Can you dispose of corporate assets by a will?

This should be carefully considered by all estate-planning lawyers who have traditionally advised clients that they may only dispose of the testator’s shares, and not the corporation’s assets, by will. In our experience, business owners commonly co-mingle assets in private companies and desire to gift them as their own in their wills.

In Trezzi vs Trezzi, the deceased was sole owner of Trezzi Construction, which held real property and equipment, investment real property, and personal-use property. By his will, the deceased directed the real property and equipment to be gifted to his son, and the remaining assets to be divided among his wife and all three of his children.

On an application brought for direction, Justice Wilton-Siegel concluded that the deceased intended to gift the corporate assets by winding up the corporation and that the executors therefore had the authority to effect the wind-up and the gifts.

On appeal, the surviving wife and the two daughters argued that the hearing judge erred in applying an intention analysis, that the rule against gifting what one does not own, and the principle of separate corporate personhood required that the gifts fail. The Court of Appeal favoured the hearing judge’s analysis.

Although testators who solely own private companies have broad discretion in disposing of corporately owned assets, planners should still approach such intentions with great care. Often winding up a corporation and distributing its assets may result in significant income tax liability, a higher risk of interpretation issues, and abatement.

The application of this decision to future cases will require careful consideration of conditions, such as the existence and extent of corporate debts, security interests, shareholder agreements, and the existence of minor shareholders.

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