Estate of Paul Dontigny v. Minister of National Revenue, [1972] CTC 2647, 72 DTC 1537

The Assistant Chairman:—This is the appeal of Mrs Georgette Dontigny from an assessment of tax on property transferred on the death of her husband, Paul Dontigny, heard in Ottawa, October 20, 1972.

Mr Paul Dontigny, married with legal community of property to Mrs Georgette Dontigny, died on or about May 12, 1970.

Clauses 4 and 9 of the notarized will signed by the late Paul Dontigny, dated March 13, 1953, are very pertinent to this case. These clauses read as follows:

(TRANSLATION)

Clause four: I bequeath all my property, movable and immovable, without exception, that I may leave on my death, including life insurance policies in force at the time of my death, to my wife, GEORGETTE RONDEAU, whom I appoint as my residuary legatee; under the conditions mentioned in clause nine:

Clause nine: If my wife and residuary legatee does not remain a widow and remarries, I wish all my immovable property to devolve upon my children living at the time of the second marriage of their mother or, if there are no children living, to the children of the latter.

The assessment by the respondent dated May 17, 1971 does not grant the total exemption for the value of the property transmitted to her and to which she is heir.

We are concerned here only with the assessment covering the share of the property of the deceased devolving upon her, appropriate deductions having been made regarding the share of the legal community of property belonging to her in her own right.

Counsel for the appellant submits that only one of the following two alternatives should exist:

(a) The said property was in fact passed on the death of the deceased, at which time it was vested indefeasibly, and consequently his property must be completely exempt according to the provisions of the Act as being transferred to the spouse.

(b) Or the said property was not passed on the death of the deceased and should therefore not be taxed.

On the other hand, counsel for the respondent submits that paragraph 7(1 )(a) of the Estate Tax Act imposes two conditions on the appellant’s right to deduct the total value of the property: (1) that the spouse of the deceased be the sole heir of the property; (2) that it must be established within six months after the death of the deceased or within a reasonable period that the property is vested indefeasibly in the wife. Moreover, on the basis of paragraph 7(1 )(b) of the Estate Tax Act, counsel for the respondent stated:

1. That an absolute and indefeasible gift must have been made by the deceased to the wife, under which she is entitled to receive ail the income of the settlement after the death of the deceased and before her own death.

2. No person except the wife may receive or obtain after the death of the deceased and before the death of the wife any of the income of the settlement.

Counsel concluded that the deceased, by clause 9 of his will, created a conditional fiduciary substitution within the meaning of Articles 925 and 929 of the Civil Code and that, consequently, the appellant does not comply with the requirements of paragraphs 7(1 )(a) and (b) of the Estate Tax Act.

Having listened to the arguments of the parties and having studied the jurisprudence mentioned at the hearing, I must conclude that the premise of counsel for the appellant to the effect that only one of the two alternatives can apply, either that the property of the deceased passed indefeasibly to the spouse or that the property did not pass on his death, is at the very least incomplete.

There is also the possibility that the property of the deceased passed to the spouse, not indefeasibly but conditionally, which would not prevent the spouse from being in real possession and from being owner of the property thus bequeathed for as long as the condition affecting the inheritance is respected by the spouse.

Clause 4 of the will does not permit any doubt about the intention of the deceased, which was first of all to benefit his wife by making her residuary legatee of all his property.

Clause 9 of the will, on the other hand, by establishing a condition for the continuation of possession by the wife as residuary legatee of the property of the deceased, at the same time establishes a fiduciary substitution in favour of his children or, if he has no living children, his grandchildren, which will come into effect only if the condition governing the bequest to the wife is not respected. For as long as the condition of widowhood imposed by the deceased in his will is respected by the wife, she shall remain legal owner of the property of her deceased husband, even though possession of this property is subject to a moral and legal obligation, which under certain circumstances may affect her absolute right to dispose of the property transferred to her by the deceased. If the condition of widowhood is not respected, the fiduciary substitution in favour of the children comes into play and then all the property transferred to the wife passes from her to the children or grandchildren in accordance with the wishes of the deceased.

In reply to the first question of counsel for the appellant, in my opinion there was a real and legal transfer of the property of the deceased to the wife, who will remain the sole owner for as long as the condition of widowhood stipulated in the will is respected.

In reply to the appellant’s second question, I am of the opinion that clause 9 of the will creates a conditional fiduciary substitution in favour of the children or grandchildren of the deceased and that the three essential elements of a substitution as set forth in the decision of the Supreme Court in MNR v Smith et al, [1960] SCR 447; [1960] CTC 97; 60 DTC 1102, and repeated in the case of the MNA v Hélène Lemieux-Fournier, [1971] FC 39; [1971] CTC 592: 71 DTC 5325, are contained in clauses 4 and 9 of the deceased’s will.

In the deceased’s will there are (a) two potential gifts, one to the wife of the deceased and the other to the children or, if the children are no longer living, to the grandchildren of the deceased, if the wife does not remain a widow; (b) an order of succession, that is, two categories of persons who successively inherit the estate and (c) a period of time — the period during which the wife remains a widow.

Since the will creates a conditional fiduciary substitution, it is diffi- cult to consider that the property which was legally transferred to the wife was indefeasibly transferred in accordance with paragraph 7(1 )(a) of the Act.

It is also difficult to conceive that the testamentary gift of the wife was absolute and indefeasible, so that she would receive all the income of the settlement that arises after the death of the deceased and before her own death in accordance with paragraph 7(1 )(b).

The remarriage of the wife of the deceased would automatically terminate her rights as residuary legatee conferred by clause 4 of the will and would result in her losing all the property which she owned before her remarriage.

How then can it be maintained that the transfer of property to the wife was absolute and indefeasible when it is stipulated in the will that the remarriage of the wife would transfer to the children or grandchildren of the deceased her right to the estate?

I therefore conclude, in accordance with clause 4 of the will, that at the death of the deceased there was a legal transfer of all his property to his wife and that she was residuary legatee thereof and subject to tax in accordance with subsection 2(1) and section 3 of the Estate Tax Act.

Clause 9 of the will creates a conditional fiduciary substitution which would operate in favour of the children or grandchildren of the deceased if his wife remarried.

This provision of the will of the deceased is not in accordance with the requirements of paragraphs 7(1)(a) and (b) of the Estate Tax Act and under the circumstances the total exemption of the value of the transferred property cannot be allowed.

The appeal is dismissed.

Appeal dismissed.