Editors' note
This edition of The Last Word provides commentary on a variety of topical and timely issues – how is Indian status relevant to estate planning and how do you address it? What is the extent of the cy-prés doctrine? And why are the 2010 budget changes helpful to executors and trustees?
Happy reading!
Richard Niedermayer and Wendy Templeton, Editors
2010 federal budget: Section 116 changes announced
By Wendy D. Templeton
Good news for estate practitioners can be found in the federal budget released on March 4, 2010. A change in the definition of taxable Canadian property has significantly reduced the requirement to obtain a Section 116 Certificate of Compliance or file Form T2962C when distributions are made to non-residents.
Case Comment: Fort Sackville Foundation v. Darby Estate
By Richard S. Niedermayer
The recently decided Nova Scotia case of Fort Sackville Foundation v. Darby Estate, 2010 NSSC 27 & 2010 NSSC 45 addresses the extent of the cy-près doctrine and successorship between charitable organizations. The separate reasons with respect to costs provide a helpful reminder of the considerations a court will look at when awarding costs in estate litigation matters.
Why you should ask whether your client has Indian status
By Naiomi Metallic
If your client is a person registered under the Indian Act, and lives on reserve (or is currently living off-reserve but plans to move back to their reserve at some point in the future), an entirely different set of laws may govern their estate planning than the provincial laws with which the average estate lawyer is familiar.
Practice points: Will drafting for status Indians
By Bruce Hallsor
The formalities for execution for wills of First Nations peoples with Indian status are governed by the federal Indian Act, not provincial wills legislation. Here are some key practice points which make estates of status Indians different from those of other Canadians.
Succession Law: Updated Tables of National Concordance
These tables have been prepared and updated by the Wills, Estates and Trusts Section of the CBA. They are intended for use by CBA members in working with the varying laws across Canada relating to estate and trust planning and administration. Click here to view the tables (this link will take you to the CBA website, where you will be prompted for your membership number).
2010 federal budget: Section 116 changes announced
By Wendy D. Templeton
Good news for estate practitioners can be found in the federal budget released on March 4, 2010. A change in the definition of “taxable Canadian property” under the Income Tax Act (“ITA”) has significantly reduced the requirement to obtain a Section 116 Certificate of Compliance or file Form T2962C when distributions are made to non-residents.
When a distribution is made by a trust in satisfaction of a capital interest in a trust, there is a disposition by the beneficiary of the interest in the trust under paragraph (d) of the definition of “disposition” in section 248 of the ITA. In addition, paragraph (e) of the definition of taxable Canadian property in section 248 (prior to the 2010 budget proposals) included a “capital interest in a trust.”
The combined effect of these two provisions was to make Section 116 applicable to all distributions of capital by a trust to a non-resident. An exemption was introduced in 2008 under subsection 116 if the distribution was treaty protected in the hands of the non-resident but there was still a requirement to file Form T2062.
The application of these requirements to distributions by trusts and estates has long been vexatious for the Wills, Estates and Trust bar. Last June the National Wills, Trusts and Estates Section of the CBA wrote the Department of Finance last year to urge changes to provide relief from the requirements under section 116 for estates and trusts.
Under the 2010 proposals these requirements will no longer only apply in most situations. They do still apply if the interest in the trust qualifies as taxable Canadian property under the proposed new definition in paragraph (d) of the definition. This provides that an interest in a trust will be taxable Canadian property if at the time of the disposition (i.e. the distribution of capital), or at any time within the prior 60-months more than 50% of the fair market value of the interest in the trust consisted of:
- Real or immovable property in Canada
- Canadian resource properties, and
- Timber resource properties.
As long as the interest in the trust does not fall within this new definition, there is no requirement that executors or trustees obtain a Section 116 Certificate of Compliance when distributing property to a non-resident beneficiary in satisfaction of their capital interest in the trust. In addition, executors and trustees who recently struggled with the requirements of Form T2062C will no longer need to do so.
The new rules are intended to be applicable after March 4, 2010. However since they are not yet law, caution should be exercised with respect to distributions in the meantime.
Wendy Templeton founded Templeton Estate Planning in 2009. She practices in the area of tax and estate planning in Toronto and is currently serving as Treasurer of the CBA National Wills, Estates and Trusts Section.
Case Comment: Fort Sackville Foundation v. Darby Estate
By Richard S. Niedermayer
Stewart McKelvey (Halifax)
The recently decided Nova Scotia case of Fort Sackville Foundation v. Darby Estate, 2010 NSSC 27 & 2010 NSSC 45 addresses the extent of the cy-près doctrine and successorship between charitable organizations. The separate reasons with respect to costs provide a helpful reminder of the considerations a court will look at when awarding costs in estate litigation matters.
While the facts in this case were relatively straightforward, the provisions of Mr. Darby’s will certainly were not! The late John Darby left his house and its contents to “Heritage Society of Bedford” to “commemorate the merchant marine who sailed out of Bedford Basin during World War II” with several conditions. Those conditions related to retaining the property and contents as a heritage property and housing a museum, an art centre or an architectural centre for public use, all to be completed within certain expressed time limits after his death. In the event the conditions were not met within those time limits, the gift would fail and the residence and contents were to be sold and the proceeds would form part of the residue of the estate.
The first problem was that there was no such organization as “Heritage Society of Bedford,” but the Nova Scotia Supreme Court held that the testator intended to benefit “Bedford Heritage.” The second problem was that the society had been wound up pursuant to applicable corporate legislation in 2005, two years prior to the will. A somewhat related organization, Fort Sackville Foundation, claimed to be the successor to the society in order to claim the gift. The court found further that the foundation, which carried out some of the same purposes as the society, was not a successor organization to the society in that the society was dissolved under the applicable corporate statute without amalgamating or otherwise merging its operations with the foundation.
More importantly, did the cy-près doctrine allow the gift to be transferred to the foundation for similar purposes as those in the will? The court agreed with the conditions for the application of cy-près outlined by Professor Donovan W. M. Waters in his leading text Waters’ Law of Trusts in Canada, 3rd ed. at page 773 as follows:
- The gift as it stands is either impossible or impracticable to effect; and
- The donor expressed a general charitable intent in making the gift.
Courts have interpreted those broad principles previously on the basis that the more specific the gift, the more difficult it is to apply cy-près. While a testator may have clearly expressed a specific intent to benefit a specific charity for a limited purpose, does that intent translate to a “general charitable intent” as required by the doctrine? Further, if the gift can be carried into effect but the donee does not wish to meet stringent terms, is the gift “impracticable”?
The court determined that the cy-près doctrine could not apply to the gift on the basis that neither was it “impossible or impracticable to effect” nor did it express a “general charitable intent”. While the intent to commemorate the merchant marine was a general intent, the expressed desire to preserve the home as a heritage property limited the gift considerably. Further, the testator implied a strict timeline to fulfillment of the gift, failing which the home and contents were to be sold and the proceeds would fall into residue. It does not appear that any saving clause dealing with charitable gifts was included in the will.
In addition to failing to apply the cy-près doctrine, the court held that the gift lapsed in that the expressed conditions in the will, as he interpreted them, had not been and could not be fulfilled.
With respect to costs, the court ordered costs on a solicitor and client basis payable from the estate for all parties, being the claimant foundation, the executor of the estate and the residual beneficiaries. The residual beneficiaries argued that awarding costs to the claimant foundation on a solicitor/client basis essentially meant that they would be paying costs to the unsuccessful party since the value of the residue would be reduced by the amount of those costs. This is not an unusual circumstance in estate litigation. On balance, the court found that the arguments advanced by the claimant foundation were reasonable having regard to the terms of the will and the nature of the cy-près doctrine.
What can we learn from this case? With respect to charitable gifts and the cy-près doctrine:
- Care must always be taken in properly identifying the specific charitable organization the testator wishes to benefit. Resources such as the Canadian Donor’s Guide and the Canada Revenue Agency Charities Directorate can be helpful;
- Gifts with too many specific conditions which will be difficult to fulfill run the risk of failing on their terms. Clients should always be encouraged to consult with charitable organizations when they make gifts with specific purposes to ensure that the organization is willing and able to carry out those purposes; and,
- Gifts that are too specific and do not express enough general charitable intent may then fail under the cy-près doctrine where otherwise they are impossible or impracticable to carry into effect. A saving clause in the will can mitigate or eliminate this risk.
With respect to costs, the decision reiterates an increasingly long line of cases that challenge the age old rule of thumb that all parties to estate litigation will be paid solicitor/client costs from an estate. While that was the result here, that has not been the result in other cases where unsuccessful claims have been advanced and those unsuccessful parties have gone without costs or have been forced to pay the costs of other parties. As with all litigation matters, caution must be exercised before commencing a claim.
Richard Niedermayer is a partner in the Halifax office of Stewart McKelvey. He is the Vice-Chair of the Society of Trust and Estate Practitioners – Atlantic Chapter and sits on the Executive of the Canadian Bar Association – National Wills, Estates and Trusts Section. His partner, Timothy Matthews, Q.C., was counsel for the residual beneficiaries in the case.
Why you should ask whether your client has Indian status
By Naiomi Metallic
Burchells LLP
Four years ago, my French-Canadian mother, who has no Aboriginal ancestry, yet is a status Indian, executed a will. The lawyer who drafted her will never thought to inquire into whether she had Indian status. Yet, should my mother die ordinarily resident on reserve, this will dramatically alter the administration of her estate, and potentially even the validity of her bequests.
If your client is a person registered under the Indian Act, R.S.C. 1985, c. I-5 (commonly referred to as a “status Indian”), and lives on reserve (or is currently living off-reserve but plans to move back to their reserve at some point in the future), an entirely different set of laws may govern their estate planning than the provincial laws with which the average estate lawyer is familiar.
The Indian Act contains several provisions either pertaining directly or indirectly to the estates of status Indians. The effect of these laws is to oust the application of provincial wills and estate laws with respect to such persons through the legal doctrine of federal paramountcy.
Most significantly, s. 42 of the Indian Act vests jurisdiction over estate matters as they relate to status Indians exclusively with the Minister of Indian and Northern Affairs:
Subject to this Act, all jurisdiction and authority in relation to matters and causes testamentary, with respect to deceased Indians, is vested exclusively in the minister and shall be exercised subject to and in accordance with regulations of the Governor in Council.
It is important to note, however, that s. 4(3) of the Act, limits the application of the Act’s estate provisions to persons “ordinarily resident on reserve.” This can include persons physically living off reserve if they must do so to work, go to school or receive medical attention.
The biggest implication of s. 42 is that the minister and the staff of his department control the administration of the estate of a deceased Indian – not the provincial Court of Probate. When a status Indian ordinarily resident on reserve dies, it is the regional office of the Department of Indian and Northern Affairs that is contacted; this office approves of the personal representatives, dictates the procedure to be followed and the paperwork to be filed. However, the minister can consent to the transfer of his “probate” powers to the provincial court, and this tends to occur in the case of more complex estates.
Another important departure from provincial rules is that the will of a status Indian ordinarily resident on reserve is not considered valid until it is approved by the Minister of Indian Affairs. Although the minister cannot arbitrarily exercise his discretion to disallow a will, the grounds upon which the minister can declare a will void, in whole or in part, is broader than those under provincial laws. In addition to lack of capacity, duress, undue influence, and failure to adequately provide for dependents, the minister can declare a will void if the testator disposed of his interest in real property on reserve contrary to the Indian Act.
While reserve land is held for the collective use and enjoyment of a band, and is generally inalienable to third parties, except to the Crown in right of Canada, there are forms of private property on reserve. The Indian Act allows a band council to allot a parcel of land to an individual band member for their exclusive possession. This allotment must be approved by the minister, who can then issue a document called a certificate of possession, which is registered in the Indian Land Registry. This form of ownership is not fee simple ownership, but it does allow the holder of a certificate of possession to sell, lease and devise his or her lands within certain limits stipulated in the Indian Act.
The disposition of an interest in reserve land will be contrary to the Indian Act where the land was devised to someone who is not a status Indian and also not a member of the particular band that occupies the reserve. In some cases, these restrictions may prevent spouses, common law partners, and even children from inheriting a devise of property of reserve land. Where possible, these heirs are paid the value of the land they are not eligible to inherit, depending on whether the interest can be validly sold to another member of the band within six months.
Other issues related to status Indian estates include intestate succession rules, estate administration provisions, and tax and seizure exemptions that are all peculiar to the Indian Act.
In order for you to determine whether the provisions discussed above apply, you must inquire into the Indian status of your clients. Simply making assumptions based on the physical appearance of your client can get you into trouble.
Not all persons of Aboriginal ancestry have “Indian status.” Inuit and Métis people are not included in the Indian Act, and therefore fall under provincial laws. In addition, owing to the long and tortured history of the Indian status / registration provisions under the Indian Act, a number of people whose parents or grandparents were status Indians do not themselves qualify for Indian status.
Conversely, it is also possible for some persons with no Aboriginal heritage to have Indian status, for example, non-Indian women who married Indian men prior to 1985.
Since there are no obvious indicators of whether someone has Indian status, if you don’t ask and instead make assumptions, you could miss these significant issues. The best practice is to inquire into the Indian status of your clients as part of your regular client intake assessment.
Naiomi Metallic is an associate with Burchells LLP in Halifax, where she is a member of the firm’s Aboriginal law and litigation practice groups. Naiomi is from the Listuguj Mi'gmaq First Nation, located on the Gaspé Coast of Quebec. In 2008, she was the first Nova Scotia lawyer in history to be called to the Bar in English, French and Mi'kmaq. She was also the first Mi’kmaq law clerk at the Supreme Court of Canada.
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Practice points: Drafting wills for Status Indians
By Bruce Hallsor
The formalities for execution for wills of First Nations peoples with Indian status are governed by the federal Indian Act, not provincial wills legislation. Section 45(2) of the Act states that a will can be “any written instrument signed by an Indian in which he indicates his wishes or intention with respect to the disposition of his property on his death.” The Minister of Indian Affairs has some discretion as to what to accept as a valid will, but this language is certainly broad enough to apply to holograph wills, and even unsigned electronic documents. There are also no restrictions on gifts or appointments to persons who may witness the will.
When drafting a will for a status Indian, it is still recommended to follow the best practice, of using an English form will, with two signatures of impartial witnesses, for the sake of certainty of intention.
There are some key practice points which make estates of status Indians different from that of other Canadians, and should also be considered in the drafting wills:
(1) Wills variation
Section 46(1)(c) of the Indian Act permit the minister to declare a will void, or declare select provisions of a will void, if the will would cause hardship on “persons for whom the testator has a responsibility to provide.” The class of persons who could challenge the validity of a will under this section is broader than what is included in most provincial wills variation or dependants’ relief legislation. It is therefore important to ascertain who a status Indian client may have a responsibility to provide for, which could include parents, extended family members, and even conceivably non-relatives.
The potential relief is limited however to severance, and does not allow for a rewrite or a substitution of numbers or percentages
(2) Reserve land
A status Indian who holds a certificate of possession of reserve land may only gift that certificate to a person who is a member of the band on which the land is situated. You should not assume that the testators’ spouse, children, or other heirs are band members, even if they do reside in the property with the testator. Even beneficiaries who are status Indians may not be members of the band in question. Conversely, for some bands, which control their own membership, it is possible to be a band member without being a status Indian. It is best to make inquiries as to the status of each potential beneficiary under this type of gift.
There is also a lesser form of title known as a certificate of occupation, which does not carry the same rights and privileges as a certificate of possession. If the testator holds title under an occupation certificate, their rights to pass any associated rights through their estate may be encumbered by the form of certificate. The nature of the title certificate should therefore be examined before devising any estate plan.
(3) Minor beneficiaries
If the intended beneficiary is a minor, it is possible to pass a certificate of possession, or personal property to them, but section 52 provides that the Minister of Indian Affairs may appoint an administrator to manage the minor’s property if the minor is a registered Indian. A minor may take possession of reserve land in their own name, without the appointment of an administrator, but in such a case, no surrender, subdivision, sale, transfer, lease, or permit of the minor’s interest can take place until the beneficiary reached adulthood, or an administrator is appointed.
Even if the will purports to appoint a trustee for the minor, that will have no effect unless the trustee submits an Application to Administer a Minor’s Interest in Reserve Land to the Minister of Indian Affairs, and receives an appointment from the minister. In the event that the minister appoints the intended administrator, the minister will determine whether or not the administrator can take a fee for his services, whether he must post a bond or provide a surety, and set out reporting requirements for the administrator to provide regular statements to the minister.
(4) Automatic revocation
Unlike most provincial legislation which automatically revokes a will upon subsequent marriage or divorce, destruction of the old will, or upon the making of a new will, there are no such provisions in the Indian Act. Practitioners should be careful not to presume that any previous testamentary documents have been revoked, and should ensure that there is express revocation language in any new will drafted for a status Indian client.
Bruce Hallsor is a partner at Crease Harman LLP in Victoria, B.C. He is currently serving as President of the CBA National Wills, Estates and Trusts Section.
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