The Estate House

Making Time

I apologize for the lack of time between posts...it seems that my time is no longer my own.

Maybe this is why less than half of the population has a valid will (or power of attorney or personal directive) in place.   The fact that so many Canadians are willing to leave such important decisions to chance still causes me to shake my head.   It's much too easy to get caught up in our day-to-day responsibilities to take time to reflect on what we want to have happen in the event of death or incapacity.   

In the past few months I've been meeting with several other new parents.  I'm the only one that has a valid will, power of attorney and personal directive in place.  Although some of them have expressed to me that "We really need to do that.", I'm going to hazard a guess that it will be some time before they actually do.   It's hard to think about setting up appointments to see a lawyer when your main focus is making it through the day with your sanity intact.  How does a person have time to see a lawyer when they barely have time to do the laundry?

The fact is that getting a proper will in place is something you need to make time for.  The consequences are much too tragic if you don't. 

Personal Directives Amendment Act 2007

Last week a flurry of activity surrounded the Alberta legislature as the government tried to pass as many bills as possible prior to the Christmas break.  While most of the media attention centred on a couple of the more contentious legislation, an astonishing 25 pieces of legislation passed third reading during a marathon session of the legislature on December 3 and 4.

One of the new bills is the Personal Directives Amendment Act 2007, which I discussed here.  It received Royal Assent on December 7.  Practitioners in this area, including not only lawyers, but also health care workers, should make themselves familiar with the changes to the legislation. 

Business Succession Planning

This morning's edition of The Globe & Mail contains  an article discussing how the Irvings, one of Canada's richest families, are in the  midst of restructuring their corporate holdings as they determines the best way to hand the businesses down to the next generation.   The plan involves tax regimes in three different jurisdictions (Canada, U.S. and Bermuda) and countless business operations in industries such as forestry, energy and media. 

Kudos to the Irvings for recognizing the value in planning in advance.  Right now the main holding company - previously managed by K.C. Irving - is controlled by his three sons.  That management arrangement has worked relatively well for several years (disputes between the Irvings are not uncommon, but so far their businesses haven't been impacted by them), but now those sons are looking to cut back on their roles and there are five sons/cousins waiting in the wings.  The prospect for disputes among a five-member management team is much more likely than within a smaller group and so a decision to "deconstruct" the empire was made. 

But business succession planning is not just for families like the Irvings.   It is relevant to anyone who owns their own business, whether or not there is one or several employees.   I recently helped prepare an estate plan for a client who owns her own business.  It's relatively small and because it's a consultant-type business, most of the value is tied up in her personally.  However, she still has employees and clients that will need to be attended to should she die unexpectedly.  She wanted to make sure that her wishes for the business she had built were carried out. 

Contrast that with another file that came into our office briefly where the business owner died suddenly without a will, let alone a business succession plan.  Because there was no obvious administrator for his estate and no one to look after the business, issues soon arose with meeting the payroll and completing contracts started prior to his death.  Clients weren't happy, employees weren't happy and his family had to add these worries to the grief they were already experiencing as a result of their sudden loss. 

If you are a business owner, whatever the size, please make sure you have a succession plan in place.   Otherwise all of the work you've put into creating that business might be lost, and it's just not worth it. 

New Tool to Assist Wills & Estates Practitioners

This morning the National Wills, Estates & Trusts Section of the Canadian Bar Association released a Table of Concordance that compares estate planning legislation in the various Canadian jurisdictions.  It answers questions such as whether holograph wills are allowed, what the formal requirements for executing a will are, and what the standard for incapacity for a Power of Attorney or Personal Directive is in a particular province or territory.

Thank you to the National Wills, Estates & Trusts section for putting this together.  At this time it is only available to members of the Canadian Bar Association, but it will no doubt be valuable tool for practitioners across the country.

Personal Directives Amendment Act, 2007

When the new session of the Alberta legislature opens today, Monday, November 5, one of the bills scheduled to be dealt with is the Personal Directives Amendment Act.  

The Personal Directives Act was proclaimed in 1997, so it is fairly new legislation.  It allows individuals to appoint someone as their agent to make decisions of a non-financial nature on their behalf when they are no longer able to.  It also allows those individuals to set some guidelines for the types of decisions they want their agent to make.  It has worked very well as a relatively simple tool that can be done on your own or with a lawyer (of course we recommend going the lawyer route).   By having a proper Personal Directive in place, one can avoid the possibility of being the subject of a guardianship application, a procedure that can be time consuming and expensive.

However, as is often the case with new legislation, several issues emerged that were creating problems for individuals, health care providers, agents, and the courts.  As a result, in 2005 a legislative review of the Personal Directives Act was undertaken and Bill 40 proposes amendments to the Act that resulted from this consultation process.

Several of the amendments are quite substantial.  For example, there is the introduction of a process that would allow for a Personal Directive to be deactivated if it is determined that the individual has regained his or her capacity.  This is ideal in situations where a person may have become ill and needed to have their agent make some decisions for him, but then proceeded to make a full recovery. 

There is also going to be a new process whereby the Office of the Public Guardian will accept and investigate written complaints about the actions of the agent.  The complaint needs to be substantive, i.e. it has to show that the agent's actions are likely to bring harm to the maker, not just that you think it's better for your Mom to live in Edmonton than in Red Deer.   

Other provisions will allow the Office of the Public Guardian to act as an agent of last resort if an individual has no one else that they trust to make that decision for them, the recognition of non-Alberta directives, and the introduction of a voluntary registration system.  This registration system will allow makers or agents to go on-line and provide summary information about the Personal Directive (i.e. maker, agent, date).  While it sounds good in theory, at this point third parties (i.e. lawyers) will not be able to enter that information.  The reality is that a lot of our clients are elderly and not familiar or comfortable with using computers for that kind of task, not to mention the procrastination that clients of all ages practice when it comes to getting their estate documents together.  It would make much more sense if lawyers were allowed access to the system to input that information on behalf of consenting clients.

Bill 40 has currently passed first reading.    

The Trust Fund Whisperer

Last week I blogged about why it's not necessarily a good idea to leave your entire estate to your children.

Today's Globe & Mail has a very good article about professionals hired to assist wealthy families with their succession planning.  There are some very good tips about how these families can try to ensure that their offspring don't blow the wealth their parents (or grandparents) worked so hard to build.  A lot of the tips can also be used by families who aren't super-rich, but are still concerned that their money will be wasted by their kids.   

The "Divine Right of the Womb" aka "Why You Shouldn't Leave All Your Money to Your Kids"

Warren Buffett is, by all accounts, one of the most successful and respected men of our current age.  He is revered as much for his humility and modest manner as for his incredible financial savvy.   Through his holding company, Berkshire Hathaway, he has amassed a billion-dollar fortune, billions that he has chosen to donate to charity rather than pass down to his children and grandchildren.

Most of the wills we do at our office involve some variation of the following distribution:  if I die first, all to my spouse; if my spouse predeceases me or if we both die at once, all to our kids and/or grandkids.  If I leave no immediate family, then to some other family members or maybe to charity or a combination of both.  Most common is the scenario where an individual will donate his or her wealth to charity only if there is no immediate family left.  The standard is quite the opposite than that espoused by Mr. Buffett.

Now, to be fair, most of us will never acquire the wealth of Warren Buffett and our children or grandchildren will never have the advantages that are inherent in having such a wealthy family, regardless of whether we choose them to benefit from our estate.   Yet perhaps there is something to be said for Buffett's philosophy that it is not good for society to give that kind of advantage to individuals who have done nothing to earn it.   As he puts it in this interview with MacLean's, "[H]ow can you have equality of opportunity when you hand somebody billions of dollars just because they came out of the right womb?"

Buffett is not the only prominent person who feels this way.  Peter Munk, the chairman of Barrick Gold, has prepared his children for the fact that they will not be receiving very much of his $300-million fortune when dies.  When Bill & Melinda Gates were doing their estate planning, they contacted Buffett for advice.  Their three children will each be receiving approximately $10-million dollars of the Microsoft fortune.  More money than you or I will likely see in our lifetime, but not much when you consider that their parents (or at least Dad) is worth close to $56 billion.

Still, the majority of millionaires and billionaires are planning on leaving their children at least 75% of their fortunes.  As another article (unavailable online) in the same MacLean's magazine asks, should they?

According to MacLean's, a study of 3,250 successful families showed that the transfer of wealth between generations fails an astonishing 70% of the time.   In fact, you can expect that most of your fortune will only last three generations if you leave it all to your kids.

A lot of people try to avoid this fate by tying up the money in trusts for years and years.  This may be a good option, so long as you have a Trustee that's going to stick around for awhile (a corporate trustee, for example). 

What families need to ask themselves is what they hope to accomplish by transferring all of their wealth to their children.    As Paul Schervich, the director of the Centre of Wealth and Philanthropy at Boston College says, "You want your wealth to be productive.  You don't want it wasted in philanthropy, you don't want it wasted by family, and you don't want it wasted by taxes."   

The best option for having that kind of control over your money is to spend it while you're still alive.  Being open with your children about why they may not be receiving all of your estate is another way to try to minimize family conflicts down the road.  Always discuss your expectations with them, if you want the money used to fund your grandchildren's education, for example.   And let's not forget that charitable donations are a great way to minimize the amount of taxes payable by your estate.   

The last thing most of my clients want is for their children or grandchildren to end up as idle youth, with more money than they know how to handle properly.  The key is finding the balance so that you can follow the Oracle of Omaha's wisdom: " I want to leave them enough money to do anything but not enough that they can do nothing." 

What you do with the rest is up to you...    

Where to Keep your Documents

A few years ago, I did up documents (will, power of attorney and personal directive) for someone who advised me that she was going to store the originals of those documents in the safety deposit box belonging to the person she had appointed as her executor and attorney.   She recently became ill and it was discovered that she never delivered the documents to the safety deposit box.  Now her family is having to search her home to find out where they are.

Always always always make sure that people know how they can access your documents.  If you think about it, at the time that they're needed, you probably will not be in any position to remember where they are.   It doesn't make any sense to have documents done if no one is going to be able to find them when they're needed. 

Trusteeship v. Enduring Power of Attorney

Recently, I assisted a client with an application for Guardianship & Trusteeship for his father.  During the course of the application, it came to light that the father had executed an Enduring Power of Attorney in favor of my client's brother several months prior.  My client asked me what the effect of his application would be on the Enduring Power of Attorney.  He did not want to have to work with his brother to look after their father due to ongoing family conflict.

While a court must always be sensitive to the wishes of the donor, if there is strong evidence that the current situation isn't in the donor's best interests, the court can make an order for Trusteeship.  This order effectively nullifies the Enduring Power of Attorney.

If that's the case, then why have an Enduring Power of Attorney?  Well, for one it's a lot cheaper than an application for Trusteeship.  The key is choosing an attorney who will look after your best interests and be accountable to the eventual beneficiaries of your estate.  If your attorney is open and honest with your family and friends, and if your affairs are being looked after properly, the likelihood of a Trusteeship application by an opposing family member is slim. 

The ones that are challenged most often are Enduring Powers of Attorney drawn up for individuals who are elderly or for whom capacity is an issue.  If you are taking an elderly parent to a lawyer to have them draw up a power of attorney, make sure that the lawyer takes good notes.  If you have any doubts at all about your parent's capacity, then you should not proceed. 

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.