Reasons for Judgment
Court File No.: CV-23-00695128-00ES
Date Heard: March 21, 2025
Date Released: March 28, 2025
Ontario Superior Court of Justice
In the Matter of the Estate of Carolyn Alexander, deceased
Between:
Carrie Lynn Dyjack, personally and in her capacity as Estate Trustee for the Estate of Carolyn Alexander (Applicant)
– and –
Kelly Lynn Shaw, personally and in her capacity as Estate Trustee for the Estate of Carolyn Alexander (Respondent)
Appearances:
Quinn Giordano, for the Applicant
Derek M. Sinko, for the Respondent
Judge: Antonio A. Sanfilippo
Overview
1Carolyn Barbara Alexander died on June 28, 2021 (the “Deceased”), and was survived by her daughters, the Applicant, Carrie Lynn Dyjack, and the Respondent, Kelly Lynn Shaw. The Deceased left a last will and testament dated January 9, 2013 (the “Will”) which appointed her daughters as the co-executors and trustees of her Estate and named Ms. Dyjack and Ms. Shaw as equal beneficiaries in the residue of the Estate.
2The parties could not agree on an issue affecting the administration of the Estate. Specifically, the Applicant contended that the Deceased was liable, and now her Estate is liable for the payment of a United States gift tax (“U.S. Gift Tax”) that the Deceased was required to pay in 2009 upon the transfer of a property known municipally as 820 Veronica Court, Manatee Pointe Reserve, Indian Harbour Beach, Florida (the “Florida Property”). The Respondent disagreed and maintained that the U.S. Gift Tax is not a just debt of the Estate.
3The Applicant brought this Application for the opinion, advice, and direction of the Court regarding whether the U.S. Gift Tax is a liability of the Estate of the Deceased. For the reasons that follow, I find that the U.S. Gift Tax is a just debt of the Estate.
I. Factual Background
4Most of the facts pertinent to the determination of this Application were not in dispute.
5Upon their mother’s death and considering their appointment as Estate Trustees through the Will, the parties applied for the issuance of a Certificate of Appointment of Estate Trustees with a Will, which was granted to them on December 15, 2021. The parties have since acted as Estate Trustees.
A. The Will
6The parties agreed that the Will is valid and effective, and provides, amongst other things, as follows:
- Paragraph 4(b) of the Will directs the parties as Estate Trustees “[t]o pay out of and charge to the capital of my general estate, my just debts, funeral and testamentary expenses and all estate, inheritance, legacy and succession duties or taxes, including any taxes payable under the Income Tax Act (Canada) as amended (the “Act”), which may be payable in connection with my estate” (the “Direction to Pay Estate Expenses”).
- Paragraph 4(c) of the Will provides that the Estate Trustees shall transfer “any interest that [the Deceased] may have in any property in Florida to [Ms. Dyjack], should she survive me, for her own use absolutely” (the “Florida Property Gift Clause”).
- Paragraph 4(d) of the Will provides that the Estate Trustees shall transfer “any interest that [the Deceased] may have in any property municipally known as 2 Buena Street, Port Dover, Ontario to [Ms. Shaw] free and clear of any and all encumbrances, should she survive me, for her own use absolutely” (the “Port Dover Property Gift Clause”).
- Paragraph 4(e) of the Will provides that the Estate Trustees shall divide the residue of the Estate to the parties, Ms. Dyjack and Ms. Shaw, in equal shares.
7The Deceased owned a property located at 820 Veronica Court, Manatee Pointe Reserve, Indian Harbour Beach, Florida (the “Florida Property”). The parties discovered, during the administration of the Estate, that by Quit Claim Deed dated March 2, 2009, the Deceased transferred the Florida Property from her sole ownership to ownership in joint tenancy with Ms. Dyjack (the “2009 Florida Property Transfer”). The parties agreed that the Deceased did not report the 2009 Florida Property Transfer for U.S. tax purposes and, specifically, that the Deceased did not file a U.S. Gift Tax Return, either at the time of the transfer of the Florida Property or at any time during her lifetime.
8The parties retained Mr. Robert Fuller, the lawyer who had acted for the Deceased in the preparation of the Will, to assist them in the administration of the Estate. Mr. Fuller referred the parties to U.S.-based tax advisors to assist them in addressing issues pertaining to the Florida Property.
B. The Parties’ Investigation of the U.S. Gift Tax Issue
9Ms. Dyjack deposed that she received advice from Margaret Bauer, a Canadian tax manager at Millard, Rouse & Rosebrugh, LLP, Nicole Laliberte, a U.S. tax attorney at Crary Buchanan based in Florida, and April Hicks, a U.S. accountant and partner at Carr, Riggs & Ingram (“CRI”), a Florida-based accounting firm that provided accounting and tax advice. Ms. Shaw retained Tim Peters, an Ontario lawyer, and Neil Buchalter, a Florida based tax attorney.
10On August 26, 2022, Mr. Buchalter reported to Ms. Shaw that she and Ms. Dyjack as Estate Trustees have an obligation to deal with the U.S. Gift Tax as a liability of the Estate, as follows:
As executors, you and [Ms. Dyjack] have a duty to pay the legitimate claims of the estate. Although I have not seen any claims, I assume that the IRS has filed a claim against your mother’s estate for unpaid gift taxes of approximately $90,000. Assuming this is the case, then you and [Ms. Dyjack] have an obligation to deal with their claim. You must either pay that claim from your mother’s estate OR you can dispute that claim if you believe that it is unfounded.
11In the period from June 2022 to September 2022, the Estate Trustees received advice from CRI regarding the reporting to the U.S. Internal Revenue Service (“IRS”) of the 2009 Florida Property Transfer. Based on the legal and accounting advice received, CRI was directed to prepare a late U.S. Gift Tax Return (Form 709) reporting the 2009 transfer of the Florida Property as a taxable gift, which was completed by Ms. Dyjack and filed. The IRS then assessed the failure to timely file and failure to pay penalties with respect to the late filing of the U.S. Gift Tax Return. The IRS assessed U.S. Gift Tax and penalties for the late filing of the return totalling $70,791.45 USD (the “Outstanding Gift Tax”).
12There is no dispute that Ms. Dyjack paid, from her own resources: the Outstanding Gift Tax, in the amount of $70,791.45 USD, the CRI invoices dated June 29, 2022 and September 19, 2022 in the amounts of $6,562.00 USD and $7,800.00 USD, respectively, and a property appraisal in the amount of $500.00 USD (collectively, the “U.S. Gift Tax Expenses”). The parties agree that the Canadian currency equivalent of the U.S. Gift Tax Expenses is $121,163.23.
13On October 18, 2022, Ms. Dyjack wrote to Ms. Shaw to urge her to agree that the U.S. Gift Tax be paid from the assets of the Estate, as follows:
Here is my position and feel free to correct me if you have different information than me. I have consulted both lawyers and accountants in Canada and the U.S. and they all agree that in 2009 mom should have filed a U.S. tax return for gift tax. If she had have done that then we would have avoided the tax, penalties and interest. When someone files a Quit Deed in the U.S. it is the grantor who is responsible to file the return. Therefore the expense becomes part of the estate. Since we are both executors and beneficiaries, we are responsible for the expenses of the estate.
14Ms. Shaw did not agree that the U.S. Gift Tax Expenses should be paid from the assets of the Estate. As a result, Ms. Dyjack brought this Application.
II. The Application
15This Application raised a single issue. Ms. Dyjack sought the opinion, advice, and direction of the Court regarding the tax consequences of the 2009 Florida Property Transfer, and whether the taxes and related expenses resulting from the 2009 Florida Property Transfer are a liability of the Estate.
III. The Expert Opinion Evidence
16The parties each delivered an affidavit of a U.S. tax and estate lawyer to provide expert opinion evidence regarding the payment of the U.S. Gift Tax.
17The Applicant retained Kevin Gluc, a U.S. attorney who practises as a partner with the law firm Hodgson Russ LLP in Buffalo, New York. Mr. Gluc specializes in trusts, estates, and tax disputes. Mr. Gluc deposed that his practice focuses on U.S./Canada cross-border estate planning, estate and gift planning, business succession planning, estate and trust administration, and trust and estate litigation.
18The Respondent retained Jeffrey H. Skatoff, a U.S. attorney who practices as a partner of the law firm of Clark, Skatoff PA in Palm Beach Gardens, Florida. Mr. Skatoff and his law firm practice in the areas of estate planning, probate administration, probate and trust litigation, taxation, and guardianship litigation. Mr. Skatoff practised with the U.S. Department of Justice, Tax Division, from 1991 to 1995.
19The Applicant accepted that Mr. Skatoff was qualified to provide expert opinion evidence as a U.S. estates and tax attorney, and had committed to do so in a fair, objective and non-partisan manner, in accordance with the duties set out for the admission of expert evidence in accordance with Rule 53.03 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194. Similarly, the Respondent accepted that Mr. Gluc was qualified to provide expert opinion evidence as a U.S. estates and tax attorney, and committed to do so in a fair, objective and non-partisan manner, in accordance with the duties set out for the admission of expert evidence in accordance with Rule 53.03 .
20On the basis of the parties’ admissions, and on my review of the qualifications of Mr. Gluc and Mr. Skatoff, including their affirmation of the duties under Rule 53.03 , I admitted Mr. Gluc and Mr. Skatoff as experts of U.S. tax and estates law.
21In terms of permissible scope of testimony, Mr. Gluc and Mr. Skatoff were directed by their instructing counsel to provide different scopes of testimony. Mr. Gluc was directed by the Applicant to provide opinion evidence on the following question:
Are the taxes resulting from the transfer of the [Florida Property] from the late Carolyn Alexander to Carolyn Alexander and Carrie Dyjack (“Transfer”) a liability of the late Carolyn Alexander and/or her Estate, or a personal liability of Carrie Dyjack.
22I accept that this is a permissible scope of testimony for Mr. Gluc’s expert opinion evidence.
23Mr. Skatoff was directed by the Respondent to provide opinion evidence on the following question:
The question to be answered is whether a beneficiary of an estate in Canada who has received distribution from the Canadian estate is liable to return a portion of the distribution received, for purposes of reimbursing another beneficiary who paid, out of her own funds, an unpaid United States gift tax liability of the Deceased.
24I do not agree that this is a permissible scope of testimony for Mr. Skatoff because this question calls for opinions on Canadian law. I will, however, admit Mr. Skatoff’s opinion evidence on the issues of the character and nature of the U.S. Gift Tax and steps available to the IRS for its enforcement.
25Mr. Gluc and Mr. Skatoff agreed on the following conclusions of U.S. law:
(a) Upon the 2009 Florida Property Transfer, the Deceased was liable for payment of the U.S. Gift Tax.
(b) Since the Deceased died without payment of the U.S. Gift Tax, the U.S. Gift Tax is an obligation of the Estate.
26Mr. Gluc did not contest Mr. Skatoff’s evidence that the IRS could not enforce the U.S. Gift Tax against the Florida Property because the time for registration of a special gift tax lien or general lien has expired or was otherwise unavailable at the time of the Deceased’s death. Regarding the question of the enforceability of a claim for payment of the U.S. Gift Tax, Mr. Skatoff deposed that the payment by Ms. Dyjack of the U.S. Gift Tax Expenses was gratuitous and unnecessary. Mr. Gluc disagreed. I prefer the expert evidence of Mr. Gluc on this issue, for reasons that I will explain.
IV. The Positions of the Parties
27Ms. Dyjack submitted, based on opinions and advice provided by experts on U.S. tax and estate law, that the U.S. Gift Tax was a personal debt of the Deceased, and now a just debt of the Estate, and must be paid from the Estate’s assets.
28Ms. Shaw objected to the payment of the U.S. Gift Tax by the Estate on three grounds:
(a) The Deceased did not intend that the U.S. Gift Tax be paid from the Estate.
(b) Based on section 32 of the Succession Law Reform Act , R.S.O. 1990, c. S.26 (the “ SLRA ”) the U.S. Gift Tax is a “charge” that is payable by Ms. Dyjack as the beneficiary of the Deceased’s interest in the Florida Property.
(c) The U.S. Gift Tax is not a just debt of the Estate because it is unenforceable in Canada.
29I will address these positions in order.
V. Analysis
A. The Applicant’s Position
30The Applicant’s position is succinct and straightforward. Since there is no dispute that the Deceased was liable for the U.S. Gift Tax, and since the Deceased did not pay the U.S. Gift Tax during her lifetime, it is now a just debt of the Estate. The Estate Trustees have filed the U.S. Gift Tax Return and the IRS-assessed U.S. Gift Tax, penalties, and late fees of $70,791.45 USD which, with related expenses, has now been paid personally by Ms. Dyjack.
31I will address in order the three objections advanced by the Respondent to the treatment of the U.S. Gift Tax Expenses as expenses of the Estate.
B. The Deceased’s Intention
32The Respondent’s submission that the Deceased did not intend that the U.S. Gift Tax be paid as a debt of the Estate is based on her interpretation of the Will. The Respondent submitted that since the Florida Property Gift Clause does not provide that the transfer of “any Florida Property” be “free and clear of any and all encumbrances”, as does the Port Dover Property Gift Clause, the Deceased did not intend that the Florida Gift Tax be paid from the assets of the Estate.
33I do not accept this submission for two reasons. First, the parties agree that the Florida Property vested in Ms. Dyjack upon the Deceased’s death by operation of the right of survivorship arising from the joint ownership of the Florida Property by the Deceased and Ms. Dyjack. As a result, the Florida Property passed outside the Estate. No Florida Property passed through the Estate in accordance with the Florida Property Gift Clause, meaning that no interpretation of that testamentary provision is necessary.
34Second, even if it were necessary to interpret the Will and the difference in wording between the Florida Property Gift Clause and the Port Dover Property Gift Clause, the Respondent did not adduce sufficient evidence to support the interpretation that she has proposed. When interpreting a will, the court must determine the testator’s actual or subjective intention of how the testator intended to dispose of their property, by placing itself in the position of the testator at the time that the will was made: Ross v. Canada Trust Company , 2021 ONCA 161 , 458 D.L.R. (4th) 39 , at para. 36 ; Trezzi v. Trezzi , 2019 ONCA 978 , 150 O.R. (3d) 663 , at para. 13 ; Walters v. Walters , 2022 ONCA 38 , 160 O.R. (3d) 249 , at para. 37 , applying Ross , at para. 13 and Trezzi , at paras. 35-41 . Here, there was no evidence of the Deceased’s actual or subjective intentions regarding the Florida Property, nor its transfer, which took place about four years before the Deceased executed her Will.
35The Respondent failed to establish that the Deceased intended that the U.S. Gift Tax Expenses be excluded from consideration as debts of the Estate.
C. Section 32 of the SLRA
36Section 32(1) of the SLRA provides as follows:
32 (1) Where a person dies possessed of, or entitled to, or under a general power of appointment by his or her will disposes of, an interest in freehold or leasehold property which, at the time of his or her death, is subject to a mortgage, and the deceased has not, by will, deed or other document, signified a contrary or other intention,
(a) the interest is, as between the different persons claiming through the deceased, primarily liable for the payment or satisfaction of the mortgage debt; and
(b) every part of the interest, according to its value, bears a proportionate part of the mortgage debt on the whole interest.
37The Respondent submitted that s. 32(1) operates to require that Ms. Dyjack, as the owner of the Deceased’s interest in the Florida Property, be held liable to pay the U.S. Gift Tax because the U.S. Gift Tax constitutes a “mortgage” or “any charge” for the purpose of s. 32(4) of the SLRA , which defines “mortgage” as follows:
“mortgage” includes an equitable mortgage, and any charge whatsoever, whether equitable, statutory or of other nature, including a lien or claim upon freehold or leasehold property for unpaid purchase money, and “mortgage debt” has a meaning similarly extended.
38In assessing the Respondent’s reliance on s. 32(1) of the SLRA , the first requirement is established. The U.S. experts deposed, and I accept, that at the time of her death, the Deceased “possessed” an “interest in freehold … property” for the purposes of s. 32(1) . Specifically, at the time of her death, the Deceased was a joint owner of the Florida Property together with Ms. Dyjack.
39However, the Respondent must then establish that the U.S. Gift Tax constituted a “mortgage” against the Florida Property. To do so, the Respondent submitted that s. 32(4) of the SLRA should be interpreted to constitute the U.S. Gift Tax as “any charge whatsoever” against the Florida Property. To support her submission that “any charge whatsoever” includes an outstanding property tax charge or lien, the Respondent relied on a Report of the Law Reform Commission of British Columbia , LRC 102, dated January 1989, that resulted in a legislative change from the British Columbia analogue to s. 32(1) of the SLRA, the Wills Act , RSBC 1996, c. 489, s. 30(1), to the Wills, Estates and Succession Act , SBC 2009, c. 13, to expand the scope of the section from “mortgage” to “purchase money security interest”.
40The Respondent acknowledged that no such legislative change has occurred in Ontario. The Respondent did not identify any case in which an Ontario Court has interpreted s. 32(4) of the SLRA to include a property tax charge or lien within the definition of “mortgage”.
41I do not accept the Respondent’s reliance on s. 32(1) of the SLRA because the factual basis for application of s. 32(1) is not present in this case. The Respondent’s reliance on s. 32(1) was predicated on a tax lien having been registered, or even capable of having been registered, against title to the Florida Property at the time of the Deceased’s death, giving rise to an encumbrance. The Respondent’s expert, Mr. Skatoff, deposed that the Deceased’s failure to report the 2009 Florida Property Transfer enabled the IRS to register a “special gift tax lien” against title to the Florida Property. Mr. Skatoff also deposed that the “special gift tax lien” expired ten years from when the gift was made (March 2, 2009). Accordingly, the special gift tax lien expired on March 2, 2019, more than two years before the Deceased died (June 28, 2021) and could not constitute an encumbrance against title to the Florida Property at the time of the Deceased’s death.
42Mr. Skatoff also deposed that there is a second lien that can assist the IRS in collecting an outstanding gift tax: a general lien. Mr. Skatoff explained that the general lien automatically comes into existence on all property of a person who has been assessed as owing taxes. Mr. Skatoff provided the expert opinion that because the filing of the U.S. Gift Tax Return occurred after the Deceased’s death, and after the Deceased’s interest in the Florida Property passed to Ms. Dyjack, “it appears that the general lien might not apply to the one-half interest” of the Florida Property owned by the Deceased at the time of her death. In another section of his affidavit, Mr. Skatoff is more definitive: “As explained above, it appears that the general lien did not attach to the Deceased’s interest in the [Florida Property].”
43Mr. Gluc did not contest Mr. Skatoff’s expert opinion evidence that neither a special gift tax lien nor a general lien has attached to the Florida Property. On this basis, I accept, as uncontested, Mr. Gluc’s opinion that “the U.S. gift tax liability is not an encumbrance on the Florida Property.”
44Since there was no encumbrance of any nature registered, or capable of having been registered against title to the Florida Property at the time of the Deceased’s death, including neither a special gift tax lien nor a general lien, s. 32(1) cannot apply. It is therefore unnecessary to determine whether a special gift tax lien or a general lien constitutes a “charge” for the purpose of s. 32(1) and for the purpose of the definition of “mortgage” under s. 32(4) of the SLRA .
45The Respondent failed to establish that s. 32(1) of the SLRA operates to provide that the Estate is not liable to pay the U.S. Gift Tax but that, instead, Ms. Dyjack is solely liable for the payment of the U.S. Gift Tax as the transferee of the Deceased’s interest in the Florida Property through the right of survivorship.
D. Not a Debt of the Estate Because Unenforceable
46In her factum, the Respondent objected to the Estate paying the U.S. Gift Tax Expenses on the basis that the IRS’s assessment of the U.S. Gift Tax was unenforceable in Canada. Even though the Respondent did not rely on this position in oral submissions, I will explain why I do not accept this basis of objection.
47The Respondent relied on the opinion evidence of Mr. Skatoff regarding the enforceability of a foreign tax debt in Canada. Since Mr. Skatoff is not an expert of Canadian law, he is not permitted to testify on issues of enforcement of a tax debt in Ontario. I thereby disregard his opinion evidence on this issue. I will, however, consider Mr. Skatoff’s evidence on the enforceability of the U.S. Gift Tax assessment as a matter of U.S. law.
48Mr. Skatoff deposed that as a matter of U.S. law, the Estate was not susceptible to enforcement against U.S.-based property because the IRS could not issue a special gift tax lien or a general lien. I have accepted this evidence as uncontested. However, Mr. Gluc explained that the IRS has greater tools for collection of an outstanding tax assessment than those explained by Mr. Skatoff, including collection against the Estate Trustees.
49Mr. Gluc deposed that the donee of the gift of the Florida Property, Ms. Dyjack, would be personally exposed to the U.S. Gift Tax for 10 years from the date of assessment. Further, Mr. Gluc explained that where there is an outstanding federal tax liability of an estate, the representatives of the estate, here Ms. Dyjack and Ms. Shaw, can be held liable if the estate pays other debts prior to satisfying the federal tax liability. This liability continues for 10 years from the date of assessment. This could ultimately result in judgment against either or both Estate Trustees, including enforcement against their U.S.-based assets. Mr. Gluc thereby deposed that if the U.S. Gift Tax went unpaid, both Ms. Dyjack and Ms. Shaw would have remained personally liable for the U.S. Gift Tax.
50I accept Mr. Gluc’s evidence as it provides a more complete explanation of the enforcement tools available to the U.S. tax authority. I thereby reject the Respondent’s submission that Ms. Dyjack’s payment of the U.S. Gift Tax Expenses was gratuitous, which is based on the opinion that there would have been no consequence to the Estate and its Estate Trustees had the U.S. Gift Tax been left unpaid. I accept, based on Mr. Gluc’s evidence, that there would have been continued exposure against at least the Estate Trustees, and that any exposure to the Estate Trustees would have formed the basis of a claim for indemnity against the assets of the Estate.
E. Conclusion – The U.S. Gift Tax is a Debt of the Estate
51On the basis of these reasons, I find that the U.S. Gift Tax is a proper liability of the Estate, and the expenses associated with its payment were also proper expenses in the estate administration.
VI. Disposition
52I order that the tax consequences of the quit claim deed dated March 2, 2009, which conveyed the property known municipally as 820 Veronica Court, Manatee Pointe Reserve, Indian Harbour Beach, Florida (the “Florida Property”) from the late Carolyn Alexander to Carolyn Alexander and Carrie Lynn Dyjack, consisting of taxes, penalties, interest, and related expenses totaling $121,163.23, are the liability of the Estate. A Judgment shall issue accordingly.
VII. Costs
53Considering that the parties are the Estate Trustees and the sole residuary beneficiaries of the Estate, I encourage the parties to agree on the issue of costs of this Application.
54If the parties are not able to agree on the issue of costs, any party seeking costs may, by April 11, 2025, deliver by email to the Court Registrar and to the Estates List Trial Coordinator, after service and filing on Case Center, written costs submission of no more than six (6) pages, plus a Bill of Costs. Any party against whom costs is sought may, by April 25, 2025, deliver by email to the Court Registrar and to the Estates List Trial Coordinator, after service and filing on Case Center, responding cost submissions of the same length. If no party delivers any written cost submissions by April 25, 2025, I will deem the issue of costs to have been settled.
A.A. Sanfilippo
Released: March 28, 2025