On October 18, 2007, I was very pleased to have on my programme “Strictly Legal” two of Toronto’s top wills and estates lawyers. Jordan Atin and Ian Hull are with the firm of Hull & Hull (www.hullandhull.com). On October 5, 2007, I had attended one of Hull & Hull’s Breakfast Seminars. They are well known in the legal community for training lawyers on some of the more complicated and interesting areas of the law of wills and estates. At this particular breakfast session, they looked at, among other things, two very interesting matters in the area of wills and estates, “secret trusts” and “mutual wills.”

Jordan Atin, who is now the Chair of the Trusts and Estates Section for the Ontario Bar Association, and Ian Hull walked the viewers and me through the meaning of these terms and some of the nuances of estate planning.

A secret trust occurs when a person wishes to make a gift in their will but wants to keep the recipient, and the nature of the gift itself, away from public scrutiny. So, the testator leaves the gift to a third party to hold on the basis of a secret trust for a beneficiary, the identity of whom is not disclosed in the will itself. So, imagine someone making a will and leaving a million dollars to Mr. Brown and that is all that the will says. However, Mr. Brown and the testator have entered into a secret agreement whereby Mr. Brown knows that he is to distribute that million dollars in a particular way.

Ian Hull was quick to point out that using a secret trust is not what he would consider to be “Plan A” for estate planning, but it is done and is suited to situations where an individual wants privacy. One of the obvious questions that arose was, how do you to prove that there is a secret trust and, more importantly, how is it enforced? As Ian pointed out, the notional Mr. Brown is someone that must be absolutely trusted by the testator, and it is possible for Mr. Brown and the testator to have a written or an oral agreement about exactly what is supposed to happen with the gift.

In order for a secret trust to be valid the testator must communicate to the beneficiaries of the secret trust or the trustee that he or she wishes to create the secret trust. Secondly, the beneficiary or trustee must accept responsibility to implement the secret trust, and this must be done within the lifetime of the deceased person. In other words, it is not good enough to tell the trustee after you have died, you must tell them while you are alive. In this way, the testator can be sure that the trustee accepts the responsibility.
I asked Ian and Jordan to explain the difference between a “secret trust” and a “power of appointment.” They both considered a power of appointment a much better way of achieving the same goal of a secret trust. A power of appointment allows a testator or individual to appoint someone to dispose of property in a particular way. It is, effectively, a power conferred on a person in order to give him or her the authority to dispose of property that he or she does not personally own. The power of appointment can be general, that is, it can be in favour of anyone, or it can be a special or a limited power of appointment that must be exercised in favour of a specified person or defined class of persons.

We also talked during the programme about mutual wills. Mutual wills arise where a couple, for example, agreed to each make a will leaving their entire estate to the other person on the understanding that once one of the spouses passes away, the other spouse will not change his or her will. The best example is where a husband and wife marry for the second time and each has children from a previous relationship. They would enter into an agreement to sign mutual wills leaving their entire estate to the other. The last to pass away agrees to distribute the remaining estate equally to the children from both previous marriages. Mutual wills are, in effect, an agreement to make and keep wills distributing the estate in a particular way.

Again, the problem arises – what if someone changes their will after the first spouse has passed away. As Jordan Atin pointed out, this can be problematic, but the courts will assist with enforcement. It is possible to commence an action for damages against the person or their estate if they changed their will in violation of an agreement to make mutual wills. It can get pretty complicated. One of the examples I mentioned concerned remarriage, which revokes a will automatically. A remarriage would revoke a will that was made in accordance with an agreement to make mutual wills. All of this, I guess, just serves as a reminder that when making wills, whether they involve secret trusts or there is a wish to have some kind of mutual agreement in the future, it is best to see experienced wills and estates lawyers to make sure that it is done properly as is enforceable.

We touched on another important issue, just towards the end of the programme, concerning a recent important decision by the Supreme Court of Canada. As I mention from time to time on “Strictly Legal,” my job is not to explain all the legal intricacies of some of these complicated cases, but rather to demystify and make the law a little more useful for people. Having said that, I will not review all of the details of the Supreme Court of Canada decisions in Pecore and Madsen Estate. The effect of these decisions is to clarify what may happen when family members hold assets jointly. It is very common these days for a child to hold a bank account jointly with an elderly parent. Perhaps they assist with some of their banking, depositing cheques, paying bills, and so on. In the past, when an asset was held jointly and one of the joint asset holders passed away, the survivor would keep the entire asset. These decisions from the Supreme Court of Canada state that this will not always automatically be the case. If someone holds assets jointly with another family member or individual (perhaps as a way of estate planning, perhaps as a way of trying to avoid probate taxes, perhaps as a way of simply making it easier to look after day-to-day business), it is critical that the intentions of the joint account holders be somehow declared.

For example, if a father and his daughter hold a bank account jointly and the daughter has simply placed her name on the account so that she can assist her father with his banking, they should consider declaring what would happen in the event of the father’s death. Is the daughter who assists with the banking intended to receive the entire account as her own because she is a joint account holder, or is the account to be returned to the father’s estate and divided as a part of his assets? Kits are available that will assist families to state clearly for their executor or estate trustee exactly what is supposed to happen with these joint assets. (See www.jointasset.com)

Even the Supreme Court of Canada judge who wrote the decision in these cases noted that joint accounts between parents and their children have become common estate planning tools. Given the widespread use for estate purposes, some people have referred to these joint accounts as “the poor man’s will.” Adding some clarification about everyone’s intentions will avoid the estate (and possibly the beneficiaries) from becoming “the poor man” because they have had to hire lawyers to fight over the issue.

If you have specific questions on this kind of topic, I would be pleased to answer them. Please drop me a line at strictlylegal@bnn.com. I would be happy to answer your question either privately or on air, if that is acceptable to you.

On an upcoming show of “Strictly Legal” we have decided to try and do a national “Make Your Will Night.” Ian Hull and Jordan Atin have agreed to come back on the show and we will work through an entire draft of a will (in some cases with e-mails that have been sent in by viewers) so that the average person can see just how easy it is to make a valid will and – if we have time – a Power of Attorney. So, stay tuned for a future “Strictly Legal” programme where three experienced lawyers will give you a hand to set out the basic components of a will and a Power of Attorney. These are some of the most important and powerful documents that you can create. Stay tuned.

Michael G. Cochrane, B.A., LL.B.

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