Introduction

A recent decision from the Ontario Superior Court of Justice,  Gordon v. Gordon et al., 2022 ONSC 550 (“Gordon“) shines a light on the importance of prudent drafting when undertaking multiple will planning. Multiple wills, when properly drafted, can provide an estate with significant savings in estate administration tax (“probate tax“). By the same token, a simple drafting error in the wills can potentially botch the entire strategy, costing the estate more in the end rather than less.

Probate tax and the multiple will strategy

The use of multiple wills in Ontario is a common estate planning tool to save on probate tax. Probate tax is the tax paid to the court in exchange for a Certificate of Appointment of Estate Trustee (“Certificate of Appointment“), which legitimizes the executor's authority to administer the assets of the estate. In Ontario, probate tax is levied at the rate of 1.5% on estates worth more than $50,000.1 Third parties, such as financial institutions in the case of bank or investment accounts, and the Land Registry Office in the case of real estate, often require a probated will before they will agree to transfer those assets of the deceased into the hands of the executor.

Certain assets, such as personal effects (household furniture, jewelry, and so on) or shares in private corporations, tend not to require the involvement of third parties for the executor to gain possession of and administer the asset.2 Such assets can be “carved out” and dealt with under a “Secondary Will” while assets tending to require probate can be dealt with under the “Primary Will”.3 Carving assets out via the Secondary Will reduces the value of estate assets submitted for probate (on which value probate tax is calculated), thereby reducing the overall probate tax payable by the estate.

Background of Gordon

The deceased, Mr. Gordon, owned assets in excess of $34,000,000 at the time of his death in 2018. Much of the value of his estate derived from a successful excavation business that he had run during his lifetime. Prior to his death, Mr. Gordon employed the multiple will strategy to carve out the value of his private corporations (the “Corporations“) into a Secondary Will referred to in the decision as a “Limited Will” (i.e. a will limited to those assets not requiring probate). Unfortunately, there was a typographical error in the Primary Will leading to an ambiguity between the Primary and Secondary Wills (the “Wills“). While the Limited Will properly referred to the Corporations, the Primary Will, which ordinarily would specify that it dealt with assets other than  the Corporations, instead referred to “all property” owned by the deceased. Thus, there was an apparent contradiction between the two Wills: the Limited Will, purporting to deal with the Corporations, and the Primary Will, purporting to deal with all property (arguably including the Corporations).

The executors of the Gordon estate applied to court twice for a Certificate of Appointment in respect of the Primary Will, but were rejected by the court both times on account of the issue of whether the Primary Will was, in fact, limited to assets other than the Corporations. The Court Registrar directed the executors to obtain a determination from a judge as to whether the Certificate of Appointment in respect of the Primary Will could be issued or whether a rectification order would be required to correct the typographical error in the Primary Will by explicitly limiting it to assets other than the Corporations. The executors of the estate estimated that an additional $470,000 in probate tax would be payable by the estate if the court found that the value of the Corporations fell within the ambit of the Primary Will.4

Decision in Gordon

Fortunately for the executors, the court found in their favour and agreed that it could issue the Certificate of Appointment limited to Mr. Gordon's non-corporate assets, meaning the Corporations did not form part of the Primary Will subject to probate tax. To make their case, the executors relied on the affidavit evidence of the lawyer who drafted the Wills. The lawyer was able to swear to the circumstances surrounding the execution of the Wills thanks to the executors' waiver of the deceased's right to solicitor-client privilege, which information would otherwise be confidential.5 The court found that the lawyer's evidence established that (1) notwithstanding the ambiguity in “all my Property” in the Primary Will, it was clearly Mr. Gordon's intention for this not to include the Corporations in order to shield their value from probate tax by dealing with them in the Limited Will; and (2) the Limited Will was executed after  the Primary Will.6 The latter point was significant because of the rule that “to the extent that there is any inconsistency in terms of the subject-matter of the Primary Will and the Limited Will, the latter revokes the former only as to those parts in which they are inconsistent.”7 In other words, the language in the Limited Will, which confined the subject property to the Corporations, revoked the inclusion of the Corporations in the words “all my Property” in the Primary Will such that the Corporations were deleted from the ambit of the Primary Will, resolving the ambiguity.

Lessons and reminders from Gordon

A drafting error which ultimately botches the estate plan is an estate lawyer's greatest nightmare. Drafting errors in general can:

  • cause confusion and delay in the administration of the estate;
  • be costly to the estate by requiring the Secondary Will to be probated or leading to interpretation issues requiring court direction;
  • undermine a testator's privacy interests, including by forcing disclosure of (i) the drafting lawyer's client records or (ii) private instructions contained in the Secondary Will, which were not intended to be exposed in court or to the public eye; and
  • result in an insurance claim against the lawyer,

among other unsavoury results.

The Gordon case illustrates several important reminders:

  • Prudent drafting is critical to ensure the estate plan ultimately works. However, even prudent lawyers make mistakes from time to time. Estate lawyers should consider the value of peer review when drafting wills.
  • Ensure estate planning done outside the will or Primary Will does not inadvertently revoke that Will. A peculiar detail in Gordon is the twist that, in fact, it was the Limited Will's partial revocation of the Primary Will which helped to resolve the ambiguity. However, we generally do not want the Secondary Will to revoke the Primary Will!
  • The order of execution may be an important consideration depending on the jurisdiction, or the will or other document being incorporated by reference.
  • Always keep detailed records of the client's instructions and intentions when crafting an estate plan. Detailed records are critical if the drafting lawyer is ever put on the stand in a will challenge scenario.

Footnotes

1 Estates which are valued at less than $50,000 are exempt from probate tax. Probate tax works out to be roughly $15,000 on every $1 million in an estate.

2 Personal effects tend not to involve third parties insisting on a probated will, unless the item is of significant or disputable value, such as can be the case with art work. In the case of shares of a private corporation, if the company is owned by a family or other small number of shareholders, the other shareholders likewise tend not to insist on a probated will to allow the executor to administer the shares.

3 See section 1 of the Ontario Estates Administration Tax Act, 1998, S.O. 1998, c. 34, Sched., which defines “value of the estate” as “the value which is required to be disclosed under section 32 of the Estates Act.” Subsection 32(3) of the Ontario Estate Act, R.S.O. 1990, c. E.21 permits Certificates of Appointment to be issued where the probate application has been limited to certain assets. Also see Gordon, at paras 42-43.

4 Gordon,  at para 11.

5 Ibid,  at para 39 and 8.

6 Ibid,  at para 45.

7 Ibid,  at para 48.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.