Sunday, February 22, 2015

British Columbia Law Institute Report on Terminating a Strata

The British Columbia Law Institute  has just published its Report on Terminating a Strata recommending reform of the Strata Property Act provisions allowing a strata to wind up its strata corporation and cancel the strata plan.

Under current legislation, there are very stringent requirements that must be met before a strata may be terminated. The Strata Property Act requires a unanimous vote to terminate a strata, which effectively requires that all owners consent. On an application authorized by three-quarters of the votes, the court may allow a termination in very limited circumstances despite dissenting votes. Pursuant to section 52 of the Strata Property Act, if a strata corporation is comprised of 10 or more strata lots, and the vote in respect of one strata lot, or if more than one strata lot, “the court may, if satisfied that the passage of the resolution is in the best interests of the strata corporation and would not unfairly prejudice the dissenting voter or voters, make an order providing that the vote proceed as if the dissenting voter or voters had no vote.”

For most termination applications, the consent of the mortgagees and other registered charge holders is also required.

Why would the owners want to terminate their strata? One of the reasons is that as buildings age, they may become obsolete. The cost of repairs and maintenance of apartments and other buildings may become disproportionately high in comparison to what the owners might be able to receive if the strata is terminated and the property sold for redevelopment.

If the threshold for terminating a strata is too high, there is a risk that a small minority may unreasonably withhold consent to termination in circumstances where it is clearly in the best interest of the owners as a whole to terminate.

On the other hand, too low a threshold may be unfair to those who disagree with the majority, particularly for the owners of residential strata lots who occupy their units, for whom termination will require finding a new residence.

In the Report, the Strata Property Law (Phase Two) Project Committee, chaired by Patrick Williams of the law firm Clark Wilson LLP, sought to balance the collective interests of a strata, with the need to provide safeguards for minority dissenting owners and charge holders.

The Report recommends that the threshold for terminating a strata be lowered to 80% of the eligible votes. The consents of charge-holders would not be required. On the other hand, unless the strata consists of fewer than five strata lots (in which case the 80% threshold would effectively require unanimity), the strata corporation would also require court approval to terminate the strata. The requirement for court approval would give any dissenting owners, and holders of charges registered against the land the opportunity to oppose the termination. The court would then have to determine whether the termination is in the best interests of the strata corporation.

The Report contains a detailed analysis of the relevant provisions of the Strata Property Act and earlier British Columbia legislation, a comparison of the law in other jurisdictions, a discussion of the policy implications, and 21 specific recommendations. 

Friday, February 13, 2015

Estate of Young: Curative Provisions of Wills, Estates and Succession Act.

We now have a reported case applying the new British Columbia legislation allowing the court to give effect to a document or other record as a will even though it does not comply with the formal signing and witnessing requirements for a valid will. This curative provision is section 58 of the new Wills, Estates and Succession Act, and I have written about it before.

The case is Estate of Young, 2015 BCSC 182, and Madam Justice Dickson released her reasons for judgment on February 6, 2015. It is significant because it is the first precedent in British Columbia, and the approach Madam Justice Dickson took to section 58 will likely influence future cases.

Sharone Young made her will on March 2, 2009, in which she appointed The Canada Trust Company as her executor. One clause in the will instructed the executor to dispose of articles of personal, domestic and household use or ornament in accordance with a memorandum that she would leave with her will.

The March 2, 2009 will was properly signed and witnessed, and there was no question about the validity of it. But The Canada Trust Company, through its lawyer John Bilawich, asked the court whether two later documents represented her testamentary intentions, and should be given effect as though they were part of her will.

Madam Justice Dickson described the first document as follows:

[9]             The June 17 Documents has two pages.  The first page is headed "Sharone Young" and "June 17, 2013", followed by the words:

Distribution of furniture, art, antiques, jewelry, sculptures, First Nation masks etc. This is being prepared if I have not sold, given in advance of death.

Thereafter, six people, described as beneficiaries, are named and, under each name, several items of personal property are listed.  The final words on the first page are:

If items not taken buy any of the beneficiaries provide to sell - Maynards Auction, Consignment shops in West Vancouvers including antiques and designer clothes, mink coat.  Maynards would be good resource for items they do not sell for auction.

There are items not named that could be the choice of named beneficiaries.

[10]         The first page of the June 17 Document is signed by Ms. Young.

[11]         The second page of the June 17 Document begins with the words "Beneficiary Contacts Information".  Thereafter, the following words appear:

For physical items in home or safety deposit box (jewelry for Kelly Young)) Bank of Montreal, Main and Mountain Hwy, North Vacouver, BC.  It is my intention to give before my passing.

[ list of names and contact information ]
Money for estate to provide through Will:

[ list of names of individuals and organisations ]

This is being provided as a caution.  Zach and Faren can be responsible, with help, once old enough to be responsible.

On that same day, Ms. Young showed an unsigned copy of the June 17 Document and asked her to help assist with distributing items to people who wanted them, and find places for the remaining items.

With respect to the second document:

[13]         The October 15 Document has one page.  Ms. Young's address and the date appear at the top of the page, followed by these words:


This will serve to confirm, I have requested Nancy Sunderland of 1920 Riverside Dr., North Vancouver, BC to distribute to named beneficiaries household effects including art, all antiques, all furniture.  Specific items have been identified for specific beneficiaries.  As well, beneficiaries may also choose other items not named for them for the rest.

Because Zach and Faren Cross-Nadeau are the youngest, they may have first choice of unnamed items.  Jefferey Young and then the others based upon age for fairness.  Items not taken by all beneficiaries are to be consigned, sold or auctioned on behalf of the estate.

Ms. Young did not sign the October 15 Document.

If finding that the June 17 Document, but not the October 15 Document, represented Ms. Young’s testamentary intentions and should be given effect, Madam Justice Dickson applied the approach of the leading Manitoba Court of Appeal case on Manitoba’s curative legislation, George v. Daily (1997), 143 D.L.R. (4th) 273, a case I wrote about here.

Madam Justice Dickson summarized the approach as follows:

[34]         As is apparent from the foregoing, a determination of whether to exercise the court's curative power with respect to a non-compliant document is inevitably and intensely fact-sensitive.  Two principal issues for consideration emerge from the post-1995 Manitoba authorities.  The first in an obvious threshold issue:  is the document authentic?  The second, and core, issue is whether the non-compliant document represents the deceased's testamentary intentions, as that concept was explained in George.

[35]         In George the court confirmed that testamentary intention means much more than the expression of how a person would like his or her property to be disposed of after death.  The key question is whether the document records a deliberate or fixed and final expression of intention as to the disposal of the deceased's property on death.  A deliberate or fixed and final intention is not the equivalent of an irrevocable intention, given that a will, by its nature, is revocable until the death of its maker.  Rather, the intention must be fixed and final at the material time, which will vary depending on the circumstances.

[36]         The burden of proof that a non-compliant document embodies the deceased's testamentary intentions is a balance of probabilities.  A wide range of factors may be relevant to establishing their existence in a particular case.  Although context specific, these factors may include the presence of the deceased's signature, the deceased's handwriting, witness signatures, revocation of previous wills, funeral arrangements, specific bequests and the title of the document:  Sawatzky [v. Sawatzky, 2009 MBQB 222] at para. 21; Kuszak [v. Smoley, [1986] M.J. No. 670 (Q.B.)] at para. 7; Martineau [v. Myers Estate, [1993] M.J. No. 339 (Q.B.)] at para. 21.

[37]         While imperfect or even non-compliance with formal testamentary requirements may be overcome by application of a sufficiently broad curative provision, the further a document departs from the formal requirements the harder it may be for the court to find it embodies the deceased's testamentary intention:  George at para. 81.

The factors that lead Madam Justice Dickson to conclude that the June 17 Document represented Ms. Young’s testamentary intentions were that the language conveyed “an air of finality,” that it was generally consistent with the provisions of her will, that she signed it and left it on her dining room table where it could be found by others, and that she showed an unsigned copy to her neighbour and sought her assistance in carrying out Ms. Young’s wishes.

In contrast, the October 15 Document did not constitute a disposition, but contained an expression of Ms. Young’s non-binding wishes. She did not sign it, nor was there evidence that she showed it to anyone. 

Saturday, February 07, 2015

Supreme Court of Canada Holds Absolute Prohibition of Physician-assisted Dying Unconsitituional

In a unanimous decision released yesterday, in Carter v.Canada (Attorney General), 2015 SCC 5, the Supreme Court of Canada held “that the prohibition on physician-assisted dying is void insofar as it deprives a competent adult of such assistance where (1) the person affected clearly consents to the termination of life; and (2) the person has a grievous and irremediable medical condition (including an illness, disease or disability) that causes enduring suffering that is intolerable to the individual in the circumstances of his or her condition.” 

The Supreme Court of Canada suspended the declaration of invalidity for 12 months in order to give the federal and provincial governments time to regulate physician-assisted deaths.

The case was brought be several plaintiffs, including Gloria Taylor who “was diagnosed with a fatal neurodegenerative disease, amyotrophic lateral sclerosis (or ALS), which causes progressive muscle weakness.  ALS patients first lose the ability to use their hands and feet, then the ability to walk, chew, swallow, speak and, eventually, breathe.” She did not want to die a slow, painful, death, nor did she want to take her own life violently, while she was still physically capable of doing so, but before she wanted to die. She set out her wishes as follows: 

I do not want my life to end violently.  I do not want my mode of death to be traumatic for my family members.  I want the legal right to die peacefully, at the time of my own choosing, in the embrace of my family and friends.

I know that I am dying, but I am far from depressed.  I have some down time - that is part and parcel of the experience of knowing that you are terminal.  But there is still a lot of good in my life; there are still things, like special times with my granddaughter and family, that bring me extreme joy.  I will not waste any of my remaining time being depressed.  I intend to get every bit of happiness I can wring from what is left of my life so long as it remains a life of quality; but I do not want to live a life without quality.  There will come a point when I will know that enough is enough.  I cannot say precisely when that time will be.  It is not a question of “when I can’t walk” or “when I can’t talk.”  There is no pre‑set trigger moment.  I just know that, globally, there will be some point in time when I will be able to say – “this is it, this is the point where life is just not worthwhile.”  When that time comes, I want to be able to call my family together, tell them of my decision, say a dignified good‑bye and obtain final closure - for me and for them.

My present quality of life is impaired by the fact that I am unable to say for certain that I will have the right to ask for physician-assisted dying when that “enough is enough” moment arrives.  I live in apprehension that my death will be slow, difficult, unpleasant, painful, undignified and inconsistent with the values and principles I have tried to live by. . . .
[. . .]
 . . .  What I fear is a death that negates, as opposed to concludes, my life.  I do not want to die slowly, piece by piece.  I do not want to waste away unconscious in a hospital bed.  I do not want to die wracked with pain.

The Criminal Code of Canada prohibits a physician, or anyone else, from assisting a person to commit suicide. The key provisions are section 14 and section 241, which read as follows:

14. No person is entitled to consent to have death inflicted on him, and such consent does not affect the criminal responsibility of any person by whom death may be inflicted on the person by whom consent is given.

241. Every one who

(a) counsels a person to commit suicide, or

(b) aids or abets a person to commit suicide, whether suicide ensues or not, is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.

Ms. Taylor, and the other plaintiffs, Lee Carter, Hollis Johnson, Dr. William Shoichet, and The British Columbia Civil Liberties Association brought a claim in the Supreme Court of British Columbia, challenging the prohibition on physician-assisted dying.

One of the difficulties the plaintiffs faced was that in 1993, the Supreme Court of Canada in a majority decision rejected a constitutional challenge to section 241(b) of the Criminal Code brought by a lady who also suffered from ALS. The decision is Rodriguezv. British Columbia (Attorney General), [1993] 3 S.C.R. 519. A decision of the Supreme Court of Canada is binding on all other Canadian courts.

Madam Justice Lynn Smith, in the Supreme Court of British Columbia held that it was open to her to reach a different conclusion than in Rodriguez for two reasons. First, in subsequent decisions, the Supreme Court of Canada modified the approach to be taken in determining whether a law offends a key provision, section 7, of the Canadian Charter of Rights and Freedoms. Secondly, there was a great deal more evidence about physician-assisted dying before her than had been available in Rodriguez, including evidence about regulations and safeguards from abuse in other jurisdictions that do permit physician-assisted dying, notably Washington and Oregon, Netherlands, Belgium, Switzerland, Luxembourg and Columbia.

After considering a great deal of evidence on physician-assisted dying, Madam Justice Smith held that the prohibitions were unconstitutional. Her reasons for judgment are at 2012 BCSC 886.

The majority of the British Columbia Court of Appeal (Chief Justice Finch dissenting) allowed the appeal, holding that Rodriguez was binding authority. The Court of Appeal decision is at 2013 BCCA 435.

The Supreme Court of Canada disagreed with the majority in the British Columbia Court of Appeal and held that it was open to Madam Justice Smith to reconsider Rodriguez because of the change in the Supreme Court of Canada’s conception of section 7 of the Charter, and also the difference in the evidence of the social and legislative facts before the Court in Carter.

The Supreme Court of Canada held that the prohibition violates section 7 of the Charter, which reads as follows:

Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

In analyzing section 7, the Court first considered whether the prohibition impinges “life, liberty and security of the person.” The second question is whether the impingement is “in accordance with the principles of fundamental judgment.”

The Supreme Court of Canada agreed with Madam Justice Smith that the prohibition impinges on life because it had the effect of forcing some people to take their own lives prematurely while they were still physically capable.

The Supreme Court of Canada also agreed that the prohibition on physician-assisted dying also limited liberty and security of the person:

[66]                          We agree with the trial judge.  An individual’s response to a grievous and irremediable medical condition is a matter critical to their dignity and autonomy.  The law allows people in this situation to request palliative sedation, refuse artificial nutrition and hydration, or request the removal of life-sustaining medical equipment, but denies them the right to request a physician’s assistance in dying.  This interferes with their ability to make decisions concerning their bodily integrity and medical care and thus trenches on liberty.  And, by leaving people like Ms. Taylor to endure intolerable suffering, it impinges on their security of the person.

Having found that the prohibition impinges life, liberty and security of the person, the Supreme Court of Canada then looked at whether it did so in accordance with the principles of fundamental justice. There are of course limitations on life, liberty and security of the person that are constitutional, as long as those limits are in accordance with the principles of fundamental justice.

The principles of fundamental justice require that “laws that impinge on life, liberty or security of the person must not be arbitrary, overbroad, or have consequences that are grossly disproportionate to their object.” The Supreme Court of Canada again agreed with Madam Justice Smith that the object of the prohibition on assisted dying was “to protect vulnerable persons from being induced to commit suicide at a time of weakness….”

In this case, the Supreme Court of Canada held that the prohibition, while not arbitrary, is overbroad. The question is whether the law “goes too far by denying the rights of some individuals in a way that bears no relation to the object….” The prohibition is overbroad in infringing on the rights of people who are not vulnerable.

[86]                          Applying this approach, we conclude that the prohibition on assisted dying is overbroad.  The object of the law, as discussed, is to protect vulnerable persons from being induced to commit suicide at a moment of weakness.  Canada conceded at trial that the law catches people outside this class:  “It is recognized that not every person who wishes to commit suicide is vulnerable, and that there may be people with disabilities who have a considered, rational and persistent wish to end their own lives” (trial reasons, at para. 1136).  The trial judge accepted that Ms. Taylor was such a person — competent, fully-informed, and free from coercion or duress (para. 16).  It follows that the limitation on their rights is in at least some cases not connected to the objective of protecting vulnerable persons.  The blanket prohibition sweeps conduct into its ambit that is unrelated to the law’s objective.

After the Court found that the prohibition infringed on section 7 of the Charter, the Supreme Court of Canada considered whether the prohibition was saved by section 1 of the Charter which reads:

The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

The Court set out the tests as follows:

[94]                          In order to justify the infringement of the appellants’ s. 7  rights under s. 1  of the Charter , Canada must show that the law has a pressing and substantial object and that the means chosen are proportional to that object.  A law is proportionate if  (1) the means adopted are rationally connected to that objective; (2) it is minimally impairing of the right in question; and (3) there is proportionality between the deleterious and salutary effects of the law:  R. v. Oakes, [1986] 1 S.C.R. 103.

Although the prohibition is rationally connected to the object of protecting vulnerable persons from being induced to commit suicide at a time of weakness, the Supreme Court of Canada held that it failed the test of minimally impairing the rights to life, liberty and security of the person. The decision is based on Madam Justice Smith’s findings of facts that vulnerable persons could be protected without the need of an absolute prohibition on physician-assisted dying. I quote again from the Supreme Court of Canada decision:

[104]                      This question lies at the heart of this case and was the focus of much of the evidence at trial.  In assessing minimal impairment, the trial judge heard evidence from scientists, medical practitioners, and others who were familiar with end-of-life decision-making in Canada and abroad.  She also heard extensive evidence from each of the jurisdictions where physician-assisted dying is legal or regulated.  In the trial judge’s view, an absolute prohibition would have been necessary if the evidence showed that physicians were unable to reliably assess competence, voluntariness, and non-ambivalence in patients; that physicians fail to understand or apply the informed consent requirement for medical treatment; or if the evidence from permissive jurisdictions showed abuse of patients, carelessness, callousness, or a slippery slope, leading to the casual termination of life (paras. 1365-66).

[105]                      The trial judge, however, expressly rejected these possibilities.  After reviewing the evidence, she concluded that a permissive regime with properly designed and administered safeguards was capable of protecting vulnerable people from abuse and error.  While there are risks, to be sure, a carefully designed and managed system is capable of adequately addressing them:

My review of the evidence in this section, and in the preceding section on the experience in permissive jurisdictions, leads me to conclude that the risks inherent in permitting physician-assisted death can be identified and very substantially minimized through a carefully-designed system imposing stringent limits that are scrupulously monitored and enforced. [para. 883]

[106]                      The trial judge found that it was feasible for properly qualified and experienced physicians to reliably assess patient competence and voluntariness, and that coercion, undue influence, and ambivalence could all be reliably assessed as part of that process (paras. 795-98, 815, 837 and 843).  In reaching this conclusion, she particularly relied on the evidence on the application of the informed consent standard in other medical decision-making in Canada, including end-of-life decision-making (para. 1368).  She concluded that it would be possible for physicians to apply the informed consent standard to patients who seek assistance in dying, adding the caution that physicians should ensure that patients are properly informed of their diagnosis and prognosis and the range of available options for medical care, including palliative care interventions aimed at reducing pain and avoiding the loss of personal dignity (para. 831).

Twelve months from now, physician-assisted dying will be permitted in Canada for competent adults, who clearly consent, and “who have a grievous and irremediable medical condition … that causes enduring suffering that is intolerable to the individual in the circumstances of his or her condition.” 

Gloria Taylor passed away before the Supreme Court of Canada’s decision.

Sunday, February 01, 2015

Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers

Lawyers are required to make assessments of their clients’ capacity to make legal decisions, and sign legal documents. This is especially true in a wills and estates practice, which will often include incapacity planning, such as making enduring powers of attorney, and applications to court for guardianship of adults.

In my experience, assessing capacity is one of the most difficult challenges estate-planning lawyers face. Few of us lawyers have any training in medicine, psychiatry or psychology. We may often fail to identify significant cognitive or other disability, or fail to understand the implications of signs of diminished capacity. On the other hand, lawyers can’t delegate the decision about whether or how to proceed with a legal transaction to those who do have clinical training and experience. The criteria for capacity are legal, and few physicians or psychologists have legal training. Furthermore, in the end, it is the lawyer who has to exercise his or her judgment. For example, the lawyer must decide whether to draft and witness the will if the lawyer has questions about the client’s capacity.

I have just finished reading Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers, published by the American Bar Association Commission on Law and Aging and the American Psychological Association in 2005. It is a useful resource for Canadian estate-planning lawyers as well as American. The Handbook is available online here.

The Handbook offers practical guidance for lawyers faced with questions about clients’ capacity. The Handbook considers the following questions:

1.   What are legal standards of diminished capacity?
2.   What are clinical models of capacity?
3.   What signs of diminished capacity should a lawyer be observing?
4.   What mitigating factors should a lawyer take into account?
5.   What legal elements should a lawyer consider?
6.   What factors from ethical rules should lawyer consider?
7.   How might a lawyer categorize judgments about client capacity?
8.   Should a lawyer use formal clinical assessment instruments?
9.   What techniques can lawyers use to enhance client capacity?
10. What are the pros and cons of seeking an opinion of a clinician?
11. What if the client’s ability to consent to a referral is unclear?
12. What are the benefits for the lawyer of a private consultation with a clinician?
13. How can a lawyer identify an appropriate clinician to make a capacity assessment?
14. What information should a lawyer provide to a clinician in making a referral?
15. What information should the lawyer look for in an assessment report?
16. How does a clinical capacity evaluation relate to the lawyer’s judgment of capacity?

The appendices include a capacity assessment algorithm for lawyers, two case studies, a guide to psychological and neuropsychological instruments, and an overview of dementia.

The American Bar Association Commission on Law and Aging and the American Psychological Association has also published a companion paper (which I have not read) entitled, Assessment of Older Adults with DiminishedCapacity: A Handbook for Psychologist.

Sunday, January 25, 2015

Changes to Taxation of Alter Ego and Joint Partner Trusts

There are a number of significant changes to Canadian tax law that will have a significant impact on estate planning. I have written about the elimination of graduation income rates for testamentary trusts, including a post here. That change, though most unwelcome, at least doesn’t come as a surprise, in view of the previous consultation by the Minister of Finance and that it was announced in the 2014 Budget. One change that does come as a surprise is that the Government is making a significant change to how alter ego and joint partner trusts are taxed, a change that could cause some significant unforeseen consequences to estate plans.

I wrote some time ago about the use of alter ego and joint partner trusts. An alter ego trust is a trust settled by a Canadian resident who is at least 65 years old. Under the terms of the alter ego trust, all of the income must be payable to the settlor during his or her lifetime, and only the settlor may have access to capital during his or her life. Then on the settlor’s death, the trust property may be distributed to other beneficiaries as set out in the trust documents. The advantages include that the settlor may transfer appreciated assets into the trust without triggering capital gains or other income tax, and such tax may be deferred until the death of the settlor. Alter ego trusts may avoid or minimize probate fees (because the trust is not probated), maximize privacy, and may in some circumstances be used to protect assets against claims in British Columbia under wills variation legislation.

Joint partner trusts are similar, except that the income must be paid to either or both the settlor and his or her spouse or common-law partner (as those terms are defined under the Income Tax Act (Canada), but for simplicity, I will refer to both as “spouses”), during their joint lives, and capital may be distributed to either or both spouses, until the death of the surviving spouse, at which time the trust property may be distributed as set out in the trust documents.

Under the current tax rules, the alter ego trust is deemed to have disposed of all of its assets immediately after the date of death of the settlor. The effect of this is that any capital gains or other taxes are taxed in the alter ego trust, at the top income tax rate. Although paid out of the trust, the incidence of the tax ultimately falls on the beneficiaries of the trust by reducing the trust property. In some cases, using an alter ego trusts results in a higher overall tax than if the assets had just remained as part of the settlor’s estate, because of the high tax rate in the trust, as opposed to the graduated rates available in the settlor’s year of death in respect of taxes triggered by the deemed disposition of those of the settlor’s assets that are not in a trust. Furthermore, capital losses in the trust cannot be used to offset gains of property that are not in the trust, and vice versa.

Similarly, for a joint partner trust, the deemed disposition occurs immediately after the death of the last to die of the spouses, and as with the alter ego trust, the tax is paid out of the trust property at the top tax rate, and not the marginal rate available to either of the spouses.

Under the changes that are coming into effect in 2016, the taxes arising from the deemed disposition of trust property at the death of the settlor in an alter ego trust will be treated as the settlor’s income in the settlor’s year of death and payable out of the settlor’s estate. If there are insufficient funds in the estate, then the Canada Revenue Agency may collect the tax out of the trust property.

In a joint partner trust, the taxes arising from the deemed disposition of the trust property on the death of the last of the spouses to die will be treated as the income of the last of the spouses to die and will be payable out of his or her estate, unless there are insufficient funds, in which case Canada Revenue Agency may collect the tax out of the trust property.

In some cases, this may reduce the overall tax burden of the estate and the trust. This is because the graduated tax rates should apply to income from the deemed disposition death including the disposition of assets in the trust which would under current rules be taxed at the top rate. Furthermore, tax losses and credits available in the deceased terminal return should be available to reduce gains and taxes that would otherwise be payable in the trust. Similarly, losses in the trust may be available to offset gains on property owned by the deceased.

There may be some advantages under the new rules. But no, the Government was not doing us a favour. There is a significant downside to the changes.

Under the current rules, the taxes in respect of the deemed disposition of trust property is ultimately borne by the beneficiaries of the trust, while under the new rules, it will be borne by the beneficiaries of the estate of the settlor of an alter ego trust, or the estate of the last of the spouses to die, in the case of a joint partner trust.

Consider this example of how it might work. Jim and Janet are married, and each comes into the marriage with his or her own assets, and each has two children. Janet owns a cottage and a large portfolio of investments, and she transfers both into a joint partner trust “the Janet Joint Partner Trust.” Under the terms of the trust, income is payable to either or both of Janet and Jim while they are both alive, and then if Jim outlives Janet, he will continue to receive income, and have use of the cottage during his lifetime. Janet has set up the trust so that on his death, the trust property goes to her own children. Jim has a similar estate plan. His will provides income from his, more modest property, to Janet if she outlives him, but on her death, his property goes to his own children. Janet dies first. Under the current rules, on Jim’s death any capital gains on the Janet Joint Partner Trust property are paid out of the trust, reducing the property that will go to Janet’s children. Any capital gains tax on Jim’s own property is payable out of his estate, reducing the amount that his children will receive. But if Jim dies in 2016 or later, then the taxes in respect of both the Janet Joint Partner Trust property and Jim’s own property will be payable out of Jim’s estate, which means that the incidence of the tax will fall entirely on Jim’s children. Janet’s children would only bear part of the tax if Jim’s estate was insufficient to pay the full amount of tax, in which case, Jim’s children will have been completely disinherited as a result to the changes in tax law.

Going forward, at least estate planners will be cognizant of the changes, and can consider the impact of tax when creating trusts. But the new rules will also apply to trusts that are already in existence, and were planned on the basis of the rules that imposed tax on the trust. In some cases, these cannot be changed to adapt to the new rules, in which cases the result will be that the Government of Canada will have distorted estate plans, including carefully thought out plans intended to balance the interests of spouses and children in blended families.

Saturday, January 17, 2015

It’s Time for the Court of Appeal to Revisit its Formulation of "Rational and Valid Reasons" in Wills Variation Cases

The Wills, Estates and Succession Act allows a will maker’s spouse or child to apply to court to vary a will if adequate provision has not been made for the spouse or child, in which case if the court finds that adequate provision has not been made, the court may make such provision as the court thinks adequate, just and equitable in the circumstances.

The wills variation provisions are in Division 6, Part 4 of the Wills, Estates and Succession Act, but were until recently in the Wills Variation Act, and all of the cases I refer to were decided under the Wills Variation Act. The change in legislation does not affect the analysis.

Applying wills variation legislation is difficult because the courts are required to find a balance between the purposes of the legislation in recognizing that a will maker usually has legal or moral obligations to his or her spouse and children, while respecting the right of a will-maker to make his or her own decisions about who will inherit his or her property.

The legislation allows the court to consider evidence of the will-maker’s reasons for making the provisions he or she did in the will. In striving to find a balance, the British Columbia Court of Appeal has formulated a principle that if the will-maker’s reasons are rational and valid, then unless the spouse or child can show financial need, the will should not be varied.

The Court of Appeal expressed this principle in Bell v. Roy, (1993), 75 B.C.L.R. (2d) 213. Mr. Justice Goldie wrote at paragraph 38:

…that the weight to be given evidence of the testator's reasons is affected by its accuracy and not by morally acceptable or unacceptable content. I do not say the legislature swept away any objectively determined moral duty. I do say, however, that the actual intentions of the testator are to be given an effect which is largely denied by reliance upon the notionally objective reasonable testator.

In a later case, Kelly v. Baker (1996), 15 E.T.R. (2d) 219 (C.A.), the Court expressed the principle as follows:

The law does not require that the reason expressed by the testator in her will, or elsewhere, for disinheriting the appellant be justifiable.  It is sufficient if there were valid and rational reasons at the time of her death - valid in the sense of being based on fact; rational in the sense that there is a logical connection between the reasons and the act of disinheritance.

The idea that the court should take into consideration a will-maker’s reasons, and if rational and valid should give effect to those reasons strikes me as a reasonable way to balance the competing purposes of the wills variation legislation. The difficulty with the way the Court of Appeal has formulated this principle in Bell and Kelly is the notion that that the reasons need not be “justifiable.”

It is difficult to find cases where the courts have found that reasons for disinheriting a spouse or child to be based on fact and logically connected to the disinheritance but not justifiable, but one can imagine such a fact situation. For example, a mother and her only child, a son, have a falling out when the son is in his early twenties. He marries, but does not invite his mother to the wedding. She is heartbroken, changes her will to disinherit him, and expresses her reasons including that he did not invite her to his wedding. They reconcile and for the following 40 years have a close relationship. He takes care of her in her final years, when she is sick and frail. She never changes her will. Her reasons are based on fact and logically connected with disinheriting her son, but the reasons are not justifiable. Would a court really refuse to vary the will in those circumstances?

The formulation of the principle in Bell and in Kelly has been criticized by Supreme Court of British Columbia judges on several occasions.

Mr. Justice Truscott in Rampling v. Nootebos, 2003 BCSC 787 wrote:

[46]        I confess that I have always had difficulty in understanding the distinction that is sought to be made by these comments.  The New Oxford Dictionary of English defines “justifiable” as “able to be shown to be right or reasonable; defensible”.

[47]        On this definition, if the testator does not have to show that his or her reasons for disinheriting are justifiable, then there is to be no consideration of whether they are right or reasonable or defensible.

Madam Justice Ballance in McBride v. Voth, 2010 BCSC 443 (a case I wrote about here), pointed out the inconsistency between giving effect to a will-maker’s reasons when those reasons are not justifiable and the objective approach of determining whether a will-maker has met his or her legal and moral obligations articulated by the Supreme Court of Canada, in Tataryn v.Tataryn, [1994] 2 S.C.R. 807. She concluded her analysis as follows:

[141]     One cannot quarrel with the outcomes in Bell and Kelly in light of their particular facts.  The thorny issue is that the model of inquiry endorsed by Bell and followed in Kelly effectively precludes an assessment of whether the testator’s reasons are objectively justifiable from the standpoint of the contemporary judicious parent of Tataryn.  In Tataryn, McLachlin J. made passing mention of Bell as an example of a case where a testator’s moral duty was seen to be negated.  Notably, she did not say nor delve into whether the proposition espoused by Goldie J.A. to negate that moral duty was sound.  If the decisions of Bell and Kelly mean that the applicable test is whether a testator has valid (i.e. factually true) and rational (i.e. logically connected to the disinheritance) reasons for disinheriting a child, even where the reasons are unworthy of an objectively judicious parent based on contemporary standards, then they are difficult to reconcile with the fundamental precepts of Tataryn and the search for contemporary justice in the circumstances.  

[142]     For the most part, the apparent incompatibility between Bell and Kelly on the one hand, and Tataryn on the other, has not been squarely confronted by this Court (an exception is found in Hammond v. Hammond (1995), 7 B.C.L.R. (3d) 25, 7 E.T.R. (2d) 280 (S.C.)).  I would respectfully observe that there appears to be a growing trend in the authorities decided in the aftermath of Kelly to favour rejection of objectively insufficient reasons on the pretence that they are simply not rational.

Other Supreme Court of British Columbia decisions have adopted Madam Justice Ballance’s analysis. For example, in Schipper v. De Lange, 2010 BCSC 1067, Mr. Justice Verhoeven wrote at paragraph 18 that the “sufficiency of the reasons may be taken as part of the question of whether the reasons of the testator are rational." He formulated this issue at parpargh 20 as follows:

In relation to that issue, are Mrs. Schipper’s reasons for making the disposition set out in her will:
a.       Rational in the sense of being logically connected to the disposition set out in the will;
b.       Rational in the sense that they based upon actual fact; and
c.       Rational in the sense that they are objectively sufficient?

Unfortunately, the Court of Appeal, in a later decision, Hall v. Hall, 2011 BCCA 354, restated the formulation from Bell and Kelly, without any consideration of whether that formulation is consistent with Tataryn. Madam Justice Neilson wrote at paragraph 43:

To succeed in his challenge to her will, Tony must establish these reasons were false or unwarranted: Bell v. Roy Estate (1993), 75 B.C.L.R. (2d) 213 (C.A.) at para. 36. In considering that proposition, it is not necessary to find the reasons were justifiable. It is enough if they were factually valid, and rational in the sense of having a logical connection to the act of disinheritance: Kelly v. Baker (1996), 82 B.C.A.C.150 at para. 58.

Most recently, in Hancock v. Hancock, 2014 BCSC 2398, Madam Justice Dardi added her voice to concerns about the formulation in Bell and Kelly. She wrote at paragraphs 53 through 56:

[53]         In McBride, Madam Justice Ballance observed that it is difficult to reconcile the analytical framework endorsed in Bell and Kelly with the fundamental principles of Tataryn, that a testator’s moral duty must be assessed objectively from a standpoint of what a judicious parent would do in the circumstances, by reference to contemporary community standards. Notably, McLachlin J., as she then was, cited Bell as an example of a case where a testator’s moral duty was seen to be negated, but she did not clarify whether the propositions formulated by Goldie J.A. were sound.

[54]         The analytical approach and commentary in various authorities from this Court, decided subsequent to McBride, underscore the uncertainty regarding the apparent incompatibility between the analytical framework articulated in Bell and Kelly, on the one hand, and Tataryn on the other. This question has engendered significant judicial commentary: Brown v. Ferguson, 2010 BCSC 1890 at para. 115; LeVierge v. Whieldon, 2010 BCSC 1462; Schipper v. De Lange, 2010 BCSC 1067; Holvenstot v. Holvenstot, 2012 BCSC 923; McEwan v. McEwan, 2014 BCSC 916.

[55]         Notably, however, in Hall v. Hall, 2011 BCCA 354, the Court of Appeal applied the analytical approach endorsed in Kelly, without any critical commentary. As is the case with Kelly and Bell, it is difficult, in light of the particular facts, to challenge the result in Hall. However, based on comments in the more recent jurisprudence from the Court of Appeal in Scott-Polson v. Lupkoski, 2013 BCCA 428, I respectfully observe that it may be an unsettled question in this province as to whether the formulation of the analytical approach applied in Kelly can be reconciled with the core principles of Tataryn. In Scott-Polson, Madam Justice Newbury, in obiter dicta, remarked at para. 43:
[43]      … The legally significant finding in terms of the trial judge’s reasoning, however, was that the explanation given in her will was “valid and rational” (see para. 76), or “genuine and valid” (see para. 83). I agree with the trial judge’s comment at para. 84 that this was a “relevant circumstance”. Given this, and given the fact that the plaintiffs did not pursue their cross appeal, it is not necessary for us to consider whether it is in law determinative of what a fair and judicious parent would have thought appropriate. (See McBride v. Voth, supra, at paras. 135-42.) That issue, if it is seen as one, must await another day.
[56]         In my respectful view, there are sound reasons for raising the question of whether the analytical approach endorsed in Kelly is reconcilable with Tataryn. This is particularly apparent in the absence of circumstances where a claimant was clearly estranged from the will-maker. However, in the final analysis, this Court, in compliance with the principle of stare decisis, must continue to apply the analytical framework articulated in Kelly and Bell.

I hope that, at the next opportunity, the B.C. Court of Appeal consider Madam Justice Ballance’s analysis in McBride, and include reasons squarely confronting the question of whether the court should give effect to a will maker’s reasons if they are not objectively sufficient.

Saturday, January 10, 2015

Zeligs v. Janes

Contests between siblings following the death of a parent over houses and bank accounts that were held jointly between the parent and one of the parent’s children are all too common. What happens is that a parent who was the sole owner her own house or bank or investment account transfers the house or account into a joint tenancy with one of her children. After death, the child takes the title by right of survivorship, but the other child or children protest. One issue that may arise is whether the parent intended a gift to the child taking an interest in the title, or whether that child holds the house or account in trust for the now deceased parent’s estate. Sometimes, another child (or other beneficiary of the parent’s will) argues that the child benefiting from the joint tenancy exercised undue influence over the parent, or that there is a presumption of undue influence that has not been rebutted.

Zeligs v. Janes, 2015 BCSC 7 is such a case, but with an interesting twist. The result ultimately turned on whether a joint tenancy was severed by the child on title before the parent died.

Dorothy Burnett lived to be 103. When she died, on April 9, 2010, she had two daughters, Barbara Zeligs, and Diana Janes.

Following the death of her husband in 1990, Ms. Burnett lived independently in her house on Knox Road in Vancouver, until July, 2001 when her daughter Diana Janes and Ms. Janes’ husband moved into the Knox Road property to assist her. Ms. Burnett wrote the following note:

July 10, 2001

I Doroty Burnett - wish to stay in my home 1757 Knox Road as long as I live & to make sure I can I asked Diana Janes to move in and stay with me as long as I live, and to be fair to Diana I made her joint owner as long as I live & full owner when I die.

Dorothy Burnett

In 2002, Ms. Burnett met with a lawyer, and transferred the title to her house, which was by far her most valuable asset, into a joint tenancy with her daughter Ms. Janes.

Ms. Burnett’s health declined, and in 2008 she moved into a long-term care facility. Ms. Janes sold the Knox Road property for $2.7 million in January 2010. By that time, Ms. Burnett was incapable of managing her own affairs, and Ms. Janes signed on Ms. Burnett’s behalf using an enduring power of attorney. She initially deposited the net sale proceeds of a little under $1.8 million (after paying off mortgages that had been placed on the title) into a joint bank account, joint with her mother.

But on the day she deposited the funds into the joint account, Ms. Janes took about $700,000 out of the joint account to buy a house, the title to which was registered in her name and that of her husband. Later, while her mother was still alive, she took out the balance of the sale proceeds from the joint account and for investments in her sole name.

Ms. Burnett’s last will, which she signed in 2003, left the residue of her estate to be divided equally between her two daughters.

Barbara Zeligs died after her mother. Ms. Zeligs’ husband, Joseph Zeligs, as her executor claimed that the proceeds of the sale of the Knox Road property belong to Ms.Burnett’s estate, and pursuant to Ms. Burnett’s will, Ms. Zelig’s estate is entitled to half.

There were three main grounds for the challenge. I mentioned two of them at the outset. There is a presumption that when one person transfers title to property gratuitously into the name of another (including into a joint tenancy) the transfer is not a gift, but the person receiving an interest in the title gratuitously, holds the title in trust (known as a resulting trust) for the transferor during her lifetime, and for her estate after death. Mr. Zeligs alleged that the transfer was not a gift, and Ms. Janes received an interest in the title and ultimately the proceeds of sale, subject to a resulting trust for her mother’s estate.

Mr. Zeligs also alleged that because of Ms. Burnett’s age, health problems and dependency on Ms. Janes, there is a presumption that Ms. Janes procured an interest in the by the exercise of undue influence. Where the presumption of undue influence arises, it is not necessary to prove that the beneficiary of the transfer actually exercised undue influence. Rather the burden shifts to the person receiving a benefit to show that it was given voluntarily, often by showing that the person conferring the benefit received independent advice.

Mr. Justice Steeves agreed with Mr. Zeligs that both the presumption of resulting trust and a presumption of undue influence applied to the transfer of the Knox Road property into a joint tenancy, but found that Ms. Janes had rebutted both presumptions. Key evidence included that July 10, 2001 note in which Ms. Burnett expressed her intention that Ms. Janes would be a joint owner during Ms. Burnett’s lifetime and sole owner after her death, and the evidence of Edward Bowes, the lawyer who handled the transfer of the title into the joint tenancy. Mr. Bowes acted for Ms. Burnett, met with her alone, and gave her legal advice. Mr. Bowes considered that she was mentally competent and acting voluntarily when she signed the transfer.

Given Mr. Justice Steeves findings, had the title to the Knox Road house remained in the joint tenancy until Ms. Burnett’s death, Ms. Janes would be entitled to the whole interest in the property by right of survivorship. The nature of a joint tenancy is such that, if one of two owners die, the interest of the first to die comes to an end, and the survivor holds title solely to the exclusion of the estate of deceased former joint owner. This is contrasted with a tenancy in common, where if one co-owner dies, her interest forms part of her estate, to be distributed to the beneficiaries of her will.

It is possible to change a joint tenancy into a tenancy in common, by severing the joint tenancy.

This brings us to the next ground asserted on behalf of Mr. Zeligs, and the one that is key to Mr. Justice Steeve’s decision.

Mr. Zeligs argued that the joint tenancy was severed either when the house was mortgaged (the proceeds of which were used to benefit Ms. Janes and her husband), when it was sold, or when Ms. Janes removed the proceeds from the joint account.

To hold property in a joint tenancy, there must be the four unities of interest, title, time and possession. Either or both joint tenants may sever the joint tenancies by ending the four unities. Mr. Justice Steeves set out the law as follows:

[162]     Beginning with first principles, it is axiomatic that four “unities” must exist before there is a joint tenancy and these describe the “need for virtually perfect equality” as between joint tenants. Any act that destroys one of the unities will bring the joint tenancy to an end. (A. J. McClean, “Severance of Joint Tenancies” (1979) 57 The Canadian Bar Review, 5; Bruce Ziff, Principles of Property Law, 5th ed. (Toronto: Thomson Reuters Canada Ltd., 2010), at pp. 336 and 342).

[163]     First there must be a unity of interest whereby the holdings of each tenant must be equal in nature, extent and duration. The second unity is that the holdings of each tenant must arise from the same instrument or act. This is the unity of title. Third, there is the unity of time that requires that the interests of the joint tenants arise at the same time. Finally, there is the unity of possession which requires that the rights of the tenants relate to the same property (Ziff, at p. 336; citing Sir William Blackstone, Commentaries on the Laws of England, vol. 2 (Chicago: Univ. of Chicago Press, 1979), ed 1979, at pp.180-2).

[164]     The parties agree that the specific test for determining whether a joint tenancy has been severed is set out in Williams v. Hensman (1861), 70 E.R. 862 (applied in Hansen Estate v. Hansen, 2012 ONCA 112). The statement of Vice-Chancellor Wood is often quoted and it refers to what are called the three “Rules” (Williams at 867, cited in Hansen Estate at para. 32):

A joint-tenancy may be severed in three ways: in the first place, an act of any one of the persons interested operating upon his own share may create a severance as to that share. The right of each joint-tenant is a right by survivorship only in the event of no severance having taken place of the share which … is claimed under the jus accrescendi. Each one is at liberty to dispose of his own interest in such manner as to sever it from the joint fund--losing, of course, at the same time, his own right of survivorship. Secondly, a joint-tenancy may be severed by mutual agreement. And, in the third place, there may be a severance by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common. When the severance depends on an inference of this kind without any express act of severance, it will not suffice to rely on an intention, with respect to the particular share, declared only behind the backs of the other persons interested. You must find in this class of cases a course of dealing by which the shares of all the parties to the contest have been effected, as happened in the cases of Wilson v. Bell [(1843), 5 Ir. Eq. R. 501 (Eng. Eq. Exch.)] and Jackson v. Jackson [(1804), 9 Ves. 591 (Eng. Chancellor)]. …
[emphasis added by Ontario Court of Appeal in Hansen Estate]

In this case, Mr. Justice Steeves found that registering a mortgage did not sever the joint tenancy. In British Columbia, a mortgage is a charge on title, rather than a transfer of title. Nor did selling the Knox Road property and placing the sale proceeds into a joint account sever the joint tenancy. Because Ms. Janes transferred the funds into a joint account, the character of the joint tenancy did not change.

But, when Ms. Janes took the funds out of the joint account, she severed the joint tenancy. By taking the funds and using them to buy a house with her husband, and making investments in her own name, she destroyed the unity of possession. As set out by Mr. Justice Steeves:

[187]     By way of a conclusion, I find that the funds from the sale of the Knox Road property continued to be a joint asset owned by Dorothy and Diana from the point of sale and included the time they were in the joint account of Dorothy and Diana. However, once they were withdrawn from the joint account for the sole benefit of the defendants, to the exclusion of Dorothy, the unity of possession was destroyed and the joint tenancy was severed.

Accordingly, Ms. Burnett’s estate is entitled to half of the sale proceeds of the Knox Road property, to be distributed in accordance with her will (half to Ms. Janes and half to Ms. Zelig’s estate). If Ms. Janes had left the sale proceeds in the joint account until her mother’s death, she would have been entitled to all of the proceeds as the surviving joint tenant.