The administrations of some estates simply do not move forward smoothly. The Elias Gefen estate is one such estate. In Gefen v. Gaertner, 2019 ONSC 6015, Justice Kimmel addressed multiple issues which had stopped the administration from moving forward, ranging from mutual wills to secret trust agreements. Justice Kimmel also applied, for the first time in 106 years, the doctrine of unconscionable procurement.
Background
The plaintiff, Henia, and her husband Elias had three sons: Harvey, Yehuda and Harry. In 2007, Henia and Elias signed mirror wills benefiting each other with a gift over to their children.
In 2011, the eldest brother, Harvey, prepared a handwritten document (without legal advice) for Elias’s signature. The document purported to revoke an existing power of attorney document and reinstate Henia as Elias’ attorney for property. Once Henia was reinstated as Elias’ attorney for property, there was a significant transfer of Elias’ assets to Harvey and his family.
Elias died on October 28, 2011. Litigation commenced shortly thereafter.
During the course of the litigation, Yeduha passed away and his interests continued to be represented by his estate trustee. Harry and Yehuda’s estate (together, the “younger brothers”) each sought a one-third share of the assets accumulated by Henia and Elias over their lifetimes, all of which was held by Henia after Elias’ death and much of which had since been conveyed by Henia to Harvey and his children.
Mutual Will Agreement
The younger brothers relied on the 2011 handwritten document as evidence of a mutual will agreement between Henia and Elias requiring the survivor to treat their children equally and restricting their freedom to make testamentary and inter vivos gifts of Elias’ assets.
Mutual wills are mutually binding wills that are usually executed by married or committed couples. After one party dies, the remaining party is bound by the terms of the mutual will. As described by Justice Kimmel, a mutual will agreement is “a binding contract between spouses not to revoke (or change or replace) their wills. More precisely, it is an agreement to dispose of their property in a particular way that equity enforces through the mechanism of a constructive trust after the first of the spouses has died, if the survivor does not abide by their agreement.”[1]
In the handwritten 2011 document, Elias stated that he did not intend to change his 2007 will and to the best of his knowledge his wife had no intention to change hers. Similar statements were subsequently recorded in a letter by Elias’s lawyer. Henia had also made certain admissions to the same effect. Nevertheless, the Court found that such evidence did not constitute a binding or enforceable agreement between the spouses not to revoke or change their wills. Accordingly, the Court held that there was no mutual will agreement between Henia and Elias.
Secret Trust
The younger brothers also argued that the 2011 handwritten document created a secret trust by which all assets received by Harvey from Elias after the date of execution were to be held by Harvey in trust for his brothers. Justice Kimmel defined a secret trust as “a trust that a court of equity imposes on a person who has obtained title to property obliging that person to hold it for the benefit of other persons for whom, or purposes of which, the recipient knew that it was given or allowed to pass to him.”[2]
The Court held that the 2011 handwritten document spoke only to Elias’s general intentions regarding the distribution of his estate. It did not identify any specific or contemplated grant of assets from Elias to Harvey. Nor did it contain any instructions on how Harvey ought to deal with any assets so received. Moreover, there was no evidence showing that Harvey agreed to receive assets in trust for his brothers. As a result, the Court found that the three certainties necessary to create a trust (the certainty of: (i) the intention of the settlor to create a trust; (ii) the trust property; and (iii) the beneficiaries of the trust) had not been made out.
Doctrine of Unconscionable Procurement
Harvey was also alleged to have caused Henia to transfer assets to himself through unconscionable procurement.
The doctrine of unconscionable procurement is used to set aside significant gifts and other inter vivos wealth transfers where the maker did not fully appreciate the effect, nature, and consequence of those transactions.
To trigger the doctrine, two standards must be met: (1) there must be a significant benefit obtained by one person from another; and (2) the receiver had to have an “active involvement” in arranging the transfer.
In this case, Harvey had been actively involved in arranging and documenting the transactions by which Henia divested herself of at least half her net worth to the benefit of Harvey and his immediate family members. As a result, the Court held that there was a presumption of unconscionable procurement.
Harvey relied upon the expert report and testimony of Dr. Shulman, a Geriatric Psychiatrist, to show that Henia was capable of understanding and making these gifts.
In reviewing this evidence, the Court held that the opinion of the doctor “goes to the question of whether the gift was valid but does not determine the question of whether it is voidable under the doctrine of unconscionable procurement.” [3] The Court further held that it could rely on the psychiatrist’s capacity assessment only where Dr. Shulman had been provided copies of the underlying documentation relating to the gifts. Where those documents were missing, the Court held that his assessment “cannot be relied upon to rebut the presumption of unconscionable procurement that arises under these circumstances where he is missing information.”[4]
As a result, the Court held that any transactions without documentation, which totaled approximately $8 million, were set aside and declared void.
Take Away
The decision has been appealed as it relates to mutual wills. However, the parties have not appealed the decision as it relates to unconscionable procurement.
This decision represents the first time in 106 years in which the doctrine of unconscionable procurement has been invoked. As this doctrine focuses on understanding rather than vulnerability, it may be a great tool for challenging gifts where incapacity or undue influence cannot be proven.
[1] Gefen v. Gaertner (2019), 52 E.T.R. (4th) 42, 2019 ONSC 6015 (“Gefen”) at para 81.
[2] Gefen at para 148.
[3] Gefen at para 184.
[4] Gefen at para 206.
