The Estate House

Building a Bridge in the Desert

You may have heard how Leona Helmsley, a New York property developer and the "Queen of Mean" passed away recently.  Yesterday her will was made public when it was filed in Surrogate Court in New York.  You can read more about it here.

The big news about Helmsley's will is that she left $12 million dollars to her Maltese dog, Trouble.  Trouble himself (or herself?) was left to Helmsley's brother.  There were also instructions for where Trouble is to be buried (beside Helmsely herself in the family mausoleum).   I had to smile when I read this because just yesterday I was speaking with some clients about their estate plan when one of them joked how "we should just leave it all to the dogs".    Personally, I think the idea of leaving that kind of money to a pet is a bit ridiculous; it's probably just money that is to be used to provide for Trouble's care, set up in a trust for her brother to manage. 

Helmsley's will also has an interesting provision whereby two of her grandsons receive $5 million each, provided that they visit their late father's grave at least once per year.   It doesn't say who will be responsible for ensuring that the brother's make the pilgrimage.  It is also not clear how this will be enforced.  The likely scenario is that, should they fail to visit their father's grave, they will have to pay the money back to the estate.

There are a number of other unique bequests/requests in Helmsley's will.   To me, it seems to have a "build a bridge in the desert" flavor about it.  As a colleague of mine says, we can advise our clients about the prudence or rationality or logic of setting up their estate plan in a certain way, but if they ask for a bridge in the desert, then it's our responsibility to help them build it (within legal means of course).  I'm fairly positive that had the lawyer Ms. Helmsley asked to draw up this will cautioned her about some of her bequests.  I'm also positive, given her reputation, that had he (or she) refused to do it, she would have fired him and gone to see someone who would follow her instructions. 

Someone who would build her bridge.   

Dependent Adult legislation in Alberta

This morning's Edmonton Journal carried an interesting article about a woman who is "fighting for her freedom."  Flora L'heureux is not a political prisoner, or any kind of prisoner really.  Rather, she was declared a dependent adult and feels that she no longer deserves that designation. 

Contrary to the tone of the article, it is not that easy to have someone declared a dependent adult.  A physician or psychologist must complete a Form 1 declaring the adult incompetent to manage their own affairs, and a service provider (either a physician, psychologist, or social worker) must complete a detailed functional assessment of the individual's competencies, both mental and ambulatory.   That does not mean that the process does not lend itself to abuse in certain circumstances.   For example, if n'er'do well child has a doctor friend who is willing to complete the forms for him or her, it is possible that an application will be filed (and perhaps approved) for someone who is not incompetent.   However, the legislation tries to address that by requiring that the proposed dependent adult be personally served with any such application; presumably someone who is competent can fight the application at that point, prior to being declared a dependent adult. 

It is not as impossible as the article suggests to have a dependent adult designation overturned; I have seen it done on some of the files I have been involved with.   It is not the easiest process, but it can be done.  You will need to file doctor's reports declaring that you do have the ability to look after your own interests; if you can't find a doctor to prepare such a report, perhaps you aren't as compentent as you thought.   

Of course, all of this can be avoided if  you have a proper Personal Directive and Enduring Power of Attorney in place.   These documents allow you to appoint someone you trust to look after your interests when you no longer have the capacity to do so.  The idea is that by appointing someone you trust, you avoid the possibility of having someone else try to take advantage of you by applying to be named your Trustee and Guardian.  You have control and your family is aware of your wishes.  Furthermore, the cost of seeing a lawyer to have these documents drawn up correctly is much less than the costs of having to fight a designation as a dependent adult that is premature.     As I'm sure Flora L'heureux would say, it's well worth the price.   

Why Determining Who Died First Can Be Important

By now, most people have heard about the tragedy of Chris Benoit.  The wrestler, who grew up in the Edmonton area, is believed to have killed his wife and young son before strangling himself this past June.   Unfortunately, despite having an estate worth several million dollars, neither Benoit or his wife had a will and now a dispute has emerged over who should properly inherit all of this property.

Nancy Benoit's mother, Maureen Toffoloni, has asked the court to determine the order of death.  This is because under Georgia succession laws, if the boy was killed before his mother, then her beneficiaries (i.e. Mrs. Toffoloni) would inherit the Benoit estate.  However, if Nancy was killed first, then the beneficiaries will be Benoit's two children from a previous  marriage, who live near Edmonton with their mother.

We recently had a case where death order was an issue.   A parent and child had been killed in the same accident and the parent did not have a will.  The Alberta Survivorship Act is set up to deal with situations where death order is uncertain.  Section 1 of that act says that where death order is uncertain, the older person is presumed to have died first.   Seems simple enough, doesn't it?

However, s. 2 goes on to refer to statutes that contain a "provision...for the disposition of property operative if a person designated in the statute... (a) dies before another person,.." It goes on to state that when the "designated person dies...in circumstances rendering it uncertain [whether the designated person survived another person], then, for the purpose of that disposition, the case for which the statute provides is deemed to have occurred."

The Alberta Court of Appeal considered the interplay between these provisions of the Survivorship Act and the Intestate Succession Act in Re Mandin Estate.  The Mandin Estate case was similar to the Benoit situation in that multiple murders had occurred, the order of death was uncertain, and competing family members were the potential beneficiaries.  Unlike the Benoits, the Mandins had a will, but there was a partial intestacy as all of the family members (except the murderer) had died and there was no provision for what was to happen to the Estate in that circumstance.   

In Mandin Estate, the Alberta Court of Appeal ruled that the Intestate Succession Act, as it provided for the distribution of property, was one of the statutes referred to in s. 2 of the Survivorship Act.  Applied to our fact situation, instead of the presumption that the child had survived the parent (a la s. 1), since the Intestate Succession Act provides for a case of what happens on the parent's death if the child does not survive her, it is deemed that the child did not survive.   Our application for a grant of administration was prepared based on this reasoning and the court agreed, as we received our grant just this week.

Of course, the easiest way to avoid these situations at all is to have a will with a proper beneficiary survivorship clause (i.e. Any beneficiary must survive me for at least 30 days or else he or she will have been deemed to have predeceased me).    That way it doesn't matter who died first, so long as it was within the 30 day period. 

The Cost of Justice

Wow - busy week for this blog with three posts! 

The discussion about rising legal fees has once again made the news.  People are concerned that ordinary Canadians can no longer afford to access the legal system.  This isn't a new issue.   

The most recent comments come from former Justice John Gomery, who you'll remember presided over the federal government's inquiry into the sponsorship scandal.  He believes that the legal system needs to examine itself and lower its costs to ensure that everyone, not just the wealthy, have access to justice. 

Now, let's set aside the fact that these comments are coming from someone who presided over one of the most costly legal proceedings in recent history.  Maybe because the government was paying the bill, it wasn't such a big deal.  But I digress. 

Sure, there are some lawyers out there who charge a lot of money and who make a lot of money.  But that's not the case for most of us, particularly in the estate and family bars where you're dealing with individuals, not companies.  As one lawyer said, "You can charge the company a lot more for something than you can charge its CEO."  And while low-income individuals needing help with a criminal or family law matter can at least try to qualify for legal aid, that option does not exist for families dealing with estate matters.      

Firms know that estate law - as a general rule - doesn't make money.  That's why you will be hard-pressed to find any estate departments at the country's top law firms.  If they have an estate lawyer, that person is usually there to help out the CEOs of the firm's corporate clients.   Estate litigation can be quite profitable, but relatively few families have estates large enough to warrant going all-out. 

In my own practice, I have seen too many individuals decide not to go forward with their claim to an estate because of the costs involved.  It does not take a lot of time for small matters to incur $2500, $5000 or even $10,000 in legal fees, and most people don't have that kind of money just lying around.  I frequently ask clients to weigh the reward from their desired outcome against the costs involved and too often, the costs win.

This isn't fair, but it's also not fair to blame it all on the lawyer fees.  Those of us in the estate bar (and other areas of law where you're dealing with individuals) believe that we offer good value for our clients' money, much the same way a corporate lawyer believes that he is offering good value for his legal services, and we set our fees knowing that individuals have to pay them.  It is a disservice to all lawyers to imply that our fees are set with anything other than that value in mind.  Why are we being asked to devalue our services?   

Estate Law News Round-up

There were a couple of interesting items in today's newspaper that relate to estate law and dependent adult law.

The Globe and Mail is carrying a front-page story on a former employee at the Ontario Office of the Public Guardian and Public Trustee who is alleged to have misappropriated a "significant" sum of money from one of the accounts she was responsible for.  The Public Guardian and Public Trustee are government bodies who step in to look after individuals who are incapable of managing their own affairs have no one else suitable in their life to do so for them.  The PG and PT are fiduciaries in the strongest sense, as these individuals are among the most vulnerable in our society.  The report is vague on the details of this particular situation, but suffice to say that any investigation will likely result in a call for stronger checks and balances for employees of the Public Guardian.

Our office has had several dealings with Alberta's Office of the Public Trustee and the Office of the Public Guardian.  They truly are there to look out for the interests of vulnerable individuals who have no one else to do it for them.   The Edmonton Journal reports this morning that the Office of the Public Trustee has launched a lawsuit against Michael White, convicted last year of murdering his pregnant wife Lianna, on behalf of their three-year-old daughter, Ashley.  The total amount of damages being sought is over $700,000.00 and includes amounts for loss of support, contributions to post-secondary education, bereavement, and grief counselling.   

The Public Trustee is mandated by legislation to look after the finances and property of minor beneficiaries of estates.  The exception to this general rule is where a Will specifies that any share of an estate payable to a minor beneficiary is to be held in trust until that beneficiary reaches a certain age.  I don't know whether Lianna White had a will, but even if she had one there would be an intestacy insofar as any gifts to Michael White (public policy dictates that you cannot benefit from an illegal action i.e. he cannot benefit from his wife's death).    Ashley would then be the sole beneficiary of her mother's estate, although the action is also claiming a modest amount of damages on behalf of her mother, Maureen Kelly, as well.   

No Resolution to Cemetery Dispute

Two months ago, I posted on a situation at Montreal's Notre-Dame-des-Neiges cemetery.  Since May,  a labour dispute has prevented approximately 325 people from being buried there.

Recently, Jean-Claude Cardinal Turcotte, the city's highest ranking Roman Catholic (Notre-Dame-des-Neiges is a Roman Catholic cemetery) met with both sides to try and persuade them to come to some kind of agreement so that there can be closure for the families.  More details can be found in this article.

The article also mentions that a class action lawsuit on behalf of the 1500 family members involved in this dispute has been filed recently in Montreal.  It doesn't discuss what kind of damages the families are seeking, but I wonder if damages couldn't be payable to the estates of the deceased as well.  Presumably - as I discussed earlier - many of the individuals whose remains are still unburied had pre-paid plots or funeral arrangements at Notre-Dame-des-Neiges (which is why they couldn't be buried elsewhere).  If you pay for a service and that service is not performed to the standard agreed upon, you can claim damages.  However, in this case, if the deceased paid for the service and if it is the deceased that isn't being buried, then it is the deceased - not their family members - who is rightfully owed damages. 

Testamentary Trusts v. Inter Vivos Trusts

Rarely do I set up a will that does not include some type of trust.  Most of the time this is because minor beneficiaries are involved and if a trust is not set up for them in the will and they are minors at the time of the testator's death, the Public Trustee will become the de facto Trustee until that beneficiary turns 18.   By setting up a testamentary trust - defined as a trust or estate which arises on the death of an individual -  families can determine who should be the Trustee and at what age the minor beneficiaries should receive full benefit of their gift (18 is often seen as being too young to get an outright gift).

However, testamentary trusts can also be used for adult beneficiaries.   I suggest this possibility to clients who have either (a) brought up the issue of setting up an inter vivos trust (defined as a trust other than a testamentary trust) or (b) set up an estate plan where beneficiaries would stand to inherit a substantial sum of money, say more than $300,000 each.  The reasons for this are tax-based.

The major difference between a testamentary trust and an inter vivos trust is in how they are taxed.  The income of inter vivos trusts are taxed at the highest marginal rate of 39% (combined rates - Alberta), while testamentary trusts are taxed at the graduated tax rates that the rest of us are subject to.  For this reason alone it is often beneficial to wait to set up a testamentary trust.  Of course, that depends on the client's goals and objectives but, all things being equal, the testamentary trust should win out.

The other major benefit of setting up a testamentary trust is the potential of income-splitting between beneficiaries who are already taxed at the highest marginal rate and the trust (which pays less tax).  If your beneficiary, for example, earns more than $120,887.00 per year at their regular job and they inherit $500,000 from your estate, chances are that they are going to invest that money.  Any income they earn on that investment will be payable by them at the highest marginal rate. 

Compare that to income generated by a testamentary trust which will be paid at the graduated rates.   If the testamentary trust is also a discretionary trust, generally meaning that there are no rules on how much income or capital needs to be paid out on an annual basis, then your beneficiary can take as much or as little as they need to.   Whatever income your beneficiary does not take from the trust can be designated as payable to its beneficiaries under either subsection 104(13.1) or 104(13.2), which would result in that income being deemed not payable to the beneficiaries.  That income would then be taxed in the trust at the lower tax rate.