Smith Estate v. Minister of National Revenue, [1975] C.T.C. 2226, 75 D.T.C. 165

The Chairman (orally: March 19, 1975):

1 This is an appeal by Polly Chersky Smith, Marvin Smith, Eric Morton Smith, Dame Jacqueline Smith (wife of Arthur Freedman), and Harold Margolese, executors under the will of Manasseh Smith.

2 No evidence has been called but the parties have filed an agreed statement of facts and, briefly, the matter resolves itself into a question, under the former Estate Tax Act (now RSC 1970, c E-9, as amended) as to whether or not this estate is entitled to a deduction under paragraph 7(1)(b) of the said Act in respect of a gift made to the widow which is allegedly absolute and indefeasible within the meaning of the terms of the Act.

3 The facts, as agreed upon and filed, are that the late Manasseh Smith died on June 27, 1969, domiciled in the Province of Quebec. At the time of his death, the deceased was married to Dame Polly Chersky from whom he was separate as to property by virtue of a marriage contract dated August 22, 1933.

4 The deceased left a last will and testament in notarial form dated March 3, 1965, executed before notary Joseph Lacasse, which is annexed to the Agreed Statement of Facts as Exhibit No 1.

5 To summarize the next few paragraphs of the Agreed Statement of Facts, an estate tax return was filed, the Minister reassessed, a notice of objection was served and the usual appeal procedure followed, and the matter now finds itself before the Board for determination as to whether or not paragraph 7(1)(b) of the Estate Tax Act is available to the appellants, or whether the Minister is correct in his assumption that the widow did not receive an absolute, indefeasible gift under the said will.

6 The will is not, with great respect, a work of art, but it sets out in some detail what the deceased must have tried to convey to the drafter of the will. As I have said in other cases, and I think it is just as applicable in the Province of Quebec as it is in any other province, one must take the will as a whole, must apply the general rules of interpretation, and endeavour to come as close as possible to deciding what was in the mind of the deceased at the time that he executed his will. I think it is also well established, and not really in dispute between the parties, that the law of contract as to interpretation ap plies in Quebec to wills, but I do not think that that is really of any great significance, because I think in this case the answer lies within the will itself.

7 The first five paragraphs are the usual paragraphs appointing executors and making small specific requests, and the paragraph to which the argument has been addressed is the sixth paragraph of the will. To me, the answer to this problem lies mainly in the said sixth paragraph, and I will quote the first part of it:

SIXTH: As to the rest, residue and remainder of my property, of every sort, nature, kind and description, of which I may die possessed, or in which I may have the power of appointment or disposal, I give and bequeath same to my Executors and Trustees, in trust, hereinafter mentioned, to be held by them, managed, administered, dealt with and disposed of in the manner and for the following uses and purposes, namely,

(a) to pay to my said wife Polly Chersky, during her lifetime or until her remarriage whichever event shall occur first, the sum of six hundred dollars ($600.00) per month.

My said wife shall enjoy the said usufruct, subject to the seizin of my Testamentary Executors and to the provisions of paragraph SIXTH hereof.

8 It seems unusual to me that paragraph SIXTH should refer to the contents of paragraph SIXTH, but when one reads SIXTH (b), which says:

Subject to the above provision, upon the death of my said wife, or upon my death should my wife predecease me, to divide my estate in the following manner,

9 Yet the last subparagraph of paragraph SIXTH adds further confusion by stating:

Notwithstanding the foregoing usufruct in favour of my wife and before the termination thereof

10 So we appear to have two powers of encroachment in the same paragraph, and it is for this reason, really, that the appellant says that two separate settlements or trusts have been set up, one of which is set aside for the wife and the other set aside for the children, and cites to me two of my own decisions, one in The Estate of Danzil Olaf MacNeill v Minister of National Revenue, [1973] C.T.C. 2248, 73 D.T.C. 189; and the other in The Estate of Hyman Kamichik v Minister of National Revenue, [1973] C.T.C. 2208, 73 D.T.C. 177. I have no hesitation whatsoever in saying those cases are not too helpful except that I can adopt the general remarks I made with re spect to the interpretation of wills in each of those cases. On a complete reading of the will, I cannot find that two separate trusts or settlements have been established. It is quite clear to me that what the deceased was doing was simply ensuring that his wife would have $600 per month and that the executors and trustees were not to be limited to the income from the estate as the source for this payment but, if one looks at the last subparagraph of paragraph SIXTH, had an absolute right to make the payments out of capital; and nowhere in the will does the deceased specify that the payment to the widow is to be out of the income of the estate, which one would think would be the natural thing to do if a separate trust was to be set up. With this so-called dum casta, or remarriage, clause, it could have happened that the widow would remarry and the children would be deprived, if I accept the appellant's argument, of a portion of the estate of which they would otherwise have been entitled if the widow had died rather than remarried. Remarriage would have placed a portion of the estate in limbo and, to my mind, an interpretation which would lead to this result would be absurd. I recall a decision, I think, of Fraser, J, of the Supreme Court of Ontario, in a case called Re McCreath, [1973] 1 O.R. 771, where what appeared to be an ordinary interpretation of words would have resulted in a payment of some $20,000,000 in succession duties; and the learned judge at that time said that to give meaning to words that would make a mockery of the obvious intention of the testator was not the function of the Court.

11 I could go on and deal with the argument on the question of the usufruct but it seems to me that the whole issue rests on whether or not there is an absolute and indefeasible gift. Even if I find there are two settlements or trusts, I find that the remarriage clause, which was solely, as was said in The Estate of Paul Dontigny v Minister of National Revenue, [1974] C.T.C. 532, 74 D.T.C. 6437, a matter of decision for the widow, is sufficient, based on the dictum of that case, to deprive this estate of the deduction permitted under paragraph 7(1)(b) of the Estate Tax Act. In my view, the same results follow. Having come to the conclusion that there is only one settlement, that it is not absolute, and that it is defeasible, I adopt the reasoning of Chief Justice Jackett of the Federal Court of Canada at page 534 [6439] of the Dontigny Estate case, where he says,

Regardless of whether the will created a “substitution” (and there he has been referring to the Civil Code of Quebec and the usufruct) within the meaning of the word in the Civil Code of Quebec, when it gave to the widow the testator's real property subject to the requirement that, if she remarried, the real property would pass to the children or the grandchildren at the time of the remarriage, a question concerning which there seems to be room for possible difference of opinion, there is agreement that the widow received the property under the will, not absolutely, but subject to title passing to the children or grandchildren if she remarried. In my view, such a will does not vest the property in the widow “indefeasibly”. A gift that is subject to being defeated or terminated on an event such as remarriage is defeasible and does not, therefore, fall within the principal part of paragraph 7(1)(a). This is, as I understand it, the view expressed by the learned trial judge in the penultimate paragraph of his reasons for judgment, with which I agree.

12 I think the law is well established (that particular case having progressed through the Tax Review Board, the Trial Division of the Federal Court, and the Federal Court of Appeal with the same result before each tribunal) that a remarriage clause such as existed here defeats the right of the estate to claim a deduction under paragraph 7(1)(b) of the now defunct Estate Tax Act and the appeal must therefore be dismissed.