A recent Ontario superior Court of Justice decision has thrown into doubt probate planning involving multiple wills in cases in which an executor is given discretion, after a testator’s death, to determine what property is covered by a will.
In Milne Estate (Re), a decision released in September, the court ruled that primary wills belonging to John and Sheilah Milne, who died on the same day, to be invalid because there was uncertainty regarding what property the primary wills covered. Instead, all property fell into the Milnes’ respective secondary wills, which the court found to be valid. As a result of the court’s decision, all of the Milnes’ property was subject to probate fees.
“Applications for probate typically don’t result in any big decision like this,” says Kavina Nagrani, an estates and elder law lawyer with Loopstra Nixon LLP in Toronto. “We were all very surprised.”
The court’s decision is being appealed. In the meantime, estate lawyers suggest that financial advisors’ clients in Ontario who make use of a multiple wills strategy to reduce probate fees review the documents with their estate lawyers to see if wording in the wills is potentially problematic in light of this decision.
“You may want to contact your clients proactively and talk to them about redrafting their wills in the meantime,” says Keith Masterman, vice president of tax, retirement and estate planning with CI Investments Inc. in Toronto. “You might not want to wait for the [result of the] appeal.”
The court’s decision doesn’t invalidate the use of multiple wills in Ontario or mean that they’re no longer useful in terms of probate planning, Nagrani notes. The key issue is how multiple wills are drafted. “Offending provisions might be very easy to resolve [as part of a review],” she says.
The use of multiple wills has been a common, accepted and long-standing strategy in Ontario for limiting probate fees, which can be significant for large estates. The province charges an estate administration tax, as probate fees are known in Ontario, of 0.5% on the first $50,000 of the value of an estate, then 1.5% on amounts above that. As a result, an estate in Ontario that is valued at $5 million would incur $74,500 in probate fees.
In a multiple wills strategy, two wills are drawn up for one individual: a primary will that contains estate property that may be subject to probate, and a secondary will that contains estate property, such as shares in a private company, which can be passed on to beneficiaries without being subject to probate. If all estate property is dealt with in one will and an application for probate is made for that will, the value of the entire estate would be subject to the probate fee.
In Milne Estate (Re), the court found that the wording of a provision commonly known as the “basket clause” was problematic.
Because what property will be subject to probate at death is difficult to know for certain at the time a will is written, a basket clause is included to give executors flexibility in determining which assets should fall into which will, thereby potentially minimizing the estate’s exposure to probate fees.
The basket clause in the Milnes’ wills gave the executors, known as “estate trustees” in Ontario, the power to determine which assets fell into the primary wills after the Milnes’ death.
The court found that there was uncertainty regarding the subject matter – in other words, the property – covered by the primary wills. As certainty of subject matter is one of the conditions for a trust to be valid, the “primary wills are invalid in that they fail to describe with certainty any property that is subject to them,” wrote Justice Sean Dunphy in the decision.
Milne Estate (Re) not only puts at risk probate planning using certain multiple wills; it also raises the possibility of partial or full intestacies if one or more wills are be found to be invalid, says Jan Musil, manager of tax and estate planning with Investors Group Inc. in Winnipeg: “In an intestacy, you certainly don’t avoid probate, and you no longer have control over who receives that property.”
Another issue with Milne Estate (Re), should the court’s decision stand on appeal, is that clients who prepared multiple wills years ago but no longer have mental capacity won’t be in a position to change them. If a will contains a basket clause and is found to be invalid, Masterman says, “Suddenly, [the estate] has to pay all that probate tax.”
In a commentary published after the court’s decision, Arthur Oosterhoff, firm counsel at WEL Professional Corp., a law firm in Toronto, took issue with the court’s reasoning: “Justice Dunphy made a mistake at the outset by treating a will as a trust, and that led him to apply trust principles to what is really a probate issue.”