The Positive Side of the Second Marriage – Hull on Esate and Succession Planning #158
Listen to The Positive Side of the Second Marriage
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the positive side of the second marriage from a planning standpoint with a focus on capacity planning.
They discuss both property and personal care.
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Welcome to Hull on Estates and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag. The podcast you’re listening to will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto, here are Ian and Suzana.
Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening, and some of you may be watching, episode 157 of our podcast on Tuesday, March 31st, 2009.
Ian Hull: Hi Suzana.
Suzana Popovic-Montag: Hi there Ian. How are you?
Ian Hull: Just great, thanks.
Suzana Popovic-Montag: That’s good. Ready for April Fool’s Day?
Ian Hull: Yes, I guess I’ll have to be. Watch my kids come at me.
Suzana Popovic-Montag: You’ve been warned.
Ian Hull: So let’s work through the positive side of the second marriage, there’s always lots of positives. But the positive side of second marriages on a planning standpoint because we do see, you know, if I had to estimate either the family cottage or the second marriage are the two biggest stumbling blocks to effective estate planning. And we talked in our last podcast about the second marriage and how some of the mechanisms we could use to develop scenarios that will help fund both sides, both families. Family number 1 and family number 2 in the second marriage scenario, or family number 3 and 4, depending on how busy we are.
Let’s today talk about, not as much focusing on the estate planning, but on the capacity planning because that in and of itself can be a really, really important scenario. And we’re going to talk about the property and the personal care. But just to start with the personal care, given the scenarios in a second marriage, sometimes the volatility of someone who becomes incapable for personal care can be incredible. There’s the first marriage scenario where you’ve got maybe the surviving spouse. Well everyone is alive in our illustration here. But in the first marriage, spouse number 1 who is divorced from their original spouse may still be alive and may be thinking that he or she has some role to play at the time of incapacity or there might be some expectations by their kids of their mother or father playing some role in capacity, notwithstanding the fact that the spouse has moved on and remarried.
So the emotions can be extraordinary in that scenario. So obviously our first suggestion to our clients is get your Powers of Attorney organized and think through the choice of attorney, both as guardian and as personal care.
Suzana Popovic-Montag: And that’s really an important thing, Ian, because even though here in Ontario we certainly have statutory fallbacks in the event that someone hasn’t planned properly for their incapacity, you really want to take that moment, you want to meet with an advisor and you want to make sure that you lock that down properly. Because there is, as you say, so much emotion. And that can really overpower even like financial acumen or any other kind of reasonableness in these situations. And so I think it’s very important that as part and parcel of the estate planning process, people include the incapacity planning as well.
Ian Hull: So given the emotions of that moment in time when incapacity sets in and then the reaction to it, let’s talk about joint Powers of Attorney and let’s talk about it in a second marriage scenario where the couple have their own resources coming into the marriage but one may need to take over the other’s resources in a moment of incapacity.
Suzana Popovic-Montag: And when they’re doing that, I think what people are thinking are that they want to sort of appease both families. They want to appease the spouse and they also want to appease perhaps the children from the prior relationship. And so they’ll think about a joint arrangement where more than one attorney is appointed. And you can technically have as many people appointed as your attorney as you want. The only restriction, of course, would be the actual execution of that document. If you have too many people who can’t get along or too many people who are not going to be able to co-operate, it just doesn’t make any sense from a practical perspective.
Ian Hull: Alright. So what do you find, then, in these scenarios with the joint Powers of Attorney? What are some of the legal restrictions or what should we be looking to, to make sure that we’ve at least created an effective document?
Suzana Popovic-Montag: Well Ian, when you appoint more than one person as a Power of Attorney, those people who are appointed are presumed and expected to act jointly unless you specifically want to vest them with the opportunity and the ability to act independently of one another. And so that’s something that you want to keep in mind to the extent that you can, because otherwise there is, as I said, this statutory expectation. And similarly when you appoint more than one person, if one of them were to die or to become incapable or to not want to continue acting as your attorney, again there are some statutory expectations and the statute kicks in and says that the remaining people can act on your behalf unless you provide otherwise in your instrument. So it allows for a lot of flexibility if that’s something that you want to build into your plan.
Ian Hull: So when we look at our document, we look at the appointment provision as (a) and (b) jointly and severally or jointly or severally, that kind of language, so it allows them. And as you say, I mean it’s so important to make this determination early on, make it clearly identified in the document because you’re dealing with third parties. Its institutions like banks and hospitals and care facilities that have to read these documents and understand them. And so if you’ve created too many attorneys and if you’ve created language that doesn’t clearly identify whether it is a joint Power of Attorney or not, you’re going to find yourself maybe running to Court to have to either clarify or re-do the documents through a guardianship application or something like that.
Suzana Popovic-Montag: And another key thing to think about in these situations too is the trigger mechanism for a Power of Attorney. And when I say that, what I’m referring to is the fact that some Powers of Attorney can be effective from the moment you sign them and others can only become effective once you become incapable. And if you choose to create a Power of Attorney that only sort of springs into action when you’re incapable, you want to make sure that the test for when that document becomes effective is crystal clear. Because again otherwise you are running to Court and seeking judicial determination of that. And just think about when you’re in these situations with perhaps two different families, you know, there could be a real issue as to whether one agrees that the Mom or Dad is suddenly incapable or not. So it’s just…
Ian Hull: Yeah and I think it may be a bit understated. I mean, I think you have to expect that the tensions are high and I mean really a big part of why we wanted to talk about these issues today and in our last podcast was that people put their head in the sand and ignore the fact that creating a second relationship, whatever it is, married or common-law, creates new tensions. And those tensions can explode on a dime and you may not have predicted that for any reason why. So I think you have to expect the worst in that scenario. And I don’t think that’s an unfair…I think that’s a consequence of creating this new relationship. So when you do expect the worst, you need to, it seems to me and we tell our clients, communicate that and communicate what is going to be expected, not just on death but communicate it when you get to moments of incapacity.
So the joint Power of Attorney, the document itself, we want to make sure it’s identified properly as the co-appointments or more or less, depending on who’s involved. We want to make sure that we don’t have any sort of vagueness in terms of when it comes into effect. Are there any other factors that we want to look at when creating a joint Power of Attorney, especially in light of a second marriage scenario?
Suzana Popovic-Montag: Well Ian, one of the other tension points that I see often arise is the question of compensation. When attorneys are acting jointly, we know certainly that there are, you know, statutory entitlements for attorneys who are acting as Powers of Attorney. And then the question is, when you have more than one attorney, who gets how much?
Ian Hull: Well that compensation issue can be a real hot button as sometimes the expectation is that you’re doing this all for free.
Suzana Popovic-Montag: That’s right; it’s a labour of love.
Ian Hull: Yes and its not easy because if you say you did put co-attorneys in from one kid from the first marriage and the surviving capable spouse, the expectation might be that one of the two of them or both are going to do this for free and it may not be something that they can afford the time and energy to do for free.
Suzana Popovic-Montag: And another thing, of course, that arises or a possible conflict that could arise is the decision-making authority. And what happens if the two people or more can’t agree? And what kind of mechanisms can you build into your Power of Attorney to perhaps avoid going to Court? Can you build in some kind of majority rule provision? Can you build in the necessity to maybe attend at some kind of an informal mediation arbitration kind of arrangement to have these decisions made short of a full-blown legal warfare?
Ian Hull: Well, and that’s a great idea. So we can talk about that with our clients and create and craft the document as opposed to just, you know, pulling it out of a standard form. Make it special for what is a special relationship. So I think we’ve covered the Power of Attorney and the second marriage scenario at that level. And we’ve had some interesting discussions in the context of estate planning. So we have a little bit of a checklist we’ve created, both for the estate planning and for the capacity planning.
So thanks very much for today.
Suzana Popovic-Montag: Thanks to you Ian.
You have been listening to Hull on Estates and Succession Planning by Ian Hull and Suzana Popovic-Montag. The podcast that you have been listening to has been provided as an information service. It is a summary of current issues in estates and estate planning. It is not legal advice and you are reminded to always speak with a legal professional regarding your specific circumstance.
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