Estate planners don’t often see cases coming out that have the potential of invalidating entire estate plans. Today, I discuss the recent outcome of Re Milne Estate and what it means for you or your clients’ estate plans.
The original decision
When Re Milne Estate (2018 ONSC 4174) (“Milne”) was released in September of 2018, it sent wills & estates lawyers in Ontario into a frenzy. After one unexpected decision, the validity of many multiple wills executed across Ontario were in question.
In Milne, Justice Dunphy was assessing the validity of the probate application. In the process, he unexpectedly formed a legal opinion which directly challenged clauses that many will drafting lawyers have used for decades without controversy, and potentially made certain multiple wills invalid.
As background, multiple wills are a legally permissible estate planning strategy for clients who have assets which do not typically attract probate. Generally, one wants to avoid the process of probate, as this saves money on Ontario Estate Administration Tax ((which in Ontario is 1.5% of everything that is probated) so one’s beneficiaries can get more money. For some clients, it makes sense to put all assets that attract probate in a Primary Will and put the assets that do not require probate in a Secondary Will. Such assets for a Secondary Will include private company shares and some types of real estate property. This can result in substantial probate fee reduction on death. Avoiding probate will also prevent a Secondary Will from going before the court so it can remain private and it expedites the distribution to beneficiaries as a Secondary Will is not caught up in the probate process.
Justice Dunphy took issue with will language referred to as ‘allocation clauses’. Such clauses are created because, often it is unclear at the time of death which assets may require probate. Allocation clauses are used to allow the executor the discretion to determine after one’s death which assets will be submitted in the Primary Will to allow other assets to flow to the Secondary Will, ensuring the benefit of multiple wills.
Justice Dunphy’s ruled that a will is a form of trust, and in order for the will to be valid it has to meet a “three certainties” test. Part of that test involves ensuring that the property in the trust is specifically defined. The allocation clauses in Milne (which are standard clauses) were not sufficiently clear enough to meet the test. As such, the ability to enforceable create Secondary Wills to avoid probate would disappear if one used allocation clauses.
In Milne, Justice Dunphy ultimately declared the Primary Will invalid and even though the Secondary Will was not submitted to the Court it was declared valid – a decision essentially doing away with any benefit of the decedents using (and paying for) a multiple will strategy. This decision drew a sharp divide and lively debate among practitioners and was promptly appealed.
The Milne Appeal
Recently, the decision was released for the Milne appeal. In January 2019, the three-judge panel upheld the appeal and directed that the Primary Will in Milne was valid and should be probated.
The panel found that a will is not a trust, and that there is no basis in law for this reasoning. Instead, a will is its own unique legal entity, a characterization penned by Professor Oosterhoff, a pre-eminent Canadian legal scholar on trusts and wills. According to the appellate court, a will may contain a trust, (for example a trust holding an inheritance for minor children as I may have prepared for you), but a will is not a trust in and of itself.
Even if a will could be considered a trust, the Court found on the facts of this case that the “three certainties” test was met and that the allocation clauses did not make the subject matter of this Primary Will uncertain.
I was in the room when Professor Oosterhoff’s firm received news of the appellate decision. It was a happy evening indeed!
Feel free to reach out if you have any questions regarding a multiple will strategy for you or your clients.