What is a disclaimer in wills?

1. DisclaimerThere have been a significant number of developments in the law of disclaimer during the last couple of decades, so it seemed to me good to review this law.[1]No one c

What is a disclaimer in wills?

1. Disclaimer

There have been a significant number of developments in the law of disclaimer during the last couple of decades, so it seemed to me good to review this law.[1]

No one can be compelled to accept a gift[2] and therefore a beneficiary under a will and the next of kin on an intestacy may disclaim the gift or share on the intestacy. Not many people look a gift horse in the mouth, of course, but a person may want to reject a gift in certain circumstances. Thus, for example, if the gift is subject to onerous conditions the beneficiary may well want to decline it.

A disclaimer has the effect of avoiding the gift and thus the law treats the gift as though it never existed. It is void ab initio and there is no transfer of a property interest to the beneficiary.[3] The beneficiary may disclaim orally, by conduct, or in writing, so long as she has not unequivocally accepted it.[4] This means that once a beneficiary has accepted a gift, she can no longer disclaim it. It is her property. Therefore, it may be important for the beneficiary to disclaim reasonably promptly to avoid any implication that she has accepted the gift.[5]

If a disclaimer is effective, the failure of the gift dates back to the date of the testators or intestates death.[6] This means that if the gift is testamentary and specific, it falls into residue, unless there is a contrary intention in the will.[7] If the gift is residuary, it will go out on intestacy.[8] If the disclaimer is of a share of an intestate estate, it has the effect of augmenting the shares of the other next of kin.[9] The disclaimed interest does not pass to the Crown as bona vacantia.[10]

If a will gives more than one gift to the beneficiary, he may disclaim one and accept the other, so long as they are not inextricably bound together.[11]

2. Renunciation

Although a beneficiary can no longer disclaim a gift once he has accepted it, he can renounce it if he decides later that he no longer wants the property. If he does renounce, the property will go to the next beneficiary who is entitled to it, of if there is none, it will go back to the estate. But there is an important difference between disclaimer and a renunciation. As explained above, a disclaimer avoids the gift, so that it never takes effect. In contrast, a renunciation amounts to a disposition of property by the beneficiary. This may have tax consequences. For example, if the taxpayer disclaims a gift of property and the property then passes to his spouse or minor child, income earned from the property will be attributed to the taxpayer.[12]

However, in many cases it does not matter whether the beneficiary disclaims of renounces. But you should nonetheless use the correct terminology. Unfortunately, many cases fail to do so and speak promiscuously of disclaimer, or of disclaimer or renunciation, when the beneficiary in fact renounced.[13]

3. Acceleration

The main issue that arises in disclaimer (and renunciation) cases is whether the interests of the persons next in line will accelerate when a beneficiary disclaims (or renounces). The cases make clear that there is a presumption in favour of acceleration.[14] But a presumption can be rebutted and the presumption in favour of acceleration will be rebutted if the testator evinces a contrary intention. Testators never seem to preclude acceleration expressly, so the court must find their intention from the language of the will and the surrounding circumstances. Unfortunately, the cases are not easy to reconcile.

Older cases rarely concluded that the testator intended an acceleration. Re Jacques[15] is an example. The testator directed that part of the residue of the estate be held in trust and that the income on it be paid to her daughter for life. On the death of the survivor of the testator and her daughter the capital was to be paid to the testators son if living at that time, with gifts over if he was not. The daughter disclaimed her life interest, apparently so that her brothers interest would accelerate, and he had promised to give the capital to his sister. The court held that the disclaimer was effective, but that the sons interest did not accelerate. According to the court, acceleration would defeat the testators intention of giving her son the capital only if living at a specified date. In consequence, the income went out on a partial intestacy until the daughters death.[16]

Modern cases are much more likely to conclude that the testator must have intended an acceleration. Brannon v. British Columbia (Public Trustee)[17] is a leading case on point. The testator made her will in 1975. In it, she directed her executors to pay her husband $400 per month until the earlier of his death or remarriage. On the death of the survivor and her husband the executors had to divide the estate into as many equal shares as there were children of the testator then living, with gifts over to the issue of any child who died before that date. The children would be paid their shares when they reached age 30. The testator and her husband had three sons. She died in 1987. In 1988, when the youngest son turned 30, the husband disclaimed any interest in his wifes estate with the intent that the gift of residue would vest absolutely and immediately in the three sons. The four of them brought an application for an order so declaring. The chambers judge granted the application, but the Public Trustee appealed on the ground that the sons interests could not be accelerated, since they were subject to being divested if they did not survive the father. The Court of Appeal dismissed the appeal.

In his very thorough judgment, Cumming J.A., relied heavily on the Australian case, Re Syme.[18] In that case, Lush J. reviewed most of the leading cases and confirmed the modern approach that on the premature determination of the particular interest the subsequent interests are accelerated, unless there is an intention to the contrary.[19] He also concluded that acceleration is not excluded by words defining the time of distribution by reference to the natural ending of the particular estate, for instance, a direction for distribution upon the death of the life tenant or by a direction that distribution is to be made among persons then living.[20]

Justice Cumming then applied the modern approach to interpreting wills by having regard to the surrounding circumstances when the will was made. He considered the following facts: (a) that when the testator made the will no remoter issue had been born, so she was likely concerned primarily with her sons and not with remoter issue; (b) the estate was small, so it was unlikely that she had dynastic concerns; (c) most of the remoter issue were born during her lifetime, but she did not change her will to prevent acceleration; (d) she gave her husband the unilateral ability to end his interest by remarrying and thus he had the right to determine who became entitled to the residue; and (e) the trustees could encroach on the capital only for the benefit of the sons, not remoter issue.

He concluded that these circumstances, taken together, suggest that the testator would have wanted the three sons to take now. Moreover, he found nothing in the will to indicate a contrary intention. Instead, the scheme of the will provided for the order of the gifts and did not determine the time of distribution. Thus, it indicated an intention that the distribution was to take place on the determination of the husbands interest, however caused. Very significantly, Justice Cumming stated:[21]

To limit acceleration only to cases where the testator specifically contemplated that a beneficiary would refuse a gift or to exclude acceleration in any case where there is the contingency of survivorship would be contrary to the weight of authority and to the very concept of acceleration.

A large number of cases has followed the Brannon case.[22]

One of the factors considered by Justice Cumming in Brannon was the size of the estate. The implication is that if the estate is large, it may well be that the testator had dynastic concerns, which is shorthand for saying that he wished to make provision not just for the current generation, but also for future members of the family. This was the conclusion in de la Giroday v. de la Giroday.[23] An older widow held a life interest in a large inter vivos trust that had been in existence for some years. The trust provided that on her death the corpus was to be distributed equally among the settlors children. She wanted to terminate the trust but had not yet disclaimed her interest. The court found that the trust showed a contrary intention that prevented acceleration in that the trust did not provide for encroachment on the capital for the life tenant or the other beneficiaries. In the courts opinion, this demonstrated an intention to preserve the corpus.

It has been held that a disclaimer, if not made for value, can be retracted so long as no one has altered his position on the basis of the disclaimer.[24] Re Woodward Estate[25] is a case in which the court held that the beneficiary could not retract his disclaimer, because the executors of the estate had relied on it.

In Sembaliuk v. Sembaliuk[26] the court held that a disclaimer cannot be held invalid on public policy grounds. A husband and wife had separated, the wife had custody of the children, and the husband agreed to pay maintenance for the wife and the children. He was in arrears. Then his father died and left him a large sum of money. The husband disclaimed so that the wife would not get any of the money. The disclaimed money would remain with the fathers estate and would then pass to the husbands brother-in-law as residuary beneficiary under the fathers will. The husband believed that the brother-in-law would look after his children. The court held that since a disclaimer is not a conveyance, it could not be set aside as a fraudulent conveyance. Moreover, the fact that the husband had an obligation to support his dependants, did not impose a legal or equitable obligation on him to accept the bequest.

A disclaimer of an anticipated benefit under a persons will before the persons death is a nullity. You can only disclaim a property interest and an anticipated benefit is a mere spes successionis.

Of course, a disclaimer is invalid if the beneficiary lacks the required mental capacity, although no case seems to have decided what the measure of capacity is in such a case.[27] Semble, a disclaimer will also fail if it was made under duress or undue influence.

4. Disclaimer and Variation of Trusts

Disclaimer is a right beneficiaries have to vary an estate plan in a way that may differ from the plan envisaged by the settlor or testator. This right has existed for centuries and has never been doubted. Much more recently (in the 1950s) common law jurisdictions adopted variation of trusts legislation. That raised the question whether the legislation had superseded the common law right of disclaimer.

The question was raised initially in the Saskatchewan case, Re Kist Estate.[28] The court held that the legislation did indeed supersede the common law rule of disclaimer. The will gave a life estate to the testators wife for life, with remainder equally to the testators issue. He was survived by his wife and three children. One of the children was married and had two minor children The wife wanted to disclaim her life interest so that the gift to her children would accelerate. But the court held that she could not do so, since the variation of trust legislation requires that there can be no variation unless there is a benefit to beneficiaries who are minors or who have a contingent interest. The court distinguished Brannon v. British Columbia (Public Trustee), because the court in that case had failed to consider the effect of the British Columbia variation of trusts legislation.[29]

However, in McGavin v. National Trust Co.[30] the British Columbia Court of Appeal emphatically rejected the idea that disclaimer and acceleration are superseded by variation of trusts legislation. It held, rightly, that only if a statute is negative in its operation, that is, if it abolishes a common law rule, does it take precedence over the common law, and the variation of trusts legislation is not negative in its operation. In Skerrett v. Bigelow Estate[31] the Nova Scotia Supreme Court also declined to follow Kist and held that the legislation does not override the common law principle of disclaimer. The New Brunswick Court of Queens Bench reached the same conclusion in Turnbull v. Hagman.[32]

The same would apply to the rule in Saunders v. Vautier.[33] It is also a common law rule of long standing. Was it displaced by variation of trusts legislation? Clearly, it was not. In fact, in Sandwell & Co. v. Royal Trust Corp. of Canada[34] the court noted that the variation of trust legislation did not supersede the rule but extended it.[35]

Moreover, Waters Law of Trusts in Canada[36] agrees that the variation of trusts legislation has no relevance to the common law principles of disclaimer and acceleration. This means therefore that both disclaimer and termination of a trust under Saunders v. Vautier, assuming they are possible, are alternatives to varying a trust.

[1]  For a more detailed discussion of the topic, see Oosterhoff on Wills, 9th ed. by Albert H. Oosterhoff, C. David Freedman, Mitchell McInnes, and Adam Parachin (Toronto: Thomson Reuters, 2021), §14.11.

[2]  Bence v. Gilpin (1868), L.R. 3 Ex. 76 at 82, where Kelly C.B. said, No man is bound to take an estate against his will.

[3]  Biderman v. The Queen, 2000 DTC 6149 (F.C.A.).

[4]  Re Graydon, 1942 CarswellOnt 175, para. 7 (H.C.); Montreal Trust Co. v. Matthews, 1979 CarswellBC 87, 99 D.L.R. (3d) 64 (S.C.), para. 25.

[5]  Failure to do so may have tax consequences. See Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), subs. 248(8) and (9).

[6]  Re McFaden, [1937] O.W.N. 404 at 406 (H.C.).

[7]  See Succession Law Reform Act, R.S.O. 1990, c. S.26, s. 23(b) and similar legislation in other common law jurisdictions.

[8]  Re Stuart Estate, 1964 CarswellBC 60 (S.C.); Re Metcalfe (1972), 29 D.L.R. (3d) 60 (Ont. H.C.).

[9]  Re Scott; Widows and Friends of the Clergy Corp., [1975] 2 All E.R. 1033.

[10]  Re Doornbos; Public Trustee v. Kelley (1988), 31 E.T.R. 213 (N.W.T.S.C.).

[11]  Re Hotchkys, (1886), 32 Ch. D. 408 (C.A.).

[12]  Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 74.1-74.5. And see Maria Elena Hoffstein, Restructuring the Will and the Testamentary Trust: Methods, Underlying Legal Principles, and Tax Considerations (2012), 60:3 Can. Tax J. 719 at 732-33.

[13]  See, e.g., Re Coulson (1977), 16 O.R. (2d) 497, 1 E.T.R. 1 (C.A.); Rubner v. Bistricer, 2018 ONSC 1934, 39 E.T.R. (4th) 17.

[14]  See, e.g., Brannon v. British Columbia (Public Trustee), 1991 CarswellBC 103, 41 E.T.R. 210 (C.A.), para. 30; Skerrett v. Bigelow Estate, 2001 NSSC 116, para. 14.

[15]  1985 CarswellOnt 694 (H.C.), varied 1986 CarswellOnt 662 (C.A.).

[16]  For a similar case see Re Graydon, 1942 CarswellOnt 175 (H.C.).

[17]  1991 CarswellBC 103, 41 E.T.R. 210 (C.A.).

[18]  [1980] V.R. 109 (S.C.).

[19]  Quoted in Brannon, supra, para. 16.

[20]  Loc. cit., internal citations omitted.

[21]  Ibid., para. 29.

[22]  See, e.g., McGavin v. National Trust Co., 1998 CarswellBC 794 (C.A.); Skerrett v. Bigelow Estate, 2001 NSSC 116; Re Morrow Estate, 2002 BCSC 796; Clarke v. Di Bella, 2010 BCSC 505; and Turnbull v. Hagman, 2011 NBQB 23.

[23]  1998 CarswellBC 1615 (S.C.).

[24]  Re Cranstouns Will Trusts, [1949] Ch. 523.

[25]  2001 BCSC 635, 38 E.T.R. (2d) 139.

[26]  (1984), 15 D.L.R. (4th) 303 (Alta. C.A.), leave to appeal refused (1985), 35 Alta. L.R. (2d) xl (S.C.C.).

[27]  See Kusch Estate v. Muller Estate, 2016 SKQB 69, 17 E.T.R. (4th) 94.

[28]  1993 CarswellSask 354 (Surr. Ct.).

[29]  In Genova v. Giroday, 2000 CarswellOnt 3267 (S.C.J.), the court followed Kist.

[30]  1998 CarswellBC 794 (C.A.).

[31]  2001 NSSC 116.

[32]  2011 NBQB 23.

[33]  (1841) Cr. & Ph. 240, 41 E.R. 482.

[34]  1985 CarswellBC 683 (C.A.), para. 23. This point was quoted in and relied on in McGavin.

[35]  Note, however, that the Alberta and Manitoba variation of trusts legislation does require court approval for the acceleration of an interest when a beneficiary renounces or disclaims her interest: Trustee Act, R.S.A. 2000, c. T-8, s. 42(3)(b)(iii); C.C.S.M., c. T160, s; 59(3)(b)(iii).

[36]  5th ed. by Donovan W.M. Waters, Mark Gillen, and Lionel Smith (Toronto: Thomson Reuters, 2021), pp. 1331-33.

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