Minister of National Revenue (Appellant)
v.
Hélène Lemieux-Fournier (Respondent)
Trial Division. Noël A.C.J., Quebec, May 18;
Ottawa, June 11, 1971.
Estate Tax—Usufruct bequeathed to wife and power to
dispose of bare-ownership—Gift over to daughter if power
not exercised—Daughter residuary legatee of mother's
estate—Whether father's property part of mother's estate—
Estate Tax Act, secs. 3(1)(a), 3(2)(a), 58(1)(i).
A testator, who died in 1941, by his will gave three-
fourths of the usufruct of his property to his wife and
one-fourth to his daughter; the bare-ownership of the prop
erty he bequeathed "to be disposed of by my wife in her
will. In the event of my wife's failing to do so, the said
ownership shall revert to [the daughter]." The wife, who
died in 1964, did not dispose of her husband's property by
her will wherein she named the daughter residuary legatee
and executrix. The Minister included the value of the hus
band's property in the aggregate net value of the wife's
estate for estate tax purposes. The daughter appealed.
Held (on appeal from the Tax Appeal Board), since there
was no limitation on the power of appointment conferred on
the wife, it was a "general power" within the meaning of
secs. 3(2)(a) and 58(1)(i) of the Estate Tax Act. The wife
was thus competent to dispose of the husband's property
and it must accordingly be included in the net value of her
estate under s. 3(1)(a).
Montreal Trust Co. v. M.N.R. (Hickson Estate) [1964]
S.C.R. 667, distinguished. Royal Trust Co. v. M.N.R.
[1965] Ex.C.R. 414, aff'd. [1968] S.C.R. 505, referred
to.
APPEAL from Tax Appeal Board.
Alban Garon, Q.C., and Gerald Rip for
appellant.
Eugène Rivard, Q.C., for respondent.
NOEL A.C.J.—The appeal is from a decision
of the Tax Appeal Board allowing in part an
appeal by respondent against an assessment by
the Minister under the Estate Tax Act, by
which he levied a tax in the amount of $5,-
688.64 in respect of the estate of Mrs. Rose-
Anna Tardif -Lemieux, the mother of the
respondent, Mrs. Hélène Lemieux-Fournier.
Under the will of her father, who died in
1941, respondent received a one-fourth usu-
fruct in his property, and her mother three-
fourths. The will also stated: "as to the bare-
ownership of said property, I give and bequeath
it to be disposed of by my wife in her will, and
in this connection I wish to recall my great love
and affection for Hélène. In the event of my
wife's failing to do this, the said ownership shall
revert to Hélène."
It was because of this stipulation that the
Minister decided that respondent's mother was
competent to dispose of the bare-ownership of
the property under secs. 3(1)(a), 3(2)(a) and
58(1)(i) of the Estate Tax Act. Accordingly,
when respondent's mother died in 1964, con
stituting respondent her residuary legatee and
sole executrix, all the property was taxed as
issuing from the mother's estate. Respondent,
on the other hand, contends that the property
issuing from her father's estate devolved to her
from her father and not from her mother.
The Minister thus set the net value of
respondent's mother's estate at $105,351.25,
while respondent alleged that the maximum
amount the notice of assessment should show
as the net value was $21,480.83.
The appeal from this assessment to the Tax
Appeal Board was allowed in part by Mr. Bois -
vert. In fact, this learned member of the Board
held that since the father had not disposed of
the bare-ownership of his property in 1941, two
thirds of the property devolved on respondent
and one third on her mother, as heirs ab intes-
tato of the father. He therefore deducted from
the aggregate net value of the mother's estate
two thirds of the value of the property from the
father's estate, and referred the matter back to
the Minister for reconsideration and re-assess
ment.
In the present appeal the Minister challenges
the decision of the Tax Appeal Board, alleging
as follows:
(a) respondent's mother, Rose-Anna Tardif -
Lemieux, was, immediately prior to her
death, competent to dispose of the property
referred to in the testamentary provision of
respondent's father, Henri Lemieux;
(b) she had an estate or interest or general
power regarding the property covered by this
provision which made her competent to dis
pose of it;
(c) she had the capacity or authorization ena
bling her to dispose of the property covered
by this provision by will as she saw fit;
(d) the property covered by this provision
passed to respondent on her mother's death.
As we have seen, appellant bases his case on
secs. 3(1), 3(1)(a), 3(2)(a) and 58(1)(i) of the
Estate Tax Act)
Appellant contends that by the testamentary
provision in question respondent's father, Henri
Lemieux, created a substitution as to the prop
erty covered by the said provision, and con
ferred on the institute, respondent's mother
Rose-Anna Tardif -Lemieux, a power or right of
appointment, to be exercised by will, which
contained no restriction or limitation as to the
choice of substitute. Appellant submits that in
computing the aggregate net value of the prop
erty passing on the death of Rose-Anna Tardif -
Lemieux, the value of property covered by the
provision had to be included, in accordance
with the provisions of s. 3(1)(a) of the Estate
Tax Act, since the deceased was immediately
prior to her death competent to dispose of it
within the meaning of s. 3(1)(a), and possessed
an estate or interest or general power with
respect to the property within the meaning of s.
3(2)(a). Further, according to appellant's sub
mission, she had, immediately prior to her
death, the power or authority to dispose by will
of the property covered by this provision as she
saw fit, within the meaning of s. 58(1)(i) of the
Estate Tax Act, and was, accordingly, compe
tent to dispose of the said property within the
meaning of secs. 3(1)(a) and 3(2)(a) of the Act.
Finally, appellant submits that the property cov
ered by the testamentary provision passed on
the death of respondent's mother within the
meaning of the introductory part of s. 3(1) of
the Estate Tax Act.
Respondent, on the other hand, submits that
the notice of assessment issued on February 8,
1965, is illegal, arbitrary and groundless in fact
and in law. She admits that her mother, Rose-
Anna Tardif -Lemieux, made her the sole execu
trix and legatee of the only property which said
testatrix possessed in her own right, but denies
that respondent's father sought in his will to
create a substitution; she adds, however, that
even if the will had created a substitution in
respondent's favour, the assessment issued and
the amended notice of appeal would still be
arbitrary and ill-founded. She denies appellant's
allegation to the effect that the value of the
property covered by her father's testamentary
provision had to be included in computing the
aggregate net value of the property passing on
the death of her mother as ill-founded even if
the father's will had created a conditional sub
stitution under which Rose-Anna Tardif -
Lemieux was made the institute. She adds that
if a conditional substitution had been created by
the testator, her father, it would have been
carried into effect retroactively to January 18,
1941.
Respondent alleges that she inherited directly
from her father, Henri Lemieux, and none
other, the property passed by Henri Lemieux,
with the result that the value of the property
passed in fact and in law by Rose-Anna Tardif -
Lemieux was exempt from estate tax since it
amounted to only $21,480.83. She claims that
secs. 3(1)(a), 3(2)(a) and 58(1)(i) were not
designed to cover either Henri Lemieux's will
or the property passed and devised by him. In
particular she alleges that, in setting the aggre
gate taxable value of the estate in question,
appellant unlawfully and without cause ignored
the fact that Henri Lemieux bequeathed a one-
fourth life interest in his estate to his daughter,
the respondent, and that appellant should there
fore have made allowance for the life expectan
cy of respondent, who was born on July 15,
1915, and deducted the present value of her life
interest from the estate which he was arbitrarily
and unlawfully seeking to tax. She contends
that Rose-Anna Tardif -Lemieux disposed only
of the property she inherited, as her will con
tained no reference to the will or estate of her
husband, Henri Lemieux; and that Henri
Lemieux's estate is governed only by his own
will, that the resolutory condition imposed by
him took place in fact and in law as of January
18, 1941, and that it actually took effect on his
death. She adds that Rose-Anna Tardif -
Lemieux never had the personal or fiduciary
vesting of the capital assets of Henri Lemieux
or the power to dispose of them, nor did she
have any power of appropriation or disposition
over her husband's property. According to
respondent's submission, Rose-Anna Tardif -
Lemieux had possession of her husband's prop
erty only in her capacity as executrix.
At the hearing of the appeal respondent's
counsel contended that the Minister had erred
in fact and in law when he added the value of
the property comprising the father's estate to
that included in the estate of Rose-Anna Tardif -
Lemieux, on the grounds that the father's testa
mentary disposition gave no authority for such
action. He submitted that even supposing Henri
Lemieux's testamentary provision included a
power of disposition, or a bequest with the
power of appointment, the said provision does
not bring the property owned and passed by
Lemieux within the scope of the federal statute.
He pointed out that the provision in question
places a conditional onus or obligation on the
wife, Rose-Anna Tardif -Lemieux, to dispose of
the bare-ownership of the testator's property in
her will, and if she fails to do so this property is
to go to his daughter Hélène. Respondent in
fact regards this as a responsibility or obligation
subject to a condition which is both suspensive
and resolutory. As the mother did not dispose
of the property by will, the resolutory provision
applies and bare-ownership vests in the daugh
ter; this goes back, according to respondent, to
the date of her father's death.
The learned counsel for the respondent fur
ther submits that since Henri Lemieux did not
bequeath his property to his wife in his will, this
property did not vest in her; in his view, this
was a condition precedent to her being able to
dispose of it. If the full vesting of the father's
property had been in the mother, she could
have disposed of it; but in the present case, he
submits, the power was ineffective, illusory and
inoperative. Hence she did not have the right to
dispose of the father's property. Counsel for the
respondent cited as his authority a passage from
Halsbury's Laws of England, 3rd. ed., vol. 30,
p. 215, no. 380:
The creation of a power over property does not in any way
vest the property in the donee, though the exercise of the
power may do so; and it is often difficult to say whether the
intention was to give property or only a power over
property.
In the view of counsel for the respondent the
mother would have required a general power of
disposition; for example, the father would have
had to tell her that she could dispose of the
property without restriction or limitation, and
this he did not do. Furthermore, since the
mother did not dispose of the property in her
will, she did not comply with this provision, and
it therefore remained a dead letter. Finally, he
adds that if this provision was to be regarded as
a power enabling the donee, or other owner of
property, to distribute, appropriate or dispose
of it, this would mean that Henri Lemieux
directed his wife to dispose of another person's
property, which is expressly forbidden by Art.
756 of the Civil Code.' Accordingly, in his
view, the said provision is null and void.
The provision stipulates, however, that if the
mother did not dispose of the father's property
by will, respondent would receive the bare-
ownership of this property, and he concludes
that for all practical purposes Henri Lemieux's
property, at his wife's death, devolved on the
respondent by reason of her father's will.
According to respondent, the mother thus
never had title to the property left by Henri
Lemieux, as she was given at most a limited and
qualified power to dispose of it. In fact, she was
given only three fourths of the life interest, one
fourth going to respondent. She was not entitled
to appropriate this property to her own use, and
was only authorized to dispose of it by will, and
in the event she did so, was required, as her
husband recommended, to bear in mind his
great love and affection for Hélène.
Respondent concludes that her mother conse
quently never had the power to dispose of the
property as she "saw fit," which is the require
ment of s. 58(1)(i). She did not have free title to
the property, nor did she have it as institute.
The most that can be said, in her counsel's
opinion, is that the mother fell within the excep
tion provided in s. 58(1)(i) of the Estate Tax
Act, and that the only power exercised by her
was in her capacity as trustee.
Counsel for the appellant, on the other hand,
submits that respondent's father created by the
testamentary provision a genuine fiduciary sub
stitution, and conferred on his wife the power
of disposing of the property as well as the
power of appointment. He contends that this
right to dispose of the property by will, with the
power of appointment, made her competent to
dispose of the property under secs. 3(1)(a) and
3(2)(a) within the meaning of s. 58(1)(i) of the
Estate Tax Act, and thus, even if there was no
substitution, the mother would, by the very
terms of this provision, have an unlimited
power to dispose of the property, which would
then be deemed to form part of the mother's
estate. On the other hand, he said, if this were a
simple bequest of property to the mother with a
one-fourth life interest to his daughter, the
value of the property should nevertheless be
included under s. 2 of the Act, since she would
then have full title to it.
In the first place, I cannot accept the decision
of the Tax Appeal Board to the effect that title
has belonged, since the father's death, one third
to the mother and two thirds to the respondent,
as heirs ab intestato of Henri Lemieux, under
Art. 712 of the Civil Code.' Unquestionably a
claim cannot be made under both the testamen
tary succession and intestate succession. The
principle that an individual cannot be both
legatee and heir (ab intestato) of the deceased
admits of no exception, and applies to the uni
versal as well as to the particular legatee.
It appears to me, on considering the provision
in question, that Henri Lemieux sought to
confer a benefit on his wife during her lifetime,
as well as on his daughter Hélène, and also to
give his wife the power of designating who
would benefit from his property after her death.
Further, the terms used indicate that we are
dealing either with a usufruct or with a fiduci
ary substitution, and we must consider which of
the two alternatives better fulfils the apparent
intent of the testator. If we adopt the alternative
of a usufruct, the question arises as to who was
the owner during the 23 years which elapsed
between the father's death in 1941 and the
mother's in 1964, since the title to property
does not remain in abeyance. This situation
does not give rise to any very serious problem,
however, since there were executors with
administrative power who could very well
attend to the property in question.
However, if a usufruct was created, the
mother would be both usufructuary and owner,
which is impossible. On the other hand, the
daughter could not be the owner, since the
provision stipulates that title might revert to
her, but only on her mother's death, and only if
the mother decided not to dispose of it
otherwise.
In interpreting a provision like the one in
question, and before accepting a solution which
would lead us to find either a usufruct, which,
as we have seen, involves inconsistencies, or a
disposition which does not settle the problem of
title to the property, or vesting, and leads to
intestate succession, or one which could entail
unlawful delegation to his wife of the husband's
testamentary power, I feel we must consider
whether, in spite of the language employed, it is
possible to discover a meaningful disposition in
this provision. Approached in this way, I feel
that a valid disposition may be found. Further,
we must not be misled by words. It is true that
the testator used the word "usufruct," but the
legislator himself warns us in Art. 928 of the
Civil Code 4 that the right of the institute is often
designated by the term usufruct. In short, it is
more relevant to consider what the testator had
in mind when he included this provision in his
will. In my opinion the three essential elements
of a substitution are to be found here, namely:
(a) two gifts (one to his wife and the other to his
daughter, if the mother appoints her or does not
make a disposition in favour of some other
person whom she may appoint), (b) a successive
order (two categories of individuals who inherit
the property belonging to the estate in succes
sion), and (c) a time factor (one gift to take
effect on the death of the father and the other
on the death of the mother), which Roman law
called the tractus temporis.
Finding a substitution in this provision does
not violate any of these elements; and the will,
by determining who shall receive ownership of
the property after death has occurred, settles
the question of title. In fact, it simply gives his
wife some advice, should she wish to dispose of
the property by will, and in these circumstances
this constitutes the first substitution. It then
states that if she does not dispose of it by will,
the property is to go to Hélène; this constitutes
another substitution in which the substitute is
Hélène Fournier.
Unquestionably, we have here all the ele
ments of a substitution, as set out in M.N.R. v.
Smith, [1960] S.C.R. 477, at p. 482, and there is
no further difficulty in reconciling all these ele
ments. Under Art. 944 of the Civil Code,' the
mother, as institute, is owner of the property,
since the Article states that the institute holds
the property as proprietor. There is also the
obligation—another element of substitution—to
"deliver over" the property, and it seems to me
that this obligation is implicit, even if the father,
in his will, gives his wife the power to dispose
of it.
Furthermore, the power that the will confers
upon the wife to dispose of the property and,
consequently, to select or appoint the benefici
aries, is a right which is ordinarily associated
with the rights of an institute, and is not, it
seems to me, a right ordinarily attached to the
rights of a usufructuary. The power of appoint
ment, in fact, is part of the structure of a
substitution, rather than of a usufructuary.
With an institution of this kind it is not neces
sary to consider further who owns the property
or on whom it was conferred. In fact, before the
substitution takes effect the institute is its
owner; when it takes effect, the substitute is
deemed to receive the property from the donor
and not from the institute. In this connection,
however, counsel for the respondent claims that
the conditional substitution was fulfilled and
that, by the interposition of the resolutory
provision, respondent receives the property
from her father retroactive to January 18, 1941.
Relying on the decision in Montreal Trust Co. v.
M.N.R., [1964] S.C.R. 647, counsel for the
respondent contends that the latter received the
property, not because of power given to her
mother, but because her father had appointed
her as substitute should her mother fail to make
a contrary disposition.
It is true that the facts of the instant case
closely resemble those in the above-mentioned
one; there is, however, an important difference.
In the Montreal Trust case Lady Hickson, the
donor, foresaw the possibility that her son
might die without issue and, accordingly,
appointed his legal or testamentary heirs as
substitutes. As Cartwright J. states at page 652,
the effect of this provision was to remove from
the institute any capacity to dispose of the
money, as the donor had designated and limited
the substitutes who were to receive it; thus, the
money could not form part of the property
making up the institute's estate.
It must, indeed, be understood that when
Lady Hickson appointed her son's legal or tes
tamentary heirs as substitutes, she left no doubt
as to the class of heirs she had in mind. In fact,
a substitution of property in favour of the heirs
of an institute who leaves a will takes effect at
his death in favour of his testamentary heir. By
definition, the heir is the person who receives,
either by operation of law or by human will, the
property and the rights and obligations which
may be passed by a deceased person; and in a
testamentary succession this is the testator's
universal legatee. It follows that when a substi
tution is in favour of the institute's testamen
tary heir, the substitute is in every case
In the above-mentioned case, if Lady Hick-
son's will had stated that her son, if he died
without issue, would have the right or power to
appoint the person or persons whom he might
name to receive the property, he would have
been able to appoint anyone to receive the
property, and at the same time bequeath his
own property to his wife. Because of the actual
terms of Lady Hickson's will, he could not do
this. Indeed, if he designated a third person to
receive his mother's property, he would also
have had to appoint the same person his univer
sal legatee, failing which the disposition would
be null and void. Once again, the heir is the
person to whom the law, or a will, passes the
rights and obligations of a deceased person (cf.
the Civil Code, Arts. 596 and 597). In a testa
mentary succession, the testator's heir is not a
particular legatee (who receives the sum of
$100 or a piece of furniture, for example), but
the person to whom his rights and obligations
pass (cf. Civil Code, Arts. 735, 738, 873 and
880). In Allan v. Evans (1900) 30 S.C.R. 416,
we find an interesting discussion of a testator's
universal legatee. It can thus be seen that Lady
Hickson's son was limited as to the power of
appointing a substitute, or substitutes, to the
property of his mother, and it was correctly
held in that case that he could not dispose
freely of the property. Moreover, as the Court
concluded in the said case that there was a
genuine substitution, and in such circumstances
the substitutes receive the property from the
donor and not the institute, it correctly came to
the conclusion that the property did not form
part of the son's property, and accordingly
could not be subject to succession duties.
It is worth pointing out here that there is in
fact an important distinction between the holder
of a general power of appointment under the
common law and the institute who has a general
power of appointment. The person giving such a
power under the common law does not
renounce ownership of the property, but gives
the donee of the power the right to dispose of it
on his behalf, and the exercise of this power is
thus a disposition of the property; hence the
person who has it is competent to dispose of it.
In the case of the power of appointment
allowed by the Civil Code, the originator of this
right has already disposed of his title, and the
person appointed does not do so. Indeed, there
is no provision in the Civil Code enabling any
person to dispose of another's property. This
difference sometimes creates difficulties when,
for instance, dealing with a statute such as the
Estate Tax Act. However, under s. 3(2)(a) of
the Estate Tax Act, "a person shall be deemed
to have been competent to dispose of any prop
erty if he had such an estate or interest therein
or such general power as would, if he were sui
furls, have enabled him to dispose of that prop
erty". In effect, it is by means of this legal
fiction that it is possible to include within the
framework of the federal statute property
which cannot be disposed of by the holder
under the Civil Code.
However, such is not the case here. There is
in fact no limit to the mother's power of
appointment and disposal conferred on her by
the father in his will. She is, indeed, permitted
to dispose of the property by will, which is not
the same thing as requiring her to appoint her
legal or testamentary heirs as substitutes. In the
present case, as a matter of fact, the mother
could, immediately prior to her death, have
appointed a third person as substitute and her
daughter Hélène as her residuary legatee. The
power of appointment here conferred by the
testator on his wife, as dealt with in secs.
3(2)(a) and 58(1)0) of the statute, in my opinion
constitutes a general power of disposition
within the meaning of the said statute.
This power is regarded as general if no limit
is placed on the person exercising it. Even
though the person holding the power can only
dispose of the property by will, as in the case
here, it is still general. Cf. Jameson on Canadian
Estate Tax, at page 119:
A donor, in creating a power, may state that the power may
be exercised by will or by deed inter vivos, but the exercise
of a power by will is none the less general with that
limitation, for although the donee is unable to bring the
property into his own possession during his lifetime he has
complete power of disposal of it upon his death. In Prov.
Sec.-Treas. of N.B. v. Schoefield, a testator devised proper
ty to his sister for life and after her death to such person or
persons as she should by will appoint. It was held that the
sister had a general power of appointment as the objects of
the power derived their benefit from the sister and not from
the testator and, consequently they were taxable in the
sister's estate.
As we have seen, there is in the instant case
no limit imposed on the wife regarding the
appointment of the substitute or substitutes; at
most, there is just a simple recommendation to
her in connection with their daughter, leaving
the wife entirely free to dispose of the property
to whomever she wishes.
This power of appointment being thus a gen
eral power as mentioned in secs. 3(2)(a) and
58(1)0) of the Act, the wife is deemed to have
been competent to dispose of her property for
the purposes of s. 3(1)(a), and all the property
she was competent to dispose of must be
included in her estate.
Indeed, a person who has such a general
power over property is not necessarily the
owner of the property, but for the purposes of
the Estate Tax Act the statute states that the
property is deemed to be his property, and is
included in his estate even if in a substitution it
is supposed to have been received from the
donor and not the institute (Civil Code, Art.
962). 6
Consequently, it does not much matter
whether there was a substitution in the instant
case or not, as the wording seems to me to be
clear, and gives the mother an unqualified right
to dispose of the property, a right which, it is
true, she did not exercise, but which she never
theless could have exercised, and which has the
effect of bringing the property within the frame
work of the Estate Tax Act. In Royal Trust Co.
v. M.N.R. [1967] 1 Ex.C.R. 414, Dumoulin J.
held, in a situation closely resembling the pre
sent case, that there was a general power of
disposition, although he stated that there was no
substitution in that case. This decision was,
moreover, affirmed by the Supreme Court
[1968] S.C.R. 505.
If, on the other hand, we had to conclude that
there was no substitution here, and that we
were dealing at most with a bequest of property
to the mother with a one-fourth usufruct to the
daughter, the value of the property should still
be included in the estate, as she would in those
circumstances have had full ownership.
The appeal is therefore allowed with costs,
but the assessment will be referred back to the
Minister for the present capital value of
respondent's life interest to be deducted from
the value of the property comprising, or deemed
to comprise, her mother's estate.
3. (1) There shall be included in computing the aggre
gate net value of the property passing on the death of a
person the value of all such property, wherever situated,
passing on the death of such person, including, without
restricting the generality of the foregoing,
(a) all property of which the deceased was, immediately
prior to his death, competent to dispose;
(2) For the purposes of this section,
(a) a person shall be deemed to have been competent to
dispose of any property if he had such an estate or
interest therein or such general power as would, if he
were sui juris, have enabled him to dispose of that
property;
58. (1) In this Act,
(i) "general power" includes any power or authority ena
bling the donee or other holder thereof to appoint, appro
priate or dispose of property as he sees fit, whether
exercisable by instrument inter vivos or by will, or both,
but does not include any power exercisable in a fiduciary
capacity under a disposition not made by him, or exercis-
able as a mortgagee;
2 756. A will is an act of gift in contemplation of death by
means of which the testator, without the intervention of the
person benefited, makes a free disposal of the whole or of a
part of his property, to take effect only after his death with
power at all times to revoke it. Any acceptance of it
purporting to be made in his lifetime is of no effect.
3 712. Every heir, even the beneficiary heir, coming to a
succession, must return to the general mass all that he has
received from the deceased by gift inter vivos, directly or
indirectly; he cannot retain the gifts made nor claim the
legacies bequeathed by the deceased, unless such gifts and
legacies have been given him expressly by preference and
beyond his share, or with an exemption from return.
4 928. A substitution may exist although the term usufruct
be used to express the right of the institute. In general the
whole tenor of the act and the intention which it sufficiently
expresses are considered, rather than the ordinary accepta-
tion of particular words, in order to determine whether
there is substitution or not.
944. The institute holds the property as proprietor, sub
ject to the obligation of delivering over, and without preju
dice to the rights of the substitute.
6 962. The substitute takes the property directly from the
grantor and not from the institute.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.