The Chairman:—This is an appeal by Stanley S Rosen, executor under the Will of Hyman Kamichik, against an assessment of the Minister of National Revenue in the estate of the deceased.
The assessment arises, I presume, out of the fact that the appellant has treated half of the estate as being exempt in calculating the aggregate net value for taxation by virtue of section 7 of the Estate Tax Act. Presumably, also, and from the argument, it is clear that the Minister has treated the Will as not giving such a deduction to the estate by virtue of the wording of the Will.
The facts are not in dispute and appellant’s Exhibit A-1 is a statement of the facts, which are brief and agreed to, and the pertinent facts are that the late Hyman Kamichik, the deceased testator, died on July 18, 1969, leaving the Will in notarial form passed in Montreal before Notary David Abraham, dated November 20, 1967, and a true copy of that Will is attached to the Exhibit. I might say in passing, should the matter go further, I have made several notations, or remarks on the Will which have significance only to me and were not there when the document was filed. Again, it is agreed:
that the deceased’s wife and one or more of his children survive him and are alive at all material times — (The executors named under the Will are the testator’s wife, his brother-in-law and his accountant);— that “the said Will instructs the executors and trustees to hold the residue of the estate in trust and to pay one half of the net revenue thereof to the deceased’s wife for life, the other half to be accumulated until such time as the deceased’s children reach the age of 25, at which time the accumulated revenue is to be distributed to these children and thereafter one-half of the net revenue shall be paid directly to them in equal shares”; and that upon the death of the wife of the testator, the capital of the estate is to be divided equally amongst the children, with the usual clauses pertaining thereto.
The relevant section of the Act, as I have said, is section 7 of the Estate Tax Act, SC 1958, chapter 29, s 1, and amendments thereto. The section falls as the first section under the Computation of Aggregate Taxable Value of an Estate and sets out amounts deductible in computing the aggregate taxable value. I think, without going into detail at this point, it suffices to say that the value of any gift made by the deceased to his wife, which is indefeasible within the period of six months and from which the wife is the only person entitled to receive the income and upon which no other beneficiary is entitled to encroach as capital, is deductible pursuant to this section. The Appellant meets the problem head-on and acknowledges that there are four stipulations that must be met:
that under the Will the bequest to the spouse must be absolute and indefeasible;
that it must be a settlement under section 62, which is a definition section of the Estate Tax Act; that the settlement must provide for the exclusive right of the spouse to the income; and, fourthly, that the capital of the settlement is preserved intact and that it does not, or is not, available to the spouse’s children, or the testator’s children, or to anyone, save and except, of course, the spouse herself.
The Crown, on the other hand, says that the appeal must fail because the two main requirements of paragraph 7(1)(b) are not complied with, or are not met. First, with respect to settlement, only 50% of the residue of the estate is to be paid for the wife’s interest and, second, that the provisions of subparagraph 7(1)(b)(ii) have not been met.
In looking at what the testator intended, I think it is trite law to say that one must look at the entire document and one must strive in interpreting wills to achieve, as nearly as is possible by an outsider, the result that the testator contemplated at the time he gave the instructions for the drafting and subsequent execution of the will. In doing this, some points are quite obvious and really do not lend themselves to successful attack. It is clear that he wished 50% of his estate to be set aside for his wife’s benefit and that of the children thaï she would be looking after at the time of,his death, and that the remaining 50% would be invested for the children in their own right.
The argument of the appellant I is narrowed down and is, simply stated, that the issue in this appeal is whether paragraph 7(1 )(b), as substituted by the 1968 amendment, permits a deduction in respect of the bequest to the deceased’s wife in his will. As has been pointed out, there was a change in the section in October of 1968, with provisional transitional sections involved, but it is agreed that I need not concern myself with the transitional sections. The question here is whether or not two separate settlements have been successfully established by the testator in order to give him the maximum benefit in his estate planning. In section 62 of the Act, at page 71 of the copy supplied to me, under Part IV, section 62.1, under the definition of “Settlement”, we find “that a settlement includes any trust whether expressed in writing or otherwise” and it goes on to add really not much more that is helpful or pertinent to this appeal.
The respondent has pointed out that the executors in both cases, that is for the amount set aside for the widow and the amount set aside for the children, are the same persons. To this I attach absolutely no importance because it has been found, in my experience, in any event, both in practice and on the Bench and with this Board, that this is the usual course of action and not the unusual. I don’t think that creating different individuals to handle each separate portion of this estate would in itself be sufficient to comply with section 7, if it did not, in fact, comply in all other aspects. So, then, in turning to the will, one first must look at paragraph “fifth”, page 3, where the standard, everyday granting clause to the executors in trust is contained, with the last line reading “for the execution of the following trusts:”. The will then, in paragraph A of paragraph “fifth”, provides “that the executors and trustees shall pay 50% of the net revenue therefrom” to the testator’s wife for her lifetime, as well as “for the care, comfort, support and maintenance of our children under her charge and control”, and I can only infer from that that, at the time he drew his will, there were still infant children, or children living under the protection of the parent. Paragraph B goes on to state that “my executors shall reinvest the remaining 50% of the net revenues therefrom for the benefit of the children”. Paragraph D provides, on the death of the wife, that the children shall take in equal shares the amount that has been set aside for her, or what is left of it at the material time. So, in looking at those sections and without going further, (that is, section 7 and section 62 of the Estate Tax Act and the paragraphs referred to), it is clear to me that the testator intended to set up a settlement by way of a trust, first, for his wife, and second, for his children, in equal amounts.
The respondent argues that, in looking at the will, reference is continually made to “my capital” or “the capital” of the estate. That is terminology that lends itself to two interpretations, namely, as is pointed out by counsel for the appellant, that one would not normally refer to “capitals” of the estate, and I think that the really indicative part of the fifth paragraph that tends to show the intention of the testator is the last word before paragraph A of the fifth paragraph, which is “trusts” in plural and I am satisfied, in my mind, in reading these paragraphs, that he did intend two settlements out of one sum, namely, the residue of his estate, or the capital of his estate, or whatever name one wishes to give to it. Therefore, if he has established a settlement on his wife, and I so find that he has on the evidence before me, the question is whether this settlement fits within the provisions of section 7, which provide that the wife, and the wife only, shall be entitled to the income and that no one other than the wife may have the capital disturbed in her favour, or in anyone’s favour, and this is where the problem arises. And it arises on page 6 of the will under paragraph E, which both sides, of course, can interpret to their own benefit. This, I think, is usually, in my experience in any event, referred to as the “encroachment section” and it gives the trustees the right, in their uncontrolled discretion, in the exercise of which discretion they shall not be held accountable, to use all or part of the capital of the settlement or settlements. The part that gave me, or still gives me, some difficulty is contained in the fourth and fifth lines and following, of paragraph E and I quote: “shall always have the right to draw and encroach upon the capital of my estate, or of a prospective share thereof, for the benefit of my wife and children or their issue” and it goes on to say: “and to provide for emergencies such as illness or accident, or to enable my wife to maintain a reasonable standard of living during her widowhood, or for the education (including higher education) of my children or their issue”. I think, on overall reflection, what the testator was trying to do was to give the executors and trustees the right to encroach on either settlement for the benefit of the persons entitled thereto. In my view, the settlement No. 1 in favour of the wife was not affected by the reference to children of the marriage. It included in writing, in my view, no more than was the moral and natural obligation of the mother to look after the children. The fact that that view is reinforced by the Civil Code, section 165, is sufficient, in my opinion, to allow me to disregard that as an impurity upon the settlement in favour of the wife.
On all the evidence, in my interpretation of this document, the will of the deceased, he succeeded in creating two separate settlements under the will; the one in favour of the wife being the only one that I need concern myself with, and he succeeded in creating it in a manner that allowed him, or his executors, to take advantage of section 7 of the Estate Tax Act.
The appeal will therefore be allowed and referred back to the Minister for reassessment on the basis that one-half of the estate is to be treated as a deduction under the provisions of section 7 of the Estate Tax Act.
Appeal allowed.