How Not to Do Estate Planning

Family vacation property has been a thorny issue in estate planning since time immemorial.  Here is one way not to do it.

In a recent Ontario Supreme Court of Justice case, a father purchased farm property in the Oak Ridges Moraine near Toronto.  He had three children.  The property was registered in the name of one of the children, apparently for tax reasons (there was no mention of a trust arrangement).  In 1987, the father encouraged another of his children to purchase the property, apparently to dissuade her from moving from the province.  In order to keep the nonpurchasing siblings happy, all three siblings entered into an agreement whereby the nonpurchasing siblings would have a right of first refusal should the purchasing sibling intend to sell.  On such a sale, the purchasing sibling would receive from any sale the original purchase price, interest, and money spent on renovations or improvements.  Any proceeds in excess of this amount would be split evenly between the siblings.  The agreement was registered on title to the property.  To complicate the matter further, the father entered into a separate agreement with the nonpurchasing siblings whereby he agreed to be bound by the sibling agreement in return for a conveyance to him of an undivided one-half interest in the property.  No reason was given for this transfer.

Of course, such agreements are fraught with difficulty.  What is the father’s real interest?  How does one assess costs of renovation or improvement?  What mechanism is used to determine whether the right of first refusal is properly exercised?  An additional issue was the effect of the agreement on subsequent generations; i.e. were they bound by the agreement and how otherwise would any interest in the property be determined upon death of the siblings?

Some 30 years later, the purchasing sibling sought an order declaring that the sibling agreement was void and should be deleted from title.  The rationale was that the original purchase price, plus interest and costs of renovation and improvement, far exceed the value of the property so the agreement was effectively moot.

The Court held on contract principles that the agreement was valid and properly registered, thereby dismissing the application.  While the decision answered the narrow question of validity of the agreement, the dismissal of the application does nothing to answer the question of what happens with the property on death of the siblings (given that all three were alive, that issue could not have been before the Court).  While the Court found that subsequent generations are bound by the sibling agreement because of a clause stating an intention to bind “respective heirs, administrators, executors, successors and assigns”, the interests of the next generation will surely end up a matter for a Court down the road.

The lesson appears to be that in estate planning, like life, an attempt to please everyone will usually please no one.

Benzie v. Kunin

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