Contest unusual conditions in wills

A great uncle passes away, leaving $1 million to his nephew. But that nephew must marry within two weeks to receive it.

He goes on a mad hunt to find a bride, and actually lands his dream woman.

But she gets upset when she finds out about the inheritance. Queue a melodramatic scene where he proves his love for her—not the money—and they all live happily (and comfortably) ever after.

While stories like this seem more apt for the big screen, they can happen in real life—minus the music and shining lights.

So if your client is an heir who must abide by a wacky clause within a will, how can he contest it?

Read: Estate planning checklist

It all boils down to what’s fair. If society would find a certain condition unacceptable, the court may rule it invalid on the basis that it’s against public policy.

Beneficiaries need to know, however, that contesting a will comes with risks. If the courts deem the condition in the will invalid, the beneficiary might either get the whole gift or lose everything, says Margaret O’Sullivan, principal of O’Sullivan Estate Lawyers in Toronto.

Examples of invalid conditions include asking a person to:

• divorce his or her spouse;
• never marry;
• commit a criminal act; or
• behave in a manner contrary to human rights legislation.

Meanwhile, conditions that are typically valid—if worded correctly—include asking a person not to:

• re-marry;
• marry without someone else’s permission; or
• dispute the testator’s will on the basis of alleged lack of mental capacity.

Read: What not to do in estate planning

Case-by-case

One of the most commonly upheld conditions is an age restriction.

In Canada, once you’re an adult you’re legally entitled to your gift.

However, some people feel 18 is too young to handle money so they include a gift-over clause with an age restriction, explains Charles Ticker, a Toronto estate lawyer. This makes it harder to dispute the restriction because it transfers the gift to someone else if the beneficiary doesn’t reach the stipulated age.

Read: Shield your clients’ estates

But if your client is set on contesting this clause, he may want to cite Saunders v. Vautier. That ruling stated that if every other beneficiary is an adult and agrees to changing the condition, they can challenge the will in court.

If the court allows it, the condition will be moot, says Daniel Dochylo, partner at the Toronto office of Borden Ladner Gervais (BLG).

This ruling has also been used as precedent for contesting other conditions.

In one such case, a father left money to his spendthrift daughter provided that it was only used for specific purposes. If her expenses didn’t exceed the entire gift, upon her death whatever remained would be transferred to another beneficiary.

The daughter approached that second beneficiary, asking him to release his interest in the estate. He agreed.

“[Then,] it was put in front of court and approved,” says Dochylo.

One province that doesn’t apply Saunders v. Vautier is Alberta. Instead, beneficiaries must have legal grounds to contest wills (see “What makes a will valid?”), says Nancy Golding, partner at the Calgary office of BLG.

“It comes as a big surprise to lawyers in other provinces,” she says.

Instead, Golding prefers to use judicial dispute resolutions (JDRs), which are specific to Alberta and allow for out-of-court settlements. This process lets all parties meet with a judge, present their cases and come to a mediated settlement.

JDRs are also helpful if beneficiaries aren’t prepared to give up their shares.

Read: Preventing beneficiary disputes

What makes a will valid?

• Testator must have created the will freely and had the legal capacity to do so (includes being of age and sound mind).
• Cannot be the result of undue influence or fraud.
• Must also meet legal requirements (i.e. in writing and signed by the testator and two witnesses).

One of Golding’s clients, a woman in her 80s, got very little money after her husband died. He was an abusive alcoholic, and left most of his estate to a charity “just to be mean and vindictive,” she says.

“We challenged the will through a JDR on the basis of the spouse needing and being entitled to more.”

The judge considered the length and circumstances of the marriage. The wife had raised the kids and financially supported the household, while the husband squandered his earnings. Also, the wife was in good health and could’ve lived another 20 years, Golding says.

“In the end, our client was able to get the majority of the estate.”

But what surprised her most was the charity tried to prevent the wife from getting her share.

“They weren’t nice. They shouldn’t have fought her, but they had a view that when people leave a charity a gift they have an obligation to the deceased to make sure they get the gift.”

Tax implications

So your client’s successfully contested a will, and has a windfall coming his way. Yet the resulting tax liability could significantly reduce that amount.

If the will says the property goes to a spouse or common-law partner, then in most cases there’s no tax because he gets a rollover, explains Kim Moody, partner at Moodys Tax Advisors in Calgary.

Read: Debt and taxes

But if a child challenges a condition and wins, the amount of inheritance he gets would likely be on an after-tax basis. Further, the court may deem the tax to be retroactive to the day of death.

Also, consider probate fees. Alberta generally levies a flat fee to a maximum of $400 on any probated estate with a net value over $250,000. But other provinces vary.

In Ontario, taxes are levied on assets passing under a probated will (or on an intestacy) at about 1.5% for an estate over $50,000, says O’Sullivan.

And although Canada doesn’t have federal or provincial death taxes, a deceased and her estate are usually subject to capital gains tax, which can be considerable, she adds. This includes recreational property held by the testator or spouse that doesn’t qualify for the principal residence exemption.