Tips and Traps in Drafting – Hull on Estates #95
Listen to Tips and Trips in Drafting.
This week on Hull on Estates, Suzana and Ian discuss tips and traps in the drafting of wills.
Tips and Traps in Drafting – Hull on Estates Podcast #95
Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to Episode #95 of our podcast on Tuesday, January 29th, 2008.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills. Now, here are today’s hosts.
Suzana Popovic-Montag: Hi there. I’m Suzana Popovic-Montag and welcome to another episode of Hull on Estates.
Ian Hull: Hi, and I’m Ian Hull, and glad to be here on Hull on Estates.
Suzana Popovic-Montag: If you’d like to be heard on Hull on Estates, we’ve now started a mechanism whereby we can have people call in and leave comments so that we can get some interaction on our podcast. And you can do this by calling area code 206-350-6636.
Ian Hull: So that number is shown in the show notes. And along with that is our email address at: email@example.com.
Suzana Popovic-Montag: And, of course, you can also visit us at our blog at: estatelaw.hullandhull.com.
Ian Hull: Okay, Suzana. Well, it’s good to be back on Hull on Estates. We continue to enjoy doing our weekly podcast on Hull on Estates and Succession Planning. And we thought today we might talk a little bit about some tips and traps from the drafting standpoint.
Suzana Popovic-Montag: And just in terms of a little bit of a background there, Ian, of course, as solicitors, we’re drafting these Wills in situations where we’re trying to anticipate all kinds of possibilities. And one of the things that we’ve certainly seen from our perspective is occasions where a Will is drafted with no residue clause. Or actually the residue is given away more than once in a Will document.
Ian Hull: And I, you know, when drafting Wills and Powers of Attorney, obviously all we can do is our best. And one of the best ways to do our best is to have someone look at the document, a new set of eyes, #1. And #2 is to have someone sort of look at the document, not from a typo standpoint, but from a core issue standpoint. And I know it sounds sort of crazy, but we see enough of these problems with the gifting of the residue, if there’s a problem with the gifting of the residue from a drafting standpoint. I’ve also created a little mini-checklist. I always like to get someone in my office to read the Will before it goes out to make sure that I haven’t messed up. But I also have a checklist. And one of the things on the checklist is, as I say, re-read residue clause. And, as I say, it sounds a little bit crazy but you have tremendous consequences if you don’t draw this part of it properly. So that’s just one of my tricks.
Suzana Popovic-Montag: It’s a great suggestion, Ian. And with word processing the way it is these days, I mean we can see how it may be that by cutting and pasting, it may turn out that there is a second residue clause somehow that slipped up into a Will. And so a second set of eyes is worth a whole bunch of prevention there.
Ian Hull: In an interesting problem that we ran into just recently on a residue clause problem was that, because of word processing, the line for the residue, that one single line that said “rest and residue to my X” or whoever the person is, fell off the page. And it didn’t land back on the next page. So because of a glitch with the word processing, it was missed on the final version. So, anyway, these are all sort of things to watch out for.
Suzana Popovic-Montag: Another thing that I sort of watch out for, Ian, in drafting these Wills, and even as you say, Powers of Attorney, is dealing for all kinds of possible potentialities. And so the possibilities that if you give a certain asset away, you want to consider how it’s going to be paid for, or what other things might be associated with that asset. And just as an example, if you’re going to give away shares that have a certain adjusted cost basis, but then on the date of death there’s a huge deemed disposition capital gains tax associated with that, but you don’t provide for the payment of that tax, how will that be treated?
Ian Hull: Well, that’s a great idea. And these uncertainties can often be easily drafted around, and can properly be put into. I also noticed one right now because we’re experiencing potentially and actual volatile market conditions. And there’s always some need to be carefully drafting your investment clause. And you have the choice, of course, of drafting it within the confines of the Trustee Act and the parameters of it. Or expressly saying the Trustee Act doesn’t apply. But recently I’ve met with a couple of consultants who have added another layer of service which I think is a fascinating idea, and that is, with trustees, to encourage them to maybe seek some consultation as to where to put the investment funds, whether its short-term or long-term, long-term obviously in a trust. And these consultants will come in and look at the portfolio, analyze it and determine where best to place the portfolio. And the interesting thing about these consultants is, is that they don’t actually take a fee. They don’t want the ongoing work per se. They just want the opportunity to consult and take a one-off fee of that sense. And what I’ve found in some of my Wills is that where I’ve got clients who are concerned about how the investment portfolio is going to be managed, and say it’s obviously in a trust situation, or how it’s even going to be liquidated. That’s one way to encourage your client in a preparatory way, to say to the beneficiaries, before you do anything to set up these trusts, I encourage you to do X,Y and Z. And this is a layer of protection on the investment side that makes some sense in this volatile market, but also makes sense in a calmer market.
Suzana Popovic-Montag: Just to follow-up, Ian, in terms of another example of a Will that deals with an asset without necessarily considering how it’s going to be paid for at the end of the day. We often times see the provision of house trusts, where a spouse, a surviving spouse is given a life interest in a house and then on his or her death, the property is to be sold and the proceeds of sale distributed amongst other beneficiaries. And we’ve seen occasions where the costs of maintaining that house in the meantime have not been accounted for and provided in the Will. And so the question then is, you know, who is responsible for those kinds of expenses? And particularly when they become capital expenses, or very large in quantum, then in those situations, it really becomes an issue as to who’s responsible to pay for that. So just another thing that I certainly like to keep in mind and part of my own checklist in drawing Wills includes that particular question, you know, whose going to fund these expenses associated with these kinds of trust arrangements?
Ian Hull: So I want to turn to one issue on the drafting side that can be…it’s a bit of a technical point, but one that you and I actually were looking at a trust this morning on, trying to determine whether or not the class closed. And if it was drafted a little differently, it might have been easier to determine that. What am I getting at in that kind of scenario?
Suzana Popovic-Montag: Well, I think what you’re suggesting, Ian, there is a situation where you give a gift and it says that the gift is going to be distributable when the youngest child, for instance, attains the age of 25. And so the question is, well, when do you determine child? When does that class close? Is it, you know, the children who are born as of the date of the death of that individual? Or ones who are born afterwards? And so until you can determine when the class closes, you can’t really determine who the gift over beneficiaries, or who the other beneficiaries are going to be.
Ian Hull: So I think, just from a drafting standpoint, if there are classes that you need to close, so to speak, it’s fairly easy to do that by adding language such as, “who are alive at the date of my death” or some precision on the class closing issue, so that we can make sure that there is no question later on as to how many generations down the road we have to wait for, to determine the class closing. And a classic class closing language is well and considers…oh this is good, I’m getting phone calls during the podcast…A good classic class closing as well is on life interests. And does it close on the date of death of the life tenant? Or does it close on the date of death of the last grandchild born or to die? and all that sort of thing. So you just…it seems to me you want to be very careful about that drafting aspect.
Suzana Popovic-Montag: And sort of as an adjunct to that thought, I think also we try to keep in mind that beneficiaries may not necessarily die in the order that we might expect them to. And so, to the extent that we can build in a little bit of flexibility for that, I think that’s something that I certainly try to keep in mind in my drafting.
Ian Hull: Alright. I also see from time to time problems with the gift over and the drafting with the gift over clause. Suzana, what are your thoughts on that sort of scenario?
Suzana Popovic-Montag: In these situations, Ian, and I think what you’re talking about is a case where you’ve got a distribution that’s made to, for instance, children when they turn, you know, 18, they’ll get a third of their entitlement; when they’re 21, they’ll get a second…
Ian Hull: Right.
Suzana Popovic-Montag: …third of their entitlement and then at 30, or whatever the age might be, they’ll get the rest of it. And in those situations, we try to keep in mind the fact that again, back to the order of death of beneficiaries, someone may die before they’re fully vested and fully entitled to their gift under the Will. And so what happens in those situations?
Ian Hull: So I think we have to be mindful, of course, of the classic rule of Saunders and Voce, which is an 1841 decision that would permit, if it’s not set up properly and not drafted properly, the beneficiaries to call on the gift if a gift over has not been drafted in accordance with proper drafting principles. And the main thing, of course, is that you want to make sure that you’ve gifted over to the next series of generations leaving the contingent beneficiaries there as potential beneficiaries. And if you haven’t, then when these beneficiaries turn 18, they can call on the gift if there is no gift over per se.
Suzana Popovic-Montag: Talk about a frustration of testamentary intention in that case!
Ian Hull: That’s right. And so, it’s just something to keep in mind in terms of the overall drafting. Now I think the last thing I just want to point out, and one of my pet peeves is that I think clients tend to get stuck on the whole question of appointing guardians of property for their children, and it becomes a bit of a distraction in the process of the Will drafting. And often what I’m doing now with my clients is saying, especially when I have young clients coming in to see me, I just say to them look, get over it, let’s do a Will, let’s not do the guardianship appointment, that’s fine for now, but let’s do the Will. Because 99% of the rest of it needs to be done, and a fixation over who should be the best person to look after your children is something that gets overrated and we don’t want to forget that under the Children’s Law Reform Act, it is only ultimately a 90 day appointment.
Suzana Popovic-Montag: Well, thank you, Ian, for that tie-up to our podcast. I think that basically brings us to the end of our discussion this week and I want to thank all of our listeners for having joined us today. I’m Suzana Popovic-Montag.
Ian Hull: And I’m Ian Hull. And we look forward to hearing from our listeners. Again, don’t forget, our call-in number, 206-350-6636. And email at: firstname.lastname@example.org and then of course, our daily blog you can get to easily at: estatelaw.hullandhull.com as well.
Suzana Popovic-Montag: Thanks very much, Ian.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.
Our theme music is Upper Structure by DJ AKid and is courtesy of the Podsafe Music Network.