In the recent decision of Trezzi v Trezzi, 2019 ONCA 978, the Court of Appeal confirmed that a sole shareholder of a private corporation has the authority to dispose of corporate assets in their will. While this may be helpful for certain business owners where assets have been co-mingled (co-mingling of assets should be avoided), there are many other considerations that should be taken into account.
In Trezzi v Trezzi, the deceased had dual wills, one will for public assets and one will for private assets. In his private will, he left assets belonging to his corporation, Trezzi Construction Ltd., to his son Albert, from his first marriage. He left the residue of his estate, including “all other assets owned by Trezzi Construction”, in equal shares to his wife, their two children, and Albert.
The deceased’s wife challenged his right to deal with corporate assets in his will, as it was her position that they did not belong to the deceased, but rather to the corporation. Her position was that the deceased should only have been permitted to gift his shares of the corporation to his beneficiaries.
Interestingly, in this case, because the deceased was the sole shareholder of Trezzi Construction, the court deemed that it was possible for the deceased to gift his corporate assets, by the authority granted under the Business Corporations Act.
In brief, the Business Corporations Act permits shareholders, by special resolution, to require that the corporation be dissolved voluntarily. If the shareholder is deceased, this power devolves to the executor/trustee of that shareholder’s estate.
While the Court of Appeal concluded that it was not necessary under the Business Corporations Act, it is always recommended to include provisions in your will granting your executor/trustee the power to convert assets and to handle corporate interests.
The Court of Appeal therefore agreed with the application judge that the deceased’s intention was to dissolve Trezzi Construction and distribute the assets as set out in his will.
In the circumstances of this case, the Court of Appeal inferred an intention on behalf of the deceased that permitted the gifting of corporate assets. In other circumstances, it is not clear that such an intention would necessarily be presumed. For instance, where only certain assets of the corporation are gifted and not all. As such, there is a very real possibility that the executor/trustee would be left to deal with an ambiguous interpretation, which could result in litigation and unnecessary costs.
Furthermore, the question of whether it is legal to leave corporate assets in a will does not answer the question of whether it should be. There are many other considerations as to what the dissolution of a corporation would mean, including any ongoing contracts or business being undertaken by the corporation, any obligations to the corporation’s employees, and the potential tax consequences for the deceased’s estate. The failure to consider the implication of these factors while preparing the will could potentially lead to serious and wide-ranging liabilities of the estate that may be unintended.
While the Court of Appeal has confirmed that it is possible to distribute corporate assets in this way, such a plan may not take into account all of the many factors necessary during the dissolution of a corporation. It is always recommended that proper legal advice be sought to ensure that the deceased’s intention is met and that all relevant factors are considered.
Advanced estate planning is a crucial step for any corporate shareholder and SV Laws’s team of Estate lawyers can help you determine your specific needs.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.