People can become upset when they find out that they have been written out of a Will. This frustration can often become multiplied when the individual in question received a significant bequest under a prior Will, believing the that the prior Will in which they received a more significant interest should govern the administration of the estate. In looking for recourse or answers, the “disappointed beneficiary” can often lash out against the drafting lawyer who was retained to prepare the new Will, believing that it was somehow improper or negligent for them to have prepared the Will, and that they have suffered damages in the form of the lost bequest. Some “disappointed beneficiaries” will even go as far as to commence a claim against the drafting lawyer for having seen to drafting the new Will. But can such claims be successful?
In order for the “disappointed beneficiary” to successfully have a claim against the drafting lawyer, the court must find that the drafting lawyer owed a “duty of care” to the beneficiaries under the prior Will. Generally speaking, the only individual to whom a drafting lawyer owes a duty of care when seeing to the preparation of a Will is the testator (and the beneficiaries listed in the new Will by extension). Although the court will sometimes in limited circumstances extend a duty of care to “disappointed beneficiaries”, such circumstances typically exist when the testator advised the drafting lawyer of an intention to benefit a certain individual, however as a result of the actions of the drafting lawyer such an individual did not end up receiving the intended bequest (see White v. Jones and Hall v. Bennett Estate). Such circumstances appear notably distinct from bequests to beneficiaries under a prior Will, for by creating a new Will the testator is in effect communicating to the drafting lawyer an intention to no longer benefit the individuals under the prior Will.
The Alberta Court of Appeal in Graham v. Bonnycastle succinctly summarizes why the court is typically not willing to extend a duty of care from the drafting lawyer to the beneficiaries listed in a prior Will, stating:
“There are strong public policy reasons why the solicitors’ duty should not be extended. The imposition of a duty to beneficiaries under a previous will would create inevitable conflicts of interest. A solicitor cannot have a duty to follow the instructions of his client to prepare a new will and, at the same time, have a duty to beneficiaries under previous wills whose interests are likely to be affected by the new will. The interests of a beneficiary under a previous will are inevitably in conflict with the interests of the testator who wishes to change the will by revoking or reducing a bequest to that beneficiary…” [emphasis added]
In noting that there are other avenues available to such “disappointed beneficiaries”, including challenging the validity of the new Will, the court in Graham v. Bonnycastle goes on to state:
“As noted above, several decisions have recognized the untenable situation that would be created by extending solicitors’ duty of care to include beneficiaries under a former will. Beneficiaries under a former will have other remedies available to them, and may block probate of the will where testamentary capacity is not established. The estate also has a remedy available where it suffers a loss as a result of solicitor negligence. There is no justification for imposing a duty on solicitors taking instruction from a testator for a new will to protect the interests of beneficiaries under a former will. There is not a sufficient relationship of proximity and there are strong policy reasons for refusing to recognize the existence of a duty. It is not fair, just and reasonable to impose a duty.” [emphasis added]
As cases such as Graham v. Bonnycastle suggest, the court appears unwilling to extend a duty of care from the drafting lawyer to a beneficiary listed under a prior Will. If no duty of care exists, no claim may now be advanced by the disappointed beneficiary against the drafting lawyer for any perceived “damages” they may have suffered on account of the new Will having been drafted. This appears true even if it is ultimately found that the testator lacked testamentary capacity at the time the new Will was signed.
Thank you for reading.
For many Canadians, one or more life insurance policies represent an important component of an estate plan. If a policy cannot be honoured as a result of the cause of the insured’s death, this may completely frustrate his or her testamentary wishes.
The terms of life insurance policies typically address the issue of whether a beneficiary will be entitled to the insurance proceeds in the event that an individual commits suicide. Policy terms typically include a restriction as to the payout of the policy if the insured dies by his or her own hands within a certain of number of years from the date on which the policy is taken out (most often two years).
With the decriminalization of physician-assisted death, there was initially some concern regarding whether medical assistance in dying would be distinguished from suicide for the purposes of life insurance. The preamble to the related federal legislation, however, distinguishes between the act of suicide and obtaining medical assistance in dying.
As mentioned by Suzana Popovic-Montag in a recent blog entry, the Canadian Life and Health Insurance Association suggested in 2016 that, if a Canadian follows the legislated process for obtaining medial assistance in dying, life insurance providers will pay out on policies that are less than two years old. Since then, the Medical Assistance in Dying Statute Law Amendment Act, 2017 has come into force to provide protection and clarity for Ontario patients and their families. This legislation has resulted in amendments to various provincial legislation, including the Excellent Care for All Act, 2010, a new section of which now reads as follows:
…the fact that a person received medical assistance in dying may not be invoked as a reason to deny a right or refuse a benefit or any other sum which would otherwise be provided under a contract or statute…unless an express contrary intention appears in the statute.
The amendments provided for within the legislation introduced by the Ontario government represent an important step in the recognition of physician-assisted death as a right that is distinguishable from the act of suicide. They also confirm the right of individuals who access medical assistance in dying to benefit their survivors with life insurance policies or other benefits.
Thank you for reading,
Other blog posts that may be of interest:
We all love a good story. Places like Hollywood were built on that premise. And while there are thousands of great stories built around things like love, war, superheroes, and disasters, there are a surprising number of great stories built around an area you likely would never have considered for bedtime reading: estate planning.
Yes, you read that right. When you think about it, it’s not that surprising. When it comes to leading families, estate planning involves the planning and allocation of enormous wealth, and, in many cases, successful businesses.
Add in the human dynamic – from greed, jealousy, incompetence, and hatred to caring, generosity, kindness, and love – and there are many interesting stories out there.
And they don’t all end well. Take International Management Group (IMG) and Mark McCormack. Starting in 1960, McCormack built his sports agency into a powerhouse, representing the world’s top golfers – Arnold Palmer, Jack Nicklaus, Tiger Woods – as well as top players from many other sports.
Just as IMG had set up financing for a huge expansion in 2003, Mark McCormack died suddenly of a heart attack at age 72. Even though his sons were involved in the business, and his second wife inherited the shares, there was no true succession planning in place. Sadly, with a huge leadership vacuum and high debt, his widow was forced to sell to a buyout firm and the family lost a business more than 40 years in the making.
Contrast that with the story of Milton Hershey, of the chocolate bar fame. At age 61, and in good health, he transferred virtually all his wealth and company shares into a trust for the benefit of a school for underprivileged children. More than 70 years after his death, his company has expanded worldwide, the trust still owns the company, and his humanitarian vision for business and community is thriving.
Motivate your planning – read some stories
Creaghan McConnell Group – a firm of professionals in Toronto who help leading Canadian families and their advisors find and design their future ownership and financial security strategies – have written up these family stories and others on their website. The stories aren’t long, but they’re a fascinating read, and provide insights into how good planning can make a huge difference to future generations: http://www.cmgpartners.ca/cmg-insights-grid/
Thank you for reading.
As estate litigators with decades of experience, we’ve seen it all when it comes to estate disputes. Our firm has dealt with thousands of cases and family situations. Not surprisingly, we’re often asked if there’s a bulletproof will that’s beyond challenge. Is there a way to guarantee that a will can’t be successfully attacked and your wishes thwarted?
The truth is a simple one: there is no 100% certain solution. However, while you can’t get a coat of armor for your will, you can build some thick layers of protection that can greatly reduce the chances of it being successfully challenged. Here are three ways you can help prevent will disputes:
- Make sure your planning is current
Times change, family situations can change, family wealth can change. In so many cases, a will drafted 20 years ago will not accurately reflect the true wishes of a testator or the true expectations of beneficiaries. But we’ve seen those situations time and time again – and that’s when conflicts occur.
Here’s your first layer of protection: make sure you will and estate plan are up-to-date and reflect your current situation and wishes. It sounds obvious, but it’s a trap many fall into. To get it right, you need advice from a lawyer or advisor with a deep understanding of your assets and your family situation. It’s worth the time, effort, and expense to ensure you capture your current wishes and situation in your planning.
- Talk it out
The most obvious step to take is often the most difficult to execute: talk to your family. Let them know your plans, listen to their concerns, explain your reasons, and adjust your planning as needed to minimize the chances of dispute after you’re gone. Even if you can’t resolve family conflicts entirely, your clear communication of your wishes – and your willingness to listen to the concerns of family members – will go a long way to minimizing a challenge to your will.
- Add a “no contest” clause to your will
This is truly a band aid solution, as it doesn’t address the true cause of conflict or attempt to resolve it. But in cases where you suspect that a challenge to your estate plans will be launched, adding a “no contest” clause to your will can be effective in thwarting it. With a no contest clause, when a beneficiary contests a will, it invalidates their inheritance, and the assets are distributed as though the beneficiary predeceased the testator. Such a clause has typically been upheld as enforceable by courts in Canada. However, there are exceptions, and great care and expert advice is needed when adding this provision to your will.
We discuss a few different angles of these issues in this article and Hull & Hull TV episode: http://www.huffingtonpost.ca/suzana-popovicmontag/family-will-conflict_b_3676914.html
Thank you for reading.
Let’s say that you are an estate trustee of a trust, or a beneficiary of a trust. The trust consists of investments. How can you be sure that the investments are performing adequately?
A new product from Asset Risk Consultants will allow you to make a quick check of the performance of the investment portfolio.
“Performance QuickCheck” allows you to enter information about the portfolio, and will immediately compare its performance to 130,000 portfolios having similar risk across five major currencies.
To conduct the check, users pick their currency (currently, British Pounds, US dollars, Euros, Swiss Francs or Canadian dollars), and the percentage of the fund invested in equities (allowing the comparison to be made based on the risk assumed by the trust: either cautious, balanced, steady growth or equity risk). The program then asks for the period over which the portfolio was held, and the percentage return over the period.
The program will then compare your investment return to other portfolios having similar risk.
For example, a Canadian portfolio holding 30% equities producing a 7% return for the period from June, 2016 to July 2017 will result in a smiley green face, indicating above average performance. However, a Canadian portfolio holding 80% equities producing a 7% return for the same period will result in a sad red face, indicating below average performance. As suggested by the website, trustees may want to ask their investment manager for a comment, or consider another investment manager. Beneficiaries may want to speak to the trustee, or legal counsel.
A more comprehensive report is also available, for a fee of £25.
Performance QuickCheck from Asset Risk Consultants is a great, easy to use, free tool to allow you to quickly ask and answer, “How am I doing?”.
Have a great weekend.
Recent amendments to the regulations under the Ontario Disability Support Program Act have made significant changes to the Program, making it easier for people with disabilities to qualify for and maintain benefits. The amendments vary the asset and income limits under the Act.
Prior to the amendments, an ODSP recipient was entitled to receive payments from a trust or life insurance policy or gifts or other voluntary payments of up to $6,000 and still receive benefits. These payments would not be included in the calculation of the income of the recipient. Any payments beyond this would be included in income, and may reduce the benefits received. Under the amendments, effective September 1, 2017, these payments may now be up to $10,000. Also, payments made for the purchase of a principal residence, motor vehicle or payment of first and last month’s rent are now specifically excluded from the definition of income.
Further, the prescribed limits for assets have been altered substantially. Prior to the amendments, benefits were restricted to individuals with assets totalling less than $5,000. (Note: the definition of assets excludes a number of assets from the calculation.) Under the new regulation, an individual can have assets totalling $40,000 and still qualify for benefits. For couples, the prior limit of $7,500 is increased to $50,000.
Benefits payable have also been increased slightly: from $649 per month to $662 per month for an individual, and from $479 per month to $489 per month for an individual for shelter.
Estate planners should be aware of these changes, and the other provisions of the program, and should discuss these with clients planning for children with disabilities, and when advising disabled beneficiaries of an estate.
For a general discussion of the Ontario Disability Support Program, see my paper “ODSP: What Every Estate Solicitor Needs to Know”.
Thank you for reading.
Trusts have been around for hundreds of years, so a type that’s only been around for 17 years is still considered “new” in the trust world. Two types of living trusts (those that you establish during your lifetime) – the alter-ego trust and joint spousal trust – have been available to Canadians only since 2000. These “newer” trusts are worth a quick review, because they can be beneficial in many estate situations.
Trusts with a twist
Like other types of living trust, you create an alter-ego or joint spousal trust by transferring ownership of assets to a trustee (either an individual or a trust company), which then manages and administers those assets for the trust’s beneficiary. But that’s where the similarities end. There are three key differences with an alter-ego trust:
- Unlike other living trusts, there is no deemed sale of your assets at the time of transfer. So, you can roll over assets into the trust without triggering any immediate capital gains tax liability;
- You must be at least 65 years old to settle an alter-ego or joint spousal trust; and
- You must be the sole beneficiary (or you and your spouse in the case of a joint spousal trust), with an entitlement to income and capital during your lifetime. As with any living trust, income retained in the trust is taxed in the trust’s hands at the highest marginal tax rate.
Why consider an alter ego or joint spousal trust? There are a few reasons:
- Bye-bye probate fees: The trust assets do not form part of your estate and are not subject to any probate fees or taxes which may apply. For example, in Ontario – which has the country’s highest estate administration tax – a $1.5 million estate would be liable for $22,000 in taxes. By placing some or all of the estate assets in an alter-ego or joint spousal trust, the estate would benefit from significant tax savings. And if you transfer your principal residence into the trust, the trust maintains the benefit of the principal residence exemption.
- Privacy and protection: Both forms of trust avoid the public disclosure of your named beneficiary and of the assets in the trust, both of which are part of the probate process. They can also offer creditor protection, because ownership of the asset is transferred to the trustee. However, if the purpose of the trust is found to have been set up to avoid or defeat creditors, then those assets can be clawed back and you won’t be able to protect them against creditors.
- Convenience: The trusts also offer protection in the event of incapacity. If you – or both you and your spouse – become incapacitated, the protection of the trust is already in place and the assets continue to be administered by the trustee for your continuing benefit. These trusts can also prevent litigation because it can more difficult to challenge the validity of a living trust than a will.
Of course, you need to balance these benefits with some of the disadvantages. You no longer have access to the capital in the trust, you’re not able to write off any capital losses against capital gains upon death, and there are legal and other costs to setting up the trust, along with ongoing administration expenses, such as trustee fees and the cost of annual tax returns.
For a more detailed analysis of the pros and cons, RBC offers an excellent overview: http://ca.rbcwealthmanagement.com/documents/682561/682577/Alter+Ego+%26+Joint+Partner+Trusts.pdf/3957f00a-c0ea-4917-b02c-f1bc74f44660
Thank you for reading!
They love football, we love hockey. Their zee is our zed – and their Trump is our Trudeau. While we share a common border with the U.S., there are many differences between our two nations – and the reasons for setting up a trust can differ significantly by country as well.
The U.S. has a high estate tax for wealthy individuals – up to 40% on assets, with the first $5.5 million or so exempt. Not surprisingly, trusts are used aggressively in many situations to reduce estate values and minimize this estate tax as much as possible.
In Canada, there is no estate tax per se – although there is an estate administration tax (probate fee) in some provinces and there are often taxes payable on capital gains. But with no capital gains taxes on principal residences, the need for trusts as part of U.S.-style estate planning simply isn’t there.
This doesn’t mean that trusts aren’t a valuable planning tool in Canada. They can still be used to shift income from higher-taxed family members to those in lower tax brackets, or to provide dedicated funding for dependants, such as a disabled spouse or child, or as means of creditor protection amongst many other reasons. But there’s a kinder, gentler push behind trust planning in Canada, owing to the less punitive (in most cases) taxation of estates here.
This Globe and Mail article provides a good overview of the many potential uses of trusts in Canada today, and why a more aggressive approach isn’t needed here: https://www.theglobeandmail.com/globe-investor/personal-finance/a-tax-tool-thats-not-just-for-trust-fund-babies/article22996097/
The complexities of cross-border beneficiaries
Trust issues can be clean and tidy in Canada and the U.S. when everything about a trust stays fully north or south of the border. But what happens when trust worlds collide?
In short, it can get complicated, and specialized planning is often needed to avoid additional taxation. While avoiding a cross-border trust arrangement is one way around these issues, avoidance isn’t always possible, such as when a Canadian trust is settled with a Canadian beneficiary, but that individual moves permanently to the U.S. and becomes subject to U.S. tax laws.
This Collins Barrow advisory offers a more detailed discussion of some of the cross-border issues relating to Canadian/U.S. trusts: http://www.collinsbarrow.com/en/cbn/publications/u.s.-citizens-and-canadian-trusts.
Thank you for reading … Have a great day!
You’re the newly appointed executor of a deceased person’s estate. There’s a lot on your plate – securing assets, finding beneficiaries, arranging a memorial service and much else. While your attention quite rightly is on looking after the needs of living family members, the needs of another person should also be top of mind: the deceased.
Unfortunately, death is no barrier to unscrupulous people who steal the personal information of a deceased individual or adopt their identity for personal gain. In the U.S., an estimated 800,000 fraudulent accounts are created by identity theft of a deceased individual each year. And Canadians are not immune – it happens here too.
By assuming the identity of a deceased individual, a thief can transfer assets, open accounts, receive tax refunds, purchase goods and more. While there are many sophisticated methods of obtaining identity information, a lot of identity theft is of the “low tech” variety, using techniques as simple as gleaning information from obituaries and opening mail in the deceased individual’s mailbox.
As an executor, there are some simple steps that can help protect against post-mortem identity theft. Here are some examples:
- Forward mail: One of the first things you should do as a newly appointed executor is ask the post office to forward the deceased person’s mail to your address. This ensures you have control of all information addressed to the individual.
- Avoid too much personal information in the obituary: There are many details in obituaries that can be used to forge an identity. These include addresses, maiden names, ancestries, occupations, and birth and death dates. You want to provide a heartfelt tribute for sure, but less is more when it comes to revealing personal information specifics.
- Notify credit bureaus: This ensures that inquiries will be flagged if someone is seeking credit information, and can prevent fraudulent transactions from taking place. You can view sample letters to credit bureaus here: http://www.smithsfh.com/Credit_Bureau_Canada_Notification_2012.pdf
- Be alert to theft by family members. It’s not just strangers who commit post-mortem identity theft. In many cases, it’s a family member who commits the crime. It could be a relative in financial difficulty, or one who feels they were wronged in the will or estate plan. So, to the extent possible, keep the circle of those privy to the personal information of the deceased as small as possible.
And for those who are currently planning their estates, they can help protect their identity after death by ensuring that their loved ones know about memberships that might otherwise be overlooked, from fitness clubs, to Costco, to loyalty programs. This allows the executor to notify these institutions immediately to close their files.
This American news article provides some additional tips, most of which apply equally in Canada:
Thank you for reading … Have a wonderful day!
Not every estate requires probate, but it’s a near essential for many. And while lawyers retained to undertake the probate process on behalf of estate trustees are entitled to compensation, it must be fair and reasonable in the circumstances.
The main reason to seek probate is to gain the ability to deal with certain kinds of assets or certain kinds of third parties. In particular, if the estate includes real estate that is not held in joint tenancy, probate is usually necessary to transfer title to the property.
There can be a lot involved. The probate process involves a court application and the verification and valuation of estate assets, amongst other things. While it can be a straightforward process for many estates, it can be a complex undertaking in others. For example, the deceased may have owned property that needs an appraisal, or had multiple bank and investment accounts, or owned assets in foreign jurisdictions.
Legal fees will vary
For this reason, it’s never a “one size fits all” approach when determining a fair and reasonable legal fee for the probate process. Because it’s not always possible at the beginning of a matter to determine how long it’s going to take to do the job, many lawyers charge by the hour. However, others charge from 1.5% to 2% of the estate value to obtain probate. In Ontario, that can equal or exceed the probate fee (estate administration tax). While these amounts might also include fees for some of the estate trustee’s work, they don’t always. The courts have taken notice, and are requiring lawyers to have separate files: one for legal work and one for executor’s work. You can find an excellent discussion of these points and others relating to probate costs here: http://www.makeawillcanada.ca/truth-about-probate/.
Avoiding disagreements with beneficiaries over legal fees is important, not only for the administration of the estate but also as a matter of business – a solicitor would not wish to be seen as unfairly charging excessive fees. The way to avoid such allegation is through accurate docketing and providing a paper trail to justify actions taken – including a decision to incur professional fees in addition to any compensation for estate trustee work.
Thank you for reading.