Tax Insights: Milne Estate decision involving multiple wills has been overturned

February 14, 2019

Issue 2019-04

In brief

In Milne Estate (Re), 2019 ONSC 579, the Divisional Court of the Ontario Superior Court of Justice (OSCJ) overturned the OSCJ’s decision in Milne Estate (Re), 2018 ONSC 4174 (the probate court), finding that the primary wills were valid, resulting in the estate being able to use its primary and secondary wills for probate planning.

The original case had called into question the validity of multiple wills that use certain language that granted the estate’s executors the discretion to determine which assets would be included in the person’s primary and secondary wills after the person’s death, a so-called “basket-clause.” The probate court had ruled that the use of this language meant that the primary will did not meet the requirements to form a valid trust, and that only the secondary will formed a valid trust. The probate court found the primary will to be invalid and as a result, all the assets were included in the secondary will.

In overturning the probate court’s decision, the Divisional Court found that a will is not a trust, and that, even if the will was subject to the “three certainties” to meet the criteria for a valid trust, the certainty of subject-matter criterion would have been met. As a result, the Divisional Court found that both the primary and secondary wills were valid.

In detail

Background

In Ontario, for estate administration (probate) tax planning purposes, a person may execute multiple wills, with the deceased’s assets that must be probated governed by one will and the remainder by another will. For example, secondary wills often include assets such as private company shares and receivables from private companies, which need not be subject to probate. This allows only the will containing the assets that require probate to be subject to Ontario’s probate tax. Some wills may also include an “allocation clause” that gives the executors of an estate the discretion to determine which property is governed by which will, the so-called “basket clause.”

The Milne Estate case

A husband and wife residing in Ontario each executed multiple wills (i.e. a primary and a secondary will). They both died on the same day and their executors attempted to probate the primary wills, which contained an allocation clause. The probate court questioned the validity of the primary wills, due to the allocation clause.

The probate court held that a will is a trust and must satisfy the “three certainties” criteria to be a valid trust: (i) intention; (ii) object; and (iii) subject-matter. The probate court found both primary wills of the deceased to be invalid, because the wills did not satisfy the certainty of subject matter criterion at the time of death (i.e. the allocation clause gave the executors discretion to determine which assets belonged in the primary wills). As a result, all of the assets were governed by the secondary wills, which eliminated the benefits of probate planning using multiple wills.

The decision was appealed to the OSCJ’s Divisional Court.

The Panda Estate case

Before the Milne Estate (Re) appeal was heard by the Divisional Court, a similar issue arose in Panda Estate (Re), 2018 ONSC 6734. In this case, the OSCJ declined to follow the decision in Milne Estate (Re). The OSJC found that a will is not a trust and the validity of a will for purposes of a probate application falls under a set of criteria that do not include the “three certainties” for a trust to be valid.

The Divisional Court’s decision

The Divisional Court overturned the probate court’s decision in Milne Estate (Re), finding that:

  • a will is not a trust, stating that “[a] will may contain a trust, but this is not a requirement for a valid will”
  • even if the will was subject to the “three certainties,” the certainty of subject-matter would have been met because “[t]he property in the [p]rimary [w]ills can be clearly identified because there is an objective basis to ascertain it” (i.e. only the assets that must be subject to probate are included in the primary will)
  • the probate court judge exceeded the probate court’s jurisdiction (although this was not relevant for the purposes of the appeal)

The takeaway

The Divisional Court’s decision is important because it clarifies that the use of properly drafted multiple wills may continue to be effective for probate tax planning purposes.

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