The Top 10 Things FDR Professionals Should Know About Death and Capacity
From time to time all lawyers and other professionals assisting families will encounter situations where a client or another party to a proceeding begins to suffer from capacity issues or dies while matters remain unresolved. Litigants can and do die in the midst of legal proceedings and while separation or divorce proceedings, custody disputes, and disputes regarding support are being resolved. We also frequently see issues previously addressed during separation or divorce negotiations emerge again following death.
We take this opportunity to highlight and briefly summarize ten of the most important issues to keep in mind when assisting clients where capacity issues or death may be at play. These points may also warrant consideration when preparing and documenting settlements in an effort to avoid further conflict down the road.
1. Marriage Still Significantly Impacts Property Distribution at Death
We continue to see increasing numbers of common-law relationships and many couples who live in marriage-like relationships who do not feel the need to formally marry. There is also a common misconception that there is no legal difference between marriage and common-law partnerships. Family law professionals will certainly be familiar with the difference that marriage has on property rights, but many rights carry over after death as well.
Automatic Revocation of Wills by Marriage
In Ontario, marriage still has the impact of automatically revoking a will previously executed by either spouse pursuant to sub-section 15(a) of the Succession Law Reform Act (“SLRA”).. A soon-to-be spouse can avoid this revocation if their will is made specifically in contemplation of the upcoming marriage. After death, the spouse of a testator may also choose to take under the most recent pre-marriage will regardless of its revocation by marriage, so long as the spouse does so within one year of the testator’s death.
This concept is somewhat antiquated and other provinces, including British Columbia, have seen reform in this regard. As a result of the current state of the law and differing capacity standards (reviewed below), it is possible for an individual to revoke their will through marriage, while lacking testamentary capacity. There has, accordingly, been discussion regarding the repeal of sub-section 15(a) of Ontario’s SLRA.
Entitlements of Married Spouses on Death
If a person dies in Ontario without leaving a valid will (also referred to as intestate), a common-law spouse will not have any automatic rights in respect of the predeceasing spouse’s estate. In contrast, a married spouse is entitled to an interest in the estate on an intestacy (the situation in which the deceased has died intestate). Specifically, the SLRA provides that:
- if the deceased is survived by a married spouse and no children, the spouse will receive the entire estate;
- if the deceased is survived by a spouse and children, the married spouse will receive:
- a preferential share, currently in the amount of $200,000.00; and
- one-half of the balance, if the deceased has one child; or
- one-third of the balance, if the deceased has two or more children.
Similarly, only married spouses are entitled to elect for an equalization of net family property rather than to take pursuant to the terms of the predeceasing spouse’s will (or an intestacy) pursuant to Section 6 of the Family Law Act (the “FLA”).
Rights of Common-Law Spouses
A common-law spouse has no automatic entitlements in respect of a predeceasing spouse’s estate. This can mean that a spouse who has lived with the deceased in a marriage-like relationship and been financially reliant on him or her for decades may need to commence court proceedings to seek an interest in the pre-deceasing spouse’s estate, if they are not named as a beneficiary under the predeceasing spouse’s will or if the predeceasing spouse dies intestate. Under Part V of the SLRA, a surviving common-law spouse may apply for dependant’s support payable by the predeceasing spouse’s estate. Courts may consider a variety of factors in determining whether “adequate provision for the proper support” of a common-law spouse has been made, including moral factors. On such an application, courts have broad discretion to order an award of support from the estate, which may be in the form of a lump-sum payment, periodic payments, or the transfer of assets to the dependant, either for life or absolutely.
2. Similarly, Divorce Impacts Estate Distribution
Divorce, in contrast, does not invalidate a will. Instead, divorce revokes particular sections of a will that relate to the former spouse. Absent a contrary intention in the will, any provision incorporating devises or bequests of property to the former spouse, appointing the former spouse as executor or trustee, or conferring of a general or special power of appointment on the former spouse will be revoked upon divorce. Ultimately, in most cases after divorce, the will is read as though the former spouse had predeceased the testator.
A divorced spouse will no longer have the same equalization rights of a married spouse or any interest in the predeceasing spouse’s estate on an intestacy.
On the other hand, a separated spouse from whom the deceased was not divorced may have rights on an intestacy, pursuant to a will, or even equalization rights (depending on the timing of separation), subject to the terms of a separation agreement.
Rights of Divorced Spouses
Notably, a divorced spouse is still included in the definition of a spouse under Part V of the SLRA. Accordingly, if the proposed distribution of an estate does not fulfill a divorced spouse’s continued spousal support obligations, an application for dependant’s support may be made by the divorced spouse.
3. Wills and Other Testamentary Instruments can be (and are) Challenged
Another common misconception that we see, ifs a belief that the terms of a will or other testamentary document can be iron-clad. Many clients approach us for assistance in “bulletproofing” an estate plan. The reality is, however, that claims can nevertheless be made against an estate, including, the challenge of what has been relied upon as a valid last will and testament and was believed to be final and undisputable.
Common Will Challenges
Most frequently, we see the validity of wills challenged on the following bases:
- inconsistency with formal requirements for the execution of the valid will;
- lack of knowledge and approval of the contents of the will;
- lack of testamentary capacity;
- allegations that the will was procured by undue influence;
- suspicious circumstances; and
- less frequently, because the terms of the will are contrary to public policy or the will is an instrument of fraud.
If a will is declared to be invalid, the terms of a prior valid will may prevail or the deceased may be considered to have died intestate. As a result, a separated married spouse may have an interest in the estate notwithstanding that a new will was made following separation.
While not technically a challenge of a will, we also encounter situations where it is alleged that the mirror wills executed by spouses function as mutual wills. Mutual wills are mirror wills where there is an agreement between spouses not to make a new will on terms inconsistent with those featured in the mutual wills. Instead of a claim that the will is invalid, this is an argument that assets of the estate disposed of differently under a subsequent will are held in trust for the beneficiaries under the mutual will because the testator is bound by its terms. While often part of the will itself or documented by way of a standalone document, mutual will agreements have been found to exist in circumstances in which they are not documented on the basis of witness evidence.
In the context of either type of challenge, the evidence of a family lawyer who may have assisted in negotiating the terms of a separation agreement and waiver of certain estate-related rights may become relevant.
4. Terms of Domestic Contracts can be Overcome
Just because the terms of a separation or divorce have been resolved and documented does not mean that issues cannot be revisited after death.
Dependant’s Support Applications
The SLRA specifies that a domestic contract is just one factor to be considered by a court on a dependant’s support application. Case law has confirmed that an application for dependant’s support may successfully be advanced even where the issue of spousal support was previously addressed under a separation agreement. Accordingly, the terms of a cohabitation agreement or separation agreement may not preclude a surviving spouse (whether married, divorced, or common-law) from seeking an interest in the predeceasing spouse’s estate on the basis that they have not been adequately provided for.
Life Insurance and Related Claims
Life insurance can be an effective planning tool, but such policies are not immune to challenge and complications may arise following death.
The SLRA provides that proceeds of a life insurance policy, notwithstanding that they would ordinarily pass “outside of the estate” to a designated beneficiary, may be clawed back into the estate for the purposes of assessing a dependant’s support application.
Claims in unjust enrichment and other equitable claims may be advanced after death whether a matter has been addressed during the negotiation of separation terms or not. In Moore v Sweet,, for example, a couple, on separation, had entered into an oral agreement whereby the wife would pay the premiums for a life insurance policy on the husband’s life and the wife would remain as the designated beneficiary of the policy. The oral agreement was not documented as part of the couple’s separation agreement. Subsequently, the husband irrevocably designated his new common-law spouse as the beneficiary of the life insurance policy. After his death, the wife, who had paid all of the premiums for the life insurance policy discovered that she had been replaced as designated beneficiary. There were insufficient assets in the husband’s estate to advance a claim against the estate for breach of contract. The wife was successful in obtaining the proceeds of the life insurance policy on the basis of unjust enrichment. In its decision, the Supreme Court of Canada clarified that, absent “irresistible clearness”, legislation (in this case, the Insurance Act) does not preclude the existence of equitable rights.
5. Post-Death Election Deadlines Under the Family Law Act
Unless extended by court order, the deadline to elect for an equalization is six months following the predeceasing spouse’s death. A surviving married spouse will otherwise be deemed to have elected to take under the predeceasing spouse’s will or pursuant to Ontario’s intestacy laws.
We frequently seek the extension of these deadlines where the surviving married spouse’s rights following death and entitlements under a will or on an intestacy are not yet clear six months after date of death. This may be the case where a challenge of the deceased’s will is being contemplated. The extension may be granted for a certain number of days or pending the resolution or determination by the court of a related issue.
In the extension of the FLA election deadline, courts will typically consider the following factors:
- whether relief is unavailable because of delay that has been incurred in good faith (good faith in this context having been interpreted as honestly and with no ulterior motive); and
- whether any person will suffer substantial prejudice by reason of the delay.
6. Digital Assets are Becoming More Important
In estate planning, administration, and litigation, digital assets are becoming increasingly common. A digital asset is defined as “a record that is created, recorded, transmitted or stored in digital or other intangible form by electronic, magnetic or optical means or by any other similar means”.” Studies suggest that Canadians hold more value in this diverse class of asset than many would estimate at first instance. Accordingly, it is advisable to address such assets as part of an estate plan and, if they are relevant, during separation or divorce proceedings.
Accessing Digital Assets
The Uniform Law Conference of Canada introduced recommended legislation to facilitate access to digital assets in the form of the Uniform Access to Digital Assets by Fiduciaries Act in 2016. However, most Canadian provinces, including Ontario, have not given effect to its terms, with legislation that does not specifically refer to digital assets. Accordingly, after death and during periods of incapacity, we continue to see significant barriers to the access and administration of digital assets.
While the Substitute Decisions Act, 1992,, and Estates Administration Act provide that attorneys or guardians of properties and estate trustees, respectively, are authorized to manage the property of an incapable person or an estate, these rights have not yet been clarified by explicit reference to digital assets. While continuing powers of attorney for property and wills can be crafted to explicitly refer to digital assets and the authority of an attorney for property or estate trustee to access accounts and information in the same manner in which the user him or herself was able to do so, access issues can still arise during incapacity or after death. It is anticipated that the adoption of the Uniform Law Conference of Canada’s Uniform Access to Digital Assets by Fiduciaries Act would resolve some or all of the issues currently faced by Ontario residents in accessing and administering digital assets. However, now over four years since its release, only Saskatchewan has implemented provincial legislation mirroring the language of the uniform act. In the absence of clear legislation and/or adequate planning documents in place, a court order is typically required to access and administer digital assets, often at prohibitive expense and significant delay.
If important terms of a separation agreement involve digital assets, it would be advisable to take steps to facilitate their access by the proper party in the event of death or incapacity. For instance, creating a digital estate plan and maintaining lists of login information may be of assistance.
7. There are Different Standards of Capacity
There is a presumption of mental capacity under the Substitute Decisions Act, 1992 (the “SDA”). However, we frequently encounter situations where the circumstances are such that the mental capacity of a party to litigation is questionable or a prior transaction is challenged on the basis of a lack of the requisite mental capacity.
Capacity is time, situation, and task specific:
- Time specific: capacity is considered at the time at which an action is performed and a lack of mental capacity to do so at another time may not be determinative;
- Situation specific: external factors and stresses may impact whether an individual possesses mental capacity in respect of the action or decision to be made – context may need to be considered; and
- Task specific: capacity is considered in respect of the specific action or type of decision, rather than an individual simply being considered to be capable or incapable in all respects.
When dealing with testamentary capacity (the capacity to make a valid will), for example, we consider the criteria set out in the old English case of Banks v Goodfellow:
- understanding the nature of the act of making a will and its consequences;
- understanding the extent of one’s assets;
- comprehending and appreciating the claims of those who might expect to benefit from the will, both of those to be included and excluded;
- understanding the impact of the distribution of the assets of the estate; and
- that the testator is free of any disorder of the mind or delusions that might influence the disposition of his or her assets.
In addressing the issue of capacity to manage property, make healthcare decisions, and make Powers of Attorney for Property and/or Personal Care, the SDA speaks to similar criteria in respect of each standard, to be considered in the context relevant to that type of decision. An individual must “understand” the relevant information and “appreciate” reasonably-foreseeable consequences of what they are doing or not doing.
Historically, capacity was considered in terms of a hierarchy, with different tests thought of as being more onerous to satisfy (such as testamentary capacity) than others (for example, the capacity to separate). More recently, however, there has been a trend toward different standards of capacity being treated just that: different. Just because someone possesses testamentary capacity may not necessarily mean that they have the mental capacity to attend to other types of decisions, which issue needs to be addressed separately.
In assessing capacity, medical evidence and/or capacity assessments are often key, but in retrospective assessments, the evidence of lay witnesses can also be important. As standards of capacity are ultimately legal tests, the evidence of a lawyer, including family law counsel who have assisted a party, may become highly relevant.
8. There are Tools for Protecting the Interests of Those with Capacity Issues
Where capacity issues are at play, there are a number of tools available to assist in ensuring that the individual’s interests are properly represented and preserved. Below are a number of examples of the tools available in addressing capacity, each of which could be the subject of its own article:
- Continuing Powers of Attorney for Property and/or Powers of Attorney for Personal Care
- Guardianship of Property and/or Personal Care
- Capacity Assessments
- Litigation Guardians
- Section 3 Counsel
- Motions for Court Approval
- The Public Guardian and Trustee
In short, where a party to a family dispute may not be capable, there are a variety of tools available to ensure that his or her rights are properly represented during any court proceeding and in pursuing his or her entitlements.
9. Obligations of Fiduciaries
Particularly in relation to capacity issues, where an individual is authorized to assist another in a fiduciary capacity, it is important that they are aware of their obligations relating to the role.
Attorneys for property and/or personal care, guardians of property and/or personal care, and estate trustees are all fiduciaries who are accountable for all decisions that they may make in that capacity. They are bound by an obligation to act in the best interests of the incapable or the estate at all times and cannot obtain a benefit at the expense of the party on whose behalf they are acting.
One of a fiduciary’s key obligations is to maintain complete records and, if compelled to do so, to pass accounts. A passing of accounts is essentially an audit by the court of the administration. If any assets cannot be properly accounted for, it is possible that the court may order a related repayment by the fiduciary. Similarly, if an individual commences or advances a claim, they (rather than the incapable or the estate) may be ordered to pay costs personally notwithstanding that the claim has been advanced on another’s behalf.
When acting for an estate trustee, attorney for property, or guardian of property, it is important to ensure that their focus remains the incapable (or the estate) and that they carefully consider all interests before deciding on any course of action to avoid personal liability.
10. Medical Assistance in Dying
In the past few years, there have been significant developments in the accessibility of Medical Assistance in Dying (“MAID”). Clients requiring assistance with all types of matters may ask questions regarding MAID.
A major turning point with respect to the legality of MAID came in 2015 with the Supreme Court of Canada’s decision in Carter v Canada (Attorney General).. Since that time, federal legislation has been updated and the option of physician assistance in dying has introduced several important considerations in respect of incapacity and estate planning.
Upcoming Changes in MAID Eligibility
Currently, MAID is available only to individuals able to satisfy the following test:
- they are eligible — or, but for any applicable minimum period of residence or waiting period, would be eligible — for health services funded by a government in Canada;
- they are at least 18 years of age and capable of making decisions with respect to their health;
- they have a grievous and irremediable medical condition;
- they have made a voluntary request for medical assistance in dying that, in particular, was not made as a result of external pressure; and
- they give informed consent to receive medical assistance in dying after having been informed of the means that are available to relieve their suffering, including palliative care.
As it currently stands, an individual who qualifies for MAID must provide express consent to receive it immediately prior to the procedure and their natural death must be “reasonably foreseeable” as a result of their condition, among other requirements outlined by the Criminal Code. Proposed legislative amendments to enhance access to MAID further to the Truchon c Procureur général du Canada decision, in which the Quebec Superior Court of Justice found that this requirement infringed the applicants’ fundamental rights under Sections 7 and 15 of the Charter and declared these provisions of Quebec and Canadian MAID laws unconstitutional, and in response to complaints regarding inaccessibility, were ultimately introduced by way of Bill C-7.. Most notably, Bill C-7 seeks to repeal the provision requiring a person’s natural death to be reasonably foreseeable, and permits access to MAID by individuals who have previously consented to receive it but are no longer capable, on the basis of their prior consent and agreement with the medical practitioner to receive MAID. Bill C-7 was recently approved by the House of Commons and it is anticipated that eligibility rules for MAID will be updated in the near future.
Although the scope of authority of an attorney or guardian of personal care is broad, in order to access MAID, it is currently the patient him or herself who must consent to its administration. What is currently being contemplated by the federal government is a change to the time at which consent must be provided, not the extension of such rights to substitute decision-makers.
MAID and Life Insurance
The change in the law regarding MAID raised concerns in terms of whether it would be distinguished from suicide for life insurance purposes and should, accordingly, attract different treatment under the terms of a life insurance policy. Depending on the terms of the policy, the definition of suicide as it relates to voiding a life insurance policy may or may not encompass MAID. Accordingly, early on, there was some concern that MAID could have a significant impact on the implementation of the estate plans of those who choose to access it. Since then, the Ontario government has implemented legislation that provides protection and clarity for patients who have accessed MAID and their families. The legislation specifies that MAID does not impact a person’s rights that otherwise exist under a contract or statute, including life insurance policies or other survivor benefits, unless an express contrary intention appears in the statute.
This article is intended to serve as a preliminary review of some of the issues with which FDR professionals may wish to familiarize themselves relating to death and capacity. Please do not hesitate to contact us with any questions or for a further explanation regarding any of the above, or with specific questions relating to estate and/or capacity law:
Ian M. Hull – firstname.lastname@example.org / (416) 369-7826
Nick Esterbauer – email@example.com / (416) 640-4818