Estate Planning to Avoid a Dependant’s Support Claim

It is commonly understood among estate solicitors that in order to avoid a claim by a dependant for support under the Succession Law Reform Act, a testator must make adequate provision for the proper support of any dependants. 

While understood in theory, achieving that goal by way of the provisions in the final Will is a difficult task.  The task of drafting such a Will requires an analysis of the client’s complex set of factual circumstances and relationships and considerations of the ever-changing landscape of dependants’ support law. Clients want certainty that their Will provisions will be respected.  Achieving that is very difficult given the current state of the law. It is impossible to predict with certainty what “adequate provision” might be as there are no monetary guidelines under the Succession Law Reform Act akin to the Child Support Guidelines[i], only a wide range of factors which the Court may consider which include not only financial circumstances but also other factors.[ii]   

Scenario:  Your 65-year-old client asks you to update his Will.  Your client’s estate has a value of $1.5 million, consisting of half the value of the matrimonial home ($500,000), life insurance ($200,000), RRSP ($500,000), TFSA ($35,000) and non-registered investment and bank accounts ($265,000).  Your client owns the matrimonial home with his long-term spouse as joint tenants and has designated his spouse as the beneficiary of his life insurance, RRSP and TFSA.  Your client’s current spouse is 63 years old and has assets with a value of $1,000,000.  Your client advises you that he has two adult independent children and an 8 year old daughter Daisy born from a relationship during a trial separation from his spouse and for whom he now pays child support in the amount of $2,000 a month. 

What should you advise your client regarding his obligations to provide support in his will for his minor child?

How does this impact on the surviving spouse? 

How is the provision for the dependant to be crafted?

Who should the executors of his Will be?

These are the difficult planning issues the estate solicitor is faced with.  Grappling with the issues and developing an appropriate estate plan so as to adequately provide for the dependant and avoid estate litigation is a challenge.

Dependant

Pursuant to Part V of the Succession Law Reform Act (Ontario), a “dependant” may initiate proceedings seeking an award from an estate based upon a claim that he was not “adequately provided for” in the estate.

There are two criteria to satisfy for Daisy in this scenario to be a dependant and therefore to have status to commence an application.  First, she must meet the relationship requirements specified in the statute (married or common law spouse, parent, child or sibling)[iii].  Second, she must be someone “to whom the deceased was providing support or was under a legal obligation to provide support immediately before his death”[iv].  Should your client pass away, Daisy would currently qualify as a dependant for these purposes.  That will cease when your client no longer has an obligation to support Daisy which may be the case if your client lives long enough, as the obligation to provide child support generally terminates when the child is of age and no longer attending school, unless due to a disability, or when she obtains her first post-secondary degree or diploma.

In our scenario, on the assumption that the surviving spouse is financially self-sufficient, Daisy is the testator’s only dependant. 

Assets that fall outside of the Estate

For purposes of a dependant’s support claim, assets that fall outside of the estate, such as jointly held property, a life insurance policy, RRSP, and TFSA can be considered assets of the estate and can be charged with any dependant’s relief award made by the Court.[v]  Accordingly, when trying to estimate your client’s obligations to his minor child in his will, the value of these assets should be included in the value of the Estate. 

For example, in Madore-Ogilvie (Litigation Guardian of) v. Ogilvie Estate, [2005] OJ No. 5774, the testator was survived by his three minor children, aged 2, 12 and 13, respectively.  He made no provision for his children in his will, and left the residue of his estate to his wife.  The estate consisted of two life insurance policies with a total value of $169,711.  The children made a claim as dependants.  The wife made a counter-claim that the testator’s life insurance policy did not form part of the estate, and this was dismissed.  The court found that any amount payable under a life insurance policy owned by a deceased is deemed to be part of the net estate for the purpose of valuing the estate in a dependant’s support claim.   The court awarded $56,570.33 to each child.

Therefore in our scenario, the value of the 50% undivided interest in the matrimonial home, the life insurance policy, RRSP and TFSA would be added to the value of the estate, hence it is an estate valued at $1.5 million. 

Child Support Ordered under the Family Law Act

Since the testator was providing child support for Daisy in the amount of $2,000 a month, should he die before his child support obligations cease, his estate would, at a minimum, and likely by virtue of the support order[vi], be obligated to provide continued support for Daisy in the amount of $2,000 a month at least until Daisy becomes 18 years old. 

In McElligott Estate v. Damecour, [2005] OJ No 1663, the deceased had two minor children, aged 8 and 11.  The Will gave them $75,000 each, to be invested in a trust with income paid to them.  The court found that the Will did not grant them proper support, and that they should have received support from the entire estate, and not just income the estate generated.  The court awarded each minor child $773 a month for as long as the deceased’s legal obligations would have continued under the Family Law Act. 

Contingency for Extraordinary Expense

The concept of child support involves the payment of a child’s necessary day-to-day expenses.  However, the Federal Child Support Guidelines also provide for what are known as “special” or “extraordinary expenses”, which are child-related costs and expenses that are necessary because they are in the child’s best interests and are reasonable given the means of the parents and the child in light of the family’s spending patterns before the parents’ separation.  For example, music lessons, sports activities, orthodontics, or educational opportunities may be viewed against the payor’s assets and means. 

Similarly, a testator may be required to pay the child’s extraordinary expenses from his or her estate.  The question of whether a particular extraordinary expense is reasonable will be considered in light of the value of the Estate and the factors in section 62(1) of the SLRA. 

The meaning of “support” in the Succession Law Reform Act has been extended to include what may be seen by some to be luxuries.[vii]  In Re Davies and Davies, the Honourable Justice Dymond J. concluded that “by the word ‘support’ the Legislature has deliberately focused on a change from ‘maintenance.’”  She held that the word “support” encompasses “not only furnishing food and sustenance and supplying the necessaries of life, but also…giving physical or moral support…the Succession Law Reform Act extends that meaning to include what might by some be considered as non-essentials or luxuries.”[viii]   

For example, in Richer v. Richer, the court held that the dependant 17 year old daughter’s skating lessons should be paid from the estate, even though her participation in the activity was not a necessity.[ix]

Therefore, in our scenario, the testator should consider including a provision that will cover Daisy’s potential extraordinary expenses.

Post-secondary education

In addition to continuing to pay child support at least until Daisy reaches the age of 18 (and probably older), and making provision for extra-ordinary expenses and potential contingencies, it would be advisable to consider including an amount in the Will in the event Daisy pursues a post-secondary education. 

In MacLeod (Litigation Guardian of) v. Asselstine, 2005 CarswellOnt 2144, the minor child who was 17 years old and had a learning disability, had been accepted into an academic upgrading program.  The minor child was granted the entire estate, in the amount of $10,000. 

In Sheffiel-Lambros v. Sheffiel, 2005 CarswellOnt 704 (Ont SCJ), the deceased had several children and had been married four times.  His 23–year-old-daughter applied for dependant’s support.  She was in full-time university completing her Masters, and wanted to do her PhD.  The estate had a value of $122,000.  The court awarded the daughter $175 every two weeks while she finished her education, plus her legal costs. 

In Chellew v. Ontario (Public Trustee), (1983), 45 OR (2d) 189, the court held that, since the deceased had paid for the education of his other children, he should also pay for his 17–year-old daughter’s education.  The court ordered that the 17-year old daughter receive $700 a month for as long as she attended school on a full-time basis. The amount of her support increased yearly by $70 a month.  The size of the estate was $107,336, and the deceased had a dependant wife as well. 

In Boulet v. Le Madec Estate (2004), 10 ETR (3d) 313, the court granted $16,500 of an estate to the deceased’s 18–year-old son who was enrolled in university.  The assets of the estate totaled $96,500.  The deceased’s wife received the remainder of the estate, as well as a $100,000 life insurance policy.

In Re Cameron (1979), 4 ETR 257, the court awarded the entire estate, with the exception of $10,000, to the deceased’s 10–year-old child.  The court considered the possibility that the child would pursue a post-secondary education and that he could potentially, through accident or illness, remain a dependant. 

Therefore, the testator should consider including a provision that will cover the estimated cost of post-secondary education in his will to make adequate provision for the event Daisy pursues post-secondary education. 

Moral Claim

In addition to the testator’s legal obligations, a court would also consider the testator’s moral obligations to Daisy.  The testator’s moral obligations are society’s reasonable expectations of what a judicious person would do in the circumstances, by reference to contemporary community standards.[x]

In Tataryn v. Tartaryn[xi], the Supreme Court held that a deceased’s moral duty towards his or her dependants is a relevant consideration in a dependant support application, and that judges are not limited to conducting a needs-based economic analysis in determining what disposition to make.  Writing for a unanimous Court, the Honourable Justice McLachlin based her decision on three main principles:

1. First, she relied upon the broad wording of the British Columbia legislation itself (which gives the court a wide discretion to make provision out of the estate for whatever support it considers to be “adequate, just and equitable in the circumstances” if the testator has not made “adequate provision for the proper maintenance and support of the testator’s wife, husband or children”;
2. Secondly, she examined the origins and objects of the statue as dependants’ relief legislation (designed to provide for the needs of spouses and children by preventing them from becoming a charge on the state and by ensuring that they receive an “adequate, just and equitable” share of the family wealth on the death of the person who held it); and
3. Thirdly, she applied the principle of testamentary autonomy (i.e., the exercise by a testator or testatrix of his or her freedom to dispose of property, which is not to be interfered with lightly, but only in so far as the statute requires). 

In our scenario, consideration of Daisy’s moral claim to the estate would weigh the value of the Estate against what society’s expectation would be of a judicious father in all of the circumstances.  Therefore, even if the testator has provided Daisy with $2,000 a month in child support to pay for her needs, a fund to cover contingent and extraordinary expenses, and a fund to cover post-secondary education, a court could find that the amount is insufficient on the basis of moral grounds.

How Does the Potential Dependant’s Claim Affect the Surviving Spouse’s Equalization Claim?

Under our fact scenario, your client has assets of $1.5 million and his spouse has assets of $1.0 million.  Assuming the life insurance of $200,000 is a term policy and has no value as of the date before the date of death and that the couple each had NIL in assets on the date of marriage, then the surviving spouse would have an equalization claim of:

Husband’s Net Family Property	Wife’s Net Family Property	Calculation of Equalization Claim of surviving Wife
$1.3	$1.0	$1.3 - $1.0 = $300,00 ÷2 =$150,000

 

Assuming further that the wife has no dependency, what takes priority, her equalization claim or Daisy’s dependant’s relief claim?

While the Family Law Act makes provision for the surviving spouse by conferring on that spouse a right to an equalization payment or a division of assets, the claim of a dependant child has priority over the equalization claim of a spouse.[xii]

So – What Might the Provision in the Will Look Like?

Putting all of the foregoing pieces of the puzzle together and coming up with an estate plan is the challenge for the estate planning solicitor. 

While by no means the ultimate or the only possible approach, one suggestion is as follows:

1. Include a statement acknowledging the child support obligation and indicating the testator’s intention to make adequate provision for the dependant to show that the issue was considered

I hereby advise my Trustees that I am currently bound by a Court Order dated Jan 1, 2008 to provide monthly payments of TWO THOUSAND FOUR HUNDRED DOLLARS ($2,000.00) to JANE SMITH on account of child support for our daughter, DAISY SMITH (“DAISY”),   

If on the date of my death DAISY survives me and is a dependant of mine within the meaning of the Succession Law Reform Act (Ontario), or any successor legislation, it is my intention that she be adequately provided for from my estate. 

2. Include a provision ensuring that the child support payable on death is continued

I direct my Trustees to make immediate arrangements to ensure that the child support being paid by me as of the date of my death for the support DAISY continues to be paid by my estate.

3. Set Aside a trust with sufficient funds to cover the support obligations, potential contingencies, extraordinary expenses, post-secondary education and a top-up for moral claims; ensure the support is paid out of the trust and provide the trustees with broad discretion to use the income and capital for the dependant; eliminate even-handed rule so that discretion can be exercised generously and without consideration of any other potential beneficiaries

My Trustees shall set aside in trust the sum of:

1. The monthly amount being paid by me at the date of my death for the support of DAISY, multiplied by the number of months remaining on the date of my death until DAISY’s 18^th birthday (NOTE: consider an indexing provision as well, then define as the “Child Support”); plus
2. The sum of ________________ multiplied by the number of years remaining on the date of my death until DAISY’s 18^th birthday, which amount I estimate should adequately provide for my share of DAISY’s potential medical, school, extra-curricular, sports, and summer camp expenses [NOTE: consider here a yearly sum that will provide a yearly cushion for such extra-ordinary expenses during the child’s minority) ; plus
3. The sum of _______________, which amount I estimate should adequately provide for my share of DAISY’s potential post-secondary education expenses (NOTE: consider a sum to cover the potential of 4 years of post-secondary education – tuition, books,  room & board); plus
4. The sum of ______________, which amount I believe is an appropriate portion of my estate to gift to DAISY and which I have determined fulfills my moral obligation to her in light of all of the circumstances of the size of my estate and the other intended beneficiaries of my estate (NOTE: consider a top-up amount that brings the child’s entire trust amount to a percentage of the estate to cover off moral claim; based on the case law, suggested in this case at  25% of the value of the estate);

(such trust hereinafter referred to as “DAISY’s TRUST”).

My Trustees shall keep DAISY’s TRUST invested and shall ensure that the Child Support (as hereinbefore defined) continues to be paid to or for the benefit of DAISY, until the earliest of any of the following events occur (the “Termination Event”):

(1)                DAISY turns 18, unless she is unable to become self-supporting due to illness, disability, education or other cause,

(2)                DAISY becomes self-supporting,

(3)                DAISY obtains one post-secondary degree or diploma,

(4)                DAISY turns 23 years of age,

(5)                DAISY marries,

(6)                DAISY dies.

(NOTE: The Termination Event should tie into the terms of the support order or agreement, if any.)

Such Child Support payments may be made either out of the income or capital of DAISY’s TRUST, or partly out of the income and partly out of the capital, as my Trustees in their absolute discretion determine.

In addition to the Child Support payments, my Trustees shall pay to, make payable to or apply to or for the benefit DAISY all or so much of the annual net income derived from DAISY’s TRUST and shall pay at such time or times all or so much of the capital of DAISY’s TRUST as my Trustees in their absolute discretion determine is necessary for the health, education, maintenance and support of DAISY.  Any annual net income which is not paid, made payable or applied to or for the benefit of DAISY within three (3) months of the end of any year shall be accumulated and added to the capital of DAISY’s TRUST and shall be dealt with as part thereof.

Without in any way binding the discretion of the Trustees, it is my wish that in exercising their discretion in accordance with the provisions hereof, the Trustees should ensure that DAISY is provided for generously, including extra comforts and amenities of life, and my Trustees are hereby expressly relieved of any duty to maintain an even hand among the beneficiaries of the my estate, with the intent that the Trustees should have access in their absolute and unfettered discretion to the entire income and capital of DAISY’s TRUST set aside herein for payments for the health, education, maintenance and support of DAISY as they should in their absolute and unfettered discretion consider advisable.

On the occurrence of a Termination Event, any amounts remaining in DAISY’s TRUST shall fall into and form part of the residue of my estate and shall be dealt with as part thereof.

4. Consider Alternate Provision if the Wife Does Not Survive

The dependant’s trust above may meet the “adequate provision” test if your client’s spouse survives him and is the recipient of the residue of the estate.  However, if that is not the case and on the death of your client he is survived by the minor child and his other children, it is quite likely that a court will find that the dependant should at least receive an equal share of the estate, if not more to cover the costs of the child until reaching financial independence.

 

5. Consider How the Dependant’s Provision Will be Funded

In your client’s current circumstances, all of the assets but the non-registered investment and bank account will go to the surviving spouse by beneficiary designation or right of survivorship.  It is important to discuss with the client how the dependant’s trust will be funded and which assets will be used for this purpose, the tax implications of doing so, and how such assets ought to be restructured, either in ownership or beneficiary designation, in order for them to be available to the estate for the funding the dependant’s trust.  In your client’s situation, ideally the RRSP should not be used for this purpose as it will trigger a large tax in the estate rather than rolling over to the spouse’s RRSP; also, disruption of the surviving spouse’s use of the matrimonial home is likely to be undesirable.

 

6. Who the Executors Ought to Be

This is, as in all estate planning projects, a very important question but more so in these circumstances.  It will require discussion with the client and careful consideration of the potential pros and cons of having the surviving spouse as Executor and Trustee, either alone, with other family members, or with a professional trustee.  Aside from the usual considerations for appropriateness of an individual to act as Executor and Trustee, it may be that while the spouse may be appropriate as an executor, she may not be appropriate as the Trustee of the dependant’s trust.

7. The Need for Frequent Review and Up-dating

Since whether adequate provision has been made in a Will for a dependant is decided at the time the application is made[xiii] it is very important to have your client’s Will updated regularly, as the circumstances of the support obligation changes and the needs of the dependant changes over time.  A Will drafted today may appear reasonable under all of the circumstances of today, but be wholly inadequate at the time of your client’s death many, many years later.

Conclusion

The task of drafting a Will that deals appropriately and makes adequate provision for a dependant is a difficult task.  It requires a careful analysis of the client’s complex set of factual circumstances and relationships and considerations of the ever-changing landscape of dependants’ support law.  Careful thought and consideration of the issues, understanding and keeping up with the relevant case law and flexible, well-reasoned provisions in the Will go a long way to achieving that goal – but there is unfortunately no guarantee that this will suffice!

About the Author

Mary Wahbi and Holly LeValliant, Basman Smith LLP

 

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