Law Times

Law Times • OcTOber 23, 2017 Page 11 www.lawtimesnews.com Banks more aware of undue influence Estates in joint names opens up problems BY DALE SMITH For Law Times A n increasing number of estates are being put into joint names, in many cases as a means of avoiding probate taxes. Un- fortunately, this can also mean that those estates become vul- nerable, and the assets can be taken advantage of by the joint holder. Lawyers say there needs to be a greater sense of transpar- ency around joint estates so that the outcomes don't turn out to be messy or complicated. One common situation where joint estates can become an issue is when parents might register their house in the name of one or two children, and when they pass and the house transfers into their names, other beneficiaries may take excep- tion if they don't feel that it's what their parents intended. "Realistically, if a couple comes in, and they want to change the ownership structure of a house from tenant in com- mon to joint tenancy, I think the lawyer should be asking some very specific questions to both clients about what is the intention of this transfer and obviously explaining what the consequences are of the trans- fer," says Miriam Vale Peters, partner with Kelly Manthorp Heaphy in Ottawa. Vale Peters cites a case she argued, Steen v. Gibsons LLP, 2015 ONSC 4933, as a perfect example of an estate being put into joint names as a means of avoiding estate taxes and pro- bate fees. The woman had three sons and three large investments that she put her name joint with each of the sons on each of the invest- ments. When she passed, the estate trustee — who was Vale Peters' client — wound up hav- ing to pay all of the tax on all of the investments, and litigation ensued because he argued that it was his mother's intention that they split all of the investments equally. "This woman, in an attempt to save [about] $8,000 in estate fees, cost the estate in legal fees probably 10 to 20 times that," says Vale Peters. "There's nothing wrong with putting your assets in joint ten- ancy, but understand that to save a couple of thousand bucks, you'd better make sure that your beneficiaries know what's going on ahead of time and there isn't going to be major litigation over who gets what." Vale Peters says lawyers should ensure that their clients' beneficiaries know about the structures that they are putting into and that the lawyer should at least have detailed notes in their files to provide evidence in the event that it gets litigated. Rachel Blumenfeld, partner with Aird & Berlis LLP in To- ronto, says she has seen an in- crease in the number of these joint names cases over the past 10 years and increasing amounts of litigation over cases that tend to involve one child who had accounts put into joint names insisting that it was supposed to pass to them alone because they had been helping the parent out, which sometimes happens with second marriages and children from the first marriage. Blumenfeld says that, in many cases, the courts have de- cided that it wasn't the case and the accounts revert to the estate, where the work to prevent hav- ing to pay probate fees has been for naught. Blumenfeld says she advises clients that if all they want is to ensure that a child can access an account to help the parent, they would be better off going the route of a proper power of attorney. "Yes, you likely will have pro- bate fees at the end of the day, but you won't have a fight be- tween your kids," says Blumen- feld. "If they are very insistent upon it, I will set up a declara- tion of trust that stands behind that account that indicates that the [child] is holding it in trust for [the parent], so that upon the parent's death, it doesn't fall to her but to the estate." If the intention remains to avoid probate fees, Blumen- feld notes that a secondary will could be used that won't neces- sarily be probated. In Ontario, secondary wills tend to be used more often when a person has a private corporation, but they can be used when there are joint accounts. "You may want to put some- thing in the will that says I have this account with my daughter but the intention when I set it up was that it's for both of my children and we only did it like this for convenience," says Blu- menfeld. Blumenfeld gives credit to the banks for becoming more aware of issues of undue inf lu- ence with accounts being put into joint names and are f lag- ging the cases more often. "When you think about this from elderly adults who are be- coming vulnerable, they may be subject to the inf luence of their children who are trying to convince them that owning property as joint tenants with right of survivorship isn't going to change anything but it's going to help them avoid probate taxes at the end of the day," says Co- rina Weigl, partner with Fasken Martineau DuMoulin LLP in Toronto. Weigl says there may be unforeseen income tax conse- quences, as well as consequenc- es for goals about the disposi- FOCUS Corina Weigl says there may be unforeseen income tax consequences as a result of having an estate put into joint names. See Understand, page 12 I n Seepa v. Seepa, Justice Myers called for a "culture shift" away from boiler plate, consent orders for directions, which are routinely granted in will chal- lenges on the Toronto Estates List (and, no doubt, in other jurisdictions). Instead, Justice Myers indicated that the court will assess the quality of the allegations made by the applicant will challenger to make out "a minimal evidentiary basis to support the order for directions sought". Estate litigators, not only in Toronto but throughout the province, would be wise to sharpen their skills and revisit what it means to launch a will challenge when confronted with only the flimsiest of evidence. Inspired and persuaded by the legal principles set out in the Ontario Court of Appeal's "seminal" decision in Neuberger v. York 3 and his clear frustration with an endless parade of questionable will challenges, Justice Myers held that before a court requires the will defender to undertake the full, formal litigation process to prove a will in solemn form (i.e. to prove that the challenged will is indeed the deceased's true last will and testament), the challenger must meet "some minimal evidentiary threshold". In other words, they cannot run amuck, giddy on the mere possibility of challenging a will. According to Justice Myers, without some minimal evidentiary requirement, any disappointed beneficiary can challenge a will and conduct a fishing expedi- tion or deep dive through the deceased's privileged legal files and private medical records. Such scorched earth litigation, while satisfying the dark imaginings of the challenger, may well turn up nothing and end up depleting an estate. As Justice Myers rightly notes, the deceased would likely be horrified that his/her most personal secrets had become part of the public record and subject to scrutiny by the courts and disgruntled family members. Following Neuberger, Justice Myers held that a challenger must "adduce, or point to, some evidence which, if accepted, would call into question the validity" of the will. The will defender then has the opportunity to answer the challeng- er's evidence. If the proponent does so successfully, the will challenge application should be dismissed; where the will de- fender cannot successfully answer the challenging evidence, the court will give directions under Rule 75.06(3). Justice Myers was quick to state that such a process was not akin to a motion for summary judgment, but something less. However, in estate cases, something more was required than a litigant simply pleading the material facts in support of a cause of action, as was the case in other civil litigation cases. What was required was measuring the evidence ad- duced by the challenger against the evidence put forward by the proponent of the will in answer. The court could then decide what, if any, processes were required to resolve the conflict between the parties that the court could not fairly resolve on the record before it. In the case at bar, Justice Myers found that the will de- fender had successfully answered the allegations of incapac- ity, undue influence and breach of fiduciary duty levelled by the challenger. However, but for the fact that the proponent had consented to the relief sought, Justice Myers would have dismissed the motion for directions, or perhaps ordered an abbreviated process, seemingly stick-handled by the court, to enable the parties to reach a swift resolution. In the case be- fore Justice Myers, the consent of the will defender was the deciding factor, as the defender preferred "to allow sunlight to shine on the evidence", believing that it would more than adequately answer the will challenge. But have the courts now gone too far? Justice Myers certainly recognized that a will challenger is often dis- advantaged, as he/she is unable, at the outset, to marshal compelling evidence beyond mere suspicions. A challenger will be quick to tell you that what they need is access to the deceased's medical and personal records, as well as the drafting solicitor's file, to make their case. As such, is the burden placed on the challenger now too great and poten- tially expensive such that it will have a chilling effect on will challenges? Most estate litigators work collaboratively. With a broad order for directions, the parties are able to uncover the facts. Early disclosure and discovery rights obtained through consent orders for directions can have the benefit of permitting will challengers to assess the merits of their case, and lead to earlier settlements before or at mediation. Have the courts become too intrusive, thereby hampering the adversarial process and the work of counsel? It is far from clear if Justice Myers' call for a "cultural shift" will lead to the promised savings and greater proportionality in will challenge cases. In fact, it might just lead to the front loading of costs and bitterly contested orders for directions – only time will tell. 1. 416-640-2754 in Toronto/905-844-0900 in Oakville www.devrieslitigation.com 2. Seepa v. Seepa, 2017 ONSC 5368, para 49 3. 2016 ONCA 191 LLP A d v i c e . A d v o c a c y . R e s o l u t i o n . by Justin W. de Vries and Rebecca S. Studin of de VRIES LITIGATION LLP 1 Estate Litigation – Reigning In Frivolous Will Challenges Sponsored by "The court should be very reluctant to consign estates and beneficiaries to intrusive, expansive, expensive, slow, standard form fishing expeditions that do not seem to be planned to achieve the goals of civil justice for the parties. But processes that show some thought to customize a process to the evidence so as to promote efficiency, affordability, and especially, proportionality, with use of a scalpel rather than a mallet…are to be greatly encouraged. 2" Untitled-5 1 2017-10-18 10:38 AM

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