“Happy wife; happy life” is an adage that we are all familiar with.
I recently came across a decision of the Manitoba Supreme Court that I thought was worthy as an adage for estates and trusts practitioners. What caught my eye was the way Justice Allen opened his reasons for the decision in Hamm v. Hamm (Estate of), 2014 MBQB 14:
“It is a very risky business for a farmer or business owner to undertake an estate freeze without informing his or her spouse of the plan and indeed, without arranging for independent legal advice to have the ramifications of the freeze explained. It is even riskier to divest oneself of the shares and shareholder loan received from that estate freeze, again without informing one’s spouse.”
The couple, in this case, were married for 41 years when the husband died. The husband was a widower with two sons and a daughter from his first marriage. The couple later had a daughter of their own. The couple and their children lived a typical farm life. In the late 90’s, the husband decided to pass the farm operation to his sons. This was done by way of an estate freeze. The sons were a part of some of the husband’s meetings with his lawyers and accountants, while his wife and daughters were not involved at all.
A NewCo was created in the course of the estate freeze. Over time, the husband’s land, machinery, and farm equipment were transferred into NewCo in exchange for preference shares and shareholder loans from NewCo. The husband also made a new Will that gave his interest in the NewCo to his sons. The husband did not tell his wife about this either and she only found out when he died.
On death, the wife elected for equalization of assets under the Manitoba Family Property Act and she claimed that the value of the husband’s farm assets, notwithstanding the estate freeze, ought to be included in their family property for equalization purposes.
The wife won. Justice Allen was not sympathetic to the Estate’s arguments that she ought to have known about the estate freeze, and made her claims earlier, by investigating further when she was told that NewCo was created for “tax purposes”. This was particularly so because the husband continued to run the farm operations as if nothing had happened.
This case is a straightforward example of how testamentary intentions can be thwarted when a spouse is kept in the dark. It is good practice for lawyers to advise their clients that their spouse should be informed and that their understanding should be documented with independent legal advice. In explaining why a spouse should know about an estate freeze, and the pitfalls of telling one’s spouse, this exercise will have the benefit of emphasizing to the client what he/she is truly giving up and bring “home” the realities of this rather legally complicated transaction.
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One quality often overlooked in this frantic information era of texts, tweets, and instagrams is clarity. Our communications and responses are faster than ever, and you’ve likely seen first-hand how clarity can suffer. In a perfect world, we’d have a friend by our side objectively reviewing each communication and setting us straight when our message wasn’t clear.
“Don’t put it that way – it sounds like you’re angry,” or “It’s not clear where you’re meeting, better spell it out.”
Of course, there is no objective friend by our side 24/7. And in our daily back and forth with friends and family, the lack of an objective voice usually doesn’t matter. If there is confusion, it’s easily resolved by a follow-up message. We may live inside our own little bottles, but reading the label “right” the first time doesn’t matter that much in our day-to-day living.
Clarity in estate planning – get outside the bottle
But what about communications that can have a more profound impact, like our estate plan, where we detail our final wishes for end-of-life care and the distribution of our assets? There are few tasks in which clarity is more important. You can’t send a final “clarifying” text from the grave, so you have one chance to get it right. And if you don’t have objective, outside advice, it’s remarkably easy to get it wrong. What is crystal clear to you may not be to others.
The recent case of a dying Florida man is an excellent example. The 70-year-old man was found intoxicated and unconscious outside of his nursing home. When doctors took off his shirt, they found the words “Do not resuscitate” tattooed on his chest, with a tattooed signature underneath:
While the message was quite clear on its face, doctors faced a dilemma. They had an unconscious, dying man in front of them, with a tattoo that told them to take no further action. Was this what the patient truly wanted? Was it a legally valid instruction, or an ironic joke? Doctors were aware of a case reported in a medical journal where a man had “DNR” tattooed on his chest and was admitted to hospital. When doctors saw the tattoo, they asked him if that was indeed his wish, and he said it wasn’t at all – he had lost a bet in a poker game and the tattoo was the result.
So, when it comes to your own planning, make clarity a priority. Objective, professional advice can ensure that your “message to the world” about your estate will both reflect your wishes and be read accurately by others. Take a look at the four-step approach taken by Toronto firm Creaghan McConnell Group in helping Canada’s leading families preserve and pass on wealth. Their step number one? Family clarity.
Make it your priority too – and take a pass on the tattoos!
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BMO Wealth Management recently released a report entitled “Estate planning for complex family dynamics,” which details the findings of a survey commissioned to ask Canadians for their views on estate planning, inheritance, and communications about these topics within their families. The results of this survey illustrate the importance of communication in avoiding family conflict, particularly in situations where a parent is in a second marriage or common-law relationship.
Only 30% of respondents indicated that their parents had discussed their estate plans or shared details about their wills with them. The report suggests that parents who were separated or divorced were less likely to discuss their estate plans with their children.
The survey respondents were asked whether they believed the distribution of their parents’ estates had been fair. About half of the respondents believed the distribution had not been fair. The report states that respondents whose parents had any kind of relationship other than a first marriage were most likely to feel that the distribution was not fair. Of the respondents who believed the distribution was fair, three-quarters responded that their parents had divided the estate equally. The remaining quarter of respondents who thought their parents had distributed their estates in a fair way reported that the unequal distribution was justified.
When asked about what would constitute a fair distribution of assets, respondents to the survey gave a wide range of answers. Most respondents believed that children of a testator should be treated equally. A minority of respondents believed an unequal division might be fairer, for reasons such as financial need or a particularly close relationship with one child.
The dynamics of a blended family are fertile ground for conflict. Communication with all interested parties about what to expect after the death of a parent or spouse can help ease tensions and avoid surprises after death that often lead to estate battles.
You can find a copy of the full report on the BMO website.
Thank you for reading.