The Estate House

Guardianship Clauses

I must apologize for the amount of time between posts on this blog.  At the beginning of January we had a new addition to our family and I've been busy adjusting to parenthood.

My spouse and I have also been discussing the need to update our will.   We revised our wills this past year, but now we will need a codicil specifying who we would like to be our child's guardian, should the unthinkable happen to both of us.  This is not fun stuff to consider (we plan on being around for our child for a long time), but necessary.  If not for us, then for our family.  Our child will be going through enough trauma and will not need the added burden of dealing with a potential custody dispute among family members.

But it's not only our will we need to consider.  Recent changes to the Personal Directives Act in Alberta mean that we can also appoint someone to make decisions for our child on our behalf if both of us are incapacitated during the course of that incapacitation.  Those situations can almost create as much tension and uncertainty (if not more) than a death and our ultimate concern is to make sure our child is looked after appropriately.

I find it amazing to think how many people out there do not even consider what they would want to have happen to their children if they are not around to look after them.  To us, it's even more important than determining what happens to our possessions.  Shouldn't it be the same for everyone? 

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.   

Making Sure No One is Left Out

I received another phone call this week from an individual who is going to be left out of his step-parent's estate because she didn't take the time to get her will done properly. 

If someone dies without a will (or with an invalid will), their estate is distributed according to the provisions of the Intestate Succession Act.  Few people are aware that the law does not treat stepchildren the same as biological children for the purposes of this distribution.  Only biological children have a right to inherit from the deceased's estate.   This is true even if the deceased had more of a parental relationship with the stepchildren than with his biological children.   If the stepchildren were legally adopted by the deceased, then they are treated as biological children.

The policy behind this law is that, barring some recent exceptions as a result of assisted reproductive technology, every child has two parents.   Even if the child's parents are no longer together, there is an assumption that the child will benefit from each parents' estate.  To legislate that individuals will automatically have to provide for any stepchildren  disregards the dynamic that is present in many blended family situations where the other biological parent is very much part of the picture and where the stepparent/stepchild relationship is cordial, but neither party believes that it is like the traditional parent/child relationship.

If a stepparent wants their stepchildren to inherit from their estate, they must have a proper will in place in order to do so.    

How long does probate take?

<img src="http://www.blawg.com/claimscript.aspx?userid=The Estate House&LinksID=1907">

To probate a will means to have the court say definitively that this document was the deceased's last will and to confirm someone to act as the deceased's personal representative, or executor.  An application for probate also involves setting out the deceased's assets (as discussed in the previous post), so that the court and various financial institutions and the Land Titles Office can have some security in transferring those assets to another party for the benefit of the beneficiaries.   

This is usually not a difficult process, particularly if you have good legal counsel to help you, but it doesn't happen overnight. 

The law requires that you must wait at least seven days after a person's death to submit a will to probate.    It is not unreasonable to have the application for probate prepared and ready to submit within this time frame, but usually a family is too busy dealing with other aspects of the passing of their loved one to worry too much about probate right away.   The timing for when an application for probate is submitted will depend upon who the executor is, how extensive or complicated the estate is, and how easily information about the value of the estate and the beneficiaries is obtained. 

Once the application is submitted, it usually takes 4 - 6 weeks for the grant of probate to be issued by a Justice of the Court of Queen's Bench.  After the executor has received the grant of probate, he or she can take the grant to the institutions involved and begin collecting in assets.  If land is involved, the timeline is extended, as documents will need to be submitted to the Land Titles Office to transfer the property to the executor in trust for the estate.  It will then be up to the executor to either sell the property and include the proceeds as part of the residue of the estate, or to transfer the property to any individual or group who was left that specific property in the will.

If the assets have all be liquidated, then it is time to distribute the estate to the beneficiaries.  However, it is advisable that executors wait until they have received a Clearance Certificate from the Canada Revenue Agency prior to distributing any money so that there is enough to pay any taxes that might be owing by the estate.   That can take anywhere from 6 to 18 months, although interim distributions of partial inheritances can be arranged if deemed to be appropriate in the circumstances.

All told, executors have one year to try and wrap up an estate, although it can be shorter or longer, depending on the estate.

In other words, if you're a beneficiary under a will, don't count on your inheritance to be available to pay next month's rent. 

Inheriting Trillions!!!

This morning's papers all carry a stories talking about how the next couple of generations all stand to inherit trillions.  The Boomers stand to inherit from their "frugal and real-estate rich" parents, and are expected to have trillions to pass on to their children.   The "average" inheritance is expected to be around $280,000.00 ($CDN)

This is not news to most estate planning practitioners.   Furthermore, most of the articles that I've read on the subject talk a lot about whether the Boomers will actually have all of this money to give when they die, but are relatively silent on how to set up a proper estate plan so as to facilitate this transfer of wealth in the easiest way possible.   

There are tax issues that need to be considered, not only with respect to the type of property that is going to be transferred (capital gains, here we come!), but also with respect to how the wealth is transferred to the beneficiary.  For example, if your estate is large enough (e.g. each of your beneficiaries stands to inherit at least $300,000.00), you can set up testamentary trusts in your will that can minimize the amount of tax that your adult beneficiaries will pay on their inheritance.  In Alberta, we are fortunate that we don't have to worry about shielding assets from any estate or inheritance tax, but most people still want to make sure that their beneficiaries - not the government - receive the most benefit from their estate.

Articles like these also serve to create a sense of entitlement among those who expect that they will be receiving substantial sums from their parents' estates.   I'm sure every estate lawyer has heard this phrase several times, "But my Mom/Dad had a lot more money than what my brother/sister is saying.   I just know it!"   They usually have no proof, other than a few off-the-cuff statements from Dad or Mom, but they have little hesitation in creating a lot of animosity within the family because of such beliefs.  Yes, there are times when the brother/sister has hidden or spent or absconded with the money, but sometimes the money just isn't there.  In the meantime, they spend thousands of dollars on lawyer fees arguing with their siblings.   

An estate plan, if improperly done, could mean that the lawyers "inherit" most of the money while the beneficiaries try to sort everything out.  This is often an unintended consequence of an individual who doesn't trust lawyers trying to (a) set up everything themselves; and/or (b) basing their choice of legal practitioner on who charges the least rather than who knows the most in this particular area. 

Good estate plans, particularly when we're talking about this much wealth and the varied types of assets, cannot be bought in the book aisle at Superstore.  You need to speak with a professional experienced in estate planning to ensure that your family inherits your wealth, not the lawyers or the government.  And always remember that what you'll pay now for that advice will pale to what your estate will pay later if you don't. 

Does it count if it's not read out loud?

I was reading this morning about Nina Wang, the Chinese multi-billionaire who died last week.  Nina inherited much of her wealth from her husband after he was kidnapped in 1990.   His body was never found and he was declared dead by a Hong Kong court a few years later.  Nina had her husband's power of attorney, which enabled her to manage his business affairs (he owned a large corporation called Chinachem), but after he was declared dead all of that was put on hold until they had a "reading of the will."   After that all heck broke loose, but that's for another post.

If you've seen a movie or television show where a character has died, you'll be familiar with the concept of having a "reading" of the will.  Usually the family gathers in a study or library of some sort with dark panelling on the walls, and the family lawyer stands behind a desk and reads out the will.  I think that the movies and tv is the only time that this ever actually happens, but I might be wrong. 

Contrary to public belief, there is no requirement that the deceased's will be read out loud to members of the deceased's family, at least not here in Alberta.   In fact, the only people who are entitled to even see a copy of the will are the individuals who are mentioned in it and anyone who might have a dependent's relief claim (spouses or adult interdependent partners, dependent children, and adult children who are unable, by reason of physical or mental disability, to earn a livelihood).  That's it. 

Now usually it's a good idea for the executor/trustee to keep everyone in the loop.  That's the easiest way for them to avoid any accusations of impropriety and to keep things as transparent as possible.    But that doesn't mean that they are obligated to provide anyone and everyone a copy of the will.  Even those individuals who inherit under the will usually receive their copy of the will when they receive the application for probate submitted by the executor/trustee.  So if you're wondering what's Mom or Dad's will, find out who the executor is and ask. 

But, you say, it's not always that simple.  I know, and that's what I'll discuss in my post...

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.

Trusts & Estate Planning for Blended Families

As the traditional family structure evolves, so too does the toolbox of the average estate planning practitioner.  Estate lawyers are finding that they need to become more well-versed in family law statutes governing the distribution of property and maintenance.   One of the most common questions when dealing with a blended family situation is, "How can I make sure that my spouse will look after my children after I die, and not just change his/her Will and leave it all to their children?"  The answer we give most often at our firm is by using trusts.

My colleague at The Estate House, David Koski, recently co-authored a paper in the Estates and Trusts Journal with John Poyser of Inkster Christie Hughes in Winnipeg on the Use of Trusts in Blended Family Estate Planning.  David is going to be presenting on the topic tonight at the regular meeting of the Estate Planning Council of Edmonton.

The paper, of course, is too long to post here, although I promise that a link will be coming soon.

It generally works like this:  Spouse A leaves the residue of his estate in a spousal trust for Spouse B.  Spouse B and one other person are trustees of the spousal trust.  When Spouse B dies, the contents of the trust flow through into however many trusts as there are children in the blended family; each child will have their own trust.   For it to be a proper spousal trust, Spouse B must be entitled to all of the income generated by the trust during her lifetime, but the capital can be distributed upon her death.  Spouse A may want to limit Spouse B's ability to encroach on the capital to ensure that there will be some resources there to distribute to the children.

It's a common perception that trusts are only for rich people and that they are difficult to set up and to maintain.  While it is true that the greatest benefits (tax-wise) are experienced by trusts that have significant assets, trusts are useful for smaller sums as well, and are neither difficult to set up nor to maintain.    I should also note that, depending on how the trusts are set up in your will, the trust may be fairly easy to wind-up.   

The trust scenario gives parents peace of mind that their children will be taken care of well after that parent is gone, and isn't that what proper estate planning is all about?   

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.