When creating an estate plan, the importance of reviewing the assets and debts of a testator as well as title to same cannot be underestimated. We have seen over the years and continue to see unfortunate cases where testators mistakenly thought they were gifting assets to loved ones but a very different result was achieved on death.
Such is the case with inter vivos trusts (that is trusts established during the lifetime of the settlor). Testators (i.e. will makers) often lose sight of the fact that their estates do not include the property held in trust. A colleague once reported that a client told her about his $10,000,000 estate which consisted mostly of shares in a private company that owned an apartment building. However, the client had done some intricate estate planning and the shares were held in a family trust. Thus his actual estate was worth $500,000 and required much different planning than the $10,000,000 estate he had reported. Alter ego trusts and similar arrangements may also affect the estate`s value.
Wilhelm v. Hickson, 2000 SKCA 1 (CanLII) was a case in which the testator, Norman Thornton, on the advice of his accountant, instructed his lawyer to incorporate a company to take over his successful farming operation. The farm assets, including land, were previously owned by Norman personally. They were thereafter sold to the corporation under an agreement for sale dated April 1, 1976. Notwithstanding the sale to the corporation, title to the land was not transferred by Thornton to the corporation. There was evidence that this was the practice in the area to avoid payment of the fees charged by the Land Titles Office on transfers of title.
Thereafter, the land was shown as an asset of the corporation. In 1982 and 1984, Thornton purchased two additional quarter sections of land. Titles were taken in Thornton’s personal name, but the purchase price was paid from corporate funds. The testator`s accountant said all of these arrangements were reviewed with Thornton and he understood them. It was shown that Thornton’s conduct and intention was that the corporation owned the business assets, including the land.
Sometime after October 1986, a will was prepared and executed by Thornton. In his will, he gifted a number of pieces of the farm land to various relatives. Thornton died on August 2, 1988. It was immediately recognized that the validity of the gifts of land (known as devises) was questionable on the issue of ownership. Various lawyers consulted by the executor and other interested parties almost unanimously concluded that the specific devises of land were ineffective because the corporation, and not the testator, was the beneficial owner of the land. The Saskatchewan Court of Appeal came to the same conclusion. The Court noted that the will was properly executed and reflected the instructions of the testator, but the testator did not own the land devised.
Therefore, the land did not pass under the will at all – only the shares in the corporation and a shareholder’s loan, which were personal assets of the testator, so passed. As these assets fell into the residue of the estate, the residuary beneficiaries received the entire estate, including the farm assets, thereby giving them more than the testator intended.
The case emphasizes the importance of testators giving full and complete disclosure to skilled legal counsel who are advising and representing them about their estate plan, as well as the risks involved in working on such an important initiative without the benefit of this counsel.
If you have questions about the implications for your estate plan of how you hold title to assets or the details of any past transfers of assets, please contact Andrea Kelly.
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Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.