If you need to post an estate bond, read this

Did you know that if you appoint an executor who lives outside of the province in which you live, your executor must deal with the issue of a bond? Each province has rules in place which are intended to protect creditors and beneficiaries of an estate by preventing executors from legally accessing the deceased's assets, then leaving the jurisdiction without paying bills or distributing the estate to the right beneficiaries.

It's one of those "bad apple" rules. Some executors are dishonest or negligent, and so rules have been put into place that all executors, including the honest ones, must follow. A bond, in this context known as a fiduciary bond, is much like an insurance policy that an executor buys. If he defaults on the estate, he loses the bond. The bond is for the full value of the estate. Bonds may also be required when there is no will and someone comes forward to ask the court to appoint them as estate administrator.

The issue of bonding comes up on a regular basis, as many parents name children as executors even though the children have moved to a different province (or country) for work or for other reasons.

If you're an executor in this situation and you must post a bond, you may have had some trouble finding a company which sells the bonds. I've heard many clients say they've had to make a dozen phone calls before finding an insurance company that provides this service. I've recently found a reliable provider. Click here for information, for the bond application form, and for instructions on where/how to send the form for processing.

Sometimes an application for probate contains a request from the executor that the bond which would otherwise be needed should be waived. This is in the judge's discretion and cannot be guaranteed ahead of time. Your chances are better if the beneficiaries agree in writing to the bond being waived, and if you can show that the deceased's debts have been paid in full.

Another way to get around bond requirements is to appoint an executor who lives in your province. You could have co-executors with at least one of them living in the province. At the trust company where I work, we sometimes see customers who want us to act as a co-executor with their children, partly to address the bond question.

Can you do anything about being left out of your parent's will?

Most of the time, parents leave their estates to their children. When that doesn't happen, the child may take the news emotionally. Recently a reader wrote to me about this situation. Her note and my answer are below:

"My husband's mother passed away recently. My husband was surprised and hurt by the fact that he and his sister were left out of the will. Instead, all the money went to the 5 adult grandchildren. My husband said he felt "rejected" when he learned that he was left out of the will. It seems like this could have been avoided if the two children had been included in the will, along with the grandchildren (so the estate could be spit 7 ways instead of 5). Is there a way of addressing this without contesting the will? My husband doesn't like to "make waves" and so I'm not sure he will do anything (except remain angry and hurt the rest of his life) but it would be nice if he at least felt he had some options."

You  have very nicely summed up exactly what goes through a person's mind when they are not included in their parents' wills. Surprise, hurt and rejection are par for the course in this situation. It's not the law that parents must leave their estates to their children, but it is customary.

Yes, you're right that upset could have been avoided, if avoiding upset was the goal when your husband's made her will. However, it appears that she was motivated by wanting to help the grandchildren, for reasons that may never really be known. Perhaps your husband's mother simply felt that distribution among the grandchildren was the best use of her resources and didn't realize that it might result in upset.

It's not up to those of us left behind to re-write a will based on what we believe to be "more fair" than what the will actually says. The executor is bound by the will and can't decide to change it. So, to answer your question, no there is nothing that can be done about the will other than contesting it.

Even contesting the will may not result in a change. Contesting a will is not easy. You don't automatically get changes to the will just because you take it to court. Only BC has wills variation laws that allow a child to contest a parent's will on fairness or moral grounds. The rest of Canada takes the position that a parent is not required to support adult children who are financially independent of them.

A solution is available outside of the courts if all of the five beneficiaries agree to it. That is, the beneficiaries may voluntarily agree to take a 1/7 share rather than a 1/5 share and pay the balance to your husband and his sister. This would, in effect, be a redistribution of the estate, but only after the executor has paid it to the proper beneficiaries.

There are two problems with this idea. One is that people do not like to give up money. The other is that the beneficiaries may not wish to make changes from what the deceased specified in her will.

Did you know there's a limit to how much land you can include in a principal residence exemption?

In the attached article from www.allaboutestates.ca, Stephen Frye talks about the principal residence exemption from capital gains tax.

As most of you may know, you can sell your home or leave it to someone in your will without you (or your estate) having to pay tax on the transfer, as long as the home is your principal residence. Of course, like all rules, it has fine print. Mr. Frye goes a little deeper into the principal residence exemption by explaining how much land you get to claim within the exemption. This is definitely worth a look if you (or your parents) live on an acreage or old homestead. Click here to read the article.

Second marriage? Have a financial date before you tie the knot

In this post, I want to talk about marriage. Specifically, re-marriage after you've been divorced or widowed. What does marriage have to do with estate planning, you may ask? The answer is: more than you might think.

A person in a second or subsequent marriage may want to make a will that leaves some of his or her estate to the children of the first marriage. This can be a bit of a balancing act since he or she has an obligation to look after the new spouse too, and there are only so many assets to go around. An experienced estate planner can really help here.

I'm attaching a link to an article at freefrombroke.com which talks about several financial considerations arising out of a second marriage. It's not only about estate planning, but includes it. Click here to read the article.

Preparing the deceased's unfiled tax returns may mean CRA gets the whole estate

What if paying late charges and penalties on the deceased's unfiled tax returns means there is nothing left for the beneficiaries? That's an uncomfortable spot for an executor, since doing what he is bound to do will make him pretty unpopular with the family. A reader recently wrote to me about this. Here is her question and my answer"

"My brother passed away a year ago. He never did a tax return since 2004. I am the trustee now as he has some pension money. I am doing the taxes for all the years he never did. Do I have to add late charges and penalties? If so I would imagine there would be nothing left for the siblings."

You are doing exactly what an executor and trustee is supposed to do, in ensuring that all of the unfiled tax returns are taken care of. As a general rule, yes you do have to add late charges and penalties. However, if you are unsure about any specific item on a tax return and you can't find the answer on CRA's webpage, you are safest to ask an accountant rather than a lawyer.

It's possible that the charges and penalties will add up, as you say, to the point where there is nothing left to be distributed to the beneficiaries of the estate. The law says, as I believe you are already aware, that the taxes must be paid in full before the beneficiaries receive anything.

I doubt this will go over well with the beneficiaries; it never does. However, if you are pressured to ignore the late charges and penalties and pay the money to the family members (which CRA will add on anyway even if you don't), please remember this: if you do so, you may well have to pay the money to CRA yourself. out of your own pocket. Many an executor in your position has acceded to pressure from the beneficiaries only to find out that he or she is on the hook personally. Paying out beneficiaries leaves the estate unable to pay the taxes, and an executor who caused that shortfall must make it up out of his or her own funds.