A Faulty Settlement and Some Buyer's Remorse

The recent decision of the Superior Court of Justice in the Murphy Estate considers what happens when parties to a proceeding settle a matter on the basis of faulty facts and one of the parties suffers from “buyer’s remorse”. 

Murphy Estate involved a dispute between the Deceased’s step-children and biological children after she died leaving in a will preferring her own children and leaving her step children with only nominal gifts.  Rather than litigating, the children and step-children reached an agreement that they would all split the estate equally and signed minutes of settlement to this effect.

When the settlement was reached, it was assumed the value of the estate was approximately $270,000 (and included a RRIF of $150,000).  This was based on a schedule prepared by the estate solicitor which listed the RRIF as an estate asset. However, the minutes of settlement themselves did not include any reference to the assets of the estate but instead simply contemplated the division of the residue.  

After the minutes of settlement had been signed, it was discovered that the beneficiary on the RRIF was not the Deceased’s estate, but was the Deceased’s two children.  The bank holding the RRIF then paid the proceeds to the children on the basis of the beneficiary designation. 

One of the step-children brought a court application seeking the repayment of the RRIF to the estate and arguing that, notwithstanding the fact that the biological children were the designated beneficiaries, the proceeds of the RRIF were to be distributed as per the terms of the settlement.  She argued that because the RRIF had been included on the statement of assets she had relied upon in reaching the settlement, a mistake had occurred and the RRIF should be included in the estate. 

The court found that in order to rely on the doctrine of mistake to set aside the agreement, the applicant would have to establish that the deceased’s children (who were the beneficiaries of the RRIF) had also been aware of the mistake when the settlement was reached.  Here, the court held that this wasn’t the case – all parties had believed that the estate was the beneficiary of the RRIF and it was only after the minutes of settlement had been signed did they learn the truth. 

Ultimately, the court decided that while step-daughter may have made a “bad bargain” by signing the minutes of settlement she was bound by them and the RRIF did not need to be repaid to the estate.    

Some Tips on Paying Estate Debts

One of an estate trustee’s duties is to pay the debts that a deceased individual owed when he or she died.  As I have previously discussed, the estate trustee is generally not personally liable for the deceased’s debts – they are paid from the assets of the estate.  However if an estate trustee distributes the estate assets to the beneficiaries before debts have been satisfied, the estate trustee might be personally liable for any amounts owing. 

One way for an estate trustee to avoid being on the hook for debts after the distribution of th estate is to advertise for creditors.  Section 53 of the Trustee Act provides that an estate trustee will not be personally liable for claims by creditors within the amount of time specified in a notice published.  In other words, if the estate trustee puts an advertisement in a newspaper asking creditors to contact her within a specific time, the estate trustee will not be personally liable for claims that are not made by the specified date if she then distributes the estate. 

Unfortunately, s. 53 is not specific about the form, content, or timing the notice should take.  However, certain rules of convention have emerged.  Generally, an estate trustee should advertise at least three times in a local paper (where the deceased lived) and allow no less than thirty days between the date the advertisement was first published and the stated date on which the estate will be distributed. 

As a final note, it is important to be aware that s. 53(2) of the Trustee Act provides that the effect of advertising for creditors is not to actually extinguish any claims the creditors might have – it is simply to protect the estate trustee.  The creditors will still have the ability to trace the distributed assets of the estate to the hands of the beneficiaries.             

Expecting An Inheritance? You Might Not Be Getting One

Investor’s Group, a financial services company in Canada, recently released the results of a survey regarding people’s expectations when it comes to receiving an inheritance or leaving one to others. 

53% of Canadians expect to receive an inheritance and apparently most except to get a bit of a windfall.  Of those who believed they knew how much they would receive, 57% expected their inheritance to exceed $100,000.   

These expectations are not in line with what people who have already received an inheritance reported getting.  Of those who were willing to reveal the amount they had inherited, only 18% reported receiving over $100,000 while 26% revealed receiving less than $5,000.  It seems that some of the beneficiaries-in-waiting out there might be in for an unpleasant surprise!

Different age groups had different expectations about receiving an inheritance.  While 80% of those aged 18-29 anticipated receiving an inheritance, respondents aged 30-44 were more modest in their expectations with 62% expecting to receive one.  Baby boomers weren’t so optimistic – 48% of Canadians aged 45-64 thought they’d inherit money. 

What people expect to receive is not necessarily in line with what people expect to leave behind.  45% of Canadians aged 60 and over are concerned that their savings will be depleted during their retirement and that they will not have any money to leave behind.  25% are not willing to make any personal sacrifices in order to leave others an inheritance.

Despite these expectations, many people report never discussing the terms of their parents wills with them.  Of Canadians whose parents currently have wills, 39% say they’ve never discussed the contents.  61% of those whose parents have died leaving a will said that they had not been previously aware of the contents.   

Happy Holidays & See You In January

Dear Readers -

After a hiatus, my blog returned last week and will now be published on Tuesdays and Thursdays. 

As (un)luck would have it, last Thursday I had a freak accident which resulted in a trip to the emergency room and 16 (count 'em!) staples in my knee.  The good news is I'll be fine - although I'm still achy at this point!  The bad news is (I hope you'll understand) blogging isn't top of my mind right now. 

I'm going to take the rest of December off my blog and will see you back here in January on Tuesdays and Thursdays. 

Have a Merry Christmas and a Safe and Happy New Year!

Megan

Help! I Need To Get Probate, But Can't Pay the Fee

In Ontario, when an executor applies for a certificate of appointment of estate trustee (“probate”), the Estate Administration Tax Act requires her to pay the estate administration tax (a “probate fee”).  The amount of the probate fee payable will depend on the value of the assets listed on the probate application and is $5 per $1,000 up to $50,000 and $15 per $1,000 by which the value of the estate exceeds $50,000. 

In some situations, the estate will lack the liquidity to pay the probate fee.  This typically occurs when there is no cash in the estate (such as when the deceased’s bank accounts were held jointly with a right of survivorship) and there is an asset, such as a house, which the estate trustee requires probate to deal with.

In circumstances such as this, s. 4 of the Estate Administration Tax Act allows the estate trustee to apply to the court for a grant of probate prior to the probate fee being paid.  In order to obtain probate in advance of the fee being paid, s. 4(2) provides that the estate trustee must file an affidavit (and such other material as the court requires) that satisfies the court of the following:

  • Probate is urgently required;
  • Financial hardship would result if probate is not granted before the probate fee is paid; and
  • Sufficient security has been furnished for the payment of the probate fee.    

In situations where there is cash in the estate, financial institutions typically won’t release it to an estate trustee prior to probate being granted.  However, this doesn’t mean the estate trustee must try to have payment of the probate fee deferred. 

In these circumstances, a bank holding enough of the deceased’s cash to satisfy the probate fee will typically release the funds necessary to pay the probate fee (by way of a bank draft made payable to the Minister of Finance ) upon receiving proof of the amount owing. 

In Estate Planning, When Does "Equal" Mean "Unequal"?

Figuring out how to divide your estate can involve making tough choices.  This is particularly the case when there are multiple potential beneficiaries who have differing (and sometimes conflicting) expectations about what they’re going to inherit from a loved one’s estate. 

In situations where the beneficiaries of the estate will be an individual’s children, a difficult decision can involve whether the estate is divided equally between them or whether different kids receive different shares.  A recent article from the Wall Street Journal considers some of the complications that can arise in both scenarios.

Sometimes, a decision about how to divide an estate can be driven by spite – a parent, angry that a child didn’t live up to expectations simply disinherits him.  However, frequently, the individual making the will has sound reasons for distributing his estate in a specific way. 

For example, it might have been that one child received considerable financial assistance when the parent was still alive, so the parent decides to use her will to “equalize” the situation between the children.  Or, one child might have considerably more financial resources than another and the parent decides to “help out” the poorer child. 

Whatever the rationale behind the way you divide your estate, there are a couple of things to keep in mind.  First, consider the legacy you want to leave behind.  Just because you had very good reasons for the way you decided to divide your estate does not mean that the beneficiaries will figure them out; instead, they may end up angry and bitter. Second, consider the way the distribution of an estate will affect the relationship between surviving family members – good intentions behind an estate plan might be rendered meaningless if the result is family infighting and broken relationships. 

It is a good idea to discuss the contents of your will with those who will be affected by it.  Although the idea of children expecting an inheritance may seem distasteful to some parents, a very common impetus for estate litigation is a child being unpleasantly surprised by the terms of a parent’s will – having a discussion while you’re alive can help stave off bitterness (and litigation!) when you’re dead.   

Oh Yay! You Now Have 0.2 More Years to Get it All Done!

Those who feel like there are never enough hours in a day to get everything done are in a for a break – they now have more years than ever to complete their unending “to do list”.  According to Statistics Canada, life expectancy in this country has hit a new high. 

For those born between 2006 and 2008, life expectancy is now 80.9 years.  This is an increase of 0.2 years from 2005 – 2007.  Okay, so that might not mean much to the middle aged crowd with bulging inboxes…but at least the pre-school aged future multi-taskers will have more time!

Those born in British Columbia are best off, with a life expectancy of 81.4 years.  Ontario comes in at 81.3 years and Quebec at 81 years.  Those born in the territories have the lowest life expectancy at birth – 75.2 years. 

Women still have a longer life expectancy than men, although the gap between the two is closing and the life expectancy of men is increasing at a faster rate than that of women.  Men’s life expectancy (for those born between 2006 – 2008) is 78.5 years, which represents an increase of 0.2 years since 2005 – 2007, while women’s life expectancy is 83.1 years – an increase of 0.1 years.    

There’s also some good news for the baby boomers – life expectancy at 65 has also increased.  For the period of 2006 – 2008, life expectancy for this group is 20 years, an increase of 0.2 years since the last measurement was taken in 2005 – 2007. 

So…you may be able to get through all those unanswered emails and voicemails after all!    

I'm the Estate Trustee...How Do I Obtain Probate?

I’ve previously blogged about how a prospective estate trustee obtains probate when there’s no will, so today I thought I’d review how an estate trustee appointed under a will goes about obtaining probate (technically referred to as a “certificate of appointment of estate trustee with a will”). 

An estate trustee should first determine whether probate is actually necessary.  There is no law that requires an estate trustee to obtain probate – the estate trustee’s authority derives from the will itself, not a certificate of appointment.  However, frequently an estate trustee cannot take many administrative steps (such as calling in the proceeds of a bank account or transferring title to real estate) without having obtained probate. 

The material that the estate trustee must file with the court is set out in rule 74.04 of the Rules of Civil Procedure.  The necessary materials include the completed application, original will, an affidavit of execution establishing that the will was duly executed (and if one cannot be obtained, evidence that the will was duly executed), the certificate of appointment of estate trustee with a will, and an affidavit verifying that a notice of application has been served on those entitled to share in distribution of the estate. 

If there are unborn or unascertained beneficiaries of the estate or if a beneficiary is a minor, then The Children’s Lawyer and the minor’s parents must be served with the notice of application.  If a beneficiary is incapable then The Public Guardian and Trustee must be served.  An estate trustee applying for probate is justified in hiring a lawyer to prepare and file the application (and paying for the services out of the estate).  However, for the do-it-yourselfers, pre-formatted and fillable forms are available on the government website

The estate trustee is also required to pay the necessary probate fee (referred to as the “estate administration tax”) when the application is made.  The amount owing is based on the value of the estate.  The estate trustee does not have to pay the amount personally.  Generally speaking, banks will release a bank draft from the deceased’s account payable to the minister of finance for the amount due. 

Gatti Estate Dispute Almost Settled?

Members of the family of Arturo Gatti appear to be close to settling litigation involving the deceased boxer’s estate.  Gatti died in 2009 and was survived by his wife, their son, and a daughter from another relationship. 

Gatti’s cause of death is murky.  He was found dead in an apartment he was renting with his wife at a resort in Brazil.  Initially, Brazilian police identified Gatti’s wife as the prime suspect in his death and alleged that she’d strangled him with a purse strap while he slept.  However, the final report of an investigation into his death concluded that he had committed suicide.  Gatti’s family have refused to believe he committed suicide and his mother and his daughter are currently suing his wife in a wrongful death lawsuit. 

Approximately three weeks before his death, Gatti made a will leaving his entire estate to his wife.  The value of his estate is unclear – it has been estimated that it was worth $6 -$8 million at his death but at present it is currently worth about $3.5 million. 

After Gatti’s death, his family alleged that he had made a will in 2007 in which he left everything to his mother and his daughter.  However, no one has produced a signed copy of the will. 

In a trial which is currently ongoing in Montreal, Gatti’s family is seeking to have his final will (in which he left his estate to his wife) set aside on the basis that he was subjected to undue influence when the will was signed.  Over the weekend, negotiations between the parties appeared fruitful and they were hopeful they would reach a settlement this week.

What's a 'Probate Fee' and How Much Is It?

In Ontario, where a prospective estate trustee applies for a certificate of appointment (colloquially referred to as “probate”), pursuant to s. 2(1) of the Estate Administration Tax Act she is required to pay the estate administration tax (often called the “probate fee”) – the exception being when the value of the estate does not exceed $1,000 - in which case no tax is payable.  The fee is made payable to the Minister of Finance (of the provincial government).     

The amount payable is based on the value of the estate – it is $5 for each $1,000 of the first $50,000 of the estate and $15 for each $1,000 for the amount over and above $50,000.  Our good friends at the Toronto-based accountancy firm Yale & Partners LLP have been kind enough to put together a probate fee calculator which makes estimating the amount owing all the easier!

Before figuring out how much tax is owing, it’s important to understand what assets are included in calculating the value of the estate for probate purposes.  An application for a certificate of appointment (such as the one used when the deceased dies with a will) includes a section where the value of certain assets is to be included (and the total value of these assets forms the basis for calculating the tax owing). 

Specifically, the assets to be included are the deceased’s real estate in Ontario (net of encumbrances) and the deceased’s personal property (and this includes cash, investments, and personal effects).  Note that with the exception of encumbrances on real estate (for example, a mortgage), a deceased’s debts cannot be offset against the assets listed on the probate application – this means that the probate fee is based on the gross value of the estate, not the net value. 

There is some property that is not included in the value on the probate application – and this includes real property outside of Ontario and assets that flow outside the estate (such as joint assets, and insurance policies/RRSPs/RRIFs with a designated beneficiary).

There are various estate planning steps that can be employed to reduce the probate fee – however, there are often risks that come in doing so.  It’s a good idea to make sure you understand the risks before taking any such steps.