Managing Estate Issues – Hull on Estates #140
Listen to Managing Estate Issues
This week on Hull on Estates, Ian Hull and Suzana Popovic-Montag talk about how to manage an estate dispute as opposed to preventing it. They use an example of a joint account shared between ‘Mom’ and ‘daughter’ to examine the best way to approach posthumous problems and misunderstandings.
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Managing Estate Issues – Hull on Estates Podcast #140
Posted on December 9th, 2008 by Hull & Hull LLP
Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to episode 140 of our podcast on Tuesday, December 9th, 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 and welcome to another episode of Hull on Estates. I’m Suzana Popovic-Montag.
Ian Hull: And I’m Ian Hull.
Suzana Popovic-Montag: And we’re very glad to be back on Hull on Estates. Just a quick reminder to our listeners that if you’d like to be heard on Hull on Estates, you can participate by leaving us a comment, e-mail us with any thoughts you may have at firstname.lastname@example.org.
Ian Hull: Or please visit our blog at estatelaw.hullandhull.com.
Suzana Popovic-Montag: How are you today, Ian?
Ian Hull: Terrific, thanks.
Suzana Popovic-Montag: That’s good.
Ian Hull: We thought we’d talk today about a very practical issue and that is, how to manage a problem as opposed to preventing. We spend a lot of time on Hull on Estates and on our companion podcast, Hull on Estates and Succession Planning, on talking about how to avoid problems, which is great, which we like to do and we encourage. But the reality is, problems do creep up, people don’t listen, people don’t understand, people don’t do what may be needed to be done or people simply just make an honest mistake and a problem gets created after death. So one of the illustrations we thought we’d talk about how we manage problems is in the context of a joint account. So let’s create this scenario, let’s make a very simple scenario and that is, we’ve got a dutiful daughter and a dutiful brother. One daughter, though, lives in the city with her Mom, looks after the Mom attentively, everyday and did so for 10 years. And then over the course of the 10 years, Mom wanted to give her more than her son, so she actually got some advice and did it during her lifetime. So she created joint accounts. And let’s use the illustration of a joint account with say $100,000 in it, and then another account which was not joint but was simply an outright gift. And it was smattered over the 10 years. So it happened once 8 years ago and another 6 years ago. So we’ve got these two different scenarios and the clients come to see us and they say well what can we do? And we look at the Pecori case and we sit back and we create a practical solution to that problem.
So we’ve got our first steps we would take. And the first step is that how do we prove that this is indeed a gift or a series of gifts? And secondly, how do we convince the other side? And let’s presume we’ve got a lawyer on the other side.
Suzana Popovic-Montag: And the reason, of course, Ian, that we are concerned about how it is that we go about proving this is because as a result of the Pecori decision, we know that there is a presumption that there was not a gift being made but that the joint account would revert back to the mother’s estate in this case. And so we need to be able to demonstrate at the end of the day that this was the intention, that this was what was supposed to happen and I guess that’s where you’re sort of leading us to in terms of how we go about preventing these?
Ian Hull: Right. So, we’ve got a situation where we need to justify, because we’re acting for the dutiful daughter who got the money; we need to justify this. There are the non-litigation steps and the litigation steps. But the first non-litigation step I would typically take is to set out in a letter sort of a two-part letter. The first part is, okay, let’s acknowledge that these are the assets of the estate, these need to be administered, let’s set up a plan of action for them, and identify whatever is left in the estate; and secondly, put in the letter at the early stage full disclosure as to your position on the joint accounts. I find it’s better not to hide behind this issue as opposed to saying to the other side here is the estate assets, there’s $10 left, and the rest flowed outside of the estate and I’m not going to tell you about it. I find that early detection and early acceptance of the fact that you’re going to have potential conflict there is somehow best managed by setting out with particularity what the joint assets are or what assets you say flow outside of the estate.
Suzana Popovic-Montag: And we know, certainly from our experience, that a lot of people are hesitant to do that but the reality is if they don’t do it, they create an aura of mistrust right from the get go and its very, very hard to overcome that no matter how much you start disclosing afterwards.
Ian Hull: Absolutely. And I say to my clients look, be proud of the gift, don’t be ashamed of it. And if you’re ashamed of it, then you have something to hide.
Suzana Popovic-Montag: That’s a really good thought, Ian, and that’s a really good mindset because many times people are apologetic and they’re on the defensive already without anyone even making it necessarily an issue and so to think positive and work forward I think is great advice.
Ian Hull: Because after all, it is usually in the circumstances, it is clearly the intention of the mother to have gifted that money. And it wasn’t intended to be shared and you know, you want to be able to show the other side quickly and efficiently. Now that may not solve the problem, but if we start with that attitude and we start with the attitude of full disclosure, let’s talk a little bit about what that opening letter or that opening discussion with the other side might include.
And the first thing I like to include in it is the date the account was established. So I particularize that, I will get back-up if necessary. But I like to try to identify the date it’s established. The second thing I like to do is I sit back and I say well look, if I’m on the other side of this, what is going to really bother me is the source of this money. Because this is, at this point in time with mother now dead, money that people will perceive to be family money, it’s part of the family. So with some particularity, I like to create the source of the money. If it’s just come out of a GIC that Mom rolled into you, or if it came out of the sale of the proceeds of the cottage or something like that, identify where it came from. Again, setting the tone for how the specific, exclusive account is set up. And I try to describe these as exclusive accounts as opposed to joint accounts, because once she’s dead, it’s no longer joint. It’s exclusive, it was exclusive during their lifetime and it is exclusive now. And when I say exclusive, of course, during the lifetime it was shared between the two as joint tenants but it was exclusive in the sense that no other family member had access to it or used that money.
Now, another demonstration of how I like to set out early on some of my protection to the joint account case is I like to set out and say to my client, alright, how was the money indeed used during the lifetime? And in our earlier illustration, we talked about a joint account that was set up 8 years ago and then one that was set up 6 years ago. And just for the purposes of illustration, let’s say the 8 year ago one wasn’t joint, it was simply a gift because the daughter had taken her mother through a very tough time, she’d just had hip surgery and daughter basically quit her job and spent 6 months with Mom to rehabilitate. So Mom was at that point, 8 years ago, said geez, you know, I just want to give you something for this. I know you’ve lost a lot of salary and money and so here’s a $100,000. And it comes out of a GIC, goes into daughter’s name exclusively and then how does the daughter use that money during her lifetime is an important question, because the judge will want to know, and its an important thing to disclose early, and especially if the money was used exclusively for the daughter. For example, in that 8 year old account, the daughter used the money to send her kid to private school. And now there is only $30,000 left and the other child wants to split the $30,000 of course, but the daughter is saying well, first of all, it was set up a long time ago; second of all, I used it as though it was my own; third of all, I never even talked to Mom how I used it. I used it to my exclusive benefit. So its treated like a gift in that sense.
Suzana Popovic-Montag: So you’re suggesting, Ian, that its very different from a situation where the money would be used somehow for mother’s benefit going forward and the idea there being that of course it was always intended to be hers, it was just in someone else’s hands as trustee or whatever you want to describe the relationship.
Ian Hull: Absolutely. So the second illustration is more problematic. And that’s the joint account where it is set up with daughter and mother, with joint right of survivorship. And typically the bank document is all that has been established. We always tell people to do more but let’s say they haven’t. Again, it seems to me that two threshold questions are: source of the money, when it was opened, and then describe how the money was used. And if it was used exclusively for mother, or if it was used in part for Mom and part for daughter, I don’t know; depends on your facts and your circumstances. But if you can take those three steps along the way to establish your core position, the other side…I’m not saying people fold their tent, but the other side has to seriously consider whether or not they are going to pursue this because it’s sounding very gift-like.
Suzana Popovic-Montag: Now, Ian, from your experience, would you say that the inter vivos gifting tends to be easier to prove than the joint account gifting? Or not?
Ian Hull: I think its slightly easier, yeah, I think because you put it in your name alone, that helps. But, you know, I still think at the end of the day, its so much depends on how much, well without a note or some additional evidence, so much depends on what the intention was of the parties. And part, you really only have, because you aren’t typically planning for this fight, all you have to show the other side is how the money was used. And if it was just sitting there accumulating interest, never touched, that’s okay too, if you have a reason. And then your reason might be look, I took it, Mom gave it to me and I saw that as my retirement savings.
Suzana Popovic-Montag: Right.
Ian Hull: I don’t know, you always have separate facts and stuff. So anyway, I think that that’s just an illustration of how we like to sit down and begin the problem-solving process as opposed to the other end of the day when we would love to see all of the problems solved before they get to us, but that’s not always the case.
So there’s that three-part step: identify the source of the asset, second of all identify when the account was established, and third of all, identify how the money was used during lifetime, and it may go a long way to either resolving or at least crystallizing the issues quickly.
Suzana Popovic-Montag: Well I think that, Ian, brings us to a wrap for this week’s discussion. Thanks to everyone for listening and thank you, Ian, for joining me today.
Ian Hull: Thanks very much, Suzana.
Suzana Popovic-Montag: Just a quick reminder, of course, please feel free to send us an e-mail at email@example.com or visit our blog at estatelaw.hullandhull.com. Thanks very much.
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