HAPPY HOLIDAYS!

Whaley Estate Litigation provides litigation, mediation and dispute resolution to clients throughout Ontario:

* Albert Oosterhoff, Professor Emeritus Western University, Counsel to WEL consults on matters within his areas of expertise, providing opinions concerning Wills, Estates, Trusts and related Property matters.

Please Enjoy,

Kimberly A. Whaley

WEL

Link to the WEL Firm Directory

PART I: WEL NEWS

1. STEP TORONTO CONNECTION

Kimberly Whaley's article: "Blood Rules on Intestacy: Peters Estate (Re) 2015 ABQB 168" was published in the November 2015 edition of STEP Toronto Connection.

Link to copy on WEL Website

2. STEP CALGARY, CALGARY PETROLEUM CLUB

Kimberly Whaley presented at STEP Calgary, on November 25th and spoke to members on: "Attacking and Defending Inter Vivos and Testamentary Gifts".

Link to paper

Link to presentation

3. PORTFOLIO MANAGEMENT ASSOCIATION OF CANADA (PMAC)

Kimberly Whaley and Elena Hoffstein presented at the PMAC Lawyers' Network Luncheon Event on: "Fiduciary Challenges and Ethical Obligations when Dealing with Elderly Clients", on December 9, 2015

Link to paper

4. THE ADVOCATES' QUARTERLY

Kimberly Whaley's and Ameena Sultan's article: "Where There's (Not) a Will: Intestacies, Partial Intestacies and Remedies" was published in The Advocates' Quarterly, Volume 44, No. 4, November 2015.

Link to the WEL Firm Directory

PART II: LAW REVIEW

Are You Ready For January 1, 2016? Changes To Testamentary Trusts

Testamentary Trust Changes

by Arieh Bloom CPA, JD

Starting January 1, 2016 there are dramatic changes coming into effect with respect to testamentary trusts. Existing and future testamentary trusts will be taxed at a flat top tax rate of 29% at the federal level. Previously testamentary trusts were taxed at graduated tax rates based on the income earned in the trust. The testamentary trust had the option of paying tax on income not allocated to a beneficiary but instead at the tax rate as if the trust were the individual.

There are generally two exceptions to the rule that eliminate the graduate rate tax regime for testamentary trusts. The first is the Graduated Rate Estate ("GRE") and the second is the Qualified Disability Trust.

GRADUATED RATE ESTATES ("GREs"):

An estate will be considered a graduated rate estate where:

No more than 36 months has passed since the date of death.
The estate is considered a testamentary trust under the Income Tax Act.
The deceased's Social Insurance Number is provided in the estate tax return for the taxation year.
The estate trustee designates the estate as the GRE of the deceased in its return for the taxation year that ends after 2015.
No other estate designates itself as the graduated rate estate for the deceased in a return filed with the CRA.[1]

Under the GRE regime income earned in the estate will be taxed at a graduated marginal tax rate up to 36 months from the date of death. Estate trustees wanting to take advantage of the graduated rates will be wise to distribute the assets of the estate before the 36 month period ends if possible.

GREs will be allowed to have non-calendar tax year end, however testamentary trusts that do not qualify as a GRE will have a deemed year end as of December 31, 2015. From then on their will be a calendar tax year end for the testamentary trust.

Qualified Disability Trusts ("QDT"):

The second type of exception to the new flat top rate tax treatment for testamentary trusts is the Qualified Disability Trust. Where the trust is a Qualified Disability Trust graduated rates will still apply. In order to qualify as a QDT the following rules must be met under the Income Tax Act:

The trust must qualify as a testamentary trust as per the Income Tax Act and therefore arise on the death of the individual.
The trust must be a resident in Canada for the trust year.
The trust must jointly elect with one or more beneficiaries under the trust to be a QDT and the Social Insurance Numbers must be provided for each beneficiary under the QDT.
The electing beneficiary must qualify for the disability tax credit.
The electing beneficiary cannot have elected under another trust.[2]

Changes to Life Interest Trusts:

Testamentary life interest trusts as of 2016 will face a deemed dispossession when the last surviving life interest beneficiary dies. Prior to 2016, the resulting tax from the death of the life interest beneficiary was payable by the trust or could be allocated to the capital beneficiaries who were the remaindermen of the assets held in trust. The change under the new rules requires that upon the death of the life interest beneficiary there will be a deemed year end for the trust and a required allocation of all income which includes the capital gains arising from a deemed disposition of the assets held in trust to the estate of the life interest beneficiary. Such amounts will be included in the deceased life tenant beneficiary's terminal return.[3]

The Life Interest trust is now joint and severally liable with the life interest beneficiary's estate for the taxes owed in the life interest trust.[4] The estate of the spouse who is the life tenant under a spousal trust will be saddled with the tax burden of the trust as opposed to the capital beneficiaries who will receive the lasting benefit of the assets after the life tenant dies. There is thus a mis-match of the tax burden and the benefit from the taxed asset.

Tips, Traps, and Cautions:

Solicitors acting for spouses in a joint retainer who are considering having a spousal trust drafted in a will need to canvass with their clients the tax changes in life interest trusts and specifically inform their clients of the fact that the life interest beneficiary's estate may saddled with tax generated on the assets of the trust. Drafting Solicitors need to turn their minds to the potential conflict that could occur where both spouses have children from a prior marriage and the spouses are considering a life interest spousal trust.

Under the new changes to the Income Tax Act charitable donations will qualify for the charitable donation tax credit at the time the gifted property is transferred to a registered Canadian charity. The gift will be valued at the time the donation is made and the estate can carry forward the donation credit up to 5 years.

Testamentary Trusts will no longer be exempt from the Alternative Minimum Tax.

Testamentary Trusts will have to file a notice of objection to a tax assessment within 90 days of receiving a notice of assessment.

[1] Income Tax Act, RSC 1985, c.1 (5th sup.) at s. 248(1).

[2] Ibid at s. 122(3).

[3] Ibid at s. 104(13.4)(b).

[4] Ibid at s. 160(1.4).

PART III: LAW TRIBUTE

AN INTERVIEW WITH PROFESSOR ALBERT OOSTERHOFF

WEL'S Lionel J. Tupman writes on the career, life experiences and the future of trusts as elicited from his personal interview of the esteemed Professor Albert Oosterhoff, a Trusts Expert.

WEL is proud to enjoy Albert as counsel to the firm and recognizes the profound contribution Albert has made to the law of trusts.

Like many lawyers, my experience of Estates and Trusts law during law school was dominated by one legal academic, whose authorship was (and remains), synonymous with the practice area. I am speaking, of course, of Professor Albert Oosterhoff.

Many readers may not have met Albert, but will, without a doubt, recognize him as the author of the leading textbooks on Trusts, now in its 8th edition, and Wills and Succession (conveniently, named the same), the 8th edition of which is forthcoming in 2016. As I sat in my office last Thursday contemplating the Rule against Perpetuities and other such estates/trusts related topics, I realized I had never taken the opportunity to have an in-depth conversation about estates and trusts law in general with Albert, despite the fact that he is counsel at the firm at which I work.

This article is a summary of my conversation with Albert: an enlightening opportunity for me to ask 2 primary questions of one of the legal giants of our era. The first question: in what ways has Albert observed estates and trusts law to change during his career? The second question: where is it going?

Albert's Career

First, allow me to fill you in on Albert's background and some key dates in his career.

Albert graduated from the University of Western Ontario with an LLB (now JD) in 1964 and also holds a Bachelor of Arts degree from Western. While in law school, Albert received instruction in equity, property law, and estates and trusts law from the Honourable Ivan C. Rand, (a former and formidable Puisne Justice of the Supreme Court of Canada), and from the late Ralph Scane (briefly a lawyer at Shibley Righton LLP and later for many years a professor at the University of Toronto). At this time, most of the courses taught in law school were required by the Law Society of Upper Canada. Albert excelled in his studies, and won a prize for constitutional law. I asked Albert "why Wills and Estates?" Albert's answer: "I just liked it from the beginning." Albert is quick to qualify his answer, however, and attributes much of his interest in this area to the excellent teaching he received. Sometimes, I suppose, things just happen for a reason.

Albert was called to the bar in 1966 and practiced in London Ontario. He did mainly solicitor-side work, wills and estates and corporate/commercial work, with the law firm Shepherd McKenzie Plaxton and Little LLP.

Albert pursued graduate legal studies at the University of Toronto in 1968-69 and obtained his Master of Laws degree in 1970. Ted Alexander was Albert's thesis supervisor, and Albert took courses which focused mainly on property law, including trusts, condominium law, and land use planning. Albert reminded me that at this time, "condominium law" was a new and developing area-this is easy to forget for many of us who were called to the bar in the last decade. Albert's thesis was an examination of the "Prudent Man Rule".

Albert taught Property, Wills, and Trusts law at the University of Windsor from 1969-1972 initially as an Assistant Professor, and later as an Associate Professor with tenure in his second year. During this period, the Dean of Windsor Law School was Walter Tarnopolsky.

In 1972, Albert moved to London, Ontario. Both Albert and his wife had strong family and professional ties to London. Albert commenced employment with the University of Western Ontario, where he was promoted to Full Professor. During his career at Western, Albert served as Associate Dean 3 times, and as Acting Dean for approximately a year and a half to replace the Honourable Madam Justice Gillese upon her appointment to the bench.

Following his retirement from Western, Albert taught Trusts at the University of Toronto Faculty of Law as an adjunct professor from 2005-2013. In 2013, Albert joined Whaley Estate Litigation as counsel.

Albert has had an enormous impact on estates and trust law in his close to 50 years at the bar. His scholarly writing has been cited at least 256 times by courts across Canada, including 67 times in various Canadian courts of appeal, and 11 times by the Supreme Court of Canada.

What changes has Albert observed in Estate and Trust Law (and the legal profession generally) during his career?

When Albert graduated from law school, the law of estates and trusts was still very firmly based on English law. Despite the abolition of appeals to the Privy Council in 1949, Canadian lawyers and courts tended to follow English precedent almost as a matter of course. This made sense in one respect: our statutes in these areas were very similar. But in other respects it did not make sense.

Practically, Canadian lawyers and courts could have relied upon American law which was better developed than Canada's law. There was no reason why it should have been English law which governed. However, beginning in the early 19th century, Butterworths published an encyclopaedia of English law and sold the encyclopaedia to Canadian lawyers, which eventually replaced American publications as legal authority for Canadian lawyers. Of course, Canadian courts were ultimately bound by Privy Council and House of Lords decisions until 1949.

English wills and trusts law had been stuck for many years in a strict interpretation approach. This was true particularly of the law of Wills. It was accepted law that in the interpretation of wills, courts should restrict themselves to the language of the will itself and if that led to a rational meaning, full stop. Only if that interpretation led to an ambiguity, could the court consider extrinsic evidence of surrounding circumstances.

Historically, there had been a few cases, even at the Supreme Court of Canada level that had applied the more lenient approach of admitting extrinsic evidence right away, but this did not become the mainstream approach until the late 1970s, when Haidl v. Sacher was decided. Of course, the strict construction approach led to silly and deplorable results (Albert's words, not mine); results that the testator never intended. And, according to Albert, "it is a good thing that we've moved away from that approach". Extrinsic evidence of the testator's intention remains inadmissible save in exceptional circumstances.

A similar strict approach was used by courts of probate. These courts had, and provincial Superior Courts have inherited, the probate jurisdiction, which grants a broad power to ascertain whether a will expresses the intention of the testator. It is an inquisitorial jurisdiction and in the course of exercising this power, the court may admit extrinsic evidence, even direct evidence of intention, and hearsay evidence. As part of this jurisdiction, the court may rectify a will by deleting words that the testator did not intend.

However, the rules in Guardhouse v. Blackburn prohibited the court, inter alia, from correcting a will if it had been read over to the testator. The testator was also bound by errors made by the drafter, unless they were clerical errors. This strict approach also causes unfortunate results. Modern cases have meliorated this approach significantly, but we still have a long way to go to get rid of it completely. In particular, there would seem to be no reason today to prevent courts, in the exercise of their probate jurisdiction, from inserting words into wills that the testator clearly intended.

According to Albert, what concerns him in this respect is that, since the merger of the Surrogate Courts and the Superior Courts in the 1990s, the Superior Courts have often not had a sound understanding of the different roles of courts of probate and courts of construction, nor of the different rules of admissibility of evidence in the two courts. The fact that the two courts were merged did not mean that their roles were merged too. Indeed, in Albert's view, it is most important that the two roles continue to be distinct.

According to Albert, in Canada, lawyers and courts also followed the English trusts cases as a matter of course. However, in Trusts we began to develop a Canadian law of trusts starting in the 1960s. To a large extent, Canadian lawyers can thank Donovan Waters, who published the first edition of his Law of Trusts in Canada in the early 1970s, for this. Waters' book, now in its 4th edition, has been instrumental in giving trusts in Canada a firm Canadian footing.

This does not mean that Canadian courts no longer apply English cases. On the contrary. Good law continues to come out of England (and other commonwealth countries) and it often makes good sense to make use of such cases. Differences can be educative too. That is true, for example in accessory liability and knowing receipt cases, where England and Canada have taken different approaches. Although Canadian law initially "played around" with a common intention resulting trust in the 1970 and 1980s (finally laid to rest in Kerr v. Baranow in 2011), Canadian law "learnt" from the English and the Americans that the constructive trust is the appropriate vehicle to redress unjust enrichment and that it can also be applied in other circumstances. In fact, Canadian law has come a long way since the 1970s in taking a modern approach to remedial trusts. Albert says, however, "what we still need to do, I think, is to determine the proper bases for these remedial trusts."

Thus, since the early days, Canadian lawyers and courts have made tremendous strides in modernizing the Canadian law of trusts and estates. The catalysts in this process were the law reform commissions that were created in most of the provinces. The Ontario Law Reform Commission was particularly active in reforming large areas of black letter law. A prime example of this type of reform is, according to Albert, the Succession Law Reform Act of 1977. It introduced many improvements in the law of estates, including such devices as the holograph will and the international will. Another example is the reform of perpetuities and accumulations.

Where does Albert see the law going/where does the law need to go in the future?

Reforms in the area of trust and estates law are, according to Albert, badly needed.

One area of trust and estates law which must be modernized relates to the admissibility of evidence in cases involving the interpretation of a will, and in particular, the kinds of evidence a Court will be permitted to consider. According to Albert, a broader approach is warranted than is currently employed. For example, direct evidence of the testator's intentions should, arguably, be admissible. Other provinces (other than Ontario) have enacted such reforms, but Ontario has not. We no longer live in the 19th century and so concerns regarding the reliability of hearsay evidence are less salient in the present day, particularly since in many instances, guarantees of the accuracy and truthfulness of the hearsay evidence sought to be adduced may exist. The often expressed fear that by admitting such evidence we defeat the statutorily prescribed formalities for testamentary instruments would then fall by the wayside.

A second area of trust and estates law which must be modernized, according to Albert, is that as yet, Ontario's Superior Courts do not have a dispensing power: many provinces have statutory dispensing power that allows the Court to grant probate if satisfied that the document under examination manifests the testator's intentions. Ontario has not enacted such a dispensing power, and we have court decisions which dictate that the dispensing power cannot be introduced by common law because it expressly contravenes the statute. Albert believes that Ontario really should introduce a dispensing power, simply, "because it makes sense."

Unlike England, which adopted substantial reforms to its estates, trusts and property laws in 1925, and unlike many of the American states, which have also introduced many important reforms in these areas, Canada has largely adhered to the estates and trusts law of England as it was prior to 1925.

Canada did adopt some English legislative reform; for example, the Perpetuities Act and the Variation of Trusts Act, but on the other hand, Canada did not adopt many of the other improvements that England made.

According to Albert, what made reforms such as variation of trusts and perpetuities legislation work was strong Law Reform Commissions and people in the offices of the Attorneys General who were committed to law reform, and who promoted the proposed legislation. Also important in this context is the Uniform Law Conference of Canada, which has produced a number of excellent reports and uniform statutes on aspects of estates and trusts, many of which have been adopted by the provinces.

Another reform which might be timely, according to Albert, is the elimination of the Rule Against Perpetuities. This proposed reform requires an historical justification.

The Rule Against Perpetuities derives from the old mortmain fear-land in the dead hand does not circulate, and this constitutes bad economic policy. The reaction against this resulted in the creation of the Rule Against Perpetuities. These days it has been made superfluous by other social constructs such as generational taxation of property: property has to be sold so that taxes can be paid. A number of provinces have abolished the Rule Against Perpetuities, but Ontario has not.

Similarly, the Accumulations Act is irrelevant, according to Albert. Manitoba, Saskatchewan, Alberta and British Columbia no longer have a Rule against Accumulations, the maritime provinces have never had one, and it is similarly unnecessary in Ontario. Much like the Rule against Perpetuities, modern social constructs such as taxes have made the Rule against Accumulations unnecessary.

I asked Albert, "where in Canada is law reform progressing at a less glacial pace?"

According to Albert, progressive law reform is continuing in some Canadian provinces. This is true especially of the Western provinces and, more recently, of Nova Scotia. Sadly, the same cannot be said of Ontario. The untimely demise of its Law Reform Commission at the hands of a former cost-cutting provincial government has meant that law reform has not been a priority in Ontario for many years. It has also meant that important reports, such as those on the law of trusts, charity law, and basic principles of land law, have gathered dust.

Meanwhile, some laws need drastic overhaul, such as the Succession Law Reform Act, which is almost 40 years old, and the Perpetuities Act and the Accumulations Act, both of which should be repealed in Albert's opinion.

But it doesn't get done.

Why?

Albert thinks it is because there is no strong push for such reform from the practicing bar and there is not the necessary support for it in the Attorney General's office. Other desirable reforms are also languishing, such as estate and family law reform to cope with the modern scourge of predatory marriages. We do have a Law Commission in Ontario, but it has chosen not to focus on black letter law, and has instead focused on reforms to more politically or socially attractive legal issues.

Albert thinks that this is regrettable. Black letter law is our bread and butter. But more importantly, it informs the basic structures of our society. However, the average citizen is not able to comprehend the old laws that we work with on a daily basis. This is surely not desirable.

There are, according to Albert, huge social and economic costs to these necessary reforms. For example, when Ontarians are forced to litigate regarding the nature of a condition in a will, the issues that this raises are hundreds of years old. Most jurisdictions haven't amended the law to avoid the need for such litigation.

Albert has more examples of necessary law reform: for example, our basic property law comes from feudal law. We don't own the ground, we have tenure of it and it is owned by the Crown. Another example: while the distinction between common law and equity remains relevant, the two systems of law ought to be merged and rationalized to a greater extent than is the case now.

Albert qualifies his criticism of law reform, however, as he does see some bright spots. The Uniform Law Conference of Canada published an exceptionally fine report on the law of trusts, together with a Uniform Trustee Act in 2012, which will bring trust law into the 21st century when it is adopted by the provinces. According to Albert, some provinces, particularly the western provinces, are actively considering the adoption of this Act.

Albert hopes that it will be adopted soon by all the common law provinces. In addition the ULCC expects to publish its report on wills and a new Uniform Wills Act in 2016, which Albert expect will do for wills what the Uniform Trustee Act has done for trusts. British Columbia and Alberta have, in fact, already reformed their law of wills with new statutes in 2009 and 2010. These statutes incorporate and improve upon English legislation concerning the admission of evidence in the construction of wills.

Interestingly, according to Albert, England is much ahead of Canada in the application of trusts for new purposes. English law has accepted that the "trust" is a very flexible device for managing property for the benefit of others. Some of these developments are driven by innovations in offshore trusts, such as the use of protectors and enforcers, which are beginning to be used in domestic trusts in Canada.

Furthermore, Albert tells me that England is far ahead of Canada in the regulation of charities. England's most recent legislation is the Charities Act 2011. Most Canadian provinces have little or no legislation governing charities. Ontario is an exception although its statute, about a hundred years old, badly needs revision. Some western provinces also have legislation that addresses fraudulent fundraising for charities.

In sum

In sum, Albert tells me that reform is needed in Canadian law similar to Lord Birkenhead's reforms in England in 1925-a type of broad-ranging reform of all relevant black letter law. According to Albert, "we need something similar in the Canadian provinces, but with a Canadian focus and geared to the 21st century. It is totally bizarre and inexplicable our most basic property concepts remain feudal in origin. Lawyers learn these basics, of course, but the general public does not and cannot understand them."

Albert leaves me with the following hope for the future of our practice area: Albert says, "I hope and believe that the laws governing estates and trusts will be reformed over the next several years. We now have good models to work with. What we need is the will on the part of the practicing bar to push for the adoption of new statutes and of Attorneys General who will take the lead in shepherding them through the legislatures."

Canada's law is better for Albert's years of scholarship and contribution. One can only hope that the powers that be will heed Albert's suggested reforms in the future so that Ontario, and Canada more broadly, may keep pace with other common law jurisdictions the world over.

My conversation with Albert was, as expected, educational and engaging. I'm pleased that I asked one of Canada's greatest legal minds what he thought about our estates and trust laws. I hope that our lawmakers will heed his suggestions.

PART IV: UPCOMING EVENTS

STEP Passport Series: Probate Planning - Issues Arising from Drafting and Litigating Secondary Wills

January 20, 2016

Moderator: Danny Dochylo

Speakers: Danielle Joel, Clare A. Sullivan

Program Info

Osgoode Professional Development, Elder Law Webinar Series

Navigating Unique Issues with Seniors and their Financial Institutions

January 21, 2016

Speakers: Kimberly Whaley and Suzanne Michaud (RBC)

Program Info

Toronto Police College 2016 Elder Abuse

January 22, 2016

Elder Abuse

Speaker: Kimberly Whaley

OBA Institute 2016

Civil Litigation Section, Estate and Capacity Issues
February 2, 2016

Speaker: Benjamin Arkin

Program Info

Osgoode Professional Development, Elder Law Webinar Series

New Spouse/Old Money: Predatory Marriages

February 4, 2016

Speaker: Kimberly Whaley and Professor Albert Oosterhoff

www.osgoodepd.ca

STEP Passport Series: Post Mortem Planning - Private Corporation Shares

February 17, 2016

Moderator: Joan Jung

Speakers: Michael Atlas, Brian Nichols

Program Info

Estates and Succession Practice Group

Capacity

March 2, 2016, Skype Presentation

Capacity - the lawyer's task and the importance of notes - Is capacity a medical or a legal test? Why the answer might surprise you, and why you will wish you had cared

Speaker: Kimberly Whaley

Barreau du Qu�bec, Montreal

LES D�VELOPPEMENTS R�CENTS EN SUCCESSIONS ET FIDUCIES (2016)

March 18, 2016

Predatory Marriages: Legal Capacity to Marry and the Estate Plan

Speaker: Kimberly Whaley

Program Info

STEP Passport Series: Insurance in Estates and Trusts

April 13, 2016

Moderator: Harris Jones

Speakers: Ted Polci, Glenn Stephens

Program Info