When you are the sole shareholder of a company, for example a professional corporation or a holding company, you may fall into the habit of treating the assets held by the company as your own for all practical purposes. However, you should keep in mind that a corporation is a separate legal entity, which owns its own assets. You merely own the shares in the corporation which in turn owns those assets.
This may create confusion when it comes to your estate planning. When your corporation owns assets, can you make bequests of those assets in your will?
A 2019 decision of the Ontario Court of Appeal indicates that in some cases the answer is “yes”.
In Trezzi v. Trezzi 2019 ONCA 978, the deceased was the sole shareholder of a company. The company owned certain assets. The deceased made bequests of those assets in his will. The bequests were challenged on the basis that the deceased did not own the assets, as they were owned by the company, and he could not give what he did not own.
The Court of Appeal upheld the lower court’s decision that the deceased could bequeath the assets of his company in his will. In doing so, the court looked at the deceased’s intention, which was to distribute all of the assets of the company and wind it up. The court held that the trustees had two independent sources of authority to implement his intention to wind-up the company: general powers available under corporate law, and powers set out in the will which permitted them to convert estate assets into money. The principle of the corporation as a separate entity did not complete the analysis of whether a testator who is the sole shareholder of a corporation can gift corporate assets.
It is still risky for will-makers in British Columbia to assume that you can deal with assets held by your corporation in your will. Trezzi was an Ontario case and so it is not binding in British Columbia. The case has not yet been considered in British Columbia, and it may not be followed. Instead, the courts in British Columbia may prefer to protect the sanctity of the corporation as a separate entity or may require very clear instructions that the executors are authorized to deal with the property held by the corporation.
Even in Trezzi, the court noted that it would have been preferable had the will been more explicit in referring to the trustees’ authority to deal with his corporation’s property.