporate Trustee was limited to providing incidental administrative services and that it did not have decision-making authority. Decision making authority rested with Canadian resident beneficiaries of the Trusts. The judge concluded that the central management and control of the Trust was therefore located in Canada and that the Trusts were resident in Canada.

This decision will have significant and wide reaching impact on how trusts are structured where residence of the trust is at issue, including structuring Alberta resident trusts for tax purposes and structuring Manitoba and Saskatchewan resident trusts for perpetuity purposes.

In addition, the Tax Court of Canada has also released a recent decision in Antle v. The Queen 2009 TCC 465 which considered an attempt by a taxpayer to avoid payment of a capital gain on the sale of shares in a closely held private corporation through the use of a spousal trust created for the purpose of transferring, holding and selling the shares and distributing the proceeds of sale to the spouse. The court found there to be a lack of certainty of subject matter in finding that no trust existed. This case is another significant decision related to trusts and taxation that bears consideration to those practitioners involved with trusts.

This case comment was originally published in “Headnotes and Footnotes”, for the Manitoba Bar Association. It was valid and accurate as of the date it was submitted. © John Delaney 2009.

By John Delaney and Ted Crane

Pecore v. Pecore, 2007 SCC 17

Madsen Estate v. Saylor, 2007 SCC 18

Supreme Court of Canada

Decisions delivered: May 3, 2007

The Supreme Court of Canada has recently released its decisions in the companion cases of Pecore v. Pecore and Madsen Estate v. Saylor.

Both cases were appeals from the Ontario Court of Appeal. The decisions provide clarity and guidance to the judicial application of the presumptions of resulting trust and advancement in considering the effect of gratuitous transfers of bank and investment accounts from a parent into joint names with a child.

In Madsen Estate a father named an adult daughter a joint account holder. The accounts had a right of survivorship. The daughter was the attorney under his power of attorney and the executor of his will. The fatherretained control of, and paid all taxes related to, the accounts. The accounts were used for his sole benefit during his life. Under his will the father’s three children were to share his estate. The daughter did not include the joint accounts as part of the distribution of his estate. The other children sought the inclusion of the accounts in the father’s estate. The trial judge stated that the presumption of advancement from a father to a child should be abandoned in favour of the presumption of resulting trust other than in exceptional cases. Accordingly the trial judge applied the presumption of resulting trust, which the daughter was unable to rebut. The accounts were included in the father’s estate. The majority of the Court of Appeal found that the trial judge erred in applying the presumption of resulting trust and should have applied the presumption of advancement. However, the Court of Appeal found that there was no need to consider either presumption because the intention of the father at the time of transfer clearly demonstrated that the accounts were to be included as part of the estate. There was therefore no reason to interfere with the trial judge’s decision.

In Pecore a father named an adult daughter a joint account holder. She, unlike her siblings, was not financially secure. She and her disabled husband received financial assistance from the father during his life. The father retained control of, and paid all taxes related to, the accounts. His will provided for specific gifts to the daughter, her husband and her children and the residue to be split between the daughter and her husband. The daughter did not include the jointly held accounts in the estate distribution. The daughter and her husbandseparated and fought over the accounts during their family property proceedings. The trial judge applied the presumption of advancement, which the husband was unable to rebut. The Court of Appeal dismissed the husband’s appeal finding that it was not necessary to rely on the presumption of advancement because the presumption is only relevant in the absence of evidence of actual intention. The Supreme Court of Canada considered the state of the presumptions of resulting trust and advancement in disputes over gratuitous gifts in Canada. The continued role of the presumptions was confirmed. They are however, only to be used as a guide when the intention of the transferor is unclear. Subject to the relationship between the parties a presumption of resulting trust is the general rule for gratuitous transfers. The onus is on the transferee to demonstrate a gift was intended. If the relationship is one of parent and child then the presumption of advancement applies and the person challenging the transfer has the onus of rebutting the presumption that a gift was made. The presumption of advancement applies equally to fathers and mothers as transferors but is limited in its application to gratuitous transfers made to minor children, and does not apply to transfers to independent or dependent adult children.

The court’s lengthier legal analysis is set out in Pecore. The Supreme Court of Canada considers the rationale behind the presumptions, the applicable standards of proof and the types of evidence that should be considered in ascertaining a transferor’s intention. No evidence is necessarily determinative on its own, however the court confirmed that it may consider the wording used in bank documents, control and use of the funds in the accounts, granting of a power of attorney, tax treatment of the joint accounts and evidence subsequent to the transfer if the evidence is relevant to the transferor’s intention at the time of the transfer. Weight to be place on any evidence in determining intention is left to the discretion of the trial judge.

The Supreme Court of Canada dismissed the appeals in both cases.

Joint bank and investment accounts are used routinely by Canadians, frequently as estate planning tools. There is often a misunderstanding by transferors and transferees as to the legal effect of the transfers. There is not always clear evidence of the intention of the transferor at the time of the transfer. Tax implications of transfer are often overlooked. In Pecore the father wrote letters to the financial institutions 2 years after the transfer to confirm that he intended to retain the beneficial ownership of the accounts notwithstanding the transfers into joint names with his daughter. He only did this after his accountant advised him that the transfers could give rise to tax consequences.

These companion decisions are important for all estate planning practitioners and should provide some certainty to the court’s consideration and treatment of gratuitous transfers from parents to children.

This case comment was originally published in “Headnotes and Footnotes”, for the Manitoba Bar Association. It was valid and accurate as of the date it was submitted. © John Delaney 2007.

When does the client have to have testamentary capacity during the will making process?

The law dealing with the due execution of a valid last will and testament is clear in providing that the testator must have testamentary capacity as of the date they give instructions, not necessarily as of the date they sign the will giving effect to those instructions. As of that later date, that is, at the date of execution, the testator has to satisfy a test with a lower threshold. The testator simply has to be aware that the document they are signing is in fact their last will and testament and gives effect to the instructions they gave earlier to their solicitor. The law on this point has been settled since 1883 with the English decision of Parker v. Felgate.1 It remains the law in England today. In Canada, the Parker decision has been followed extensively in various jurisdictions.2

As an example where the timing of a testator’s testamentary capacity is important, the English courts recently reaffirmed the law in Clancy v. Clancy.3 The testatrix had given instructions in November 1999. She was at the time of sound mind. However, she had not yet executed her will when she was diagnosed with terminal cancer in March 2000. She survived only two weeks after diagnosis. However, within that time, the lawyer attended the hospital at her request and signed the will with a staff nurse as the second witness. At the time of execution, the testatrix was heavily drugged, and it is very unlikely that she could have had testamentary capacity. However, the judgment reaffirmed the law in which she need only understand what the document was that she was signing, and not that she had testamentary capacity. The will was valid.

The affidavit of execution included in the Queen’s Bench Rules at Form 74F is potentially problematic. It provides that “the testator was of sound mind, memory, and understanding at the time of execution of the will.” It speaks to the date of execution, not to the date on which the instructions are given. One possibility is that the phrase “sound mind, memory and understanding” does not equate to testamentary capacity in this context, and only refers to the lesser standard imposed at execution. Otherwise, the affidavit of execution might be construed as being at odds with the common law.

However, a brief search of the case law suggests that the phrase “sound mind, memory and understanding” does in fact denote the legal test for full testamentary capacity.4 Therefore, if that phrase is more properly equated with testamentary capacity, and circumstances arise where a testator clearly does not have full testamentary capacity at execution, then it might be appropriate to amend the affidavit of execution to make the situation clear to any court asked to admit the will to probate. The Queen’s Bench Rules allow amendments to the forms as circumstances require.5 A possible amendment may be as follows:

The testator was of sound mind, memory and understanding at the time instructions were taken, and understood that he was executing a will giving effect to those instructions as of the date of execution.

It is submitted that the best practice is to amend the affidavit of execution under circumstances where the Parker v. Felgate doctrine is clearly in play.

This problem appears to have been circumvented in other provinces. As examples, consider Ontario and Alberta. The Ontario affidavit of execution does not reference the testator’s competency or understanding. The Alberta form is, arguably, more in keeping with the common law, and provides that the witness believe the testator:

… understood that the document being signed was the deceased’s will; and … was competent to sign the will.6

The wording of the Alberta affidavit of execution appears to more closely parallel the common law as expressed in the Parker decision and could be used as an alternate formulation of the amendment that might be made to the Manitoba form where circumstances warrant or demand.

1. Parker v. Felgate (1883), L.R. 8 P&D 171 (PDA) [Parker].

2. Bradshaw Estate (Re) (1988), 30 E.T.R. 276, 90 N.B.R. (2d); Faulkner v. Faulkner (1920), 60 S.C.R. 386; Rogers v. Davis, [1932] S.C.R. 407, [1932] 3 D.L.R. 351.

3. Clancy v. Clancy (2003) All E.R. (D) 536.

4. E.g. Laramee v. Ferron (1909), 41 S.C.R. 391, ¶ 44.

5. Queen’s Bench Rule 1.06.

6. Surrogate Rules, Alta. Reg. 130/1995, NC8.

* John E.S. Poyser is a member of the Wealth and Estate Group at Inkster Christie Hughes LLP. He is a past chair of both the Manitoba and National CBA sections dealing with wills and estates. Daniel Watts is an articling student working within the practice group. © John E. S. Poyser 2009. This article was current when it was written. No effort has been made to update it. It is not a replacement for legal advice.