Conditional testamentary gifts related to family law & challenged for public policy concerns
Estate law and family law often intersect in the process of drafting Wills. After all, one of the focuses of Will-drafting is the process of trying to figure out how best to look after one’s family after they are gone. In some cases, however, families have more animosity than others, resulting in precarious conditional gifts that often must be litigated in court. In some cases, for example, testators find their Will a convenient place to try and destroy a marriage of one of their family members. One of the main attacks on these provisions are public policy grounds, summarized by the Court of Appeal next.
The Court of Appeal decision of Spence v BMO Trust Co, 2016 ONCA 196 clarifies the law on public policy concerns related to testamentary dispositions:
The pivotal feature of these cases is that the conditions at issue required a beneficiary to act in a manner contrary to law or public policy in order to inherit under the will, or obliged the executors or trustees of the will to act in a manner contrary to law or public policy in order to implement the testator's intentions. In these circumstances, the courts will intervene to void the offending testamentary conditions on public policy grounds.
One of the major challenges for courts is balancing these considerations with testamentary freedom. The court is quoted in saying that a testator has a lot more freedom with non-conditional gifts rather than conditional gifts. For instance, a Will that simply does not include a family member might have a greater chance of surviving litigation than say a clause that elects to exclude a family member unless they divorce their spouse.
A public policy argument was raised in MacDonald v Brown estate, 1995 CarswellNS 22, however, to no avail. The testator provided for a number of bequests, including to his three sisters. One of those bequests was a conditional gift:
…Sharon MacDonald's one-third of the fund is "to be held in trust until she becomes widowed or divorced from her present husband" at which time she receives her one-third share. In the meantime, she is to receive the income from the capital. If she dies while married to Mr. MacDonald, then her fund is added to Trevor's $50,000 trust fund….
In essence, Sharon’s argument was that the condition that she only receive the gift if her husband dies or if they get divorced should be void on public policy grounds and therefore the gift should become vested in her absolutely. However, here the sister in question had run into financial difficulties and so the court had doubts that her conditional gift was a result of the testator’s disapproval of their marriage, and was more inclined to believe it was a result of these financial mishaps. The court noted:
The qualification on the amendments to the plaintiff, that is, if she was to be widowed or divorced from Mr. MacDonald, is as easily explained by a concern for her welfare in such an inevitability, as an inducement for her to leave Mr. MacDonald.
This motive of protectiveness, over pure inducement to divorce, is strengthened when viewed in the circumstances. Prior knowledge of Stephen MacDonald's finances, added to what was occurring in the MacDonalds' life in 1988, could only have shaken Mr. Brown's confidence in the MacDonalds' financial abilities. Stephen MacDonald as of 1984 was a discharged bankrupt. In May of 1988, a month before he executed the first codicil, Mr. Brown loaned the MacDonalds $5,000 to forestall foreclosure on their home. Shortly after their marriage in 1986, the MacDonalds borrowed $8,600 from Mr. Brown and secured it by a third mortgage on this very property, which was eventually sold at a sheriff's sale, at a deficiency, in February of 1989. On his death, Mr. Brown had a judgment for $14,371.34, dated January 10, 1989, registered against the MacDonalds.
Knowing where a divorced or widowed niece would in all likelihood find herself financially, in light of the MacDonalds' financial history, it was prudent as well as generous to provide or plan for such a possibility
In the end, the public policy argument failed because the court believed the motive for the condition was related to the sister’s financial well-being rather than her marriage.
In Fox v Fox Estate,  OJ No 375, the testator gave his surviving wife sole discretion under the will to disperse the rest of his estate to his family. Her son subsequently married a woman who was of a separate religious affiliation. The mother disapproved and therefore began disinheriting the son from all the property. Keep in mind, the mother, being the trustee with absolute discretion to disperse estate property, was similar to a conditional gift. The court found:
There is another reason why the discretion which Miriam exercised in this case was improper and must be set aside. It is abhorrent to contemporary community standards that disapproval of a marriage outside of one's religious faith could justify the exercise of a trustee's discretion. It is now settled that it is against public policy to discriminate on grounds of race or religion.
I am of the view that in this case it would be contrary to public policy to permit a trustee effectively to disinherit the residual beneficiary because he dared to marry outside the religious faith of his mother. While there were decisions in the past which have upheld discriminatory conditions in wills, in response to a query from the bench, counsel in this case were not prepared to argue that any court would today uphold a condition in a will which provides that a beneficiary is to be disinherited if he or she marries outside of a particular religious faith.
The Court of Appeal, in the recent 2016 decision of Spence v BMO Trust Co., gave several other examples that have been found to offend public policy:
…The courts have recognized various categories of cases where public policy may be invoked to void a conditional testamentary gift. These include cases involving: i) conditions in restraint of marriage and those that interfere with marital relationships, e.g., conditional bequests that seek to induce celibacy or the separation of married couples; ii) conditions that interfere with the discharge of parental duties and undermine the parent-child relationship by disinheriting children if they live with a named parent; iii) conditions that disinherit a beneficiary if she takes steps to change her membership in a designated church or her other religious faith or affiliation; and iv) conditions that incite a beneficiary to commit a crime or to do any act prohibited by law.
Obvious takeaways? Testamentary dispositions can often lead to contentious court battles. Several cases have demonstrated that testators use their Wills to motivate behaviours that offend public policy; for instance, conditional bequests which may directly invoke or incite divorce or separation. In these cases, the condition is effectively voided and the beneficiary receives the bequest outright.