Estate-planning professionals who were jolted by a legal decision threatening the use of multiple wills in Ontario may now breathe a sigh of relief.
In a new commentary, Mary Wahbi and Kathryn Balter of legal firm Fogler, Rubinoff explained that multiple wills are typically used to limit the amount of probate fees, also known as Estate Administration Tax, that have to be paid.
Estate assets are separated into two pools. The pool of assets that require probate for administration are governed by a “primary will” which is submitted for probate, while the other assets are governed by a secondary will that is not submitted for probate. “The result is a savings of the probate fees (approximately 1.5%) on the value of the assets governed by the Secondary Will,” the authors explained.
To allow assets that may not require probate to be listed in the secondary will, the technique may also include the use of provisions that can be invoked after death. These include a “basket clause” that lets estate trustees determine which will assets should fall under based on whether their administration requires a probated will, as well as a “disclaimer” clause that would let trustees disclaim any assets in the secondary will that turn out to require probate.
But in the Re Milne decision released on September 11, Justice Dunphy of the Ontario Superior Court of Justice ruled that a will is a trust, which means it requires three certainties including certainty of assets. He further asserted that if there isn’t such a certainty must be present as of the date of death, the will isn’t valid. Since the language of the primary will in Milne permitted the estate trustees to retroactively determine which assets should be included, Dunphy determined that it lacked uncertainty and was therefore invalid.
The decision, which is under appeal, has been decried by voices from the estates bar and estate academics as incorrect, Wahbi and Balter said. Estate professionals and clients have been grappling with the possible impact of the decision, with some revising their wills to be “Milne-proof” at the expense of the planning flexibility afforded by basked clauses and disclaimer provisions.
But a more recent decision by Justice Penny in Re Panda dated November 13 offers some hope. In this case, the secondary will allowed the trustees named in it to “disclaim any property which would otherwise form part of the Secondary Estate within 90 days following the death of the testator.”
Though the case involved similar circumstances and wills with similarly broad provisions, Penny deviated from the Re Milne precedent. Among several issues, he noted that the Milne finding that a will must satisfy the three certainties required of trusts is incorrect as a matter of law: a will is not a trust. He also asserted that a court should only rule on the issue of the powers given to estate trustees when it’s raised in the contest of a dispute before the court.
“While only the appeal decision will finally settle the matter, Re Panda certainly provides a thorough, well-reasoned analysis of the issues and a solid basis on which to expect that Re Milne will be overturned on appeal,” Wahbi and Balter said.
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