MR Lucky v. Minister of National Revenue, [1972] CTC 2412, 72 DTC 1369

Maurice Boisvert:—This is an appeal against an assessment dated October 15, 1970, made under the Estate Tax Act.

The appeal was heard at Toronto, Ontario, on September 9, 1971, by the Tax Appeal Board as it was then constituted.

Even though the appeal was not heard in camera, I am of the opinion that the names of the persons involved are immaterial and this is the reason for calling the appellant Mr Lucky.

On February 6, 1969, Mr Lucky who was 47 years of age married a lady who was 84 years of age. On February 13, 1969, the elderly lady made a will which reads:

1. I HEREBY REVOKE all Wills and testamentary dispositions of every nature or kind whatsoever by me heretofore made.

2. I GIVE, DEVISE AND BEQUEATH all my property of every nature and kind and wheresoever situate, including any property over which I may have a general power of appointment, to my husband, . . . for his own use absolutely and I appoint him sole Executor of this my Will.

On March 28, 1969, Mrs Lucky passed away. Then — Bingo — Mr Lucky inherited a fortune of almost one million dollars. He had not even the time to read the famous novel “The Thousand and One Nights” before becoming a wealthy man.

The last will and testament of Mrs Lucky was probated on May 23, 1969.

On May 6, 1969 Mr Lucky, in his capacity of executor, administrator and successor, filed an estate tax return in which he reported the total value of the estate amounting to $930,616.71. The total value was raised to $999,562.56 by the assessor who set aggregate taxable value at $299,483.85. The assessment was issued on June 4, 1970. Thereafter Mr Lucky filed a Notice of Objection claiming that the tax in the sum of $44,483.85 levied in respect of the estate of his wife was improperly imposed because the entire estate was exempt from taxation under subsection 7(1) of the Estate Tax Act. As said before, the will was probated on May 23, 1969 and on the same day the Surrogate Court of the County of York granted letters probate to Mr Lucky “who then proceeded to administer the estate in his capacity as executor, and to transfer the assets thereof into his name”.

During the month of June 1969, two cousins of the deceased filed affidavits with the Surrogate Court of the County of York, alleging the following facts:

i. That the deceased was senile at the time of her death and did not have the capacity to make a Will or to understand its contents or give the proper instructions with respect thereto;

ii. That there were serious questions to be considered by the Court regarding the validity of the Will;

iii. That the said . . . had exercised undue influence on the said Testatrix with respect to the Will;

Discussions took place between solicitors for the parties involved with the result that Mr Lucky was advised to pay a sum of $225,000, which he did, to buy peace, security and anonymity, rather than go before the Courts. His counsel testified that the gallantry of his client “would attract a lot of publicity”.

On February 20, 1970 Minutes of Settlement were signed by the parties. The substance of the Minutes was that Mr Lucky would pay the sum of $225,000 “in exchange for which the claimants would withdraw their attack on the validity of the Will and of the marriage and release all their claims against the estate”. Thereafter the Surrogate Court granted an order dated February 24, 1970, revoking the letters probate pendente lite which had been granted to the National Trust Company Limited and restored the grant of probate dated May 23, 1969 to Mr Lucky.

The assessment was issued after the above Order, that is to say, on June 4, 1970. The appellant submitted the following reasons for appeal:

1. (a) The entire estate of Mrs Lucky was left to her husband for his own use absolutely, and can therefore be said to have vested in him indefeasibly from the moment of her death. The entire estate is therefore exempt from taxation under Section 7(1 )(a).

(b) The only document which passed the property of the deceased was the Will dated the 13th of February 1969, which left everything to her husband. There was no transmission of any kind from the estate to the nephews or nieces, and accordingly the money paid by the husband to the nephews and nieces was not subject to Estate Tax.

(c) The money paid by the husband to the nephews and nieces was paid by him for the purpose of avoiding impending litigation and not as a legacy to them.

In assessing the appellant, the respondent acted upon the following assumptions:

11. (b) the sums of $255,000.00 and $44,483.85 never vested indefeasibly in . . . for the benefit of . . . within the meaning of Section 7(1 )(a) of the Estate Tax Act.

The respondent, like the appellant, relied also upon paragraph 7(1 )(a) of the Estate Tax Act (SC 1958, c 29), as amended by subsection 3(1)) (SC 1968-69, c 33). The paragraph reads:

7. (1) For the purpose of computing the aggregate taxable value of the property passing on the death of a person, there may be deducted from the aggregate net value of that property computed in accordance with Division B such of the following amounts as are applicable:

(a) the value of any property passing on the death of the deceased to which his spouse is the successor that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be vested indefeasibly in his spouse, except any such property comprising a gift made by the creation of a settlement or the transfer of property to a trustee in trust;

The above paragraph created an exception. The dilemma is to find the right interpretation of the meaning of the words “to be vested indefeasibly”.

It is admitted that without the amended section Mr Lucky would have been called upon to pay an estate tax upon the aggregate taxable value of all property passing on the death of the de cujus.

The whole of the aggregate value of Mrs Lucky’s estate passed, at her death, to Mr Lucky. He acquired possession and ownership of the estate which ceased to be his wife’s estate and became his, absolute and definite.

“Vested” means: settled; giving the right of absolute ownership; not subject to be defeated by a condition precedent.

“Vested estate” is defined as: an interest clothed with a present, legal and existing right of alienation; a vested estate whether present or future, may be absolutely or indefeasibly vested.

“Vested interest” means: a present right or title to a thing which carries with it an existing right of alienation.

“Vested rights” means: Rights which have so completely and definitely accrued to or settled in a person that they are not subject to be defeated or cancelled by the act of any other private person. The above definitions were taken from Black’s Law Dictionary, 4th Edition.

The Concise Law Dictionary, by Osborn, defines “defeasible” as follows at page 112: “An estate or interest in property, which is liable to be defeated or terminated by the operation of a condition subsequent or conditional limitation.” (The italics are mine.)

The fact that persons, by way of affidavits, were threatening to attack the validity of the marriage and of the will, does not preclude the sole heir from being vested with the property which passed at the death of his wife. From the moment the will was probated, the appellant had an absolute title to the estate. He had the right to use it at his own discretion. it was vested indefeasibly and he did not need to wait six months before establishing his title. There was nothing in the will which could render his vested property defeasible. He took possession of his property. Since his property could have been alienated for any purpose, he was free to make a compromise with the frustrated heirs who were living in the United States. That compromise consisted not in a deal from the estate’s property but from his own property. There was no evidence that his wife was incapacitated and even if she had been, it would be immaterial as long as she was competent to dispose of it. (Paragraph 3(1 )(a) of the Estate Tax Act, SC 1958, c 29 as amended.)

In Halley v MNR, [1963] Ex CR 372; [1963] CTC 108: 63 DTC 1090 Thurlow, J said at page 375 [111, 1092]:

In my opinion the word “absolute” even when used in a technical sense in connection with the vesting of property may signify at least two different legal concepts. In one sense it may be used to denote the lack of limitation of the extent or duration of an interest in personal property while in another it may mean the freedom of the interest from dependence on other things or persons.

In Re Thompson, Rhoden v Wicking, [1947] VLR 60, Herring, CJ said at page 67:

Its (the word “absolutely”) ordinary meaning is ‘‘without condition or limitation”. And in legal parlance it is commonly used with regard to vesting as meaning “indefeasibly”.

The jurisprudence cited by the appellant’s counsel is more in point with the above reasoning. The cases cited are: Re Estate of T D Smith (1916), 10 Western Weekly Reports 1090; Attorney-General v Gretton and Shrimpton, [1945] 1 All ER 628.

Counsel for the respondent cited the following case: In Re Bagot’s Estate, [1900] The Irish Reports 496. In that case proceedings on behalf of the widow and her son had been taken to declare the will invalid. It is not the case in the instant appeal. There was not even a doctor’s certificate to support the allegation that the appellant’s wife was not compos mentis, and the law of England is so different from our law that it would be dangerous to follow any decisions from the English courts in the matter before me.

On the whole I have reached the conclusion that the appellant must have the full benefit resulting from the new subsection 7(1) of the Estate Tax Act.

Appeal allowed.