What is an “affidavit of execution”?

First of all, one must define an “affidavit”! An affidavit is a document which attests to facts under oath or affirmation before a person who has authority to administer that oath or affirmation. It is intended to be a solemn, truthful statement of the facts at issue, and is intended to become evidence before a Court, if necessary.

(Note: an “affirmation” can be called the non-religious form of taking an oath. Like an oath it is a solemn and formal declaration that the statements contained in an affidavit are true; unlike an oath one does not swear before God on a bible or other holy book. One need not be religious to use an oath, or non-religious to use an affirmation, because the test that the court will administer for both is the same: is the swearing or affirmation binding on the conscience of the person giving it. Some non-believers still use oaths, for example, because of the more familiar form and perceived greater solemnity.)

What, then, is an “affidavit of execution”? It is a document whereby a witness swears or affirm) that they saw a given person sign a given document on a given day, in front of the witness and perhaps others. The affidavit of execution therefore “proves” that the document in question is what it purports to be. This is especially important in cases such as wills (where the genuineness of the will and its contents might be a hotly contested issue) or business contracts (where it may be in one party’s financial interest to deny their signature on a document, thus freeing themselves from an now-unwanted obligation).

The basic component parts of an affidavit of execution are:

1. The document must be under oath, or affirmed. In Ontario this is usually done before a Commissioner of Oaths or a Notary Public. (Every practicing lawyer is, by virtue of their status as a lawyer, a Commissioner of Oaths; most but not all lawyers are Notaries.)

2. The witness confirms that the witness was present at the signing of the legal document in question.

3. The witness attests by their signature that the witness personally knows the signer of the legal document in question and the signer of the legal document in question is of the age of majority. (With the proliferation of different kinds of identity theft it is becoming increasingly common that the identity of the person signing the document is confirmed by the witness, and sometimes that the witnesses themselves must provide acceptable identification.)

The following is a dummy example of an affidavit of execution (in this case, for a Power of Attorney for Property):

I, David Matthew Sanders Barrister of the City of London, in the County of Middlesex in the Province of Ontario MAKE OATH AND SAY:
1. I am one of the subscribing witnesses to the Power of Attorney for Property of the grantor, Joseph Fictional Client.
2. The Power of Attorney for Property is dated the 31st day of June, 1999, and is marked as Exhibit “A” to this Affidavit.
3. When the grantor signed the Power of Attorney for Property, I believe the grantor
(a) was 18 years of age or more
(b) understood that the document being signed was the grantor's Power of Attorney for Property; and
(c) was competent to sign the Power of Attorney for Property.
4. The grantor, myself, and the other witness to the Power of Attorney for Property, Jane Doe, were all present together when the witnesses and the grantor signed the Power of Attorney for Property.
5. That no interlineations, alterations, erasures, or obliterations were made to the Power of Attorney for Property before the grantor and the witnesses signed the Power of Attorney for Property.

Henson Trusts

A Henson trust (sometimes called an absolute discretionary trust) is one designed to benefit disabled persons by protecting ensuring that the assets of a disabled person can still be used to their benefit without compromising their right to collect government benefits and entitlements. This is done by ensuring that the trustee’s discretion in the operation of the trust is absolute, even to the extent of whether or not the trust assets are used (and, if used, to what extent) to provide assistance to the beneficiary. Such a power means that the assets do not vest with the beneficiary and thus cannot be used to deny means-tested government benefits. There are also possible income tax relief elements because of taxation at a lower marginal rate. They are also sometimes used to shield assets from matrimonial division in case of divorce of the beneficiary. In most cases, the trust assets are immune from claims by creditors of the beneficiary. Henson trusts can operate as either living trusts (i.e. for the benefit of the beneficiary when you are still alive) or as a testamentary trust (i.e. for the benefit of the beneficiary after your death).

Further information can be found in this paper:
"What Can You Do To Enhance The Quality of Life For a Family Member with a Disability: Consider a Henson Trust",
a document produced by Reena, (“a non-profit social service agency dedicated to integrating adults with developmental disabilities into the mainstream of society”) and The Law Foundation of Ontario:
"What Can You Do To Enhance The Quality of Life For a Family Member with a Disability: Consider a Henson Trust".
a document produced by Reena, (“a non-profit social service agency dedicated to integrating adults with developmental disabilities into the mainstream of society”) and The Law Foundation of Ontario:
Henson Trust

GAAR

Every now and again an acronym is also onomatopoetic, and I would think that "GAAR" qualifies. The acronym means the "General Anti-Avoidance Rule" and the onomatopoeia comes with the noise made by a taxpayer who has had a tax plan disallowed by the Canada Revenue Agency [CRA] under the GAAR despite the plan's technical compliance with the tax laws.

What is the GAAR, according to the CRA?

The GAAR is really just Part XVI "Tax Avoidance" of Canadian Income Tax Act, (ss. 245 and 246).

In that Part the government creates the concept of an "avoidance transaction", which it defines as "a single transaction or one that is a part of a series of transactions where the single transaction or the series results directly or indirectly in a tax benefit, unless the transaction is carried out primarily for bona fide purposes other than to obtain the tax benefit". (CRA IC88-2, "General Anti-Avoidance Rule - Section 245 of the I.T.", an information circular "to provide guidance with respect to the application of the general anti-avoidance rule". )

What exactly is the GAAR, in non-legalese?

The best description I've ever seen is that provided by Osgoode Hall Law Student Mr. Ankur Bhatt:

A fundamental tenet of Canadian tax law...is that a taxpayer is entitled to make any lawful arrangement that he or she sees fit in order to reduce his or her liability to tax. The General Anti-Avoidance Rule (”GAAR”), at s. 245 of Canada’s Income Tax Act, has greatly confused this once-clear principle. While “tax evasion” is the general term for efforts to not pay taxes by illegal means, what is known as “tax avoidance” is the otherwise not illegal navigation of the tax regime to reduce tax payable. The GAAR, as its name would suggest, stands as a general damper on the latter. The rule entails that, even if one follows to the letter the (other) rules as laid out, the government may feel fit to disregard such compliance and levy the tax that it deems would otherwise have been payable had such (other) rules not been taken advantage of. Specifically, the benefit of a tax avoidance transaction may be denied if, pursuant to s. 245(4), the transaction constitutes a “misuse” or “abuse” of the tax-related provisions it utilized.

Noted tax law scholar Vern Krishna related the gist of general anti-avoidance legislation at a recent lecture competition:

The law allows you to do something. You do it according to the law, and take advantage of the law, and then somebody says, “No… that was not very nice. You went too far.” And you say, “How far is ‘too far’?” And [they] say, “Well, we’ll tell you when we find out.” (Laughter.) But you say, “I need to know, because I need to plan in advance!” And they say, “No, you’ll find out in the fullness of time.” (Laughter.)

Thus, general fairness concerns of uncertainty, unpredictability, and retroactivity arise. Furthermore, having to do with but a property interest, general anti-avoidance legislation is not subject to Charter scrutiny under s. 7. As expected, the courts are left to divine the meaning of “misuse” and “abuse” under s. 245(4), demarcating the line between valid and non-valid arrangements of financial affairs.

[The quote is from "Copthorne Holdings: “Series of transactions” under the GAAR", "The Court", Osgoode Hall Law School, February 2nd, 2010. The "s.7" reference is to Section 7 of the Charter of Rights and Freedoms, which states: "7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice".]

A problem: two not-in-sync SCC cases

The Supreme Court of Canada is there, amongst other reasons, to clarify the law. Unfortunately it has done rather the opposite on the GAAR.

In 2005 the Court, (in Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601) "effectively sanctioned the well-worn practice of tax avoidance, saying transactions structured to minimize what is owed to Caesar, as it were, don't per se constitute a breach of the law" ["General Anti Avoidance Rule - GAAR - CRA Loses Catch-All Case", Wednesday, October 26, 2005 from The Globe and Mail, reprinted at "Canada Offshore"], permitting "aggressive" tax planning. (Truth be told, such complex plans are rarely available to small businesses, who even more rarely have the time, volume of gross income, or piles of cash to hire the platoons of hyper-specialist tax accountants and lawyers necessary to even come up with the avoidance schemes.)

In 2009, however (in Lipson v. Canada, 2009 SCC 1, [2009] 1 S.C.R. 3) "the Supremes" (as they are often cheekily known) stood for instead of against application of the GAAR: "The approach to determining whether a transaction resulted in a misuse and an abuse for the purposes of s. 245(4) of the Act required the court to first interpret the provisions at issue to determine their essential object, spirit and purpose. The second step in the s. 245(4) analysis was to determine whether the avoidance transaction frustrated the object, spirit or purpose of the provisions. Where a tax benefit resulted from a series of transactions, any individual transaction became relevant in ascertaining whether it gave rise to an abuse of the provisions of the Act. The GAAR applied even where abuse was an indirect result of a transaction. Thus, a court had to refer to the `overall result' of the transactions, rather than the `overall purpose', which may incorrectly imply that the taxpayer's motivation or the purpose of the transaction was determinative."

There are two things of interest to me in the Lipson decision.

First, the decision was an odd and narrow (4-2-1) split decision with a short bench of seven, made without the benefit of the Chief Justice MacLachlan, who is arguably the Court's best tax specialist: please see "Supreme Court Hands CRA Biggest Ever GAAR Victory In A Cliff-Hanger", (19 January 2009, Article by William I. Innes, Chia-yi Chua and Carman R. McNary, Fraser, Milner, Casgrain, LLP) for further details and commentary.

Second and worse: unlike the Canada Trustco case, Lipson was an "aggressive" tax plan that was created by ordinary taxpayers: a taxpayer and his wife who structured a loan transation for a family residence using financing arranged around the purchase of shares in a family corporation; the share loan was $562,500 and the mortgage was $562,500. (Please see the Lexis-Nexis/Quicklaw Digest for the Lipson case to obtain a useful summary. The explanatory quotation above is from that Digest.) Canada Trustco, by contrast, was a "complex sale-leaseback transaction" of high value and potentially wide application. I can't shake the concern that one judicial standard is being applied to rich corporate taxpayers while a more rigid and demanding one is being applied to ordinary people. What will be of interest will be to see whether the harsher Lipson standard will be applied to future corporate tax arrangements such as the one found in Canada Trustco; if it is then the class bias concern will be negated. What will also be worth following is whether or not the law will alter course for a third time: it is possible that the SCC will accept a GAAR case to clarify any uncertainty.

Until the matter is clarified, however, I will be wary of an American-style tax standard where the tax avoidance tune is okay if done with complex scores played by expensive orchestration, and impermissible if done in simple chords.

What can you do to avoid a problem?

If you are engaged in aggressive tax planning, one option is to go to the CRA, where "Revenue Canada, Taxation will issue advance rulings with respect to the application of the general anti-avoidance rule to proposed transactions and will publish summaries of the facts and rulings in those cases that will provide further guidance where the rulings themselves are not published. In order to ensure that the rule is applied in a consistent manner, proposed assessments involving the rule will be reviewed by Revenue Canada, Taxation Head Office." One should, however, consult with a tax law and accounting specialists to ensure that (a) the proposed tax arrangement meets the laws as they stand, and (b) whether it is prudent to obtain a predetermination at all.


Further reading:

"Anti-Avoidance Provisions, Including GAAR" - CA School of Business

"The Year in GAAR", Fasken Martineau Taxation Group presentation by Alan Schwartz and Louis Tasse

Living Wills: The Centre for Bioethics

The University of Toronto Joint Centre for Bioethics maintains a website with information, education and precedent materials on living wills. The website provides living will information for general living wills, cancer living wills and HIV living wills. Registration and sign-in (triggering a disclaimer) is required to view or download these precedents.

A Beginner`s Guide to Wills and Estates

From a presentation given recently:
Wills Estates Presentation 20090611

To see this full page, please click on "Wills Estates Presentation 20090611" above the document, or click here.

"Six Ways to Stall Estate Planning"

I recently came across an interesting article, "Six Ways to Stall Estate Planning" [PDF] by Thomas Junkin, Senior Vice President of the Fiduciary Trust Company of Canada. In it he examines six mental roadblocks we run into, internal barriers blocking us from our estate planning. While the short summary below is useful it is no substitute for reading the whole two-page article [PDF]; it contains much that anybody who must ponder estate planning (which is pretty much everybody) should know.

1. "I am too busy to worry about estate planning right now."
Don't fall into the trap of thinking that estate planning is neither important nor urgent, Junkin urges: while proper estate planning does take time it is necessary to deal with its complexity immediately. This is especially important in light of the fact that estate planning isn't an exercise in fill-in-the-blanks will preparation, especially in this era of blended families, rapidly changing family law rules and increasingly complex potential decisions.

2. "Thinking about death, especially my own, is frightening."
Yes, it is, no question about it, but it need be faced. That's why I always open my presentations on wills and estates planning [PDF] with this:
Junkin wisely suggests that you make estate planning an intellectual exercise rather than an emotional one. It is difficult, because thinking about executors, beneficiaries and guardians for one's children is an emotional issue. But properly structuring the planning makes it easier to deal with it.

3. "I am confused and intimidated by the complexity of estate planning."
Junkin cautions against falling into either of two extremes: being so disinterested in the fine points that one doesn't proceed, or being so details-oriented that one seeks to become an expert before proceeding. I have been an advocate for some years of detailed estate planning questionnaires which allow people to move through their process at a steady, measured pace which they can adjust to their own comfort level.

4. "My family relationships are strained."
"Awkward family situations lead to procrastination in two ways: Fear of confrontation with your family members, and fear of discussing potentially embarrassing family matters with someone outside the family." Junkin and I are in agreement on the importance of using the skills of your estate planner to help you resolve these emotional dilemma: working with somebody who will help you through these difficult decisions makes those problems solvable.

5. "I think estate planning must be very expensive."
It doesn't have to be expensive, but it will cost money to do properly. It's baffling to many lawyers that people who will not hesitate to spend $1,500 to fix a broken head gasket on their car will balk at spending $400.00 for properly done wills and powers of attorney. You can always take a taxi if the car doesn't work; you can't raise yourself from the dead to retroactively do all of the things for your family that you should have done when you were alive.

6. "I don’t know what I want to do with my estate."
This is where a estate planning in cooperation with your solicitor is vital. Much of the uncertainty comes from not knowing where to begin: many people don't even know the questions to ask, and it's the questions that provide the answers. Find a solicitor who will work through the whole process with you and who can provide access to specialized advice and services (financial planners, etc.) where required for the more sophisticated estates.

Mr. Junkin invites readers to go to Fiduciary Trust's Perspective library and browse their past articles and download copies.

Closely held family corporations and estates

From Eugene Meehan's Supreme Court of Canada L@wLetter
Issue No. 7 - Thursday, February 5, 2009

My thanks to Mr. Eugene Meehan, Q.C., for his kind permission to post this extract in its entirety.

Cheryl Sylvestre and Jack, Donny, Bing and Cam Frye, are five children of the late George H. Frye who died in 1991, leaving the shares of his company, George H. Frye Holdings Ltd., to his children in equal shares. As Donny was a disabled adult, Bing, Cheryl and Cam were appointed trustees of two trusts held for his benefit. The letters patent under which the company was incorporated in 1968 contained a provision restricting the right to transfer shares of the company without the express resolution of the board of directors.

In 1991, the five siblings entered into a shareholders' agreement that was confirmed by a second agreement signed in 1994 containing a clause restricting the transfer of shares, and requiring any shareholder wishing to sell his or her shares to first offer them to the company, and then to the other shareholders on a pro rata basis. The agreement only permitted a sale to a non-shareholder after these offers were declined. The agreement also acknowledged that the intention was to preserve the Frye Group as a family business, and for all of the children to share equally in it.

The Frye siblings feuded constantly over the years over control of the business. In 1994, Bing sold all of his shares back to the company, increasing the interest held by Cam, Jack, Cheryl, and Donny's trusts to 25 percent each. Cam passed away in April 2002 and, pursuant to his will, Cheryl and a friend were appointed as his estate trustees, and all of his shares in the company were bequeathed to Cheryl. Jack brought an action challenging the validity of the gift to Cheryl, alleging that Cam lacked domicile in Ontario and testamentary capacity at the time he made the will; that Cheryl asserted or should have been presumed to have asserted undue influence over Cam when he made his will; and that the shareholders' agreement prohibited Cam from transferring his shares to Cheryl through his will.

The Ontario Superior Court of Justice gave an order declaring the bequest to Cheryl was null and void. The C.A. allowed the appeal. Issues include whether the C.A. erred by enforcing the provisions of the will and ignoring provisions in the shareholders agreement.

John Arthur Frye v. Cheryl Vanessa Sylvestre et al. (Ont. C.A. September 9, 2008) (32886)

[The Supreme Court of Canada the appeal from the Ontario Court of Appeal.]:
"The application for leave to appeal...is dismissed with costs to the respondent Cheryl Vanessa Sylvestre in her personal capacity, payable by the applicant."

Eugene Meehan, Q.C.
Chair, Supreme Court Practice Group
Lang Michener
300 - 50 O'Connor Street
Ottawa ON K1P 6L2
Phone: (613) 232-7171
Fax: (613) 231-3191

Ontario, Alberta, Yukon, NWT & Nunavut
Licenced to Practise Law in the State of Arizona, U.S.A.

The Ontario Superior Court trial decision of Mr. Terrence L.J. Patterson can be found here.

The Ontario Court of Appeal decision which allowed the appeal from Patterson J.'s decision, can be found here.

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