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Can You Dispose of Corporate Assets by a Will?

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The Ontario Court of Appeal says yes. It is now indisputably the law of Ontario that a testator, who is the sole owner of a private company, is able to dispose of the assets of that company by Will.

This should be carefully considered by all those estate planning lawyers who have traditionally advised clients that they may only dispose of the testator’s shares, and not the corporation’s assets, by Will.

It is our experience that business owners commonly co-mingle assets in private companies and desire to gift those assets as their own, in their Wills. The case of Trezzi v. Trezzi was one such case. The deceased was sole owner of Trezzi Construction, which held real property and equipment used by active businesses, investment real property, and personal use property. By his Will, the deceased directed the real property and equipment owned by Trezzi Construction be gifted to his son, Albert, and the remaining assets of Trezzi Construction be divided among his wife and all three of his children. On an Application brought for direction, Mr. Justice Wilton-Siegel applied an intention analysis to conclude that the deceased intended to gift the corporate assets, that he intended to accomplish this by winding up the corporation and that the executors therefore had the authority to effect the wind up the corporation and effect the gifts.

On the appeal, the surviving wife, Gina and the daughters Emily and Bianca, argued, amongst other things, that the hearing judge erred in applying an intention analysis, and that the rule against gifting what one does not own, and the principle of separate corporate personhood, required that the gifts fail. In rejecting the appeal, the Court of Appeal favoured the hearing judge’s analysis, agreeing that the court’s role was to confirm the deceased’s intentions, and determine if the Will, and corporate law, conferred sufficient authority on the executors to give effect to those intentions.

While it seems that testators who solely own private companies have broad discretion in disposing of corporately owned assets, planners should still approach such intentions with great care. In many cases, winding up a corporation and distributing its assets to the estate may result in potentially significant income tax liability, and there is a higher risk of interpretation issues and abatement.

There are often several options available at the planning stage to avoid the potentially high risk of gifting corporate property, and tools such as reorganizing the corporations, using options to purchase instead of outright gifts, and other avenues might well be preferred. It is also recommended that the Will include terms which recognize the corporate ownership of the assets, include powers specifically addressing the corporation and role of the executors in effecting the gifts, and contemplating which assets will bear the burden of any liabilities related to the gifted assets.

The application of this decision to future cases will require careful consideration of other conditions, such as the existence and extent of corporate debts, security interests, shareholder agreements, and the existence of minor shareholders.

The best thing about P.V. is that they use the right lawyer for the right service, both in terms of type of service and size of file.
Vince Siciliano, BDO Canada Limited