CANADA Trends and Developments Contributed by: Ian M Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
addressed by the courts elsewhere in Western Can- ada, including Alberta, Saskatchewan and Manitoba. As such, it is unclear whether secondary wills can be used to distribute corporate shares and corporate assets outside of British Columbia and Ontario. In the Maritimes, it may not be possible to avoid pay- ing probate fees on corporate shares or corporate assets by using multiple wills. For example, in Nova Scotia, subsection 86 (2) of the Probate Act, SNS 2000, c 31 provides that tax is payable on all assets that pass by will or wills. There is also no benefit to using a secondary will to distribute corporate shares or assets in Newfoundland and Labrador, as that prov- ince’s Corporations Act, RSNL 1990, c C-36 requires a grant of probate to be deposited with a corporation in order to transfer shares following a shareholder’s death: see Section 106. Using a will to gift corporate shares subject to a shareholders’ agreement When gifting corporate shares through a will in Can- ada, it is also important to review corporate govern- ance documents, such as shareholder agreements, to ensure that the will is consistent with any terms those documents place on the transfer of corporate shares or corporate interests. While a testamentary gift will not be void if it is inconsistent with a share- holder agreement, the executor of the estate may not be able to complete the gift as intended by the deceased shareholder if the shareholder agreement makes different provision for the distribution of that person’s shares following their death. For example, in Frye v Frye Estate , 2008 ONCA 606, the Ontario Court of Appeal was faced with a will that gifted corporate shares that were subject to a shareholder agreement which required any transfer of shares to be approved by the other shareholders, and also gave the existing shareholders priority rights to purchase corporate shares. With respect to the valid- ity of the testamentary gift, the court confirmed that it was not void, even though it was not consistent with the terms of the shareholder agreement. How- ever, because the executor of the estate was bound by the shareholder agreement, they could not distrib- ute the shares to the beneficiary named in the will unless the transfer was completed in accordance with
the terms of the agreement. The court also held that the executor held the shares as a bare trustee for the beneficiary, and therefore had to exercise all voting rights and any other shareholder rights as directed by the beneficiary, effectively giving them legal control over the shares, even though legal title could not be transferred. If a will is inconsistent with a shareholder agreement, more recent caselaw indicates that the courts may be able to alter or rectify the will to honour the testa- tor’s intentions. In Simpson v Zaste , 2022 BCCA 208, for example, a shareholder’s will gifted his corporate shares to his sons, contrary to a prior shareholder agreement which required those shares to instead be transferred to the shareholder’s business partner at fair market value upon the shareholder’s death, less the amount of a life insurance policy payable in favour of the shareholder’s surviving spouse. In light of the shareholder agreement, the gift in the will failed, resulting in the estate receiving an unintended wind- fall. However, the British Columbia Court of Appeal found that it was possible to rectify the will to grant the shareholder’s sons the net value of the shares, being the shares’ gross value less the life insurance policy. In light of the evidence, the court found that the shareholder intended his sons to receive the shares as encumbered by the shareholder agreement. Unfortunately, rectification may not be available in all cases where a testamentary gift of corporate shares is inconsistent with a shareholder agreement. Typically, this remedy is only available if an applicant can prove that the will-drafter made an error, and that the will, as drafted, does not carry out the testator’s intentions. Rectification also can only be used to achieve what the testator originally intended, as compared to what the testator should have intended with the benefit of hindsight. In light of these limitations, if shares are subject to a shareholder agreement, it is preferable that any will which disposes of the shares be drafted to be consistent with the terms of the agreement, to ensure that the testator’s wishes can be carried out as intended. There are no guarantees that a will which gifts corporate shares which are subject to a share- holder agreement will be rectified if that testamentary gift is inconsistent with the terms of the agreement.
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