Her Majesty the Queen v. Estate of Nathan Izenberg, [1974] CTC 286, 74 DTC 6227

Walsh, J:—The question to be decided in the present case is whether the late Nathan Izenberg was, immediately prior to his death which occurred on August 18, 1967, competent to dispose of the capital of the estate of his wife, the late Charlotte Woldsker, who had predeceased him on February 22, 1964, within the meaning of paragraph 3(1 )(a) of the Estate Tax Act, SC 1958, c 29, as amended, which reads as follows:

3. (1) There shall be Included In computing the aggregate net value of the property passing on the death of a person the value of all property, wherever situated, passing on the death of such person, including, without restricting the generality of the foregoing.

(a) all property of which the deceased was, immediately prior to his death, competent to dispose;

The meaning of the words “competent to dispose” is set out in paragraph 3(2)(a) as follows:

3. (2) For the purposes of this section,

(a) a person shall be deemed to have been competent to dispose of any property if he had such an estate or interest therein or such general power as would, If he were sui juris, have enabled him to dispose of that property;

and the words “general power” used in this section are defined in paragraph 58(1 )(i) in this manner:

58. (1) In this Act,

(i) “general power” includes any power or authority enabling the donee or other holder thereof to appoint, appropriate or dispose of property as he sees fit, whether exercisable by instrument inter vivos or by will, or both, but does not include any power exercisable in a fiduciary capacity under a disposition not made by him, or exercisable as a mortgagee;

It was admitted in the agreed statement of facts filed by the parties that during his lifetime Nathan Izenberg never drew or received any amount from the capital of the estate of his deceased wife, Charlotte Woldsker. This would, however, not affect the liability for estate tax on same at his death if, in fact, he was competent to dispose of it immediately prior to his death, nor would the fact that he could not dispose of it by will nor give same to third parties inter vivos (save in the event of an emergency or illness affecting one of the daughters as provided by his late wife’s will) affect the liability of his estate for estate tax on the said property if he could appropriate it for his own use without restriction, as it is settled law that if a beneficiary can do this he can then, in effect, give it away or dispose of it by his own will after having first appropriated it for himself and hence has a general power of disposal.* [1]

The decision in this case depends of necessity on the wording of the will of the late Charlotte Woldsker made on May 24, 1961 in notarial form, which will is unfortunately very loosely drawn and difficult to interpret, giving rise to the present litigation.

In the general scheme of the will, the testatrix directs her “Executors and Trustees” to deliver over to her husband, Nathan Izenberg, in absolute ownership all her personal effects, clothing, jewellry, automobiles, and so forth. She then bequeaths to her executors and trustees in trust all the rest of her property of whatsoever nature to be held in trust for the execution of the trusts and other provisions of the will, directing them to pay all the revenues from the succession to her said husband during his lifetime. She then continues (in Article IV):

In the event that my said Executors and Trustees deem it necessary or advisable and at their sole discretion, they shall have the right at any time to draw upon the capital thereof and to pay the same to or for the benefit of my said husband at any time for any purposes they may deem advisable during the lifetime of my husband, and they shall employ the said capital through such channels as they may deem necessary.

The next article provides that upon the death of her said husband the executors and trustees shall divide “the aforesaid trust or the balance then remaining” into two equal parts for her daughters, one- half of the share of each being paid to them as soon as possible after her said husband’s decease, the balance to be paid to each daughter when she attains the age of 30.

In the next article she makes the provision already referred to for the possible use of capital for the benefit of the daughters even during the lifetime of her husband, stating as follows:

In the event of any emergency or illness affecting my daughters or any one of them, my Executors shall have the right to make cash payments to them or any one of them, or on their behalf, or any one of them, by way of advances against their eventual share from the capital sums of my Estate for the purposes herein mentioned and to the extent and in the manner they shall deem fit and proper.

It should be noted that in this paragraph for the first time the word “Executors” in the plural is used alone instead of the words “Executors and Trustees” used in other articles of the will.

Article VII leads to considerable difficulties in interpretation, not even being grammatically correct. It reads as follows:

As Executors and Trustees of this my last Will and Testament, I hereby nominate and appoint:

My beloved husband, NATHAN IZENBERG of the Town of Mount Royal, District of Montreal, as sole Testamentary Executor during his lifetime. However, in the event of his decease, then I nominate and appoint as Executors and Trustees:

My beloved brother-in-law, ABRAHAM IZENBERG of the Town of Mount Royal, District of Montreal,

My Solicitor, MR LAWRENCE MARKS, of the City of Westmount, District of Montreal,

and I extend their powers, seizin and authority as executors, administrators and trustees, beyond the year and a day limited by law, and until the entire accomplishment of my wishes.

In the event of the death, unwillingness to act, or incapacity. to act, of any of the above Executors, I direct that another Executor or Executors shall be appointed in his or her place, to fill the full complement of the two Executors who shall act upon my husband’s decease, such appointment to be made by a Judge of the Superior Court for the Province of Quebec, in the District of Montreal, on the advice of a family council held before a Notary. Any Trustee or Executor may resign at any time, even after acceptance, I relieve my Executors and Trustees from the giving of any security, in any country in which by law it is required to probate or prove my last Will and Testament, or to take out Ancillary Probate thereof, or Letters of Administration, with respect to my Estate.

By virtue of this the husband is named as “sole Testamentary Executor” during his lifetime but is not named as a trustee. It is only in the event of his decease that her solicitor and brother-in-law are then named as “Executors and Trustees” and their powers, seizin and authority as executors, administrators and trustees are extended to beyond the year and day limited by law until the entire accomplishment of her wishes. If this clause is to be taken as referring only to them, then the husband’s seizin as executor was not extended during his lifetime beyond a year and a day, although. in fact, he lived for some three and one-half years after his wife’s death which would have had the effect of leaving the estate without any executor or trustee in the intervening period, an absurd result. If this interpretation were adopted it would have the effect, as counsel for defendant pointed out, of making it clear that the late Nathan Izenberg could not have been competent to dispose of any of the property of the estate immediately prior to his death as he had ceased to be executor. This interpretation can be avoided, however, if it is concluded that the phrase “and I extend their powers, seizin and authority as executors, administrators and trustees, beyond the year and a day limited by law” applies not only to the testatrix’s brother-in-law and solicitor named as executors following the death of her husband but also to her husband himself who is named as testamentary executor during his lifetime. It is only as an executor that his seizin needed to be extended beyond the year and day limited by law, and the fact that he is not also specifically named as a trustee does not, I believe, lead to a conclusion that an extension of seizin beyond a year and a day can only apply to those named as “executors, administrators and trustees”.

Under this interpretation the husband would continue to have the seizin of the assets and to act as executor until his death. I believe that the construction of this clause in the will permits this interpretation and would be permissible under the rule of interpretation that holds that although normally a document must be interpreted by giving full effect to the words used in it rather than by what the maker apparently intended to say, nevertheless, if such an interpretation would lead to an absurdity and it is possible to read it in another manner which would give it a more reasonable meaning, the latter interpretation may be adopted.* [2]

This does not settle the question, however, of whether Nathan Izenberg was merely a testamentary executor or an executor and trustee of his wife’s will since the preamble to Article VII indicates that she is going to appoint the following persons ‘‘as Executors and Trustees” of her will but in the first sentence thereafter she appoints her husband as “sole Testamentary Executor’. It would appear, therefore, that since the preamble governs the balance of the article wherein “executors and trustees” are appointed, it must be concluded that this is the reason for using the words “executors and trustees” in the plural in the preamble despite the fact that the husband is merely named as executor. Here we have some conflict between two ruls of interpretation, namely, that which requires that the words used should be given their literal meaning, and the interpretation based on what the document actually says rather than what it is apparently intended to say, and on the other hand the rule that the document should be read as a whole. Under this rule, when applied to statutes, every clause has to “be construed with reference to the context and other clauses of the Act, so as, as far as possible, to make a consistent enactment of the whole statute”.* [3] If we conclude that the husband was named as an executor alone, as Article VII certainly states, this would seem to be in conflict with Article IV which requires the “Executors and Trustees” to hold the property “in trust”. Article V requires the “Executors and Trustees” on the death of the husband to divide “the aforesaid trust or the balance then remaining” between the daughters as directed. It is evident, therefore, that the trust was to be established during the lifetime of the husband and not merely after his death. Moreover, Article VI, although here it only uses the word “Executors”, provides for making cash payments to the daughters in the event of an emergency or illness and it would appear that this was intended to be effective during the lifetime of the husband and not merely after his death when they would, in any event, be receiving one-half of their share of the trust property forthwith and the balance on reaching the age of 30. It would also appear that these payments, which are to be by way of advances against their eventual share from the capital sums of the estate, are in effect to be advanced out of the trust property. I conclude, therefore, that a trust in favour of the daughters did, in fact, exist during the lifetime of the husband and that whether he is merely called an executor or not, he and he alone had the administration of this trust during his lifetime, with the balance remaining at his death being taken over by the brother-in-law and solicitor of the testatrix as “Executors and Trustees” for distribution to the daughters or their heirs in accordance with the terms of the will.

is to be rejected which will introduce uncertainty, friction or confusion into the working of the system.” See also Quebec Civil Code on Interpretation of Contracts in which Articles 1013 and 1014 read as follows:

1013. When the meaning of the parties in a contract is doubtful, their common intention must be determined by interpretation rather than by an adherence to the literal meaning of the words of the contract.

1014. When a clause is susceptible of two meanings, it must be understood in that in which it may have some effect rather than in that in which it can produce none.

Furthermore, Article IV of the will, giving the right to the “Executors and Trustees” at their sole discretion in the event that they “deem it necessary and advisable” to draw upon the capital and pay the same to or for the benefit of the husband “for any purposes they may deem advisable . . . through such channels as they may deem necessary” would be an absurdity if we were to interpret Article Vil so as to restrict this right to the “Executors and Trustees” and not give it to the husband as “Executor” alone since there would be no “Executors and Trustees” until following his death and, therefore, no means of using it during his lifetime unless, as suggested by defendant’s counsel, he resigned as executor, which is a purely speculative possibility and surely not one foreseen or intended by the testatrix. In any event, by the wording of Article VII any replacement during the husband’s lifetime would be merely an executor and not an executor and trustee so would have no more powers than he had. It is evident, therefore, that whether Nathan Izenberg was an executor alone or an executor and trustee, this discretion to draw upon capital was vested in him as such during his lifetime.

While the words “at their sole discretion” if applied to the husband would appear, if taken alone, to have given him the right at any time during his lifetime to draw upon the capital of the wife’s succession and pay same to himself for any purpose he might deem advisable, and this would certainly have given him a general power of appointment, these words are somewhat qualified by requiring the executors and trustees to “deem it necessary or advisable”. The question to be decided therefore is whether this imposes a limitation on his general power to dispose of same leaving him with only a limited power of disposal. Subsidiarily, the question arises whether this was not in any event a “power exercisable in a fiduciary capacity under a disposition not made by him” within the meaning of the definition of “general power” (supra).

In the case of MNR v Canada Trust Co (Estate of Mary Viola Maine), [1964] CTC 179; 64 DTC 5128, Jackett, P, as he then was, was called on to interpret the effect of a will authorizing the executors and trustees to pay to the widow such amounts as she might request or desire if, in her absolute discretion, the income was not sufficient to adequately maintain her in the manner to which she was accustomed or if she desired any additional amounts from time to time. It was held that, despite the use of the words “absolute discretion” the use of the word “authorized” required the executors and trustees to exercise their discretion with respect to whether the income was not sufficient to adequately maintain her in the manner to which she was accustomed, especially as in other sections of the will the words “direct” and “instruct” had been used, and hence there was no general power of appointment in her favour as the trustees had the final decision. In this respect it could be distinguished from the Supreme Court case of Montreal Trust Company (Bathgate Estate) v MNR (supra) in which the direction in the will was to pay to the wife such sums as “she may from time to time and at any time during her life request or desire” and it was held that this gave her a general power as she could request the executors and trustees to effect a complete turnover of the estate to herself. In both these cases it must be noted that there were third parties who were acting as executors and not the bene- ficiary herself, or himself as in the present case.

In the Tax Appeal Board case of Estate of Christina Maria Rowland v MNR, [1967] Tax ABC 1001; 67 DTC 676, a clause reading:

To pay to my said wife during her lifetime the net income therefrom and such part or parts of the capital thereof as she, in her sole discretion, may require from time to time.

was held not to constitute a general power of appointment in favour of the wife. After carefully reviewing the jurisprudence referred to above, as well as other relevant jurisprudence, the judgment concluded that the words “may require from time to time” meant that the testator intended that the widow’s requirements or needs should be met by payment out of capital at regular intervals if the need should arise, which in fact did not. She was given the right to decide the amount of her needs if the income of the estate was insufficient for them but this did not give her a general power which would have enabled her to dispose of all the capital of the estate.

It would appear from the jurisprudence that, despite the use of the words “sole discretion” in a will, if there is in effect some restriction limiting the drawing and use of capital so that the discretion itself may only be exercised if these conditions exist, there will not be a general power of appointment.

Counsel for defendant contended that it made no difference whether the late Nathan Izenberg was acting in two capacities being both the sole executor during his lifetime and beneficiary, or whether some third party, such as a trust company, had been the executor since, in either case, the executor as such would have to, in his sole discretion, determine whether it was “necessary or advisable” to draw on the capital for him or for his benefit. He argued that this imposed a discretion on the executor and if, as executor, he exercised this unwisely so as to appropriate all the capital for himself, the eventual heirs could have instituted legal proceedings to prevent this. In reply to this argument, counsel for plaintiff referred to the wide powers given “executors and trustees” in Article IX of the will, clause IX(g) in particular reading in part:

.. . their decision whether made in writing or implied by their acts shall be conclusive and binding upon all beneficiaries.

I believe at the very least, however, that the position of the beneficiary is certainly weaker when he is also the sole executor and/or trustee. In rendering judgment in the case of Executors of the Estate of Margaret Jane McCarter v MNR, [1959] CTC 313; 59 DTC 1173, Thurlow, J stated at page 318 [1176]:

In determining whether or not a power is exercisable in a fiduciary capacity, I am of the opinion that, if the power is such that the holder can dispose of the property to himself, to be used as his own without any restriction as to the circumstances In which he may so exercise it, and without responsibility to any other person, the fiduciary feature contemplated by the exception is lacking, and I think this is so whether or not the power is incident to or derived from the holding of a position or office which under other circumstances would by Itself imply a fiduciary relationship. This, I think, is what Simonds J. (as he then was) had in mind when he said in Re Shuker, [1937] 3 All ER 25, at p 29:

“Accordingly, I must hold that the language at the will in the present case was sufficient to confer a general power of appointment, and not the less so because the widow was the ‘sole executor and trustee’.”

In that case, a power to a widow to appoint in her own favour was held to be general, notwithstanding that, under the will which gave her the power, she was the sole trustee and the exercise of the power would divest persons of their rights in property which she held as trustee.

In the will with which he was dealing, the clause read:

. . .l expressly authorize my said Trustees if in their own control and discretion they deem advisable at any time and from time to time to pay to or use for the benefit of my wife or any issue of mine such part or paris of the capital of the prospective share of such beneficiary or of the share of my estate from which for the time being such beneficiary is entitled to income as in their uncontrolled discretion my Trustees deem advisable.

In discussing this the learned trial judge found that this did not appear to him to constitute any limitation upon or definition of the sort of reasons which the trustee should have upon which to deem it “advisable” nor was there any requirement that there should be a reason. The judgment was therefore arbitrary without the necessity of considering the interests or wishes of any one else nor was there any person to whom the beneficiary would have been responsible in exercising the power. It must be pointed out, however, that that will contained a further clause to the effect that the wife should not be required to account to any person, persons or corporation for or in respect to her administration of his estate as executrix and trustee and that the trust company, which was the substitutionary executor and trustee, should not be required to enquire into the administration of the estate by the wife but would be fully protected by taking the assets of the estate which would be in her hands upon her death. This certainly indicated that her discretion was to be absolute. One can only speculate as to whether the decision would have been different had this clause not been in the will.

The McCarter case is certainly the closest on the facts that are now before the Court in that there the term “advisable” was used while most of the other cases deal with the word “sufficient” or with the word “require”, or the word “authorize” is used with regard to the decision to be made by the executors and trustees. In the present case the words “deem it necessary or advisable” are used and it should be noted that these words are used in the alternative. Counsel for defendant suggested that although the words “from time to time” are not used with respect to the drawing on capital as in the Rowland case (supra), the use of the word “draw” instead of the word “appropriate” or “use” itself implies some repetition. It might even be argued that it implies something merely in the nature of a loan. It had to be either “to or for the benefit of my said husband” but could be made through such “channels as they may deem necessary”. This might seem to foresee a situation where the husband might have perhaps become seriously ill, so that it would be necessary to use capital to pay hospitals or a nursing home or institution, in which event, however, the husband might well have been incapable of continuing to act as executor, and Article VII providing for the replacement of the executor in the event of the “death, unwillingness to act or incapacity to act” of any executor would come into effect and a third party would then be exercising the discretion. However, as stated previously, this is speculative and there is nothing in the literal interpretation of the words of Article IV which would limit the right to draw upon capital to situations in which the husband would no longer be executor.

There is no specific clause such as in the McCarter case (supra) specifically exempting the executor from accounting to anyone for his administration, and I believe that if, in deciding it was “necessary or advisable” to draw upon capital for himself, the husband as executor had exercised this discretion in an unreasonable and improper manner the courts might well have intervened on behalf of the daughters as eventual beneficiaries of the trust. Interpreted in this manner the will did impose some limitation on the general power of appointment, appropriation, or disposal of the property by defendant.

Counsel for plaintiff argued that the words “necessary or advisable” impose only a subjective limitation and that the testatrix wanted her husband to be free to appropriate for his own use such portions of the capital of her estate as he saw fit, with only the balance remaining at his death to go to the daughters. Counsel for defendant, on the other hand, contended that if, for example, the husband became infatuated with a young woman and wanted to draw upon the capital of the estate to give same to her, the courts could intervene to prevent this as not being “necessary or advisable”. Without forming any conclusion as to what would happen in such an hypothetical situation I am nevertheless of the view that the words “necessary or advisable” should not be interpreted as if they meant “as they see fit”, and, when read in conjunction with the words “for the benefit of my said husband” they do impose some limitation. The testatrix probably had in mind some emergency situation for which the income and capital of the husband himself, together with the income from her estate, would prove insufficient. As events proved it was never necessary for the husband to use this power. While the executors and trustees (or as I have interpreted the will, the husband alone as executor) had “sole discretion”, nevertheless this discretion was to decide whether the drawing was “necessary or desirable for the benefit of the husband” and this is not a purely subjective test.

I therefore conclude that the will did not give the husband a general power of disposal of the property of his wife’s estate but merely a limited power and, moreover, that it was only exercisable by him in a fiduciary capacity under the terms of her will.

Plaintiff’s appeal against the judgment of the Tax Review Board is therefore dismissed with costs.