In the recent case of Gefen Estate v. Gefen, the Ontario Court of Appeal had occasion to provide commentary on the concepts of secret trusts and mutual Wills and how these operate under Ontario’s estate laws. The Court’s decision reviewed two decisions issued by the Ontario Superior Court of Justice in 2019. The complex case involved 61 pre-trial motions, 21 trial motions, and a six-week trial that heard evidence from 22 witnesses.
The parties at the trial of Gefen Estate v. Gefen were the children, spouses, and grandchild of Elias and Henia Gefen. At the time of Elias’s passing in 2011, the Gefens had been married for 65 years. During their marriage, Henia and Elias had three sons, Harvey, Harry, and Yehuda.
Upon his death, Elias’s entire estate passed to Henia, who was his sole executor under their mirror Wills. She received approximately $30 million in assets.
The Court heard that prior to and following Elias’s passing, the family dynamics were already “discordant and characterized by conflict”. Henia did not feel that her two younger sons, Harry and Yehuda, should be entitled to a portion of the estate. After Elias’s death, Henia gifted nearly half of her assets directly to Harvey and his daughter, Ashley. Following these gifts, Henia also granted Harvey and Ashley security over the rest of her assets.
Harry and Yehuda attempted to challenge Henia’s competence but were unsuccessful. They also alleged that a document Elias signed two months before his death established a mutual Wills agreement and a secret trust. The agreement, they alleged, was to divide Elias’s estate into equal shares between the three sons on Henia’s death.
The Court of Appeal canvassed legal literature and case law and endorsed the descriptions of secret trusts presented by A.H. Oosterhoff, which reads as follows:
“A secret trust comes into existence when a testator leaves property to a person and that person secretly agrees with the testator to hold the property for the benefit of another person.”
Oosterhoff explains that so long as the legal requirements for a trust are satisfied, the trust can be enforced under equitable principles and the intended beneficiary will receive the property.
As per Oosterhoff, there are two kinds of secret trusts:
- Fully-secret trusts, where the testator leaves their property to a person absolutely. The Will does not disclose either the trust’s existence or the beneficiary’s name.
- Half-secret trusts, where the Will leaves the property in question to a person in trust but does not disclose the identity of the beneficiary.
The Ontario Court of Appeal confirmed that in order for a secret trust to be established, there must be the intention to create a legally enforceable trust. A “moral obligation intended to guide the recipient’s conscience” is not enough to create secret trust, even if the testator’s intentions were made clear and acknowledged by the recipient.
The Court of Appeal explained that a mutual Wills agreement is “a binding contract not to revoke Wills” and is designed to prevent either party from changing their Will without the other’s consent. The requirements for a valid mutual Will contract were described in the Ontario Supreme Court’s 2001 decision in Edell v. Sitzer as follows:
- the agreement must satisfy the requirements for a binding contract and not be just some loose understanding or sense of moral obligation;
- it must be proven by clear and satisfactory evidence; and
- it must include an agreement not to revoke the Wills.
A mutual Wills agreement does not need to be written down, though that would make the process of proving that such an agreement exists easier. In fact, the Court of Appeal noted that a mutual Wills agreement can be “proven from the words of the Will itself or from extrinsic factors.”
The Court confirmed that the standard of proof for estate matters, like all other civil matters, is proof on a balance of probabilities. That means that the evidence must “be sufficiently clear, convincing and cogent”.
The Court did note that the “quality” of the evidence that a court will require to meet the standard will vary based on the specific circumstances of each specific claim. In this case, the “evidence had to be sufficiently clear, persuasive and cogent to convince […the court] of the merits of the mutual [W]ill agreement claim on a balance of probabilities”.
The Court of Appeal found that Henia was not present when Elias signed the document, and there was no evidence that she agreed to restrict her ability to deal freely with the estate assets during her lifetime. As a result, the Court upheld the trial judge’s decision that there was no mutual Wills agreement and no secret trust established by Elias and Henia.
As the decision illustrates, spouses are well-advised to discuss and address their decisions regarding their estate and ensure that any documentation reflects these wishes. If children are to be left out of an estate, that decision is best documented in writing so as to reduce the risk of costly and extensive litigation in the future.
Bader Law provides knowledgeable and trusted guidance on the estate planning process. Our Wills and estate lawyers advise clients on best practices in both simple and complex estate matters to ensure they have a plan in place to protect their interests and minimize their estate tax obligations.
We represent individuals, families, and business owners with comprehensive estate planning and probate matters in Mississauga and throughout the Greater Toronto Area. To book a consultation, call us at 289-652-9092 or reach out online.