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.   

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.   

Take Care to Ensure Your Will is Properly Executed

A recent decision from the United Kingdom considered whether the will of an individual who had benefited only some of his children was properly executed.

Ranjit Singh died in March 2009.  Pursuant to the terms of a will he made in 1999, he left the bulk of his £870,000 estate to his three sons.  His three daughters didn’t fair as well – two of them received bequests of £20,000, while the third daughter received nothing.

After the deceased’s death, one of the daughters challenged his will on the basis that it had not been properly executed.  In the United Kingdom, the rules regarding the proper execution of a will are the similar to those in Ontario –  pursuant to s. 9 of the Wills Act 1837, the will must be signed by the testator in the presence of two witnesses who must then witness the testator’s signature in the presence of the testator.  

Here, the deceased’s daughter alleged that the witnesses to the will were not actually present when the deceased signed it.  One of the deceased’s sons (who was a lawyer) defended the will and argued that the reason the deceased had left his estate mainly to his three sons was because in Sikh tradition daughters are treated as being part of their husband’s family and financially provided for through dowries when they marry.  However, it’s not clear whether the son had any evidence to suggest the will had been properly executed. 

Ultimately, the court found in favour of the daughter and set aside the deceased’s will.  In considering the evidence, the judge found that there was strong evidence to suggest that the will was not executed properly.  Particularly persuasive was the evidence of one of the witnesses that he and the other witness were not present when the will was signed. 

The court found that notwithstanding the fact that setting aside the will would frustrate the deceased’s intentions regarding the distribution of his estate, given the will was not properly executed it simply wasn’t valid.  The effect of the court's decision was that the decesed's estate was distributed pursuant to the rules of intestacy and all his children shared in it equally. 

Some Estate Planning Mistakes to Avoid

Having a will is one thing – however, having a will that is done right is something different.  As a recent article in the Globe and Mail points out, it can be difficult to fix your will once you’ve died.  Some frequent estate planning mistakes that are made include the following:

  1. Not communicating with professional advisors – it’s one thing to have a lawyer do your will.  However, if you don’t fill in your investment or financial advisor regarding the contents of the will, it’s possible that you may undertake financial planning steps that undermine the estate plan. 
  2. Unduly obsessing over the probate fee – in Ontario, there is an estate administration tax which must be paid if an executor obtains probate.  While it’s never fun paying taxes, this one is relatively small (generally about 1.4% the value of the estate).  There are estate planning steps that can be taken to reduce (and sometimes completely avoid paying) the tax, however they can carry negative consequences.  It’s important to make sure that any steps taken to minimize the probate fee are worth the potential risks.
  3. Giving inadequate consideration to the choice of executor – even the administration of a simple estate can be time consuming and stressful.  Things only get worse if the wrong person (or people) has been named as executor.  Family dynamics are often to blame when an estate administration turns sour – particularly when the named executors are family members (often siblings) with a contentious relationship. 
  4. Not reviewing estate planning documents – circumstances change and over time an estate plan can become out of date.  It’s important to review a will to ensure that the distribution scheme still makes sense.  Some things to consider include whether there have been any births, deaths, marriages, or divorces since the will was made; whether there are any special family circumstances (such as common law relationships, step-relatives, or adoptions which should be taken into account); and whether the assets owned at the time the will was made continue to be owned. 

Now that September is here, it’s a good time to review your will and make sure you’re happy with what’s in it…and if you don’t have a will, it’s a good time to see a lawyer and have one made.

Estates Lawyers...Don't Forget About Family Law

On Wednesday I blogged about will drafting and professional negligence issues that can arise for a lawyer.  I commented that “dabbling” in an area of the law can be a bad thing – however, knowing about another area of the law is a very good thing.  In its most recent Webzine, LawPRO (the professional insurer for lawyers in Ontario) discusses how estates and trusts lawyers can benefit from knowing a thing or two about family law.

When drafting wills, something that is often overlooked is the role family law has on an individual’s ability to dispose of his estate.  While it might be nice to think that when doing a will an individual can do whatever he wants with his assets, in many situations this is not the case and there are in fact legal limitations when it comes to disposing of assets. 

Some of the “hot button” issues that LawPRO raises include the following:

  1. Matrimonial home – in Ontario, a spouse can’t dispose of a matrimonial home without the consent of the other spouse – irrespective of who holds title to the property.  Keep in mind that that the definition of “matrimonial home” is broad and will frequently include a vacation property. 
  2. Child/Spousal Support – child and spousal support obligations are frequently binding on an individual’s estate – and not simply those obligations that arise by way of court order.  Often, domestic agreements and separation agreements will impose support obligations that should be considered when doing a will. 
  3. Dependant Support EntitlementPart V of the Succession Law Reform Act allows certain classes of people (including a spouse or child) to bring a support claim against an individual’s estate if the individual did not provide adequate provision for dependants in his/her will.  The right to bring a claim of this nature applies to former spouses – and can’t be “contracted out of” by a separation agreement.

LawPRO’s article includes a few other issues which are worth a review – and should be kept in mind by any lawyer drafting wills (as well as the litigators that come on to the scene post-death). And in a future blog, I'll comment on some of the issues that family law lawyers need to remember about estates law.

Be Mindful of Potential Pitfalls When Drafting a Will

“Getting sued” is an unpleasant thought for any lawyer and for estates and trusts lawyers it is an unfortunately common occurrence.  According to the latest LAWPRO Webzine, wills and estates is the fifth most common area of claims (something I’ve blogged about before).  And dabblers beware!...it is one of the areas most commonly subject to claims as a result of insufficient knowledge of the law.

LawPRO has circulated a must-read article discussing some of the most common mistakes made when drafting wills.  Potential landmines include:

  1. Lack of communication – this is the most common reason for claims reported in the wills and estates area.  Frequent errors include: neglecting to compare client instructions with the terms of the will drafted; failing to confirm the marital status of the client; and failing to confirm the client’s assets and debts.
  2. Inadequate investigation – while this includes failing to ascertain many different types of information, a particular “hot button” is a client’s mental capacity.  A lawyer has an obligation to make reasonable enquiries to ensure a client has the requisite testamentary capacity to make a will and basic questions should be asked of all clients to ensure there are no concerns (never assume…ask instead!).
  3. Unfamiliarity with the law – just like clients often think their estate planning is “simple enough”, far too many lawyers believe that drafting a will is “simple enough”.  Mistakes made can range from the mundane (such as not understanding the legal requirements for executing the will) to the complex (such as providing estate planning advice without understanding tax and corporate law relevant to the client file). 
  4. Clerical errors – apparently LawPRO sees this quite a bit!  Common mistakes include typos when it comes to the dollar value of bequests, percentage divisions of residue that do not equal 100, and misdescribing the legal name of a charity (which can result in the charity not getting the bequest). 

The article also includes other frequent mistakes which are worth reviewing.  And, as I’ve noted before – if a lawyer becomes aware that there might be a potential claim against them, they need to report to LawPRO asap.  Failing to do so can result in a denial of coverage.

How is an Estate Distributed When There Is No Will?

Any estates lawyer will tell you that it’s important to have a will.  However, according to Leave A Legacy, 30% of you won’t get the message and will die without one (referred to as an “intestacy”).  When you die with no will, the law, in effect, makes one for you and the distribution of your estate will be governed by Part II of the Succession Law Reform Act [“SLRA”].

Where the deceased is survived by a spouse but no “issue” (i.e. lineal descendants) or where the deceased dies leaving an estate valued at $200,000 or less then the spouse alone is entitled to the estate.

Where the deceased has a spouse and children, the spouse is entitled to the first $200,000 (referred to as the “preferential share”) and the distribution of anything above that amount depends on the number of surviving children.  If there is one child, then the spouse receives half of the balance over and above the preferential share.  If there is more than one child the spouse will receive one-third of the balance over and above the preferential share.  The remainder of the balance remaining will be divided amongst the surviving children (with certain rules applying if a child has predeceased but has left issue of her own).

In situations where there is no spouse, children, or other lineal descendants, then the deceased’s estate will be divided equally amongst his parents living at his death.  If neither parent is living then the estate will go to the deceased’s siblings (and if a sibling has passed away with issue, then that sibling’s share will go to his or her issue).

If there is no spouse, issue, parents, or siblings alive, then the estate will go to the deceased’s nieces and nephews then living – and if they aren’t alive either then it will to the deceased’s next of kin.

What happens when there are no next of kin?  The government ends up the winner and pursuant to the Escheats Act the estate devolves to the Crown.

How Does a Separation Agreement Affect Your Estate Plan?

The effect that marital breakdown has on an estate plan is an issue that confuses many.  As I’ve blogged about before, a divorce will generally revoke a gift to a spouse and an appointment of the spouse as executor under a will; however, mere separation will generally have no impact at all.  But what happens when separated (but not divorced) spouses enter into a separation agreement?

The recent decision of Makarchuk v. Makarchuk addresses the impact of a waiver of rights to an estate in a separation agreement when there is also a will leaving an entitlement to the spouse.  In this case, the spouses were separated, but not divorced.

Six months before the spouses separated, the husband had a made a will naming his wife as his executor and as the sole beneficiary of his estate.  Subsequent to their separation, the spouses entered into a separation agreement that provided that “subject to any additional gifts from one of the [spouses] to the other in any will validly made after the date of this agreement” the spouses both released any rights they may acquire “under the laws of any jurisdiction in the estate of the other…” 

The husband later died and a dispute arose as to whether the wife was entitled to receive the estate pursuant to the husband’s will and act as executor.  Their son argued that the wife had no entitlement to the estate as the separation agreement acted as a waiver to any rights she might have. 

The wife argued that there were only three ways that the provisions in the husband’s will could fail: (1) through the husband making a new will; (2) through the husband marrying someone else; or (3) in compliance with the provisions of s. 15 of the Succession Law Reform Act (which sets out the formal requirements when revoking a will). 

Ultimately, Justice Hennessy found in favour of the wife.  She determined that the language in the separation agreement that referred to the release of “rights acquired under law” did not apply to those acquired under the husband’s will.  Accordingly, Hennessy J. found that the language in the separation agreement did not trump the wife’s rights under the will and the wife was entitled to take as the will provided. 

Beware the Perils of Joint Ownership

It is not uncommon for people to transfer assets into joint ownership with someone else (generally a spouse or child) as part of the estate planning process.   There certainly can be benefits to holding assets jointly (such as reducing probate fees or simplifying the administration of an estate). 

However, as a recent article in the Globe and Mail discusses, transferring assets into joint ownership can carry a downside.  Some of the most common hazards include:

  • Triggering tax liability – transferring an asset into joint ownership with someone other than a spouse might qualify as a disposition of the asset and trigger capital gains taxes for the transferor.
  • Causing unintended consequences to an estate plan – sometimes a parent will transfer an asset into joint names with an adult child to avoid probate fees and assume that the child will share the asset with his siblings when the parent dies.  This is just asking for litigation – with one child insisting he was intended to inherit the asset by right of survivorship and the siblings insisting they were intended to share in it. 
  • Exposing the asset to creditor claims – when an asset is transferred into joint ownership, the full value of the asset could be subject to the creditor claims of either of the joint owners. 
  • Losing control over the asset – in adding additional owners to an asset, the original owner will lose exclusive control, which can be problematic if there are disagreements over how the asset should be used. 
  • Permanently disposing of an interest in the asset – it is very difficult to “undo” a transfer into joint ownership.  In the case of real property, the joint tenancy can be severed so that each owner holds a separate share (called a “tenancy-in-common”).  However, once an asset is transferred into joint names, it is difficult for the transferor to simply “take back” the asset. 

Joint ownership can have its benefits - but it also carries risk.  It is worthwhile to consult with a lawyer and an accountant before any transfers are made to reduce the likelihood of running into problems down the road.

Does Your Will Include Posthumously Conceived Children?

I have previously blogged about post-death harvesting of reproductive material (so that a surviving spouse can conceive the child of a deceased partner) and the legal issues involved.  However, sometimes the material is collected (and potentially fertilized) while both partners are living and they consent to its use when one of them dies. 

Something that is important to consider in the estate planning context is whether it is desirable to make allowance for any children who are born after an individual’s death.  As a recent article in the Wall Street Journal discussed, it is becoming more common for infants to be born from assisted reproductive technology.   Between 1999 and 2008 the number of infants born  in the United States using assisted reproductive technology increased to more than 61,000 and the number of clinics offering crypto-preservation increased by 18% to 436. 

The law in the United States on the rights of children conceived after a partner’s death is far more developed than it is in Canada.  For example, 5 states have passed laws that allow posthumously conceived children to participate in trusts as beneficiaries.  Additionally, a number of states have enacted legislation specifying the rights of posthumously conceived children to an inheritance and to Social Security. 

For people who have created frozen gametes, it is worthwhile to consider and specify in a will what rights a posthumously conceived child should have to the deceased’s estate.  Equally important is giving careful to consideration to what is to become of reproductive material on a creator’s death – and it is essential to review any forms associated with banking the reproductive material to ensure the effect of the language of any agreement is understood. 

Yet Another Reason to Leave the Will Drafting to a Lawyer

There are innumerable problems that can arise when people try to do their own wills.  The recent decision in the McDougall Estate discusses the difficulties that arose in trying to decipher an individual’s largely illegible will. 

The deceased left a will and a codicil that were both in his own handwriting.  The parties were all in agreement that, when taken together, the documents constituted a valid holograph will and codicil.  Unfortunately, there were large parts of both documents that were illegible – and insofar as the court was able to decipher the language of the documents, it was still difficult to make out exactly how the deceased was trying to distribute his estate. 

The parties agreed that the effect of the will was to leave the bulk of the deceased’s estate to his sister.  However, there was a dispute over whether the will authorized the estate trustee to make a donation to charity.

Although the wording of the will was ambiguous, the parties agreed that, read without the codicil, the will authorized the charitable donation only if the residual beneficiary died before the testator or renounced her share of the estate.  The parties disagreed as to the effect of the codicil.

The estate trustee argued that the codicil permitted her to make a bequest to charity prior to transferring the balance of the estate to the residual beneficiary.  The beneficiary argued that the relevant words of the codicil were illegible and should be given no meaning.  Moreover, she argued that the language of the codicil, as it could be deciphered, was not particular as to the dollar amount of any charitable donation and, accordingly, should fail.

Justice van Rensburg found that when reading the will and codicil together it appeared that the deceased intended that a bequest to charity be paid prior to the residue being distributed to the beneficiary.  However, van Rensburg J. went on to find that the fact the amount of the bequest was not specified was fatal and on this basis the gift failed.  Accordingly, she found the estate trustee had wrongfully made the payment to the charity.

Tune in on Friday to find out what the consequences to the estate trustee were.  

Who Qualifies as a "Grandchild" and a "Great-Grandchild"?

Blended families can make it difficult to figure out who qualifies as a relative.  The recent decision of the Supreme Court of British Columbia in the Lang Estate considers the interpretation that should be applied to the words “grandchildren” and “great-grandchildren” in a testator’s will. 

Here, the testator died leaving a will in which the residue of her estate was to be divided equally between her grandchildren and great-grandchildren.  The issue that arose was whether the words “grandchildren” and “great-grandchildren” should be taken to include only those who were legally descended from the testator or whether they should include the testator’s step-grandchildren and step-great-grandchildren. 

When the testator married her husband he had two children from a previous marriage.  The testator and her husband adopted two children of their own.  At her death, the testator had two grandchildren and one great-grandchild who were her legal descendants.    

The testator’s grandchildren and great-grandchild took the position that they were the only ones who qualified as beneficiaries under the residue clause in the testator’s will.  Opposing them were the step-grandchildren and step-great-grandchildren of the testator (who numbered 27 in total).  Their position was that the testator had intended for them to inherit under the residue clause in the will. 

In her decision, Justice Brown provided a very helpful overview of the law relating to will interpretation. 

With respect to the word “grandchildren” Brown J. found that there was a legal presumption in favour of the testator’s legal descendants.  However, she also found that when the words in a will are ambiguous, the judge is able to consider “arm chair evidence” of the circumstances known to the testator when the will was made.

Here, Brown J. was swayed by written notes made by the testator around the time the will was made – on a schedule setting out the distribution of the estate there was a heading “grandchildren and great-grandchildren” – it appeared that the testator had written the names of the children and grandchildren of her adopted children – and did not include the step-relatives. 

Ultimately, Brown J. found that there was no reason to depart from the legal presumption in favour of legal descendants and accordingly decided the step-relatives were not entitled to take under the will. 

Does Divorce Revoke Your Will?

On Monday, I blogged about the law in Ontario that provides that marriage will revoke your will.  But what happens when you divorce?   

There is a common misconception that divorce will revoke a will.  However, this isn’t actually the case.  Pursuant to s. 17(2) of the Succession Law Reform Act [“SLRA”] getting divorced will revoke any gift in the will left to the spouse and any appointment of the spouse as executor (meaning that other beneficiaries named in the will won’t lose out) and the will is to be construed as though the ex-spouse pre-deceased the testator. 

Where the ex-spouse is named as executor and there is an alternate named in the will then that individual will become the estate trustee.  If not, the appointment of estate trustee will be governed by s. 29 of the Estates Act (I discussed this provision in a previous blog). 

The fate of any gift left to the ex-spouse will depend on whether an alternate beneficiary has been named in the will.  If not, the next consideration will be what type of gift it was.  If it was a specific gift then it will fall into the residue of the estate (and be distributed in accordance with the residue clause of the will).  If it was a gift of residue, it will be distributed pursuant to the rules of intestacy as they apply to the testator. 

A divorce is a good time to review a will and consider what implications the divorce will have.  It is also a good time to consider whether there are any assets that carry with them beneficiary designations (such an RRSP, TFSA, or insurance policy) in favour of the former spouse that need to be changed. 

Finally, as I have previously discussed, bear in mind that being separated (and not legally divorced) generally has no impact on an estranged spouse’s entitlement to your estate – so a separation is also a good time to turn your mind to estate planning and whether a will, powers of attorney, and beneficiary designations should be changed (or put in place).

Did You Know Marriage Will Revoke Your Will?

Something that many people do not realize is that, in Ontario, getting married will revoke your will.  This rule is found in section 15(a) of the Succession Law Reform Act (“SLRA”).  Section 16 provides a few exceptions to the rule, such as when the will specifies that it is being made in contemplation of marriage or the spouse elects in writing to take under the will and files the election with the estate registrar within a year of the testator’s death. 

Assuming the will is revoked by marriage, the effect is that, on the testator’s death, her assets will be distributed pursuant to the rules of intestacy found in part II of the SLRA.  If the testator has no children, then the surviving spouse will be entitled to the entire estate. 

If the testator has children, then the spouse will receive the first $200,000 of the estate and the division of the balance will depend on how many children there are (if there’s one child, the spouse and child will split the balance equally; if there are two or more children, the spouse will receive 1/3 of the balance and the children will split the remaining 2/3). 

The rule that marriage will revoke a will can have unintended consequences.  This recent article from the National Post tells the story of a man who committed suicide two weeks after marrying a woman he’d met fourteen months earlier.  Two years prior he’d made a will leaving everything to his only daughter; however, that will was revoked by the marriage, meaning the intestacy rules kicked in. 

His estate was relatively small so his new wife received the lion’s share of the estate.  His sister has since started a blog, Mo’s Muse, about inheritance laws in Canada – and has called for the law that marriage revokes a will to be repealed in Ontario as it recently has been in British Columbia and Alberta.   

Beware Ill-Advised Beneficiary Designations

It constantly amazes me that people will go to the trouble of making a will and then manage to defeat their estate planning by doing beneficiary designations that have unintended consequences.  A recent article in the Wall Street Journal discusses this problem

Beneficiary designations are generally seen on financial products (such as RRSPs or TFSAs) or insurance policies.  A beneficiary designation can be made in a will (or in a separate document generally prepared by a lawyer).  However, banks or insurance companies will generally have a form that can be completed. 

There are a number of benefits to designating beneficiaries on an account or policy where possible.  Having a beneficiary designation means that the asset will be distributed outside the individual’s estate directly to the named beneficiary and won’t be included in the value submitted on a probate application (and attract probate fees).  Additionally, generally speaking assets that are distributed outside the estate will not be subject to the claims of creditors. 

However, a problem is that people often don’t recall who (if anyone) they have designated as a beneficiary on their applicable accounts.  This can cause problems if they assume the asset will come into the estate and be distributed according to the residue clause in the will when the beneficiary designation actually provides otherwise.

Another issue arises when beneficiary designations are made in a will (or an individual plans her estate envisioning that the proceeds of, say, an RRSP are going to come into the estate on death) – and the individual later designates a beneficiary not considering the consequences on the distribution of an estate.

Where a beneficiary designation is drawn up by a lawyer (either as part of a will or separately) it is a good idea to provide a copy to the bank or insurance company so they can keep it on file – this can help avoid a problem after death where a dispute erupts over who the actual beneficiary is supposed to be. 

Finally, it is also a good idea to keep a detailed list of accounts or policies where a beneficiary designation has been made and review it every couple of years to ensure it is still current.  There will be times where a beneficiary designation made years earlier no longer makes sense and it’s desirable to catch that sort of problem early.   

Is a Cottage a Worthwhile Investment or a Big Headache?

I’ve previously blogged about some of the headaches surrounding estate planning and the family cottage.  A recent article in the Globe and Mail queries whether a vacation property is a sensible investment or really just an emotional buy. 

As the article points out, buying a cottage can be an emotional experience.  It is often occurs not long after a successful cottage rental – a family becomes so enamored of the month they just spent renting on, say, Georgian Bay that it seems natural to snap up a cottage so they have their own to go to the next summer. 

However, as anyone who owns a cottage will attest, there’s a lot more involved than sitting on a dock in a Muskoka chair, beer in hand.  The article raises a few questions everyone should consider before taking an expensive leap:

  • How often would you really visit the cottage?  Summers in Canada aren’t long – with busy work schedules, other commitments, and travelling time will the cottage get a lot of use?   
  • What sort of property is best – is a rustic summer-only property sufficient or is winter use intended?
  • How much of a financial investment is necessary – the purchase price is only one part of the expense involved.  Other things to think about include property taxes and maintenance.
  • If financing is necessary, will it be available?  A mortgage might be available for a cottage that resembles a principal residence – however, a traditional mortgage might be harder to obtain if the property is more rustic. 
  • Will the cottage be rented out when not in use?  If so, that raises a slew of other issues to consider. 

Generally, if a cottage is held long enough, the investment will pay off.  But for those not interested in the responsibility and the commitment, renting is probably a better option. 

A Slithery Reason Why It's Important to Have a Will

Here’s another one to add to the long list of problems that can arise when you die without a will: your family members might start fighting about what happens to your reptile collection. 

This is the issue that has plagued the estate of Karel Fortyn.  Mr. Fortyn died in early May of this year and was survived by his brother, his fiancée, and his common law spouse of 27 years from whom he had recently separated.

Chief amongst Mr. Fortyn’s personal effects was a collection of some 200 reptiles he kept in his Welland, Ontario home, including 150 venomous snakes and two very large crocodiles.  He owned the Seaway Serpentarium, which he had been operating from his house with the animals in enclosures.

After Mr. Fortyn’s death, a dispute erupted over who would decide the reptiles’ fate.  Pursuant to the intestacy rules in the Succession Law Reform Act, Mr. Fortyn’s brother is the sole residual beneficiary of the estate. However, his former common law spouse owned the house where the Serpentarium was located and believed that this gave her the authority to decide what to do with the animals. She donated them to the Indian River Reptile Zoo a couple of days after Mr. Fortyn’s death.  However, the Welland Humane Society seized control of the home a day later. 

Earlier this week the matter came before the Superior Court of Justice in Welland, and Justice Maddalena ruled that Mr. Fortyn’s brother has the authority to decide what happens to the reptiles.  Maddalena J. further ruled that the crocodiles should be removed from the Serpentarium as soon as possible and the balance of the animals should be removed within the next 21 days. 

Apparently, Little Ray’s Reptile Zoo in Ottawa will receive the non-venomous reptiles while Reptilia Zoo in Vaughan while receive the venomous reptiles. It is not yet clear what will happen to the crocodiles.   

Oh, the Problems the Words "Per Stirpes" Cause...

The words “per stirpes” are found frequently in wills drafted by lawyers.  However, issues can arise when trying to determine, in the context of a will, what those words are supposed to mean.  This was the issue considered by the court in the recent decision of Dice v. Dice

Joseph and Eileen were married and had two children, Marlene and Eddie.  Joseph died in 1975 leaving a will which provided a life interest in his estate to Eileen (who died in 2010).  Joseph’s will provided that on Eileen’s death, the remainder of his estate was to be divided equally between Eddie and Marlene, per stirpes. Unfortunately, Eddie pre-deceased Eileen in 2000.  He left a will in which he named his second wife Suzanne as sole beneficiary (he also had three children).  On Eileen’s death, an issue arose as to who was entitled to the remaining residue of Joseph’s estate.

Generally speaking, the phrase “per stirpes” is taken to describe a manner of distribution to one’s issue (i.e. lineal descendants).  If an individual divides her estate amongst her “issue in equal shares per stirpes” it means that, at first instance, the individual’s children will be entitled to the estate; however, if one child has died leaving children of her own, those children will receive the deceased child’s share. The problem that arose here is Joseph had divided the remainder of his estate between his named children and it was unclear what effect the words per stirpes were supposed to have. 

Marlene, Joseph’s surviving daughter, argued that it was not legally possible to leave a gift to “children per stirpes” and that Joseph had intended to benefit his children alone, not their heirs.  Accordingly, Marlene’s position was that since Eddie had died, she alone was entitled to what remained of the estate.  Suzanne, Eddie’s widow, argued that the remainder of the residue of Joseph’s estate was intended to be divided equally between Marlene and Eddie, and that Eddie’s share should devolve to his estate and be distributed according to his will (meaning Suzanne would receive it).  Eddie’s children argued that by including the words “per stirpes” in his will, Joseph had intended to create a “gift over” to the issue of Marlene and Eddie if either died – and that had it been intended that the residue was simply divided between the two of them the words “per stirpes” would be rendered meaningless. 

Ultimately, Justice Turnbull agreed with Eddie’s children.   He found that a gift to children, per stirpes is to be construed so as to allow representation by the issue of any child living at the testator’s death but who predeceases a life interest.  Moreover, Turnbull J. found that in reviewing the will as a whole he had no doubt that this is what Joseph’s intention was.  Accordingly, he decided that the appropriate interpretation of the will was for Eddie’s share to be divided amongst his children.   

Ontario Organ Donors Can Now Register Online

A new website in Ontario allows residents to register to be an organ and tissue donor with the click of a button – www.BeADonor.ca.

Previously, those who wanted to register were required to mail in a Gift of Life consent form or go to a ServiceOntario centre.  In return they received a donor card to carry with them.  Obviously, this was no perfect solution – besides the fact that donor cards are often lost, a major problem with them is that they are frequently out of date and do not prove that an individual is currently registered. 

Making it easier to register is a good thing – according to the Trillium Gift of Life Network (which is an Ontario government agency), only 20% of those eligible to register have actually done so (even though more than 80% indicate that they think it is important to provide consent to donate prior to death).  Each donor can save as many as eight lives and enhance up to seventy-five more.  In Ontario there are currently 1,500 people on waiting lists for transplants. 

In order to register, prospective donors must be 16 or older and have a valid Ontario Health (i.e. OHIP) Number.  It is important to register even if you have a donor card because a signed donor card is not recorded in the Ministry of Health and Long Term Care’s database and may not be available when needed. 

When a consent to donate has been registered, it is recorded in a government database.  In the event that an individual dies or it appears that death is imminent, his donation decision will be shared with family members so that appropriate arrangements can be made. 

The World's Richest Canine Has Gone to Whiskerville

Last week brought us the sad news that Trouble, the millionaire Maltese, has taken her final journey to the dog show in the sky.  For the uninitiated, Trouble was the beloved dog of Leona Helmsley. 

Helmsley died in 2007 leaving a will with some news-making provisions.  She excluded her two grandsons but left her beloved Trouble a trust fund worth some $12 million.  Her grandsons later challenged the will and a sympathetic judge reduced Trouble’s trust to $2 million – still, not bad for, well, a dog!

Unfortunately, Trouble’s post-Helmsley life was not entirely happy.  Despite the fact that Trouble wasn’t involved in convincing Helmsley to leave the will she did (at least, one hopes), she nevertheless ended up being the object of much resentment.  After the terms of the will became public, the poor dog was subject to 20 - 30 death threats!

Helmsley’s brothers apparently refused to care for her so Trouble traveled by private jet to Florida (under the pseudonym “Bubbles”) and was cared for by Carl Lekic, the general manager of the Sarasota-based Helmsley Sandcastle Hotel. 

While residing in Florida, Trouble’s annual expenses were approximately $190,000.  This included $100,000 for security; $8,000 for grooming; $1,200 for food; and between $2,500 and $18,000 for health care – poor Trouble had kidney, er, troubles. 

Although Trouble’s death just came to light last week, apparently she died on December 13.  She was 12 at the time.  Her remains were cremated and are currently being “privately retained”. 

Helmsley’s will specified that Trouble’s remains be buried along with Helmsley, although it is not yet clear whether this will occur.  Pursuant to the terms of Helmsley’s will, the remaining capital of the trust is to be reverted to the Leona M. and Harry B. Helmsley Charitable Trust for charitable purposes.    

Sizeable Gift Enhances Museum's Plans and Programs

On Monday I blogged about trends in planned giving.  So it was à propos that on Wednesday night I found myself at the Chairs’ Reception and Exhibition Preview of the Bollywood Cinema Showcards exhibit at the Royal Ontario Museum

During dinner, the Donor of Merit Award was presented to the trustees of the Louise Hawley Stone Charitable Trust.  The award is presented annually to a donor whose gift of $1 million or more has significantly advanced the museum’s goals and programs. 

In 1998, the ROM became the recipient of the largest legacy gift it has ever received from the estate of Louise Hawley Stone.  Mrs. Stone had been a supporter of the museum for over fifty years. 

Mrs. Stone had been an avid collector of Asian art and had served on the ROM’s board of trustees for a number of years in the late 1960s and early 1970s.  She also helped to establish the museum’s textile committee in the mid 1970s.    

Over the years Mrs. Stone donated many of the ROM’s major pieces of Chinese and English Furniture.  Additionally, she donated more than 1000 artifacts to the museum’s textile collection.

Mrs. Stone died in 1997.  The terms of her last will and testament established a charitable trust of almost $50 million for the ROM’s benefit.  It is the largest cash gift the ROM has ever received.  The terms of the trust specified that the income shall be applied by the museum for its "own publications relating to its collections or any part of them and for purchases of artifacts."

The Louise Hawley Stone Charitable Trust currently generates more than $2 million annually for the ROM.  Since its inception, the trust has granted more than $25 million to the ROM in support of acquisitions and publications.

Tips and Traps for Successful Planned Giving Programs

It’s not uncommon for people to want to benefit charities in their wills.  While sometimes it can be as easy as simply leaving a bequest, many charities have formal planned giving programs designed to facilitate gifts to their organizations.  Given the unprecedented intergenerational transfer of wealth that is occurring and that is expected to continue occurring for several decades, many charities can be expected to reap the benefits.         

CharityVillage.com and Give Green Canada recently released the International Gift Planning Survey, which aimed to assess the readiness of charities and non-profit organizations to respond to increased opportunities for legacy fundraising.  The survey involved more than 900 gift planning professionals from 25 different countries (with most respondents coming from North America). 

The survey results indicated that 88% of respondents had budgetary resources in their organization allocated to bequest fundraising.  The age of the programs varied.  34% reported that their organization’s planned giving program was more than 15 years old while 31% reported that their organization’s program had existed for five years or less. 

The efforts of those with planned giving programs in place appear to be yielding positive results.  36% of respondents said their organizations had seen an increase in the number of bequests they received since 2005, with 77% of respondents indicating that their organization’s average bequest size was more than $25,000 and 36% indicating that it was more than $50,000. 

The most frequently listed secret to a successful planned giving program was saying “thank you” to donors.  Other frequently successful enabling conditions were devoting a dedicated staff and budgetary resources to the giving program, actively marketing the program, and creating and engaging with a “legacy circle” of donors. 

The most commonly named barrier to a successful program was a lack of human resources in the organization.  Another stumbling block that arose was competition from short-term revenue generation sources within the organization. 

Queen Victoria's Funeral and Will

Today is Victoria Day for the Canadians out there.  Victoria Day was first declared a federal holiday in Canada in 1845 and is held annually on the last Monday on or before May 24.  The holiday celebrates the birthday of Queen Victoria as well as the official birthday of the reigning monarch.

Queen Victoria was born on May 24, 1819 and died on January 22, 1901 at the age of 81.  In 1897, four years before her death, she had written instructions for her funeral.  She had requested a military funeral and that she be dressed in a white dress and her wedding veil.  At her request, her doctors and dressers had laid in her coffin various mementos from her family, friends, and servants. 

Queen Victoria lay in state for two days before her funeral was held at St. George’s Chapel, Windsor Castle, on February 2, 1901.  She was interred at the Frogmore Mausoleum at Windsor Great Park beside her husband, Prince Albert.

A few days after Queen Victoria’s burial, the New York Times published an article speculating about the terms of her will.  It reported that there were rumours that several of her children were to receive bequests of £140,000 while a number of her grandchildren were to receive “liberal legacies.”  The bulk of her private wealth was left to her eldest son, Edward, who inherited the throne on her death.   

When Cottage Succession Planning Turns Toxic

With the Victoria Day weekend upon us, there are many who will be taking their first trip to the cottage of the season.  While a family cottage can be the site of many cherished memories, it can also be a battleground for angry estate disputes. 

Dealing with a cottage in an estate plan can be a very challenging task.  This is because that, more than almost any other asset, a family cottage generally carries with it significant sentimental value. 

A frequent mistake made in estate planning is failing to be specific about what is to happen to the cottage.  A parent dividing her estate equally amongst her children might simply assume that they will all agree on what to do with it.  Unfortunately, this frequently does not occur. 

A problem with evenly dividing a cottage amongst beneficiaries is that it is not uncommon for the beneficiaries to feel differently about the property.  For example, one child might have rarely visited the cottage and want it sold so he can receive his inheritance in cash, while another child might have expected that the beneficiaries would keep and use the cottage and be unable to afford to buy out the other child. As a result, a significant amount of hostility can arise between the two children.    

Another problem that can arise is when a cottage trust is created in a will so as to keep the property in the family but inadequate consideration is given to the costs that will be involved (such as taxes on death, probate fees, and ongoing expenses like property taxes, utilities, and maintenance).  The unfortunate result can be that there is not enough money in the estate to pay the associated costs and the beneficiaries cannot afford to do so, leaving the trustees with no choice but to sell the cottage – much to the beneficiaries’ angry dismay!  

While there is never any way to guarantee smooth succession planning, a good start is to discuss the cottage with the prospective beneficiaries and determine what everyone’s expectation is.  Additionally, careful consideration should be given to the estate planning techniques used to avoid unintended consequences post-death.

When Death and Social Media Collide

“Here it is.  I’m dead, and this is my last post to my blog.”  These aren’t words that you would normally expect to read on a blog.  However, when Derek Miller, a Vancouver-based blogger, found out that the end of his struggle with terminal cancer was near he wanted to make sure he had one last blog. 

Mr. Miller had maintained his blog, penmachine.com, for more than a decade. He was diagnosed with stage 4 colon cancer in 2007 (when diagnosed, Mr. Miller’s cancer had already metastasized). Throughout his illness, he blogged about the realities of living with cancer (along with a host of other topics).  When he realized that death was looming, he wanted to close his blog with one final post. 

The final entry, titled “The Last Post”, is a meditation by Mr. Miller about his life, death, and love of his wife and two young daughters.  He wrote the blog prior to his death and requested that upon his death it be posted by a friend. 

Mr. Miller died on May 4, 2011 at the age of 41 and the entry was posted shortly after his death.  Since it went live, the post has received more than eight million hits and garnered worldwide attention.

While the story of Mr. Miller’s blog is unique, the idea of creating a digital legacy has become increasingly popular over the past few years.  In today’s world, it is very common for individuals to create a social media trail – of photos, blog entries, tweets, and social networking profiles.  However, something that is often forgotten is that when the creator of the online footprint dies, the data remains uploaded. 

With this in mind, there are a growing number of sites (such as Legacy Locker, Deathswitch, and AssetLock) designed to help people plan what will happen to their online information once they die.  And some, like Mr. Miller plan by telling family and friends what they want to happen.    

$800 Million? Now That's A Legacy!

May is national Leave a Legacy month in Canada.  Leave a Legacy is a national public awareness organization aimed at encouraging people to leave gifts to charity or other non-profits in their will (or through some other gift planning mechanism). 

Throughout May, Leave a Legacy has a number of events scheduled across the country.  The list of events in Toronto can be found here

One family in the United States that is certainly committed to leaving a legacy is the Waltons (of Wal-Mart fame).  The Wall Street Journal reports that the Walton Family Foundation has pledged to donate $800 million to the Crystal Bridges Museum of American Art, a museum founded by Alice Walton (daughter of Wal-Mart founder Sam Walton). 

The 201,000 square foot museum is encyclopedic in nature and aims to chronicle the history of American art from the late 1600s to the present. The museum is located in Wal-Mart’s rural Arkansas hometown of Bentonville (population 35,301) and set to open on November 11, 2011. 

The gift by the Walton Family Foundation is being heralded as the largest cash donation ever made to an American museum – exceeding the $660 million in oil stocks donated to the Getty Museum in Los Angeles by Paul Getty in the late 1970s and the $500 million cash donation made by Caroline Weiss Law to the Museum of Fine Arts in Houston.

The Los Angeles Times has pointed out that while the Waltons’ donation might be the biggest cash gift ever, the actual value of Getty’s donation was larger – when adjusted for inflation, his donation in 1976 is worth almost $2.5 billion in today’s terms. 

These Women Really, Really Wanted to Be Mothers!

Charles Vance Millar was a successful businessman in Toronto in the early 1900s.  He died in 1926 leaving a will which included some very unusual provisions. 

For example, Millar left shares he owned in the Ontario Jockey Club to a group of vocal opponents to gambling.  He left his vacation home to three men who hated each other. 

However, what really turned heads was the residue clause in Millar’s will – in it, he left the residue of his estate to the mother in Toronto who gave birth to the most children in the ten years following Millar’s death.  If there were a tie, then the winners would divide the inheritance. 

Millar died in the midst of the Great Depression – and there were many families who could use the money (the estate was worth about $650,000 at a time when the average weekly salary was $12.50).  After Millar’s death, there were debates about whether the clause in his will was enforceable – Did it violate public policy?  How should “birth” be defined – did stillbirths count? 

Millar’s death kicked of the decade long Toronto Stork Derby.  By the end date, there appeared to be four winners – each of whom had given birth to nine children over the previous ten years.  They each received $125,000. 

Two other women came forward claiming that they were the real winners, having each had ten babies over the past decade.  However, the trustees ruled that neither qualified – one woman’s children were illegitimate and Millar’s will specified that the children must be born within a marriage.  Two of the other woman’s children had been stillborn and the trustees decided that only live births qualified.  Nevertheless, the trustees decided to give each woman $12,500 for their efforts. 

Happy Mother’s Day to all the moms out there!

Expecting an Inheritance? Not So Fast...

The idle rich kids out there who are just killing time until they receive an inheritance may be in for a surprise.  A recent study by US Trust (which is part of Bank of America) found that, amongst the wealthy, leaving money to the next generation isn’t all that big a priority. 

The study measured the attitudes towards wealth of 457 Americans with at least $3 million in liquid assets.  The vast majority of respondents (84%) attributed their wealth to their own hard work. 

However, just because they had achieved significant wealth didn’t mean they were anxious to share it with their children. When asked about their financial goals for using wealth, less than half listed leaving an inheritance as a priority (in contrast, almost two-thirds identified “travel” as a goal).   

For those planning on including their children in their will, only one-third believed that their children would be prepared to handle the inheritance they received.  Respondents also didn’t have a lot of faith their children would get along after their death – only 36% believed that their children would be able to work together to manage the family wealth.

Parents were reluctant to share details about their wealth with their children. Only one-third had fully disclosed details of the family wealth to their kids. The reasons for the non-disclosure varied.  A primary concern was how the wealth would affect the children’s behaviour – specifically, that they would become lazy, squander their inheritance, develop addictions, or marry a gold digger. 

When questioned about at what age their children would be mature enough to manage family money, the responses varied.  However, 45% believed it would be sometime after the child had reached 35. 

Perhaps growing up with too much money but not receiving a big enough inheritance will be an increasing problem in the future…

The Will Has Been Destroyed...Is It Still Valid?

When someone decides that she doesn’t like the terms of her will, any lawyer will say the best way to change it is to make a new one.  However there are also other ways to revoke a will, one of which is to physically destroy it.  The problem is, there are times when an individual’s will is found destroyed after her death and it isn’t clear whether she intended to revoke it. 

This was the issue that was considered in the recent British Columbia decision of Jorsvick Estate.  After the Deceased’s death, her son applied to prove her will in solemn form.  The applicant’s sister opposed the application on the basis that when the Deceased’s will was located after her death, it was found torn into pieces.

Section 14(1) of the Wills Act in BC provides, in part, that a Will can be revoked if the testator destroys it.  In Ontario, a similar provision can be found in s. 15 of the Succession Law Reform Act.  Both pieces of legislation provide that the will must be destroyed (a) by the testator or someone acting at the testator’s behest; and (b) the destruction must be with the intention to revoke the will. 

Operating along with the statutory requirements for revocation is a common law presumption that when a will is found destroyed, the testator intended to revoke it.  In this case, the court had to determine whether the applicant was able to rebut the presumption that the Deceased had destroyed the will with the intention of revoking it.    

Ultimately, Justice Barrow found the applicant was able to rebut the presumption of revocation and that the will should be admitted to probate. A few reasons were set out in the decision, the main one being that the day before the Deceased’s (unexpected) death, she had met with her lawyer and discussed her desire to make changes to her existing will.  Barrow J. determined that had she previously destroyed her will with the intention of revoking it, surely she would have advised her lawyer of this. 

When Doing Estate Planning Remember the Taxes

Over the weekend the Globe and Mail published an excerpt from Douglas Gray and John Budd’s, the Canadian Guide to Will & Estate Planning.  In it, the authors discuss some of the main areas of tax liability that arise on an individual’s death and techniques to minimize taxes.  

On death, one of the biggest tax hits can come from the cash and investments sitting in an RRSP or RRIF. This is because the general rule is that the full value of an RRSP or RRIF must be included as income in the deceased’s final tax return (referred to as the “terminal return”).  Depending on the value of the registered plan and the deceased’s marginal tax rate, the taxes that come due can be significant.

Another area of considerable tax liability can come from assets that have appreciated significantly since being acquired by an individual.  This is frequently seen with vacation properties (that have not been designated as a principal residence) and marketable securities.  On an individual’s death, the deemed disposition of assets that occurs can trigger significant capital gains that must be included on the terminal return.

The authors provide a number of tax planning goals that should be considered when doing estate planning:

  • Minimize capital gains taxes arising on death by taking advantage of available exemptions;
  • Eliminate or reduce foreign estate taxes that might arise;
  • Take advantage of current income tax savings; and
  • Create a flexible tax plan that will be adaptable to changing personal circumstances or changes in the law.

When tax issues arise with estate planning, it is always a good idea to involve an accountant so that appropriate planning techniques can be employed.

What is Abatement?

A few weeks ago I blogged about what happens when a deceased’s debts exceed the value of the estate.  However, sometimes a problem that arises is that there is enough in the estate to discharge all the debts – but not to satisfy all the gifts made in the will.  So, what then?

When the assets of an estate are insufficient to satisfy the gifts set out in the will, the gifts are said to “abate” – meaning, the value of the gifts is reduced to the extent that a shortfall exists. 

Not all gifts will necessarily abate – rather the type of gifts provided for in the will determines the order in which abatement occurs.  The order of abatement is as follows:

  1. Residuary personalty;
  2. Residuary real property;
  3. General legacies (including pecuniary bequests from the residue);
  4. Demonstrative legacies (i.e bequests from the proceeds of a specific asset or fund, such as a bank account, which does not form part of the residue);
  5. Specific bequests of personalty; and
  6. Specific devises of real property. 

The assets at each level will abate until exhausted, after which assets at the next level will start to abate. 

It’s important to note that the order of abatement is a general rule and it is subject to an contrary intention expressed in the deceased’s will.  However, the abatement rules are important to keep in mind when doing estate planning – particularly when different classes of gifts are being made in a will. 

It’s worthwhile to raise the possibility that, at death, a client’s debts might result in the estate being insufficient to fulfill the gifts made in the will – and ensure that, if this occurs, the client is comfortable with the gifts being reduced according to the usual order of abatement.

Welcome Home - the Extended Family Makes a Comeback

For those who believe in the adage “you can’t go home again”, you might not need to worry – home might come to you.  The Wall Street Journal reports that the multi-generational family household is making a comeback. 

The WSJ cites a study by the Pew Research Center in Washington, DC that found that a record number of Americans (49 million to be exact) are living in a home with at least two adult generations or a grandparent and another generation.  This amounts to about 16.1% of the population and represents an increase of 17% since 2000. 

The rise in multi-generational homes represents a distinct trend reversal. After World War II and through to the 1980s, the popularity of the extended family household declined – from about 25% in 1940 to 12% in 1980.  However, since 1980 the rates have crept back up. 

One reason for the most recent upswing has been the economic downturn.  An increase in retirees experiencing shortfalls in their savings has made moving in with relatives a financial necessity.  Another reason is demographics – the population is aging and the need for elder care is becoming more common.  For dual income families, having grandparents in the house can carry obvious benefits when it comes to child care or paying a mortgage.

However, setting up an extended household has its complications – especially as far as finances are concerned.  This is particularly the case when the family members decide to purchase or renovate a property together.  Careful consideration should be given to how the purchase/renovations will be funded, how title to the property will be held, and how this might affect the estate plans of those involved.

Who Can Witness a Will?

I often get questions regarding how a will should be executed and who is allowed to witness it.  These are very important issues, because if a will is not executed properly it might not be valid. 

Pursuant to s. 4 of the Succession Law Reform Act ("SLRA"), a will (other than a holograph will – i.e. a will that is exclusively in the testator’s own handwriting) won’t be valid unless (1) it is signed at the end by the testator (or by some other person in the testator’s presence and at his direction); (2) the testator makes or acknowledges his signature in front of two or more attesting witnesses who are present at the same time; and (3) the attesting witnesses sign the will in the presence of the testator.

So, who can witness the will?  Sometimes people think that the lawyer who prepared the will must be the witness (or, alternatively, isn’t allowed to be the witness) – however, this isn’t the case. In fact, just about anyone can witness a will, although they should be over the age of eighteen and mentally competent.     

Just because someone can witness a will does not mean that they should witness a will. Under s. 12 of the SLRA, when the witness is a beneficiary under the will or the spouse of a beneficiary, then the gift or bequest to him or her is considered void – the will isn’t invalid, but the beneficiary loses out. 

In situations where a beneficiary or the beneficiary’s spouse witnessed the will, the court does have the discretion to allow the gift.  However, to do so the court must be satisfied that the witness in question did not exercise any improper or undue influence over the testator – and this can be more complicated (and expensive!) than it sounds.  Despite the court’s discretion, it is always advisable that neither witness is a beneficiary (or the spouse of a beneficiary).     

What Happens to Your Air Miles When You Die?

Many individuals are members of various rewards programs.  It’s not unusual to collect a significant number of air miles (or other rewards points) – and they can be very valuable (I have one friend who has accumulated enough air miles to fly round trip to Australia in business class – three times!).  

Each rewards program will have its own policies regarding whether points can be transferred on a member’s death.  For example, here’s a chart that was published by AirFareWatchDog.com in 2009 listing the rules of the major US carriers.  For the Canadians out there, Aeroplan’s policy can be found here and Air Miles’ policy can be found here

The short and the long of it is that while most major points programs will allow a transfer (usually to immediate family), typically there will be a surcharge – most often, this is a specific amount per point/mile.  Note, however, that most plans do not allow the points to be converted to cash and paid out to an executor. 

It’s always a good idea to consider gifting the rewards points in a will.  While this might, at first glance, seem like a silly suggestion, as noted above those points can be very valuable.  I am not joking when I say I have seen fights erupt between family members over who gets the air miles of a deceased relative…on more than one occasion! 

Besides avoiding fights over who gets the points, including them as a specific gift in a will can help avoid a valuation fight between beneficiaries in the event that a residual beneficiary wishes to receive the points as part of his inheritance (and, yes…I’ve seen that one, too!). 

How is an RRSP Taxed on an Annuitant's Death?

An advantage to contributing to RRSPs is the associated tax benefits.  However, the tax deferral doesn’t last forever – eventually the Canada Revenue Agency will come knocking.  While tax liability arises when funds are withdrawn from an RRSP, it will also arise when an RRSP annuitant dies. 

The tax treatment of an RRSP on an annuitant’s death will depend on who the beneficiary is.  Generally, the CRA will consider an annuitant to have received the proceeds of an RRSP at the time of death and the annuitant’s executors will need to report the amount, as well as any other amounts the annuitant withdrew during the year, in the annuitant’s tax return for his or her year of death (referred to as the “terminal return”).  As you can imagine, the taxes can be very high!  

However, there are some situations where a tax-deferred rollover will be available.  The first is where the beneficiary of the RRSP is the annuitant’s spouse.  The other is where the beneficiary is the annuitant’s child or grandchild (providing the child or grandchild is (1) a minor; or (2) mentally or physically infirm).

In situations where the beneficiary is a spouse or a physically or mentally infirm child or grandchild (who was also financially dependant on the annuitant) the RRSP can be rolled over (into an RRSP, RRIF, or annuity).  Where the beneficiary is a minor child or grandchild (who isn’t infirm), the proceeds can be rolled over into an annuity which can make payments until the child/grandchild turns eighteen – after this taxes will become payable. 

When an estate plan includes RRSPs careful consideration to the taxes is important. For more information, the CRA’s memorandum, “Death of an RRSP Annuitant” is a good one!

What's a Spouse's Entitlement When There's No Will?

When an individual dies without a will (an “intestacy”), the law dictates how his or her estate is to be divided.  For today’s blog, I want to address what entitlement the surviving spouse might have.  

When determining what a spouse is to receive, the first question to ask is whether the couple was legally married or not.  In a previous blog I did about the author Stieg Larsson’s estate, I discussed what rights a common law (i.e. unmarried) partner might have.  So, here, I’m going to focus on the entitlement of a surviving married spouse.

Part II of the Succession Law Reform Act ("SLRA") governs intestate succession.  When an individual dies and is survived by a spouse and no children, then the surviving spouse (“survivor”) is entitled to the entire estate. 

When there are children, the survivor is entitled to receive the “preferential share” of the estate (in Ontario, this is currently $200,000) – everything over and above the preferential share is then split between the survivor and the deceased's children (when there is one child, the survivor and the child split the excess 50/50; when there is more than one child, the survivor receives 1/3 of the excess and the children split the remainder).  

The survivor also has rights under s. 5(2) of the Family Law Act (“FLA”), which provides that where the deceased’s net family property exceeds that of the survivor, the survivor has the right to equalize net family property.  Note, however, that the survivor must choose whether to equalize under the FLA or inherit under the SLRA – he or she can’t do both.     

Finally, in situations where it appears that neither an equalization of net family property or an inheritance pursuant to the intestacy rules will be sufficient to meet the survivor’s financial needs, he or she might have a claim for dependant relief under Part V of the SLRA

Word to the wise – claims under both Part V of the SLRA and s. 5 of the FLA carry tight limitation periods (for example, the right to elect under the FLA expires six months after the deceased's death).  Accordingly, in situations where either might apply, the survivor should seek legal advice soon after the deceased’s death.

In the Days of Auld Lang Syne, Robert Burns Died Intestate

In North America and the United Kingdom, many will ring in the New Year by singing “Auld Lang Syne”.  Canadian band leader Guy Lombardo is generally credited with popularizing the use of the song on New Year’s Eve in North America back in the first half of the 20th century. However, the song had already been popular in Scotland for about 150 years and actually originates from a poem written by Scottish poet Robert Burns in 1788. 

Burns was born in Alloway, Scotland in 1759.  Initially a tenant farmer, he rose to prominence through the publication of his poems and songs during the 1780s.  His health started to fail while he was relatively young and he died in 1796 at the age of 37.  He was survived by his wife, Jean Armour, and his five children (one of which had resulted from a tryst with his mother’s maid).

Like far too many, Burns did not give the appropriate priority to estate planning and died without a will.  It was left to his widow, Jean, to administer his affairs.  A testament dative for his estate can be found in the Dumfries Commissary Court records – this is not a will but rather a court order in Scotland appointing and confirming an executor when an individual dies without a will.  Apparently, there were debts owing to Burns’ estate and to collect them his widow required the authority to act as his personal representative.  An online version of the testament can be found here, here, and here.

Of additional interest is the “State of Gilbert Burns’ Acceptance to Mr. Burns’ Estate” (Gilbert was Burns' brother).  It indicates that after Burns’ death, a plan was devised to raise money to support his family by publishing a four volume edition of his complete works.   It also indicates that the estate paid an annuity to Burns’ mother.  His daughter with the maid doesn’t seem to have ended up all that lucky – the estate appears to have supplied her with a year of “room, board, and washing”. 

Have a safe and happy New Year’s Eve and a wonderful New Year!

Estate Tax Debate Continues in the United States

Back in September, I blogged about the uncertainty over the estate tax in the United States. The estate tax had lapsed this year and was set to return on January 1, 2011 with an exemption of $1 million per person and a maximum rate of 55%. 

Instead, as part of the tax plan approved by the US Senate on Wednesday (and which is awaiting approval by the House of Representatives) the exemption might be set at $5 million per person and at a maximum rate of 35%.  The Democrats have supported a $3.5 million exemption and a 45% maximum rate. 

For the last couple of days, the New York Times has featured an interesting debate about whether estate taxes really matter – are they really necessary or can the same policy goals be achieved with other forms of taxation? 

Robertson Williams, an economist and senior fellow at the Tax Policy Center, argues that the taxes have an important role to play: the country requires increased revenue and estate taxes affect the wealthy (who have benefitted the most from the economy and who have the greatest ability to pay).

Russell Roberts, an economist at George Mason University, argues that the estate tax is wrong because it amounts to double taxation – people are taxed once when the money is earned and again when it is given away on death. The main result, he says, is that people simply use various estate planning techniques to avoid it. 

Ian Shapiro, a political scientist at Yale University, argues that the Democrats’ focus is wrong – rather than worrying about the exemption rate, they should focus on the tax rate, because that’s where the revenue is generated.

Finally, Kevin Hassett, a senior fellow with the American Enterprise Institute, points to studies suggesting that most Americans (including those who would never be affected by the estate tax) don’t support it. He argues that despite the revenue generated by the tax, Americans value liberty more and this compels them to oppose the tax.   

If the bill passes, the tax is going to be effective for two years – which makes me think it won’t be long before we’re hearing this debate again.

When are Mutual Will Agreements Enforceable?

The recent decision of the Supreme Court of British Columbia in Brewster v. Lenzi, considers the enforceability of mutual will agreements and the relief available when an agreement is breached.  

By way of background, the defendant and her husband were married in 1988.  It was a second marriage for both.  In 1992 they had wills prepared.  The defendant’s will provided that in the event that she survived her husband, then one-half of the household effects and a one-half interest in their matrimonial home (a condo) were to go to the husband’s daughter, who was the plaintiff in the action. The husband’s will contained a similar provision which would have left the one-half interest in the home and its contents to the defendant’s niece and nephew). 

The husband was the first to die and on his death the condo, which was held by him and the defendant as joint tenants, passed to the defendant by right of survivorship.  After title to the condo had been transferred, the defendant’s lawyer wrote to the plaintiff advising that the defendant intended to honour her agreement with the husband by leaving the plaintiff a half-interest in the condo.

Sometime later, the defendant changed her mind and made a new will which did not make any provision for the plaintiff.  Somehow, this came to the attention of the plaintiff, who then proceeded to commence an action against the defendant seeking a declaration that a half interest in the condo was held in trust for the plaintiff.  This is an interesting aspect to the decision, because claims of this nature generally occur after the death of the party who breached the agreement, while in this case she was still alive.  

Bracken J., the trial judge, found that when the wills were executed in 1992, a common intention (between the defendant and her husband) existed that the husband’s one-half interest in the condo would pass to his daughter on the defendant’s death. Bracken J. further found that the husband intended to impose an irrevocable obligation on the defendant to leave the one-half interest to his daughter, the defendant understood and accepted this obligation at the time the wills were made, and the intention and obligation were still alive at the husband’s death.  In the result, he declared that the defendant held one-half of the condo in trust for the plaintiff. 

Tips on Making Gifts of Property in a Will

There are different ways of disposing of personal effects in a will, one of which is making specific gifts to named beneficiaries.  Sometimes people mistakenly believe that verbally telling their prospective executors how assets are to be distributed or writing the names of various relatives on masking tape and labelling items are effective ways of planning for the subsequent distribution of the items.   

Unless bequests are made properly, the gift won’t be enforceable; moreover, executors can wind up in hot water with the residual beneficiaries of the estate if they distribute personal effects which were not properly bequeathed to specific individuals.     

In situations where an individual wants to ensure that specific items pass to named beneficiaries, the easiest way to do it is to make a specific gift of the property in a will.  When making specific gifts, there are a few things to keep in mind.

First, the asset being gifted must be described with sufficient specificity that it can be identified after death. Descriptions that are general or ambiguous can result in difficulty determining what property the beneficiary is to receive.

Second, s. 22 of the Succession Law Reform Act (“SLRA”) provides for the general rule that a will speaks from the date of the testator’s death, not the date of the will.  Accordingly, if an asset subject to a specific bequest is not in the individual’s possession at his or her death, then generally speaking the gift to the beneficiary will fail (or "adeem") (there are some exceptions to this, but I’ll leave them to another day).     

Finally, the doctrine of lapse should also be considered. The general rule is that if a beneficiary predeceases the testator, a gift left to him will fail.  However, s. 31 of the SLRA contains an “anti-lapse provision”.  It provides that, subject to a contrary intention in the will, where the gift is made to a child, grandchild, or sibling of the testator who predeceases but is survived by a spouse or issue, the gift will not fail.  Instead, it will be distributed to the spouse/issue according to the intestacy distribution found in Part II of the SLRA (but without the spouse receiving the preferential share).    

Will or No Will: When Are Handwritten Changes Valid?

When enterprising individuals try doing their own estate planning, things can get dicey – but when they start trying to mess with professionally completed estate plans, it can end up being a real disaster!  In the recent decision of Gibbon Estate v. Sleeping Children Around the World, the court had to determine what constituted a creative do-it-yourselfer’s valid last will and testament. 

The deceased had made a handwritten will in 1989 that was attested by two witnesses.  In 1994, she executed a formal will which was prepared by a lawyer, although she later made handwritten changes to it.  Sometime after the 1994 will was made, she made a number of handwritten alterations on the 1989 will. 

The 1994 will contained a standard revocation clause (which revoked all prior wills).  The issue that arose was whether the handwritten notations made on the 1989 will after the 1994 will had the effect of “reviving” the 1989 will. 

Section 19(1) of the Succession Law Reform Act provides that a will which has been revoked is revived only by:

  • A will made in accordance with Part I of the SLRA (which relates to testate succession);
  • A codicil made in accordance with Part I of the SLRA which shows an intention to give effect to a previously revoked will; and
  • The re-execution of the revoked will with the required formalities. 

Justice Stinson, the application judge, determined that the issue was whether the handwritten markings amounted to a codicil.  In order to qualify as a holographic codicil, the document must conform to s. 6 of the SLRA and be entirely in the testator’s own handwriting and signed by the testator.

In this situation, while the deceased initialed some of the changes to the 1989 will, she did not sign any of them.  As such, Stinson J. decided that the alterations did not amount to a valid codicil and, accordingly, did not revive the 1989 will.

Stinson J. then considered the markings on the 1994 will.  He found that as they were entirely in the handwriting of the deceased and had been signed by her they qualified as a codicil.  Accordingly, he found the 1994 will as amended by the handwritten codicil to be the deceased’s valid last will and testament.

...it would have been so much easier if she’d just seen a lawyer!      

How to Probate a Will with No Affidavit of Execution

Section 4 of the Succession Law Reform Act provides that for a will to be valid, it must be signed in the presence of at least two witnesses and that those witnesses must witness the will in front of the testator.  What is sometimes forgotten (or just not known) is that in order to obtain a certificate of appointment of estate trustee with a will, the executors are required to prove that the will was duly executed. 

Rule 74.04(1)(c) of the Rules of Civil Procedure (“the Rules”) provides that when applying to probate a will, the executors must submit an affidavit of execution of the will (and of every codicil, where applicable) or, when one does not exist and neither witness can be found, provide “such other evidence of due execution as the court may require.”

Things are easiest where an affidavit of execution (in which a witness swears that he or she was present when the testator signed his will) exists. An affidavit of execution should be in Form 74.8 of the Rules (and note that the affidavit must be commissioned by a commissioner of oaths).

In situations where no affidavit of execution can be found at the testator’s death, then attempts should be made to locate one of the witnesses to the will so that an affidavit of execution can be sworn.  Sometimes, however, the witnesses have died or cannot otherwise be located.  In this situation, the executors will need to find another method of establishing that the will was duly executed. 

The easiest way to do this is to contact the financial institutions where the deceased held assets.  Usually, when opening an account, an individual is required to fill out a signature card.  Where this has occurred, the bank manager (or other authorized officer) should be asked to swear an affidavit stating that he or she has compared the signature on the will with the signature on record with the bank and, accordingly, believes the signature on the will is that of the deceased.  Generally, the court will grant probate on this basis.          

Estate Planning Considerations for Separated Spouses

When spouses separate, they usually pay a lot of attention to how their assets are being divided up – however, something that’s often forgotten is what estate planning steps should be taken.  I am sometimes asked by clients what effect their separation will have on their will or the distribution of their estate and my answer is usually “none.” 

In Ontario, when spouses are legally divorced, s. 17(2) of the Succession Law Reform Act (“SLRA”) provides that any appointment of the spouse as executor and any provision leaving a share of the estate to the spouse are revoked.  However, there is no similar provision dealing with situations where spouses are merely separated – meaning, the surviving spouse will maintain his or her entitlement under the will unless the will has been changed. 

In situations where there is no will (an “intestacy”) the separated spouse will come under the definition of “spouse” in s. 1(1) of the SLRA.  Accordingly, he or she will be entitled to inherit pursuant to the intestacy rules found in Part II of the SLRA – depending on the value of the estate and whether or not the deceased had children, the separated spouse may be entitled to everything!

For the reasons above, wills should generally be revised (or made) when spouses separate.  Beneficiary designations (such as on RRSPs, TFSAs, and insurance policies) should also be reviewed and changed where desirable. It is also advisable to have a separation agreement in place which specifically addresses what, if any, rights each spouse is to have on the death of the other. 

An additional concern relates to powers of attorney for property and for personal care.  If a spouse has appointed a (now estranged) spouse as attorney for property or for personal care, terminating the powers of attorney is certainly something to consider. 

It’s important to understand a person can’t just be “fired” as an attorney.  Rather, if the spouse wishes to terminate the powers of attorney, he or she should either execute new ones or revoke the existing ones (and keep in mind that s. 12(2) of the Substitute Decisions Act, 1992 requires the revocation to be in writing and witnessed by two people).

An RESP on a Subscriber's Death: Should it Stay or Should it Go?

A Registered Education Savings Plan (“RESP”) is a great way for an individual (the “subscriber”) to put away money for the post-secondary education of a loved one.  There are also benefits that come from tax deferral and permissible income splitting at the time of withdrawal.  However, something that is often not considered is what will happen to the RESP on the subscriber’s death.     

The administration of an RESP on a subscriber’s death will depend on the terms of the contractual agreement and the terms of the subscriber’s will.  Unlike an RRSP or a TFSA, the proceeds of an RESP cannot flow outside the subscriber’s estate into the hands of a designated beneficiary.    

An RESP is an asset of the subscriber.  As such, on the subscriber’s death, unless he or she has set out instructions to the contrary, the right to the contributions to the RESP arguably belongs to the subscriber’s personal representatives and should be returned to the subscriber’s estate.  In some situations, this is not what the subscriber would have intended.

If the subscriber wants the RESP to be continued, then a successor subscriber should be named.  The contractual terms of the RESP should be examined to determine if they permit any person (including the subscriber’s personal representatives) to acquire the subscriber’s rights under the RESP and thus become succeeding subscribers. 

It is possible to continue an RESP by naming successor subscribers in a will; however, again, it’s essential to examine the terms of the contract before doing so.  If the RESP is to be continued, important considerations include how it will be funded; who the intended beneficiaries are; and how the funds should be invested.

If the subscriber doesn’t want the RESP continued after his or her death, there are a number of options, including: the contributions can simply be returned to the estate and fall into the residue; they can be withdrawn and distributed to beneficiaries named in the subscriber’s will (or the right to withdraw can be transferred to named beneficiaries); or they can be withdrawn and used to fund an education trust created for named beneficiaries. 

As a final note, it’s important to remember that RESPs are a creature of s. 146.1 of the Income Tax Act.  Accordingly, the relevant provisions should be reviewed before any estate planning occurs.

Business Succession Planning: Plan Early, Plan Wisely

For most business owners, their business is their primary asset.  Unfortunately, many business owners do not plan for the orderly succession of the business.  In its survey of Canadian millionaires, the Wall Street Journal found that 40% reported having no estate plan and that business succession was a major worry.

Many business owners are surprised to learn that their family members aren’t interested in taking over their business – only 1/3 of businesses survive to a second generation and only 10% survive to a third.  Providing one or more potential successors can be identified, ensuring they are able to run the business and that the succession occurs smoothly are both essential.   

The recent succession problems involving the Crystal Cathedral Ministries, the church founded by the televangelist Reverend Robert H. Schuller (perhaps best known for his long running Sunday program, the “Hour of Power”), illustrates the problems a succession dispute can cause.       

In 2006, Rev. Schuller passed control of the church over to his son. However, the succession seems to have gone badly from the get go. Where the senior Rev. Schuller is charismatic and upbeat, his son was business-like and subdued.  The son wanted to experiment with new technology to draw a younger audience to the program, an idea that never caught on with the board of directors. 

The tipping point came when the son tried to implement some of the basic governance rules used by many nonprofits, such as removing those with a conflict of interest from the board of directors.  This would have meant removing his parents, sisters, and brothers-in-law (they were also employees of the company). 

Not long after, the son was removed from preaching on “Hour of Power” and a three person committee (which includes two of his brothers-in-law) was created to run the cathedral.  He has since quit and is in the process of creating his own Christian media network.    

It’s questionable whether the management changes will make a difference.  The church filed for bankruptcy last week and is $43 million in debt.  The “Hour of Power” peaked in popularity back in the 1980s and has seen its viewership cut in half with the shift in popularity from scripture-based to self-help style televangelism. As far as the Schuller family goes, the article indicates that relationships remain frosty.      

Interested in a Little Post-Death Procreating? Make Sure to Put It in Writing

The Globe and Mail reports that this past Friday a judge in New York City gave a woman permission to harvest the sperm of her husband, who had died Monday of last week.  An interesting twist is that the woman did not plan to carry any child conceived herself but rather intended to use a surrogate. 

The article notes that doctors aren’t optimistic that she will be successful conceiving because of the length of time that has elapsed since the husband’s death.  When the BBC News reported on another woman’s bid to harvest her partner’s sperm in April 2009, it noted that sperm should be collected within 36 hours of death. 

In Canada, the posthumous collection of reproductive material (such as sperm or eggs) appears to be much more restricted than in the United States.  In 2004, the federal government enacted the Assisted Human Reproduction Act (“AHRA”) which governs the collection and use of genetic materials. Section 8(2) of the AHRA is specific that reproductive material cannot be used after an individual’s death unless the donor had given free and informed written consent while living. 

I came across an interesting article from the National Post, posted on an infertility blog. In it, Dr. Keith Jarvi, the head of urology at Mount Sinai Hospital, noted that prior to the enactment of the AHRA, it was not unheard of for genetic material to be harvested from a deceased for reproductive use.  Dr. Jarvi has also co-authored a paper in the Journal of Andrology on the legal and ethical issues surrounding posthumous sperm retrieval which is worth a read. 

From an estate planning perspective, it’s worthwhile asking clients about post-death collection of reproductive material.  Once they get over the initial shock of the question, they may be happy you’ve asked!

Stieg Larsson's Books Might Be Good, But His Estate Planning? Not So Much...

Swedish author Stieg Larsson died without knowing how successful the publication of his “Millennium Trilogy” would be.  Since his death, it is estimated that worldwide sales of his books have topped 40 million. Unfortunately for Eva Gabrielson, Larsson’s partner of more than 30 years, she will not be sharing in any of the financial benefits.

Larsson died without a will (this is called dying “intestate”) and Swedish law does not provide inheritance rights to common law spouses on an intestacy.  As a result, the beneficiaries of Larsson’s estate are his father and his brother.    

Gabrielson’s recent interviews on the CBC radio show, The Current, and with the Globe and Mail provide additional information about her situation.    

While the intestacy law in Ontario is more forgiving to common law spouses than it is in Sweden, it does not make things particularly easy.  Part II of the Succession Law Reform Act provides inheritance rights to a spouse on an intestacy.  However, it defines “spouse” as either of two people who are married to each other, leaving a common law spouse without rights. 

Similarly, while s. 5(2) of the Family Law Act entitles a surviving spouse to elect to equalize net family property (which is the same property division that occurs on divorce), the election is available only when the spouses were married - it doesn't apply to common law relationships.   

This does not mean that a common law partner has no redress at all.  Under Part V of the Succession Law Reform Act, a common law partner has the right to bring a claim for dependant support.  Depending on the circumstances, common law claims on the basis of quantum meruit or constructive trust might also be available. 

Still, it hardly seems desirable for a surviving partner to be put to the expense and uncertainty of litigation on the other partner’s death.  Additionally, the litigation can become very contentious when the family members who are to receive the estate under the intestacy rules become reluctant to part with any of their inheritance. 

The best way to avoid these types of problems is to have a will.  That way the deceased's estate will be distributed as she or he intended – no doubt that Eva Gabrielson is wishing that Stieg Larsson had one. 

TFSAs - A Missed Opportunity for Most Canadians?

I was recently reading the Wealthy Boomer, Jon Chevreau’s blog in the Financial Post, and was surprised to learn that most Canadians still do not have a tax-free savings account (“TFSA”). 

A TFSA is a flexible savings vehicle which allows Canadians to earn investment income tax free.  Account holders can contribute up to $5000 per year to their TFSAs.  The interest earned is tax-free and there are no tax consequences to withdrawing funds.  However, contributions to the accounts are not tax deductible.  This is in contrast to RRSPs, where withdrawals are taxed but contributions are deductible.

Unused contribution room can be carried forward and the full amount of withdrawals can be repaid in future years. Re-contributing in the year of withdrawal is ill advised because the account holder runs the risk of over contributing, which can result in penalty tax. 

Funds can be transferred to a spouse or common law partner for the purpose of contributing to a TFSA and the assets of the account can be transferred to a spouse or common law partner on death.  For more information on designating beneficiaries on TFSAs read my blog on the topic here

Despite the many benefits of having a TFSA, not everyone seems convinced.  Chevreau cites a report by Angus Reid, commissioned by ING Direct, which found that 53% of Canadians don’t have an account. While a 1/3 of us have contributed, more than half of those who have not don’t intend to open an account in 2010 or 2011 – and 13% of us aren’t even aware that TFSAs exist.  All of which is unfortunate because the accounts are an excellent way of saving for retirement (or anything else for that matter) and carry with them distinct estate planning benefits. 

You've Received Your Inheritance...So Now What?

Receiving a large inheritance can carry with it exciting possibilities.  But suddenly “coming into money” can be daunting and even a little scary – particularly in situations where the amount is great enough to fundamentally change the beneficiary’s financial circumstances. 

Manulife Investments predicts that over the next couple of decades, Canadians will inherit $1 trillion.  In 2010 alone, Manulife estimates that Canadians will inherit $70 billion – and with no inheritance tax in this country, that money will be the beneficiaries’ to keep. 

For those who are inheriting money and are not sure what to do with it, the Globe and Mail’s recent article, “Overcoming the Stress of Investing an Inheritance”, provides useful advice.  The suggestions offered include:

  1. Put the money in a dedicated account to reduce the urge to just spend it – there’s nothing wrong with a “splurge” like a vacation, or some home improvements – but be careful not to inadvertently “fritter away” the money;

  2. Use the money to reduce debts (especially those that carry higher rates of interest than is likely to be earned by investing the inheritance);

  3. Where appropriate, consider making a contribution to RRSPs or TFSAs – while the long term benefits of doing so are obvious, the tax benefits to contributing (particularly to RRSPs) can provide (near) instant gratification; and

  4. If the money is going to be invested, consider hiring an investment adviser and/or a financial planner – and make sure to research the options available, as different advisers will have different fee structures.

For an idea of the options available, these two case studies provide real life examples of how two beneficiaries are using their inheritance. 

Happy Thanksgiving!

Keeping Your Estate Administration-Ready

I frequently stress to my clients the importance of keeping their affairs in order. While this means keeping an up-to-date will there is much more to it than that.

The National Post recently ran a helpful article  on keeping your estate “administration ready” in case of your death. Here are the tips that I liked best:

1. Ensure your executors are up to the task

Selecting trustworthy executors is important, but there’s more to the choice than trustworthiness. Administering an estate can be complicated, time consuming, and stressful, particularly when the estate is complex. It is important that the executors have the knowledge and time necessary to administer the estate.

2. Notify the executors that they’ve been named and advise them of the contents of the will

I have seen numerous occasions where the first time an executor learns of his appointment is after the death of the testator. This can cause big problems – especially if the executor renounces the appointment and no alternate has been named.

Explaining the terms of your will to your named executors is also a good idea – it will be easier for them to communicate with the beneficiaries and determine how to make any necessary discretionary decisions.

3. Brief the main adult beneficiaries about the terms of your will

Estate litigation can occur when a beneficiary is unpleasantly surprised by the terms of a will. Being upfront with the beneficiaries during your life can help to stave off the shock and hurt feelings that can lead to infighting and litigation after your death.

4. Keep financial records in order

I always recommend that clients create (and keep updated) a list of assets, such as bank accounts and investments, and where those assets are located. Copies of insurance policies, other beneficiary designations, recent tax returns, and important financial records should also be kept in one place.

This will help to avoid the administration of your estate being delayed as executors search for assets or, even worse, certain assets never being recovered.

While it’s never possible to guarantee a smooth estate administration, the above suggestions will certainly make your executors’ lives easier.

Avoid the Mistake of Not Planning for Mental Incapacity

In my practice, a common mistake I see people making is failing to plan adequately (or plan at all!) for incapacity.  

Apparently I’m not alone in this observation - the Globe and Mail recently ran an excerpt from the new book, “The 50 Biggest Estate Planning Mistakes…and How to Avoid Them” and mistake # 1 was failing to designate a substitute decision maker for property and personal care when an individual still had the capacity to do so.     

My married clients are often surprised to learn that if they become incapable their spouse does not automatically have the right to make decisions on their behalf.  Instead, the spouse (or whomever the individual wants to designate) must be named in powers of attorney for property and for personal care.   

A continuing power of attorney for property gives the person (or persons) appointed the right to do anything with respect to the grantor’s property that the grantor could do if capable except make a will.  The power of attorney can come into effect immediately or it can specify it will come into effect on a specific date or when a specific contingency occurs.  Part I of the Substitute Decisions Act governs what is involved in making a continuing power of attorney for property.

A power of attorney for personal care authorizes the person (or persons) named to make substitute decisions regarding the grantor’s personal care.  Part II of the Substitute Decisions Act sets out the law relating to powers of attorney for personal care.  Unlike a continuing power of attorney for property, which can take effect immediately, a power of attorney for personal care only takes effect when the grantor is incapable. 

If someone becomes incapable without having made powers of attorney, it’s not the end of the world – a prospective guardian can bring a court application to be appointed.  However, this can be a long and costly process (and the incapable person may end up paying the legal fees involved).  Additionally the person appointed may not be who the incapable person would have selected had they considered the issue while still capable.  Having powers of attorney prepared does not take long and it is relatively inexpensive – certainly less expensive than the cost of a court application!

Another Billionaire Dies, Avoids U.S. Estate Tax

American broadcasting mogul and noted philanthropist John Kluge died a couple of weeks ago at age 96, leaving behind an estate worth approximately $7 billion.  

It’s not clear how his estate was to be divided on his death – and given the popularity of trusts amongst the wealthy (which, amongst other things, can keep the distribution of assets shielded from public view) we might never know. 

One thing we do know, however, is that his estate will avoid U.S. estate tax (at least for now – but more on that in a minute). 

While the estate planners down south probably can’t open a business section without reading about 2010 estate tax issues, I’ll briefly fill in those in the audience who aren’t familiar with the topic.

In the United States, the government imposes an estate tax.  Basically, when someone dies with assets valued over a fixed exclusion amount, a specified tax rate is applied to the value of their taxable estate (i.e. their gross estate, minus certain allowable deductions) – as you can probably guess, the specifics are more complicated than that, but you get the picture. 

From 2001 to 2009 the maximum tax rate declined from 55% to 45%, while the exclusion amount increased from $675k to $3.5 million.  However, for 2010, the US Congress let the estate tax lapse – meaning that this year there is no federal tax payable.  The exemption is for one year only – in 2011 the tax returns with a rate back at the 2001 level of 55% and an exclusion amount set at $1 million.

Above I noted that estate tax was being avoided “at least for now” – that’s because there has been a lot of talk that Congress may enact a law imposing a tax rate for 2010 and make it retroactive to the beginning of the year.    

Kluge isn’t the only billionaire whose estate will be able to avoid the tax: Texas oil tycoon Dan L. Duncan died in March leaving an estate worth approximately $9 billion and New York Yankees owner George Steinbrenner died in July leaving behind approximately $1.1 billion. 

I guess we’ll have to wait and see if, in the last 3 ½ months of the year, the estates of any other billionaires manage to dodge the estate tax – not to be morbid but David Rockefeller Sr. (son of oil baron John D.) is 95.

A Retiree Needs Money to Live, You Know!

On Wednesday, the New York Times published a special section on retirement.  The section is full of interesting articles (and, for my Yankee readers, there’s a good one on planning strategies for dealing with the estate tax uncertainty). 

An article I found particularly interesting was “Looking Ahead to the Spend-Down Years”, which explores the ways of enabling people to make better decisions about “decumulation” (the process of accumulating assets during working years and then drawing them down during retirement).

A shift in the certainty of retirement income has occurred over the past few decades – there has been a move from the defined-benefit plans (e.g. employer-funded pensions, where the amount the recipient will receive is certain), so popular twenty years ago, to the defined contribution plans (such as 401(k)s and RRSPs, where the value of account on retirement is unpredictable) so popular today.

Compounding this uncertainty is an increase in life expectancy - people can expect to spend more years in retirement than could generations past.  With this increased life expectancy they can also expect to incur higher medical and care expenses. 

All of this means seeking ways for retirees to create income from their accumulated savings - and ensure that the income combined with those accumulated savings will be enough sustain them for the rest of their lives. 

One of the issues raised in the article is the “annuity puzzle” – the conundrum that while annuities would appear to be the logical and safe way of ensuring a predictable income stream, they are not very popular with retirees.  One theory for this is that the trepidation associated with making a large, one-time payout of capital to purchase an annuity overrides the sense of security that would come from guaranteed annuity payments.

While the best way to ensure predictability in income stream while assets decumulate may be unclear, there appears to be one good way to persuade people to start saving more for retirement – show them a picture of what they will look like when they age.  A recently study found that people who were shown an aged image of themselves and then asked questions about retirement allocation, allocated twice as much as people who were shown a current image.  

Helpful Tips for Avoiding Negligence Claims for Estates and Trusts Lawyers

I came across an interesting article in the September edition of “Risky Business”, the magazine published by LawPro, the liability insurer for lawyers in Ontario.  The article details the various “malpractice hazards” which arise in various practice areas. 

In the area of wills & estates, the types of claims lawyers face appear increasingly influenced by the demographics of the population.  Specifically, with the aging population, LawPRO sees an increased risk of claims arising because of issues related to a client’s capacity.  In addition, the number of elderly individuals with large estates just increases the incentive that families will have to fight and the potential that those disputes will entangle the lawyer who did the estate planning.  

LawPRO makes the following suggestions of ways to reduce the risk of a claim:

a)    Be on the lookout for signs of undue influence.  In situations where the client is making drastic changes to his or her will, explore who is benefitting from the changes and what has motivated the client to make them;

b)    Make sure to meet with the client alone to ensure that the client understands the legal implications of what he or she is instructing you to do and is making decisions freely;

c)    Clarify who you are acting for and taking instructions from so as to ensure there is no conflict of interest.  This is particularly important when your initial contact is not with the client but rather with a family member of the client; and

d)    Make sure to satisfy yourself about your client’s mental capacity and, just as importantly, make sure to document what enquiries you made in case your client’s capacity is later challenged.

When litigation over an estate occurs, the reasons are frequently unrelated to the lawyer who did the estate planning.  However, angry beneficiaries don’t always feel that way.  It is always a good idea for a lawyer doing estate planning to ensure that he or she will be protected in the future if issues involving the will or the client’s capacity arise.   

Death of a TFSA Holder - How to Avoid the Taxes

The Globe and Mail has posted a great video about how to pass on your Tax Free Savings Account [“TFSA”] on death without triggering taxes. 

Depending on the intended beneficiary, there are two main ways to pass on your TFSA.  The first is by naming a successor account holder.  A successor account holder can be either your spouse or your common law partner.  Where a successor has been named, the effect is that when you die, he or she will be able to simply “take over” your TFSA – meaning the successor will be able to contribute to, administer, and withdraw from the account.  The transfer should be seamless and no taxes will be payable. 

The other option is to name a beneficiary on the account.  Possible designated beneficiaries include a spouse, former spouse, common law partner, child, or a “qualified donee” (such as a registered charity).  In this case, while a tax free transfer will still be available, there will be time limitations dictating by when the transfer must have been made.  Additionally, if the TFSA earns income subsequent to the account holder’s death (and prior to the account being transferred to the beneficiary), then that income will be taxed in the hands of the beneficiary.

An important distinction between naming a successor account holder and a designated beneficiary relates to what can be done with the proceeds of the account once they’ve been received.  When a successor holder is named, the TFSA will continue to exist, with the income earned sheltered from tax.  The successor’s contribution room for his or her own TFSA will remain unaffected.  When a designated beneficiary is named, that beneficiary will be able to withdraw any amounts up to the fair market value of the TFSA at the original account holder’s death on a tax-free basis.  However, the beneficiary will only be able to protect future growth in the TFSA from tax by contributing it to his or her own TFSA (and this will be subject to available room). 

If you are interested in learning more about the implications of the death of a TFSA holder, the website for the Canada Revenue Agency has useful information.

Decisions, Decisions - Should You Make a Will or Avoid Tempting Fate?

If you ask any estate planning lawyer whether you should have a will, the answer will be a resounding “Yes!”.  However, Dorothy Lipovenko, a writer for the Montreal Gazette, might not agree.

In her recent article, “Why Tempt Fate By Making a Will?”, Ms. Lipovenko explains why she doesn’t have one (and, from what I can glean, doesn’t plan on making one).  Apparently, a major part of Ms. Lipovenko’s reluctance stems from superstition – the worry that making a will will somehow hasten her own demise.  Additionally, she figures that having named her husband the beneficiary on her RRSPs, further planning isn’t really necessary – especially since, although she’s accumulated “stuff” over her lifetime, asset-wise she’s hardy the “Queen of England”, as she puts it. 

The mentality expressed in the article isn’t an uncommon one.  In my practice, I often encounter clients who are very reluctant to do a will.  Frequent excuses include that they’re too busy, they can’t decide how to distribute their assets, they don’t have enough worldly goods to make a will worthwhile, and so on – although, I’ve noticed a consistent underlying theme is that people just don’t like thinking about dying.

Nevertheless, having a will is important.  If your assets are limited and your intended distribution is simple, then you certainly don’t need anything complex.  But turning your attention to how you want your estate divided and who you want to administer it is still important.  If for nothing else, having a will makes your estate much easier to administer because it will name the executor who will have the authority to act.  Dying without a will, and without having named an executor, can lead to a costly and arduous estate administration – and result in professional fees being incurred that could have otherwise been avoided. 

The New York Times recently published a helpful primer on the benefits of having a will, “Estate Planning Step 1: Recognize You Are Going to Die”, which is worth a read.

Guardianship of Minors: Planning for Your Children's Future

A common concern that people have when planning their estates is what will happen to any minor children they have on their death.  As a result, people who do have minor children when making a will have the option of naming a guardian to take custody of their children on their death. The authority to appoint a guardian and the process that must be followed is set out in s. 61 of the Children’s Law Reform Act. 

It is possible to appoint more than one guardian or to name alternate guardians in the event the one appointed can’t act.  In situations where a couple (such as the testator’s sister and brother-in-law) are named, it is suggested that the will provide they must be together at the testator’s death and, if they are not, who should take custody (to avoid a situation where a couple who was married at the time the will was completed have divorced at the testator’s death). 

While naming a guardian is a good option, it is important for the testator to understand the limitations of such an appointment.  First, an appointment of a guardian will only be effective if, at the time the appointment takes effect, the individual who made it was the only one entitled to custody of the minor – so, if two parents are entitled to custody of a minor and one passes away, the surviving parent will be entitled to custody, not the guardian named in the deceased parent’s will. 

Second, an appointment made by will is only temporary in nature and will be effective for ninety days after the testator’s death.  Before the 90 days expired, the intended guardian must bring a court application seeking to be permanently appointed.  Ultimately, then, it will be up to the court to determine who will be awarded final custody of any minor children – and the court’s concern will be over what is in the best interests of the children, not what the will says.  In situations where appointing the guardian named in a will seems in keeping with the children’s best interests, the court will certainly give importance to the terms of the will – however, again, it is important for anyone making a will to understand that the will won’t necessarily be determinative.    

Estate Planning in the Face of an Ill Client - What are a Lawyer's Obligations?

A fear shared by many estate planners is a situation where a client making a will ("a testator") dies before the will being drafted has been executed.  

That was the situation in the recent decision of McCullough v. Riffert

In McCullough v. Riffert, the testator visited a lawyer to have a will prepared, leaving everything to his niece.  Unfortunately, the testator died of illness ten days later and before the will had been executed. As such, his estate was distributed on an intestacy.  The niece proceeded to bring a claim against the lawyer for negligence, alleging that the lawyer ought to have recognized the seriousness of the testator’s illness and been faster in preparing the will and attending to its execution.     

The court found that while “best practices” would have involved the lawyer preparing a will on the day of the client meeting or recommending that the testator do a holograph will, in the circumstances, requiring the lawyer to have done so would be imposing too high a burden. 

Some of the factors the court looked at in determining whether the lawyer had met the requisite standard of care were as follows:

  • The testator had taken no previous steps to complete a will;
  • The lawyer was never advised that the testator was terminally ill – indeed, it does not appear the testator knew and after his death his niece expressed surprise he had died;
  • The urgency of the situation was not expressed to the lawyer – during the meeting the testator had mentioned that he was planning on visiting relatives in Texas a few months later and, as such, the lawyer had no reason to believe death was imminent; and
  • After the initial meeting, the testator never contacted the lawyer to enquire about the status of the will. 

Ultimately, the court found that in the circumstances the lawyer had met the standard of care required to her and was not negligent.  However, this case does serve as a useful reminder of how important it is to prepare a will quickly when a testator is elderly or presents as ill.  There are certainly circumstances where failing to do so can result in a finding of negligence.     

Welcome to the Toronto Estates and Trusts Monitor

I am pleased to announce the launch of my new blog.  I hope to update it often, so make sure to come back frequently to see what’s new. 

If you feel like sharing the content, the share link will allow you to post the blog on various social media sites, such as LinkedIn, Facebook, and Twitter or email it to others. 

I’m always happy to hear from my readers, so if you have any questions, comments, or topics you would like me to blog about, please feel free to email me using the enquiry form on the contact page.  

Have a great day!

Megan F. Connolly