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What exactly is a Testamentary Document?
Shortly before writing this article, I settled a Wills Variation action on the eve of trial where the deceased had deliberately used an estate planning procedure so as to deliberately disinherit four of her five children from the biggest asset, namely the shares in a company that owned a commercial building. The child that was left the significant share of the deceased estate was realistically unemployable and not very capable. The deceased therefore had wanted to retain as much control as possible of her estate until her demise. Accordingly, the handling solicitor prepared a will, and a year later, just prior to her death, prepared an option to purchase the shares of the company in favor of the incapable son, that became exercisable upon her death and for up to two years thereafter. The assets that remained in her estate were also substantially depleted by the payment of the capital gains taxes due and owing on the deemed disposition of her shares. The four disinherited children argued that the option, because it could only be exercised upon her death, was therefore a testamentary document, and because it had not been duly executed in accordance with the provisions of the Wills Act, was therefore void. Essentially the entire Wills Variation action came down to whether or not the option to purchase was or was not a testamentary document. If it was not testamentary, then the shares passed outside of the estate, and could not be attacked by the claimants. An inter vivos gift occurs when the donor intends the transfer of the interest to be immediate and irrevocable. The gift is perfected during the lifetime of the donor, and there is said to be a "present passing interest", even when the donee's right to actual enjoyment is postponed. A will is the most common form of a testamentary document. The essential elements of a valid will are: 1)It is intended to have a disposing effect; 2)It is intended not to take effect until after death and to be entirely dependent on death for its operation; 3)It is intended to be revocable; 4) It is executed in accordance with the wills legislation of the relevant jurisdiction. Many documents in fact have a" testamentary look" because the intended gift may be revocable by the donor and enjoyment of the gift has been postponed until the death of the donor. The fact that a document looks testamentary does not necessary make it so. In many situations the donor is able to enjoy the benefits of the subject matter during his or her life and is still able to avoid the formal requirements of the Wills Act. If the transaction is not testamentary, then the property will not be included as part of the estate, and will not be subject to attack by creditors and Wills Variation claimants. For example, in Re Walmsley Estate, 2001 SKQB 105, a purported last will was found to not be a testamentary document because the testator's "will" stated that the executor could divide up the estate as he saw fit. The Court held that the document did not manifest a true testamentary intention , and the Court did not have the power to render a document testamentary in nature when it is otherwise not so. It is therefore of the utmost importance to the drafting solicitor, when preparing documents that are to carry out a transaction outside of the estate, to ensure that the document is not testamentary, as there is always the likelihood that some potential creditor or claimant will question the validity of the instrument by attempting to show that it is in fact a testamentary document. Again, the fact that a document describes itself as testamentary and is executed in accordance with the Wills Act, does not necessary make it testamentary. As a general rule, the entire document will be rejected from probate if all of its dispositions are operative before death. There have been situations on the other hand, where a part of a document is found to be testamentary because it has no operation at all until death, and it may be severed and admitted to probate. Problems typically arise where deeds and similar transfers are prepared, and the grantor retains control over the deed and does not intend that it shall have effect until his or her death. If that is the situation, then the deed is really a will, because it is dependent upon his or her death for its "vigor and effect", and unless it is executed with the appropriate formalities, it cannot take effect as one. The problem is illustrated by the case of Carson v. Wilson (1961) O.R. 113, (C.A.). The deceased Wilson owned certain parcels of land and executed deeds and lodged them with his solicitor with instructions to hold them and not deliver them until after his death. It was always understood that Wilson could demand to documents back at anytime. Wilson managed the properties until his death. The court held that the transactions were ineffective to transfer title as there was no delivery of the documents, and in any event, they were not intended to take effect until his death. The court found that the transfers were testamentary in nature, and since they did not comply with the formalities of the wills act, they failed. It was also found by the court that they could not take effect as inter vivos trusts, because Wilson retained complete control over the properties while he lived, and he did not intend to create an inter vivos trust. Generally speaking, the law appears to be reasonably well settled that if that the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, the transaction will not be classified as testamentary. Stated another way, if the document is intended to have, and does have the effect of transferring the property, or of setting up the trust"in praesenti" ( the present), though to be performed after the settlor's death, it is not testamentary. Accordingly, in the case that I referred to in the first paragraph
of this article, I found a Supreme Court of Canada case to the effect
that an option to purchase created an interest as soon as it was
executed that could be enforced by the courts. I therefore argued
that even though the option could not be exercised until the death
of the testator, it's still created an immediate interest in the
property, in favor of the donee, that was not dependent upon the
death of the testator for its "vigor and effect".
A) Wonnacott v Loewen (1990) 37 E. T.R. 244, B.C.C.A. This is the leading decision in British Columbia on what constitutes a testamentary document. In Wonnacott, the defendant moved in with the deceased in March 1988 and the two planned to marry when the defendant's divorce was granted. The deceased wished to give the defendant some financial security, regardless of the outcome of the litigation with her husband, so they consulted a solicitor. Certain documents were prepared and executed, including a transfer of estate in fee simple of the deceased's residence to the defendant, to be used in the event of the deceased's death. The terms governing the use of those documents were contained in an "escrow agreement" which gave the defendant an immediate right to live in the residence. It also provided that the deceased could take the transfer back in specified circumstances, in which case he was required to pay the defendant $60,000. The defendant's divorce was delayed and she was not free to marry before the deceased died in August 1988. She obtained the transfer and had it registered, thereby obtaining title to the residence. The deceased's executor brought an action to set aside the conveyance on the ground that the agreements were testamentary and invalid because of failure to comply with the Wills Act. The action was dismissed and the executor appealed. The Court dismissed the appeal and held that whatever the form of a duly executed instrument, if the person making it intends that it not take effect until after his death, and it is dependent on his death for its "vigour and effect", it is testamentary. However, if the document creates a gift in praesenti, albeit to be performed after the donor's death, it is not dependent on his death for its "vigour and effect". The documents here, examined in isolation, appeared to be testamentary, but it was clear that they had life and vigour from the beginning. The documents conferred an interest on the defendant that had real value no matter what happened. They gave her an immediate interest in the property and they were not testamentary. The court examined the decision of Cock v. Cooke (1866), L.R. 1 P.p. & D. 241 at 243, that held that: "It is undoubted law that whatever may be the form of a duly executed instrument, if the person executing it intends that it shall not take effect until after his death, and it is dependent upon his death for its vigour and effect, it is testamentary." The court then adopted the reasoning of an Alberta Court of Appeal case, Corlet v. Isle of Man Bank Ltd., [1937] 2 W.W.R. 209, 4 I.L.R. 246, [1937] 3 D.L.R. 163 (Alta. C.A.), which states at p.p. 211: "The fallacy in the argument based upon the "oft quoted words" of Sir J.P.p. Wilde in Cock v. Cooke (1866) L.R. 1 P.p. 241, 36 L.J.P.p. 5, lies in a misunderstanding of what the words "vigour and effect" are applicable to. They are clearly applicable not to the result to be obtained by, or to the performance of, the terms of the instrument, but to the instrument itself. The question is whether the instrument has "vigour and effect", and does effect, or is "consummate on execution" to effect, a gift or to create a trust. If the document is "consummate" to create a trust in praesenti, though to be performed after the death of donor, it is not dependent upon his death for its vigour and effect." The court went on to also adopt another Alberta Court of Appeal case, Anderson (Costello) v. Patton, [1948] 1 W.W.R. 461, [1948] 2 D.L.R. 202 (Alta. C.A.), which stated at p.p. 463: "The question of whether a document evidencing a voluntary settlement, either by way of gift, in the sense of transferring the property in question, or by way of the creation of a trust, is or is not testamentary, depends upon the intention of the settlor. If the document is not intended to have any operation until the settlor's death it is testamentary. If the document is intended to have and does have the effect of transferring the property or of setting up a trust thereof in praesenti, though to be performed after the settlor's death, it is not testamentary. The reservation of a power of revocation is not inconsistent with the creation of a valid trust and does not have the effect of making the document creating it testamentary." An important aspect of the Wonnacott decision is that the court did not examine the subject document in isolation, but instead looked at the larger picture as to what was intended by the donor . The court accepted that in determining whether a transaction amounts to a testamentary disposition, the court is not limited to an examination of the document of transfer itself, and may look at extrinsic evidence relating to the creation of the document. The Court of Appeal adopted the rule set out in Riddell v. Johnston, 66 O.L.R. 554, [1931] 2 D.L.R. 479 (H.C.) that [at p. 482, D.L.R.]: "In determining what was the real transaction and its nature and effect, the other documents which were made concurrently with the conveyance and which set forth important parts of the bargain which were not embodied in the conveyance itself, and which expressed the intention of the parties should not and cannot be disregarded. " B) National Trust Co. v Robertshaw (1986) 5 W.W.R. 695 This case involved the issue as to whether or not a previous designation of a beneficiary in an R.R.S.P. was a testamentary disposition which had been revoked by a subsequent will. In 1967 the deceased, Robertshaw., designated his wife the beneficiary of a R.R.S.P. (R.R.S.P. No. 1). In 1972 Robertshaw and his wife were divorced. In July 1985 Robertshaw transferred funds from three other R.R.S.P.s into R.R.S.P. No. 1. In August 1985 Robertshaw with her executed a will revoking all former testamentary dispositions and leaving his estate to his three children. The will made no mention of any R.R.S.P. The executors of the will took the position that the 1967 designation of a beneficiary in R.R.S.P. No. 1 was a testamentary disposition which had been revoked by the will. They applied pursuant to R. 18A for a declaration that they were beneficially entitled to receive the proceeds of the R.R.S.P. Judge Boyd held that while any instrument which is entirely dependent for its vigor and effect upon death must be held to be testamentary,the full "vigor and effect" of the designation of the beneficiary contained in the R.R.S.P. was not entirely dependent on the death of the annuitant as the annuitant may well have affected an inter vires transfer of a contingent interest. Justice Boyd quoted the following passage from Professor Feeney in Canadian Law of Wills: "As Professor T. G. Feeney has pointed out in the Canadian Law of Wills, 2nd ed. (1982), vol. 1 (Probate), there is no clear dividing line between a revocable trust inter vivos and a testamentary disposition. Rather, a Canadian court will likely base its decision on the degree of control retained by the settlor. As the learned author states at pp. 11-12: A court will scrutinize each transaction very carefully, asking itself such questions as the following: Does the settlor retain a life interest or the right to the income from the property until his death? Does he have the right to revoke the trust or withdraw from the scheme? (And what is the effect of revocation? Does he get the property back for himself?) Does he have the right to change the beneficiaries? Does he control the investments that are to be made? Does he have the right to encroach on the capital of the fund? Clearly the retention of a life interest means nothing by itself, but taken together with such indicia of control over the corpus or capital as the right to revoke, particularly if revocation means getting back complete control of the property, the right to change the beneficiaries, the right to control the investments, or some combination of these and especially the right to encroach on the corpus or capital, is very apt to result in a court declaring the transaction testamentary and void for want of due execution. Control is a question of degree, and exactly when a Canadian court will consider that the settlor retains too much control is difficult to say." C) Albert v Albert (1982) 13 E.T.R. 149 In this case the court examined an estate that consisted of two term deposits that were held jointly between the deceased and his two daughters which he alone managed and he alone received the interest. An application was brought regarding entitlement two term deposits after his death. The Court held that although the deceased had exercised sole management of the term deposits before his death, in the absence of evidence to the contrary they constituted a present gift of a joint interest, not a testamentary gift or a donatio mortis causa. The fact that one of the deposits did not contain the words "or survivor" had no effect upon this daughter's survivorship rights. The Court went on to state the law re joint interests as follows: " In my opinion, a correct statement of the law is as follows: Unless the evidence supports a contrary conclusion, in the typical case of a joint account being established by one of the parties, or of money being deposited by one party as an investment with a financial institution in the names of that party and another party jointly with a right of survivorship, there is a present gift of a joint interest, not a testamentary gift or a donatio mortis causa. As Ferguson J.A. said in Re Reid (1921), 59 O.L.R. 595, 64 D.L.R. 598 at 608 (C.A.): If there was a present gift of a joint interest, it seems clear that it was neither a testamentary gift nor a donatio mortis causa, because it is an essential of both that no title vests until the death of the donor: White & Tudor's L.C. 8th ed., p. 425. The title in right of survivorship was an incident of the joint ownership, an accretion to a title already vested -- the donee's absolute title to the fund arose by operation of law, and not, I think, by reason of two separate gifts, i.e., first, a gift of the joint interest, and, second, a gift of a complete and absolute ownership effective only and on and after the death of the donor." D) Hutton v Lapka Estate (1991) 44 E.T.R. 231 The decision of our Court of Appeal in Hutton v Lapka illustrates just how far our courts will go to seemingly try and find that a document is not testamentary in nature if it has even a small immediate effect, and is thus not totally dependant on death for its "vigour and effect". The case dealt in part with an action brought by the administrator of the deceased estate on a $295,000 interest-free promissory note signed by a third party in favor of the testator before his death. The note was given as security for a loan for a land purchase and was to be forgiven in the event that the testator died. The trial Judge held that the forgiveness provision of the promissory note was ineffective because it was a testamentary disposition which failed because it was not properly executed pursuant to the Wills Act. The Court of Appeal allowed the appeal on the basis that the promissory note was not a testamentary disposition, but instead was a contract which had immediate effect . The trial judge was found to have erred in considering the forgiveness clause in isolation from the provisions of the note as a whole, and in holding that separate consideration was needed for the forgiveness clause. The Court followed its previous decision of Wonnacott. E) Hecht v Hecht ( 1993) 7 W.W.R. 295 Here our Court of Appeal dealt with a Wills Variation action that dealt with inter alia an estate planning scheme devised by Mr. Hecht immediately prior to his death whereby he gifted $9 million through the use of promissory notes. No demand could be made on the promissory notes until 60 days after the testator's death. The trial judge found that the promissory notes were inter vivos gifts, and the Court of Appeal did not disturb that finding . The trusts were properly constituted and had "vigor and effect" from the time they were settled and funded, which was before the testator's death. The fact that they were funded by promissory notes that were not payable until 60 days after the death of the deceased did not alter this. F) Corlet v Isle of Man Bank Ltd. (1937) 3 D.L.R. 163 ( Alberta Court of Appeal) The Alberta Court of Appeal upheld a lawyer's scheme to avoid succession duties as a valid injury vivos transfer, even though the trust was totally revocable by the settlor. The scheme involved the transfer of three life insurance policies are on the life of the settlor to a bank as trustee for the named beneficiaries. In lieu of a will, a the trust document provided the disposition of the proceeds of the policies among those named beneficiaries on the settlor' s death. The Court held that the beneficiaries obtained in immediate interest, namely the future interest or right to obtain the proceeds of the policies on the settlor's death, was vested in immediately on the execution of the trust. Because the settlor had a right to revoke the trust during his or her lifetime, the Court held that the gift had vested. Death was not the event that gave rise to the beneficiaries' interest in or right to the property, it was the execution of the trust. For a transaction to be testamentary, the death must be more than incidental to the enjoyment of the property : it must be the event that gives rise to the right to so that it can be said that there was no right of any extent vested in the beneficiaries before death. Professor. Feeney in his book Canadian Law of Wills states "It should be observed that in the Corlet case, the property involved life insurance policies, rather than an existing fund of money, and that my revocation, the settlor could not get the return of the property for himself, which would have been the case of the property were an existing fund . This is an important distinction and, among other matters, casts some doubt on the non testamentary validity of a revocable trust of an existing fund payable only on the settlor's death and entirely under his or her control during his or her lifetime. By analogy, and in the absence of applicable legislation, non testamentary designations of beneficiaries under various insurance and retirement benefits scheme may depend, in part, on whether the person making the designation is entitled to receive or to recover any personal benefit if he or she revokes the designation during his or her lifetime."
A) Carson v Wilson (1961) O.R. 113 (C.A.) The deceased Wilson owned certain parcels of land and executed deeds and lodged them with his solicitor with instructions to hold them and not deliver them until after his death. It was always understood that Wilson could demand to documents back at anytime. Wilson managed the properties until his death. The court held that the transactions were ineffective to transfer title as there was no delivery of the documents, and in any event, they were not intended to take effect until his death. The court found that the transfers were testamentary in nature, and since they did not comply with the formalities of the wills act, they failed. It was also found by the court that the could not take effect as inter vivos trusts, because Wilson retained complete control over the properties while he lived, and he did not intend to create an inter vivos trust. B) Re Bottcher Estate ( 1990) 45 E.T.R. 19 In 1980 the testatrix purchased an R.R.S.P. from a trust company, designating her son as beneficiary. The application form was accepted by the trust company over the signature of its agent, although the testatrix's signature did not appear. The R.R.S.P. was transferred to another trust company in 1984 and the transfer documents recorded that the son had contributed to it. In 1987 the testatrix made her will, which contained a general revocation clause, revoking all former wills and testamentary dispositions. The administrator applied to the court under s. 88 of the Trustee Act for inter alia directions with respect to the entitlement to the R.R.S.P., The court held that the designation was testamentary in nature, but was not affected by the general revocation clause in the will. While s. 46(3) of the Law and Equity Act provides that a designation of a beneficiary may be revoked, it does not indicate a manner of revocation. The legislature has specifically permitted beneficiaries to be designated without complying with the formalities of the Wills Act, not only as regards R.R.S.P.s, but also insurance policies and employee benefit plans. Specific provisions are made for revocation in the case of insurance policies and employee benefit plans. To conclude that only designations under an R.R.S.P. would be caught up by a general revocation clause in a will would be incongruous and defeat the apparent legislative intent. Accordingly, something more than a general revocation clause in a will is required to revoke a designation validly made other than by will. Moreover, it has been held that a general revocation clause in a will does not in every instance revoke previous dispositions made by will or outside a will, at least if the court is satisfied that there was no intention to revoke a particular gift or legacy. C) Reference Re Pfrimmer estate (1936) 44 Man.R. 96 Pursuant to a plan to avoid probate costs and succession duties with respect to his estate, the deceased executed transfers, duly registered, of his properties to himself, his wife, his son, and his son-in-law, as joint tenants. At the same time an agreement, entitled "Declaration of Trust" , was executed by all four. The Court held that the conveyances and the writings were intended by the deceased to take the place of a testamentary disposition under The Manitoba Wills Act, in order to avoid probate expense and succession duties, and not to create an irrevocable trust by a binding transfer of the properties. The court cited to following passage: " The law is clear that, to give validity to a declaration of trust of property, it is necessary that the donor or grantor should have absolutely parted with his interest in the property, and have effectually put such interest beyond his own reach. See Warriner v. Rogers (1873) L.R. 16 Eq. 340, 42 L.J. Ch. 581; Richards v. Delbridge (1874) L.R. 18 Eq. 11, 43 L.J. Ch. 459; In re Shield; Pethybridge v. Burrow (1885) 53 L.T. 5. Whatever may be the form of an instrument, if the person executing it intends that it shall not take effect until after his death, and it is dependent upon his death for its vigour and effect, it is not a trust: In re Cassidy (1832) 4 Hagg. Ecc. 360, 162 E.R. 1477; Cock v. Cooke (1866) L.R. 1 P. 241, 36 L.J.P. 5; Sproule v. Murray (1919) 45 O.L.R. 326. Thus, in Malin v. Keighley (1794) 2 Ves. Jun. 333, 30 E.R. 659, the Master of the Rolls said: I will lay down the rule as broad as this; whenever any person gives property, and points out the object, the property, and the way it shall go, that does create a trust, unless he shows clearly, that his desire expressed is to be controlled by the party; and that he shall have an option to defeat it. Hence it is the rule that an instrument even though in the form of a deed which is not to become operative until the maker's death is testamentary in its character, and its operation depends upon its execution complying with The Manitoba Wills Act: Habergham v. Vincent (1793) 2 Ves Jr. 204, 30 E.R. 595; Shinbane v. Minuk, 36 Man. R. 530, [1927] 2 W.W.R. 121; Hill v. Hill (1905) 8 O.L.R. 710; Towers v. Hogan (1889) 23 L.R. Ir. 53." D) MacInnes v MacInnes (1935) S.C.R. 200 This Supreme Court of Canada case involved an insured who was a member of a fund established by his employers in the nature of insurance or provision for the future of such employees who joined. If a participating employee died, an amount was payable to his beneficiary as designated by him, and he might change the beneficiary or revoke the designation. In an instrument called the "Employee's Acceptance", the insured directed the trustees of the fund upon his withdrawal therefrom to pay to him the amount to which he was entitled, upon his death to pay such amount to his wife, or otherwise as he might have last designated by writing lodged with the trustees, or by will. The document was witnessed by one witness only, and the Court held that the document was testamentary in nature and was thus ineffective to allow the named beneficiary to take. The insured's share in the fund became part of his estate as the right of the beneficiary was dependant upon the death of the participating employee for its "vigour and effect".
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