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Estate planning and the legal system: Part 2

Does your will protect your wishes?

Last Will and Testament

In an age when contracts are often the size of phone books and legal battles are fought over the fine print, people often question whether the old-fashioned handshake or verbal agreement still exist. The answer is yes. In fact, not only do oral contracts still exist, but they have the power to displace written contracts, including your last will and testament.

In a recent decision, the Ontario Court of Appeal determined that an oral contract between a testator and beneficiaries can supersede the terms of a will where the oral contract can be proved. The case arose from a dispute between siblings over the assets of their late father, which consisted of farming land, equipment and other property.

The farming operation had been in the family for five generations. The son worked full time alongside his father for 24 years. The daughter worked off the farm and was not involved in its operation.

The parents each had wills that left the estate assets to the two children in equal proportions. The children were also named as co-executors.

Following the father’s death, the son alleged he had an oral contract with his parents that if he stayed on the farm and worked with them, he would receive the farmland and its assets after his parents stopped farming. The oral agreement was made in 1977, when he was 19 years old.

There were no living witnesses to the alleged oral agreement, other than the son. The agreement was never discussed with the daughter. However, various witnesses indicated that the parents intended to transfer the farm assets to the son and certain steps were taken in furtherance of the alleged agreement, including transferring the milk quota.

In October 2001, the father was admitted to hospital with terminal cancer. He passed away at the end of November 2001. No changes were made to his will prior to his death.

The son subsequently commenced a lawsuit seeking a declaration that he was entitled to the farmland and business notwithstanding that the wills directed the estate assets to be divided equally between him and his sister. The case went to trial.

The trial judge dismissed the case because the son could not prove the existence of the oral contract. As a result, the estate assets were to be distributed equally to the son and daughter, in accordance with the wills. The son was also ordered to pay his sister $275,000 for her legal costs.

The son appealed the decision to the Court of Appeal and succeeded in overturning the decision. The Court of Appeal found that the trial judge failed to appreciate the nature of the relationship between the father and the son in their operation of the farm and that this led the trial judge to disregard evidence supporting the existence of an oral contract. The Court of Appeal ordered a new trial. The case settled before the new trial.

This decision is significant. It emphasizes the importance of having an up-to-date estate plan that reflects the current wishes and desires of the testator to prevent disputes among beneficiaries. As evidenced by the $275,000 cost award, estate disputes can be very costly and, often, the estate’s assets are insufficient to support such costs.

Estate litigation also has the effect of tearing families apart, something that many testators never envision or imagine will happen. However, unwritten promises and contracts are the kind of thing that one should expect will be dredged up following the death of a parent, particularly when one or more of the beneficiaries are unhappy with the terms of the parent’s will.

In light of this, here are four tips to keep in mind: (1) if promises have been made to beneficiaries, or oral contracts have been entered into by the testator, it is best to capture these promises or agreements in the will; (2) make sure all beneficiaries know about oral agreements that might contradict the will; (3) wills should be reviewed on a regular basis to ensure that they are consistent with what the beneficiaries have been told and the testator desires; and (4) if there has been a change in personal circumstances — such as the birth of a child or grandchild, a divorce or marriage or the death of a beneficiary — the will should be updated.

Clarity is the key to successful estate planning, and the avoidance of future disputes should play a central theme in the preparation of one’s will. Otherwise, as stated by a 19th century journalist, Ambrose Bierce, “Death is not the end. There remains the litigation over the estate.”

Nadia Campion is a business litigator at Lenczner Slaght in Toronto. Campion’s clients include small- to medium-size businesses, individuals and associations across a range of sectors in civil litigation such as commercial disputes as well as wills, trusts and estates litigation. She can be reached at [email protected] or 416-865-2974.

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