Estate Planning and the Milne Estate

Probate Fees, the Estate Administration Tax

‘Death and taxes’ as the old saying goes, are the only two certainties in life.  Estate planning means having a way of dealing with your financial affairs and worldly goods when the inevitable happens.  While for most people a single Will is sufficient, in some circumstances, particularly for those who own private companies or significant personal property, it may be to your advantage to have both a Primary and a Secondary Will.  This is to minimize or avoid payment of Estate Administration Tax, otherwise known as probate fees.  Probate fees are a tax paid on the entire value of everything distributed under a Will.  When an executor applies to the Court to obtain a Certificate of Appointment, probate fees must be paid.  The Certificate of Appointment is required because institutions such as banks, brokerages and the Land Registry Office will not turn over control of assets to an executor unless there is a Court Order certifying that the person before them has been certified as the representative of the deceased to administer the Estate in accordance with the Will.

The Benefits of Having a Primary and Secondary Will

Having a Primary and a Secondary Will is recommended when you have significant assets which do not require probate, the most common of which are private company shares.  In a dual Will scenario, one Will governs your home, bank accounts and other financial assets, while the other deals with the shares in your private company, household goods and other personal property.  The first, Primary, Will, is submitted to the Court and probate fees are paid on the value of assets governed by that Will.  The Secondary Will is never submitted for probate and so the probate fees never need to be paid on the value of the assets dealt with by that Will.  Of course, each Will can have its own list of beneficiaries; they do not have to be the same.

Last year, the estate planning world was taken by surprise by the decision of the Ontario Superior Court in Milne Estate (Re), 2018 ONSC 4174 when the Court refused to accept the Primary Wills of Mr. and Mrs. Milne.  The judge’s reasoning in that case, and the result of the appeal to the Divisional Court, will both be considered in light of their effect on the law of estate planning.

Milne Estate (Re), 2018 ONSC 4174

In this case there were dual Wills for each of a husband and wife who died on the same day.  Their Wills used the principle of dividing assets as discussed above, but did so in a particular way.  Instead of making the categories assigned to each Will definite, these Wills gave the executors the discretion to decide which assets should be in which Will, thus allowing them to determine, on the basis of the law at the time of death, what needed to be in the Will submitted for probate, and therefore minimise the probate fees to be paid.

The first point raised by the judge was that a Will is a trust, and therefore the ‘three certainties’ needed to create a trust had to be present for a Will to be validly constructed.  He cited no authority for the assertion that a Will was a trust.  The three certainties are the three things which must be present for a trust to be valid.  They are:

  1. certainty of intent by the settlor (creator) of the trust;
  2. certainty of subject (that is, the property to be held in trust); and,
  3. certainty of object (the beneficiaries of the trust).

The judge then used this reasoning to determine that since the executors could not objectively determine the contents of the trust, since the power to define the contents of each Will was discretionary, that the only valid Will was the Secondary Will.  To determine this, he relied on the wording of the Wills, which in the Primary Will allowed property to be excluded based on the discretion of the executors, and included in the Secondary Will, a discretion based on that same intention.  He, therefore, found that the only way to create certainty was for everything to be in the Secondary Will, since it was capable of containing all the assets owned by the deceased at death, and therefore could be the only valid basis for the trust which he saw a Will to be.

Milne Estate (Re), 2019 ONSC 579

This unexpected ruling led to an appeal to the Ontario Divisional Court.  In the appeal decision, the Court dealt with the Application judge’s concern that a discretionary power to determine the contents of a Primary and Secondary Will was given to the executors.  They found that just because the executors’ power is discretionary does not mean that it is arbitrary, and that the duties of a fiduciary (the duty to act in the best interests of the estate and its beneficiaries), still applied to the executors making those decisions.

Next, the Court addressed the assertion that a Will is a trust, and found that it was not.  A Will, as defined by the Succession Law Reform Act, R.S.O. 1990, is a document which directs the inheritance of property, and may contain trusts for that purpose, but the three certainties required to create a trust are not a necessary component to create a valid Will.

The Court then considered the history of the law regarding trustees and personal representatives, terms which are often confused and the functions of which seem very similar.  They found that while the property of the deceased vested in the personal representative, to be distributed to the beneficiaries of the deceased, that this holding of property did not create a separate trust, nor does it require the Will to act as a trust instrument in and of itself.

Analysis

The first Milne decision, having caused much confusion and concern among estate planning lawyers has been completely undone on appeal.  This decision cannot be said to have advanced or clarified the law in any meaningful way, as the original assertion by the Application judge, that a Will was a trust, was not something raised by either party, nor did it exist prior to the case as an uncertainty in the law.  The Application judge, on his own initiative, made the finding that Wills are trusts, and must obey trust principles.  That finding has now been overturned.

Depending on the circumstances of the testator, dual Wills are often a necessary estate planning tool designed to minimize and simplify the administration of your estate. For more information about dual Wills or estate planning, contact the knowledgeable estate lawyers at Duncan, Linton LLP in Waterloo. Call us at (519) 886-3340, or fill out the online form to schedule a consultation.