Estate planning often assumes a simple premise: a testator can distribute their property as they see fit. But what happens when a will purports to gift an asset that the testator does not beneficially own? In Ontario, this scenario engages a complex intersection of property law, trust principles, and the doctrine of ademption. The result is frequently harsh: the gift fails.
This article explores how Ontario courts approach such situations, with reference to leading principles and case law.
1. Legal vs. Beneficial Ownership: The Starting Point
A fundamental distinction in Canadian property law is between legal ownership and beneficial ownership. Legal title refers to formal ownership, while beneficial ownership reflects who truly enjoys the use and benefit of the asset—often arising in trust or nominee relationships.
This distinction becomes critical in wills. A testator can only dispose of what they actually own—beneficially, not merely nominally.
2. The Governing Principle: Nemo Dat and Testamentary Limits
The maxim nemo dat quod non habet—you cannot give what you do not have—underpins succession law. If a testator attempts to bequeath property that they do not beneficially own, the gift is prima facie ineffective.
This principle is reflected in the doctrine of ademption, which holds that a specific gift fails if the property is not part of the estate at death.
3. The Doctrine of Ademption in Ontario
a) Basic Rule
In McDougald Estate v. Gooderham, the Ontario Court of Appeal described ademption as follows: where a specifically gifted item is no longer in the estate at death, “the bequest is held to have adeemed and the gift fails.”
This applies not only where the asset has been sold or destroyed, but also where the testator never owned it in the relevant sense.
(b) Application to Beneficial Ownership
A particularly important—and often misunderstood—application arises where the testator appears to “own” an asset but does so only indirectly.
For example:
- A testator owns shares in a corporation;
- The corporation owns real property;
- The will gifts the property, not the shares.
In such cases, Ontario law generally treats the corporation—not the testator—as the beneficial owner of the asset. As a result, the gift fails by ademption because the testator did not own the property directly.
4. Ontario Case Law: Strict Rules, Flexible Outcomes
(a) Strict Application: Corporate Ownership
Courts across Canada have historically applied ademption strictly in corporate ownership scenarios. A gift of underlying assets (e.g., land) fails if the testator only owns shares in the entity holding those assets. ()
This reflects a formalistic approach: the estate includes shares, not the corporation’s assets.
(b) A More Flexible Approach: Re Kaptyn Estate
Ontario courts have shown some willingness to mitigate harsh outcomes.
In Re Kaptyn Estate, the testator bequeathed properties that were technically owned by corporations. Rather than allowing the gifts to fail, the court rectified the will, concluding that the testator’s intention was clearly to gift the properties themselves.
Justice Brown permitted the will to be interpreted (and effectively corrected) to give effect to that intention.
This case signals that Ontario courts may prioritize testamentary intention over strict property form; but such relief is exceptional and fact-specific.
5. When the Asset Was Never the Testator’s
The problem becomes even more acute where the testator never had beneficial ownership:
- Property held in trust for another;
- Assets registered in the testator’s name but beneficially owned by someone else;
- Nominee or agency arrangements.
In such cases, the asset never forms part of the estate, and any purported gift is void from the outset—not merely adeemed.
6. Exceptions and Statutory Modifications
Ontario has limited statutory interventions that soften ademption, particularly where property is disposed of by an attorney under a power of attorney.
For example, under the Substitute Decisions Act, ademption may not apply where property is sold on behalf of an incapable testator.
However, these provisions do not generally rescue gifts where the testator lacked beneficial ownership from the beginning.
7. Practical Implications for Estate Planning
This area of law creates several practical risks:
(a) Corporate Structures
Clients often believe they “own” assets held through corporations. Unless the will gifts the shares, not the underlying assets, the gift may fail.
(b) Trust and Joint Ownership Arrangements
Where beneficial ownership lies elsewhere, the asset may bypass the estate entirely.
(c) Drafting Errors
Poorly drafted wills that misidentify the nature of ownership are a common source of litigation.
8. Key Takeaways
- Beneficial ownership controls: A testator can only gift what they beneficially own.
- Ademption applies broadly: If the asset is not in the estate at death, the gift fails.
- Corporate ownership is a trap: Owning shares is not the same as owning underlying assets.
- Courts may intervene—but rarely: Cases like Re Kaptyn Estate show flexibility, but they are exceptions.
- Careful drafting is essential: Proper identification of ownership structures can avoid unintended consequences.