How to Avoid the Wills Variation Act

by Shelley Bentley

Gordon MacRae from Douglas, Symes and Brissenden spoke to Okanagan Wills and Trusts Subsection members recently on the topic of the BC Wills Variation Act and gave useful tips on how to avoid it. He outlined what property is subject to the BC Wills Variation Act (“the Act”), summarized the avoidance techniques and spoke briefly on his impressions of the Court’s attitude towards avoidance transactions.

Property Subject to Wills Variation Act
Immovable property in BC and movable property, no matter where it is located, which belongs to an individual who is domiciled in BC at the date of death is subject to the Act. This means that the BC Wills Variation Act can be relied upon in a case involving a testator who was domiciled in Alberta and whose estate contains land in BC. It is important to note that the property must devolve under a Will which is valid in BC. For example, a holograph Will, which is valid in Alberta, would not validly deal with BC land. The beneficiaries of the same Alberta domiciled testator with movable property in BC could not rely on the Wills Variation Act.

It is also important to note that the net value of assets are subject to the Act and that only the beneficial interest is attachable.

Avoidance Techniques
A. A written statement
Mr. MacRae does not recommend the written statement because the Court cannot be relied upon to pay attention to the statement. In some cases the written statement can work against the testator especially if it reveals malice. Courts often view malice as an impure motive, not one which a “judicious parent” should have, and therefore disregard the statement on this ground.

Mr. MacRae also recommended that written statements not be placed in the Will because of the potential for the statement to act as a “red flag” to the disinherited child or spouse. If a client insists on a written statement, it should be prepared by the client and reviewed by the lawyer. It is best if the statement retains the flavour of the document prepared by the client.

B. A contract with a spouse that the spouse will not bring a claim under the Wills Variation Act
In the court’s view, the Wills Variation Act is remedial and cannot be contracted out of. As a consequence, a contract between spouses not to bring a claim under the Act may not be enforceable. However, such contracts can be influential.

C. Dying intestate
This option is only recommended if the testator’s goal is to benefit those who will benefit on an intestacy. However, it is possible to contract out of the Estate Administration Act and those provisions in it which choose beneficiaries upon intestacy. A spouse can agree to waive rights under that Act. In a case where a testator is in a second marriage and would like to leave assets to his or her children from the first marriage, the testator can make an agreement with his or her spouse that neither will bring an action under the Estate Administration Act. If the testator then dies intestate and the contract is in place, the balance of the assets will go to his or her children.

D. Changing domicile
This option is not convenient for most but it can be an effective tool if handled properly. Domicile is determined largely by objective criteria such as place and length of residence, the status of the individual’s principal residence and the degree of the individual’s connection to the jurisdiction. Those making a deliberate change in domicile must be careful to sever ties with BC.

E. Designated beneficiaries under RRSP’s, RRIF’s and Life Insurance
An annuitant under and RRSP or RRIF can designate a person to receive a benefit payable under the Plan in the event of the annuitant’s death. Such benefit would pass outside of the estate. The RRSP or RRIF can be paid to a trustee who can be instructed to distribute the proceeds to certain beneficiaries at certain times. Such flexibility can provide interesting planning opportunities.

The same considerations apply to life insurance.

F. Inter vivos gifting
Because the Wills Variation Act only applies to property owned by the testator at death, it can be avoided by inter vivos gifting. Transferring property into joint tenancy is another method of avoiding the Wills Variation Act. Legal title passes by right of survivorship and the asset does not form part of the estate. However the practice of transferring assets into joint tenancy is fraught with danger. Mr. MacRae commented that people don’t think of this as a disposition. If a daughter becomes a joint tenant of a bank account with her mother and does not report the income and the mother does not report a deemed disposition then there is a question as to whether this was a gift or merely an arrangement of convenience.

There is also loss of control of the asset. In addition, the joint tenant who divorces may face a claim against the joint property by a spouse who is not a joint tenant. Further, if a principal residence is held in joint tenancy with a joint tenant who does not live in the residence, half of the capital gains exemption for the property will be lost.

Two parties can transfer title into joint tenancy and retain the beneficial ownership in the name of the original owner with a trust provision. However, care must be taken to document such an arrangement. In this instance, beneficial ownership would pass to the estate and not by right of survivorship. Such an arrangement would not be an effective way to avoid the Wills Variation Act.

The Court’s Attitude Towards Avoidance
Mr. MacRae views the Wills Variation Act of BC as “voluntary” legislation because it contains no anti-avoidance provisions. The techniques to avoid it are readily available. If you fail to use those techniques and are caught by the Act then you have done so “voluntarily.” However, he commented that the Courts refer to the Act as remedial legislation.

Mr. MacRae highlighted the case of Dower v. Alberta (Public Trustee) (1962) 38 W.W.R. 129 (Alta S.C.) as an example of the attitude of the Courts towards avoidance techniques.

In this case a husband gifted away one million dollars with the intention of avoiding his wife’s claim under the Alberta Family Relief Act (similar to the BC Wills Variation Act). The Court held that her Family Relief Act action did not disclose a cause of action. She was making a claim as a creditor and alleging something tantamount to a fraudulent conveyance. The wife was not a creditor at common law or under the Family Relief Act. The Court held that it could only deal with what was in the estate under the Family Relief Act and that the statute did not authorize any interference with inter vivos dispositions of property.

Such judicial acceptance of avoidance techniques appears to prevail in BC today. During the course of the Subsection meeting, the recently decided case of Hossay v. Newman et al (Kelowna Registry # 27559, Feb. 5, 1998) (B.C.S.C.) was raised. In this case the question was posed: Do the provisions of the Fraudulent Conveyance Act apply to inter vivos dispositions by a person which may have the effect of defeating or hindering claims that may be made against that person’s estate pursuant to the Wills Variation Act? The plaintiff was the adult son of a testator who, shortly before his death, placed his major assets in joint tenancy with one of the defendants. The assets passed to that defendant by operation of law as surviving joint tenant and did not form part of the testator’s estate. Mr. Justice Mackenzie found that if the claim under the Wills Variation Act can be supported by a legal or equitable claim of the plaintiff against the testator prior to the testator’s death, the claim may be capable of being transformed into a claim under the Wills Variation Act after death. It was not necessary for Mr. Justice Mackenzie to decide on this point, however, because he found that the plaintiff would have no claim against the testator during the testator’s lifetime. The claim arose against the estate solely on the death of the testator and therefore the plaintiff did not have the status of creditor within the meaning of the Fraudulent Conveyance Act.

New Draft Company Act Published
Two representatives from the Ministry of Finance and Corporate Relations, policy advisor, John Nunez and Roberta Lowdon, Deputy Registrar of the Corporate Registry, recently revealed some of the proposed plans and rationale for the new draft Company Act to Securities Subsection members. Reproduced below, in abridged form, is an executive summary provided on this proposed new Act which was published for comment in February, 1998, after seven years of consultation.

Drafters of the proposed Act hope to make it easier to form and maintain a company in BC, which in turn will help economic growth and create jobs in BC. Such legislation is also intended to lower compliance costs to small businesses and help spur their development. In addition, advocates argue that a Company Act such as the one proposed, which is more compatible with other modern corporate statutes in North America, will help the development of Vancouver as a national and international business and financial centre.

Improve Efficiency for Companies and the Corporate Registry
Several changes would lower compliance costs for companies, while allowing the Corporate Registry to cut costs and improve services through the use of modern technology. For example, companies will be able to incorporate and file documents electronically, without using paper forms. Ultimately, information contained in the Corporate Registry database will be accessible electronically via the Internet.

Adopt Critical Uniform Rules as Needed
While the proposed Act will differ fundamentally from other modern corporate laws in Canada, it will adopt provisions where uniformity is important. For example, companies in BC would now have the standard securities transfer code found in other jurisdictions.

A majority of Canadian jurisdictions (the federal government, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick and the Northwest Territories) have corporate laws based on the “registration” model which provides corporations with a set of statutory bylaws that set out their internal procedures. However, BC plans to keep the “contract” model where each company can set its own articles (internal constitution). The flexibility of this model may encourage companies to incorporate in BC. Companies that want to adopt the “registration” model can incorporate under federal law.

Accommodate Developments in Law and Commercial Practices
Commercial practices and the law have evolved since the Company Act was introduced 25 years ago. For instance, the liability of directors for the actions of the company have expanded greatly during this time. Under the proposed Act, companies can indemnify their directors when they are sued for something done on behalf of the company.

Resolves Ambiguities and Problems
Under the new Act, a financially solvent subsidiary company will be able to buy the shares of its parent company.

Another complaint under the current Act is that companies must offer new shares to existing shareholders first, which causes difficulties with commercial transactions. The proposed Act will change this.

Also, companies will be able to purchase their own shares from one or more shareholders without first having to offer to buy shares from all of its shareholders.

Addresses Shareholder Concerns
With some restrictions, shareholders will have the right to propose a resolution at the company’s annual general meeting and the company will be required to circulate material regarding the resolution.

Reduces Red Tape
The new Act will streamline the procedures for holding annual general meetings, allow a number of technicalities to be waived by the shareholders, and reduce the number of documents filed at the Corporate Registry by allowing companies to keep documents at their office instead.

Allows Transfer of Shares with Certificates
The new Act will adopt the standard Canadian code for trading shares based on having “negotiable” share certificates.

Allows Financial Assistance to Company Insiders
There will be no restrictions on how companies provide financial assistance, such as loans and guarantees, to insiders of the company. Instead, companies will have to disclose the financial assistance to shareholders.

Easier Company Amalgamations, Dissolutions and Restorations
The new Act will simplify how companies can dissolve. Court applications and other formalities will be eliminated, making it easier for companies to amalgamate.

Reduces Red Tape for Extraprovincial Companies
The new Act will eliminate some penalties on extraprovincial companies which have not registered in BC, and will make registering extraprovincial companies easier and less costly.

Simplifies Rules for Public Companies
Changes will simplify the regulation of “public companies” (for example, companies traded on a stock exchange) by eliminating overlap between the Company Act and the Securities Act, and by shifting some rules to the Securities Act.

Repeals Residency Requirement for Directors and Protects Personal Information About Officers and Directors
BC Companies will not be forced to have at least one director living in BC and a majority of directors living in Canada. Also, while companies must still file the residential addresses of their directors at the Corporate Registry, it is anticipated that regulations would permit directors to request that access to this information be restricted. Companies would no longer have to keep the list of officers at the Corporate Registry.

This article originally appeared in the June 1998 issue of BarTalk and is reproduced here with permission of both the author and the Canadian Bar Association, British Columbia Branch.