The Estate House

What Does Probate Mean?

David Koski, a partner at The Estate House, wrote an article on probate that appeared in the Edmonton Examiner.   You can access the article by clicking the link below.   

Download examiner_article_probate.pdf

Should We have an Estate Tax?

I recently picked up Senator and U.S. Presidential candidate Barack Obama's new book, The Audacity of Hope.  I was flipping through it when a section on Estates caught my eye.

In the book, Senator Obama recounts a discussion he had with the billionaire investor, Warren Buffet, about the recent Republican proposal to essentially repeal the estate tax.  Apparently - and I have done no independent research in this regard - the proposal will result in estate tax only being applied to estates worth more than $7 million.  Currently, it is charged to estates over $4 million.  The Senator says that this proposal will cost the treasury over $1 trillion per year.

I'm not going to get into the merits of the Senator's position on the estate tax (for the record, he's in favor of them), but  he does raise some interesting questions about why we, meaning Western Civilization, seem so attached to the idea that the wealth that we create should somehow be passed down to our children as a matter of entitlement.   Mr. Buffet, for his part, is also in favor of the estate tax.    However, he also donated most of his estate to the Gates Foundation last year, which no doubt had some favorable tax consequences.  Nevertheless, Mr. Buffet is notorious for his belief that children need to earn, not inherit, their keep, so his position is not surprising.

In Alberta we do not to have any kind of estate tax.  Sure, other taxes, such as capital gains, are triggered when one dies, but there's not a dedicated estate tax.  We often have clients ask us how to avoid probate taxes, but those are phenomenon peculiar to Ontario and British Columbia (among others), not Alberta.  There is a growing body of law regarding the ability of residents of Ontario and British Columbia to use will substitutes, such as life insurance policies, to minimize the amount of their estate that will be subject to tax and other creditors.   

We try to assist our clients in minimizing the amount of tax that their estate will have to pay on death, the thought being that no one should pay more than they have to.   And I suppose that when our governments (at both the federal and provincial level) are posting surpluses, one would be hard-pressed to argue that we should have more taxes.   Senator Obama, as part of a government that is currently running a trillion-dollar deficit, is not so lucky.

Intestacy & Obligations to Stepchildren

In my March 2 post, I suggested that legislators (and perhaps the courts) need to address the issue of having stepchildren inherit from an intestate estate, but only in those circumstances where the deceased stood in loco parentis.  After receiving some comments from my one  of my colleagues at The Estate House, Douglas Gorman, I feel that I should clarify my position.

The public policy reasons behind the current legislation are sound.   Stepchildren presumably have two biological parents from whom they can inherit.   Furthermore, it is not uncommon nowadays for a child to have more than one step-parent.   Right now, if you would like your stepchildren to inherit from you, you must state so explicitly in your will.  Otherwise, the stepchildren are out of luck.

I am in full support of any legislation that encourages people to have a will properly drawn up.  However, in this circumstance it's often children who pay the price.  Not only that, they're children who usually have had one parent abandon them already.     Perhaps instead of changing the Intestate Succession Act, we could give children under the age of 18 to whom the deceased stood in loco parentis to the explicit ability to make a claim under the Dependents Relief Act.  Basically, the rule could be that if the deceased would have been obligated to provide child support if he and the child's mother separated the day before he died, then his estate should bear that same obligation.

Now, discuss!

Anna Nicole, One Last Time

This will be my last post on the entire Anna Nicole debacle.   Joel Schoenmeyer over at Death & Taxes posted a copy of her will in his February 26, 2007 entry.   

His post speaks for itself, but I just want to reiterate the point that when you do your estate planning,  you should go to a lawyer who knows what they're doing.  Just like you wouldn't go to a podiatrist if you were having trouble with your heart, you shouldn't trust that a lawyer whose specialization is Business Organizations knows all there is to know about estate planning.   

That's it.  No more Anna Nicole.

The Supreme Court & Same-Sex Survivor Benefits

On March 1, 2007, the Supreme Court of Canada (SCC) handed down its ruling in Canada (Attorney General) v. Hislop 2007 SCC 10. You can read the full judgment here.

Since the SCC's landmark ruling in M v. H, same-sex couples have been entitled to apply for survivor benefits under the Canada Pension Plan.  The CPP was amended in 2000 to enshrine these benefits in law.  However, the 2000 amendments specified that these benefits only applied to individuals whose spouse died before January 1, 1998.  The Hislop decision deemed this requirement unconstitutional, as it discriminates between same-sex and opposite sex couples. 

The effect of this decision is to allow individuals whose same-sex spouse died before January 1, 1998 to apply for survivor benefits.  They are, however, limited to one-year of retroactive payments; despite arguments that payments should be retroactive to April 17, 1985 (the day s. 15 of the Charter came into force), the SCC said that to do so would be ignorant of the evolution of same-sex rights in Canada and would tantamount to awarding compensatory damages for the underinclusiveness of same-sex rights in the CPP prior to the ruling in M & H in 1999.   Since the government had been acting in good faith, there was no legal basis to allow these retroactive payments beyond one -year.

Another interesting issue that arose during the course of this litigation was the right of estates of the surviving spouse to bring applications for retroactive survivor benefits.  This matter became somewhat crucial as Hislop himself died while this case was pending on appeal.  The SCC ruled that same-sex couples are subject to the same 12-month limit of the estate of surviving spouses to bring claims as opposite-sex couples are.  In other words, if a surviving spouse died prior to claiming their survivor benefits under the CPP, their estate has 12 months from the death of the survivor to claim those benefits.

On an unrelated note,  I found it interesting that the summary on the SCC website has "spouse" in quotation  marks when referring to a same-sex couple.  I thought we had moved beyond the distinction between spouses in same-sex relationship and those in heterosexual relationships (certainly that's the essence of this decision), but perhaps not.... 

May They Rest in Peace (Finally!)

Exactly two weeks after she died, a Florida judge made a ruling yesterday on where the remains of Anna Nicole Smith should be buried.   Actually, he didn't rule on where she should be buried, just on who got to make that decision.  However,  Judge Larry Seidlin made clear what he thought the deceased's model's wishes were before giving custody of her remains to Richard Milstein, the court-appointed guardian of Smith's infant daughter.   Shortly after Judge Seidlin's decision, Mr. Milstein announced that he would be taking Smith's remains back to the Bahamas to be buried beside her son.

Even without Judge Seidlin's innappropriate display of emotion from the bench (he cried, had to take a break, and "blubbered"), all of the legal matters that have arisen from the death of Smith have taken on the tone of a parody of the justice system.  I keep waiting for one of the parties involved to give a sly smirk to the audience before announcing, "Live from New York it's Saturday Night!"  We all deserve better.

It's interesting from a legal perspective to see a lawyer appointed as a child's guardian when her parentage is in dispute.  That is not a practice that I'm familiar with here in Canada, although it doesn't sound like it's uncommon in Florida.  I don't believe that the child is living with Mr. Milstein, so this is obviously strictly for legal purposes until her paternity is settled.  Usually in situations where an obvious guardian does not present him/herself, the child is put into foster care until the dispute is settled, or sent to live with an impartial third party (i.e. family friend) rather than having a court-appointed guardian.  Little Dannielynn's paternity should be settled within a few weeks.  It took a backseat while the burial was in dispute. 

If Anna Nicole Smith needed to be buried soon because of the state of her body, the family of James Brown were in no hurry to decide on his final resting place.  Following his death on Christmas Day, they kept his body in a temperature-controlled room  before moving him to a crypt, where he has "resided" for the past several weeks.

Finally, just one day before the Smith decision, Brown's children and spouse agreed on a burial place.  The exact location will be kept secret, but he will be buried.  It took nearly two months, but a peaceful decision was made.  That's got to make him feel good.

And I know that the point of all of this is obvious, but please - write your wishes down.  Find an executor you trust.  Make a Will.  Unless, of course, you're satisfied with having the court make these decisions for you.   

Anna Nicole: What will estate lawyers do without her?

As nearly everyone knows by know, Anna Nicole Smith, celebrity, died yesterday in Florida under mysterious circumstances.  While her celebrity arose out of a myriad of projects, she is also well known for her involvement in one of the highest profile estate litigation lawsuits in the U.S. over the past several years.

In 1995, Smith married 89-year-old billionaire J. Howard Marshall, who died a mere 15 months later.  Shortly thereafter, Smith discovered that her elderly husband had left her nothing in his will.  She sued his son, E. Pierce Marshall, for interfering with her right to receive support from J. Howard's estate in Texas state court.  Then it got really interesting.

In 1996, Smith filed for bankruptcy in California federal court, claiming that E. Pierce's actions were responsible for her dire financial situation. Similar to Canada, in the U.S., estate & probate matters are regulated by the state, while bankruptcy is a federal matter.  A couple of counterclaims were filed by each party in federal court and in 2000, the court awarded Smith $475 million dollars, ruling that E. Pierce was involved in a conspiracy with the estate's lawyers to prevent Smith from receiving part of the estate. Smith, apparently feeling like justice had been served, withdrew her initial lawsuit.

E. Pierce, of course, appealed this ruling to the federal district court, saying that the district court had jurisdiction over probate matters, thanks to a little known exception that allows federal courts jurisdiction over estate matters only if it doesn't interfere with state probate proceedings.  The federal district court agreed, but threw out the bankruptcy court's decision in favor of doing its own review.  It's review essentially found the same as the bankruptcy court, but lowered Smith's award to $88.5 million.  Smith - 2, E.Pierce - 0.

Meanwhile, E. Pierce had filed his own action in Texas state court to determine the validity of J. Howard's will.  In 2001, the Texas state court ruled that the will was valid, meaning that Smith wasn't entitled to anything.

He caught another break in 2004, when his appeal to the Ninth Circuit was successful.  The Ninth Circuit ruled that the district court had interfered with state probate proceedings in its ruling.

So Smith appealed to the United States Supreme Court, which agreed to hear the case.  On May 1, 2006, the Supreme Court found in Smith's favor, holding that a federal district court had concurrent jurisdiction with state probate courts in in personam cases. 

All of that was thrown into a bit of dissaray when E. Pierce died just a month after the verdict.  His widow is now acting on behalf of the estate.  It remains to be seen what will happen now that Anna Nicole herself has passed away.  Whether someone will decide to continue arguing the case on behalf of her beneficiaries (which at this point include her husband, Howard K. Stern, and baby daughter, Dannielynn) remains to be seen.

Today, a judge in California ruled that Anna Nicole's body must be preserved pending the hearing of a paternity suit involving Dannielynn.   Why the body would need to be preserved is unclear, although concurrent speculation that her husband may have been supplying her with an excessive amount of prescription drugs makes the whole thing really suspicious.

It's a sad, tragic tale.  It would appear that the only people benefitting from all of this are the lawyers hired to sort everything out.   Let's hope for all of us that it gets sorted out soon.

 

James Brown Burial Watch: Day 43

That's right.  43 days after his death on Christmas Day and James Brown is still not buried.  As I had mentioned in an earlier post, his burial is one of a myriad of issues that is being affected by a dispute between the singer's children, his trustees (one of whom is his lawyer), and his (alleged) widow.

It's complicated, but it shakes down like this:

First, most of James Brown's assets (i.e. his home, intellectual property, etc.) were put into a trust while he was still alive, in what's called an Inter Vivos trust.  That means that his will, which divided his property among six of his children, only dealt with personal possessions.  Those possessions, as I understand it, have been divided as requested.

Second, the children are disputing how the trustees are administering this trust.  They are alleging all kinds of fraud and have made an application to have the trustees removed.  This application will be heard on February 9 (this Friday).

Third, James Brown's wife, Tomi-Rae Hynie, is saying that she should be entitled to part of the singer's estate.  The trustees and James Brown's older children are arguing that the Brown-Hynie marriage was invalid, meaning she is entitled to nothing.  The son of James Brown and Tomi-Rae Hynie was left out of James Brown's will, as he was not specifically named.  At the very least, Ms. Hynie would like to get back into the home she shared with Brown to retrieve her personal possessions.  The house/crypt is included in the contents of the trust and the trustees have so far refused her access.  She has also made an application, which is scheduled to be heard at the same time as the one above.

In short, quite a mess.  Of course, an update will follow the February 9 application.   

If you needed another reason....

People in Edmonton were shocked over the weekend to hear about a 3-year-old boy who was beaten and subsequently died in hospital.  While this in itself is a tragic tale, adding to the distress is the fact that this boy was allegedly beaten by his foster mother.  She has been charged with 2nd-degree murder.  It has not been reported how this young child ended up in foster care.

For our clients with young families, designating a guardian for their minor children is usually the reason why they come to see us in the first place.  Since the new Family Law Act came into effect in 2005, testamentary guardianship appointments are valid without having to first obtain a guardianship order from the court, so long as the appointed guardian acts as guardian, either expressly or impliedly.   This provides a signficant degree of comfort to parents, who (assuming that they have chosen their guardian well) can rest knowing that their children will not be further traumatized by a custody dispute.  As a bit of a qualifier, parents can only give the guardianship rights that they have, so if they are currently subject to a parenting order the appointed guardian will only inherit those rights that the deceased parent had in the parenting order.

So how does this relate to foster care?  Well if a parent dies without appointing a testamentary guardian, their children may be subject to a custody dispute between warring family members, or even close family friends.   A biological parent without custody may come back to assert his or her parental rights if the custodial parent dies without addressing guardianship in a will.  In cases where children are subject to such disputes and where a known, neutral third-party cannot be found, those children may well be placed in foster care until the dispute is settled.  How many parents would choose that scenario for their children?   

I would like to end this post by saying that while this particular foster parent proved to be a worst-case scenario, most foster parents should be applauded for the work that they do.  It's a tough job and it's not for everyone, but we need more people to do it.      

Your four-legged family member

I had some estate planning clients ask me the other day, "What happens to our dog?"

If you've ever had a pet, you know that often they become part of the family.  While most people don't address their mind to it, they would want their family pet to be properly cared for, should the owner die before the pet.

Recently, a couple who raised Siberian Huskies just outside of Edmonton were both killed in a tragic car accident.  Fortunately, the couple's friends, with help I believe from the SPCA, were able to find homes for all of the dogs.  They had to act quickly, as it was just as winter was setting in and, much like children, dogs can't survive for long without food or water. 

If you want to make sure that your pet goes to someone particular after you die, you will need to make a specific bequest of that pet in your will.  Otherwise, the pet will become part of the goods to be distributed at the Trustee's discretion or as part of the residue of the Estate.  You can provide guidance to your Trustee in the form of a memorandum or list that is kept with your will, but for absolute peace of mind, you should bequeath the pet(s) to someone you trust and who is willing to take on the responsibility.  You may also want to set up a "pet trust" or provide a specific gift of money to that person to help with the costs associated with taking care of your pet.