Canadian inheritance law has seen a rapid evolution over the past two decades, leading to a change in estate planning strategies. While many of the legal principles have remained largely unchanged, the laws governing testamentary succession continue to evolve in Ontario and across the country. Here, Anna Alizadeh of WeirFoulds LLP unpacks some of the recent developments in trusts & estates law and provides a clear and concise explanation of legal matters that can often be confusing to those who need to access them the most.
What are the rules pertaining to the equal treatment – or lack thereof – of children in Wills and estate planning? What factors should testators consider when determining how to divide their inheritance between their offspring? Do these considerations vary depending on the province?
Whether an individual is legally obligated to leave assets to his or her children, and in what share, depends on where that person resides. In most common law jurisdictions, which includes all of Canada’s provinces and territories except Quebec, the law recognizes that people have the freedom to dispose of their assets as they wish.[1] This is referred to as “testamentary freedom”.[2] As such, parents can leave more assets to one child over another or completely cut one or more children out of their estate planning subject to certain considerations as set out below.
When deciding how to leave assets on death to family members, including children, there are several factors one should consider. For one, depending on where you reside, there may be limits to testamentary freedom. In Canada, the rules of testamentary succession (i.e., Wills and estates planning) are governed by provincial law. This includes, for example, laws limiting testamentary freedom. In that regard, most provinces in Canada require an individual to make “adequate provision” for his or her “dependants” on death. Provinces may somewhat differ in who they consider to be a “dependant” of an estate, but it typically includes the deceased’s surviving spouse and child (depending on the child’s age and physical or mental limitations).[3] What adequate support means may also differ from one province to another, and it will involve assessing various elements.[4] A failure to make adequate provision for a dependant could result in lengthy litigation by a dependant seeking support from the estate. Nevertheless, so long as adequate provisions are made for dependants, parents can decide on an unequal distribution of their wealth to their children.
Another factor to consider is family dynamics. In some cases, it may be best for parents to leave a letter or video explaining why they chose to treat their children differently to avoid unnecessary legal battles between the children.
Finally, it is important to keep in mind what happens if one does not execute a Will at all. When an individual does not make a Will, the distribution of his or her estate is governed by the specific intestacy rules of the province of their residence. In Ontario, for example, the laws on intestacy are set out at Part II of the Succession Law Reform Act. This Act provides for a list of individuals, in hierarchical order, to whom the law presumes the deceased would have wanted to leave money. For example:
- if you are married and have no children at the time of your death, your spouse inherits your entire estate; and
- if you are married with children, your spouse will first inherit a "preferential share" of the value of your estate and the remainder (if any) is divided among your spouse and children (how the assets are split depends on the number of children you have). The regulations made under the Succession Law Reform Act were recently amended to increase the value of a surviving spouse's "preferential share" from $200,000 to $350,000 where a deceased died intestate on or after March 1, 2021. For an individual who died prior to March 1, 2021, the value of the surviving spouse's preferential share remains to be $200,000.
Therefore, if you do not have a Will, the law will take over as to how your estate will be divided, which could result in a distribution that is contrary to your wishes. If you do make a Will, the law may limit your freedom as to how you divide your assets. It is imperative to speak with a lawyer about your estate planning to ensure that your wishes are met within the parameters of the governing law.
Read this article to learn more about the laws and legal considerations in creating an estate plan in Canada.
What is the “armchair rule” and how have courts interpreted it in recent years?
Sometimes an individual leaves behind a Will with unclear, inconsistent, or ambiguous terms. This could be due to an error made by the lawyer who drafted the Will, or because the testator’s circumstances changed such that the terms of the Will no longer apply or make sense. In these cases, and if there is a dispute among the beneficiaries under the Will as to the testator’s true intentions, an estate trustee or anyone with a financial interest in the estate can seek the court’s direction to interpret the deceased’s intentions. A court will then try to determine the testator’s subjective intention when he or she made the Will by reviewing the whole Will and the language of that Will.[5]
If the testator’s intentions cannot be ascertained from the plain meaning of the Will’s terms, the court can consider the testator’s surrounding circumstances when the Will was made to determine his or her wishes. This is referred to as the “armchair rule”.[6] Under this rule, the court sits in the testator’s place and “assumes the same knowledge the testator had, at the time of making the will, in regard to the nature and extent of her assets, the makeup of her family, and her relationship to its members”.[7]
The Court of Appeal in Ross v Canada Trust Company[8] recently confirmed this approach. In that case, the beneficiaries of the estate disagreed as to how the deceased, in her Will, intended to divide the sale proceeds of her cottage between the grandchildren. The lower court first attempted to determine the deceased’s intentions from the plain meaning of the Will’s language but found the Will to be inconsistent. The judge therefore considered the “bigger picture” of the surrounding circumstances and applied the armchair rule to determine that the testator’s intention was that the cottage remain in her immediate family. Nothing in the Will or surrounding circumstances suggested that the testator wished for the cottage to pass to a deceased grandchild’s estate. The Ontario Court of Appeal confirmed the lower court’s decision.
The Court of Appeal did note, however, that “courts are treating the “armchair rule” as an over-arching framework within which a judge applies the various tools for will construction at his or her disposal”, even if the Will’s language is not necessarily unclear or ambiguous.[9] It remains to be seen whether this trend will become the governing approach in Will interpretation.
When is the doctrine of “resulting trust” invoked? Can designations of this nature be challenged in court, and if so on what grounds?
Often parents transfer assets to an adult child without clearly expressing the reason for doing so. Some parents genuinely wish to gift the asset, while others make the transfer to allow the child access to an account such that the child can help the parent manage their finances. Unfortunately, or fortunately (as the case may be), the law does not presume transfers from a parent to an adult child to be a gift; it presumes that the adult child holds the asset in trust for the parent and his or her estate on death. This is referred to as the presumption of resulting trust, and it applies to gratuitous transfers between a parent and an adult child or between a grandparent and an adult grandchild.[10]
Where a gratuitous transfer to an adult child or grandchild is at issue, the onus is on the recipient of the gift to prove that the transfer was meant as a gift. This is done by putting forth evidence that satisfies the judge that it is more likely than not that the donor intended to gift the recipient.[11] The court will then weigh all the evidence to ascertain the donor’s true wishes.[12] What evidence is relevant depends on the specific facts of the case, but it may include evidence of the donor’s intention at the time (and, sometimes, after) the transfer is made; bank records; tax treatment of joint accounts; and whether the donor also granted a power of attorney to the recipient of the gift.[13]
Do you have any final reflections on the current state of estate law?
The pandemic has been a stressful period for everyone, and estate planning is one issue that has been brought to the forefront of people’s minds. It has become more imperative than ever to ensure that your estate planning documents are up to date. You might wish to take this time at home as an opportunity to assess your assets, debts, and estate planning to ensure that your affairs are in order. Importantly, you may wish to ensure that the people you care for are taken care of as part of your estate planning and to specifically consider any dependants to whom you may be required to provide support. While estate planning can be a daunting task, speaking with an estates and trusts lawyer about the matter may help alleviate some of that stress by ensuring that your estate planning is organized and up to date.
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Anna Alizadeh is an associate with the Wills & Estates Group at WeirFoulds LLP in Toronto. She was called to the Ontario bar in 2016. Anna obtained her JD from the University of Ottawa in 2015, her designation as a Trust and Estate Practitioner in 2018, and her LLM in Comparative and International Dispute Resolution from Queen Mary, University of London in 2020. She is fluent in Farsi and has a professional working proficiency in French. Anna represents clients in court and mediation regarding a variety of complex estates, trusts, and capacity disputes, including guardianship matters, Will challenge proceedings, passing of accounts, and dependant relief applications.
Anna currently sits on the Advocates’ Society’s Young Advocates’ Standing Committee. She previously sat on the Board of Directors of Young Women in Law (2016-2019) and served as a member-at-large on the OBA Women Lawyers Forum (2018-2019).
[1] However, civil law jurisdictions (including Quebec) usually have forced heirship laws that require a deceased’s assets to automatically pass to their next of kin.
[2] Spence v BMO Trust Co, 2016 ONCA 196 at para 30.
[3] See for example, Part V of Ontario’s Succession Law Reform Act, RSO 1990, c S 26 [SLRA]; British Columbia’s Wills, Estates and Successions Act, SBC 2009, c 13; and Alberta’s Wills and Succession Act, SA 2010, c W-12.2.
[4] In Ontario, for example, this involves assessing factors such as the dependant’s assets, means, and needs, as well as the proximity and duration of the dependant’s relationship with the deceased (see SLRA, s 62(1)).
[5] Dice v Dice Estate, 2012 ONCA 468 (CanLII) at para 36.