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Wednesday, January 12, 2022

Changes to Ontario wills law this month

There are some important changes to Ontario wills law this month. Beginning on January 1, 2022, in Ontario, getting married no longer revokes your will. Ontario is not the first Canadian province to make this change, nor is it the last. 

The change is not retroactive. It only applies to weddings that took place from January 1, 2022 onwards. If you were married before then, your will was still revoked when you got married. 

Another change involves spouses who are separated but not yet divorced. It used to be that no matter how long you were separated, you still had full inheritance rights of a spouse if you were not divorced. That gave rise to really odd situations where people were separated for 10 or 20 years or more and hadn't seen each other in all that time, but still inherited from the other one's estate. That's different now. The new law says that if you have been separated for three years, you lose your automatic right of inheritance from a spouse. You will also lose that right if you have been separated for less than three years but you have a formal separation agreement or a court order of separation.

The changes regarding former spouses are pretty profound. Let's say you are married but have been separated for five years. While you were together, your spouse named you the executor of the will and left the estate to you. The will has not been revoked or replaced by your spouse. Because you have been separated for more than three years, the will provisions won't apply to you anymore. You won't be the executor anymore and you won't receive the items under the will.

No doubt it will take some time for everyone to adjust to the new provisions but I believe they are a step in the right direction.

Saturday, January 8, 2022

Can a tenant-in-common sell his part of the property without even telling you, if you're the other owner?

What if the co-owner of your property told you one day that he's no longer a co-owner because he had transferred his share to someone else? Would you be surprised? Concerned about who the new owner might be? Can he even do that? A reader recently asked me about this. Here is her question followed by my comments:

"My boyfriend and his brother have owned their family cottage as tenants in common for about 5 or 6 years now. Today my boyfriend messaged his brother to tell him about a recent bill and ask if he would pay his half. His brother tells him he is no longer responsible and to talk to their dad who is now the new co-owner. No one talked to my boyfriend or sent him any land transfer documents or anything. He was just randomly told oh there's a new owner on the title. When my boyfriend asked for papers he was basically told he can just look it up. Here's my question: can they just do that? I know that as a co-owner the brother didn't need my boyfriend's consent but can he really just go behind his back like that and transfer the title without even saying anything? So with tenants in common you never really know who you're owning a property with? You have to check all the time and anyone can be added or removed without your knowledge? That seems really sketchy to me so pls advise?"

The short answer to your question is yes. They CAN do that. 

There isn't actually anything sketchy about it, legally. A tenants-in-common arrangement means that each person owns a defined portion of the title. In your boyfriend's case, each owned 50%. Each of them is free to sell or give away their portion or to leave it to someone in their will. In law, your boyfriend's ownership and use of the property has not been diminished.

Whether that's a considerate way to act to other family members is a different question but legally the brother and father have done nothing wrong here.

My answer would be the opposite if the owners had been joint tenants. In that arrangement, the property could not be sold or transferred by just one of the owners without the consent of the other (unless the title has been legally severed).

Sometimes tenants-in-common will sign an agreement between them that governs how the property will be used and disposed of. A recommended clause in that sort of agreement is the opportunity to buy the other one out before it's given or sold to another person. In your case, there was no agreement, but that doesn't surprise me. Family members rarely put their agreements into writing because they have an expectation that family members will treat them better than strangers would, and also because they are afraid of offending each other. Perhaps this would be a good time for your boyfriend to ask his father to come to an agreement and put it into writing.

Unfortunately, your situation is yet another reason why I always counsel parents not to leave a specific property to more than one of their children.

Monday, December 27, 2021

Relying on luck is no way to make a solid estate decision

Whether or not to add the kids to the title to the parents' home is a question that many families will deal with. It is widely thought of as a way to avoid probate. I've seen articles suggesting that parents add the children to the title and I'm sure many of you have, too. But is it really a good idea? A reader recently sent me a question about this very thing, so I thought I'd share it with you:

"My father passed away a year ago my mother now is the sole owner of the condo. She is 87 and wants to leave the condo to me and my brother 50/50 split. Should we be added to the condo's title? We both own homes will this create a tax issues for us both if we were to decided to sell the condo? Are there any tax or fees if she doesn't add us to the title? We are a bit confused to the best way to proceed." 

If your mother wants to leave the condo to you and your brother, she has two options (I am not including "do nothing and let the chips fall where they may" as an option).

Firstly, she could make a will, leaving the condo to the two of you in the will. Even better, she could make a will and leave her estate to the two of you, so that the condo itself need not pass through your hands if you aren't going to keep it. On her death, the condo is part of the estate.

Secondly, she could, as you mentioned, change the title while she is alive to add the two of you to it as joint owners. Then, on her death, the condo should still belong to the two of you as surviving joint owners. 

Many people are fooled into thinking that option number two is the better one simply because it is so easy and inexpensive to do. But since when were "easy" and "cheap" the hallmarks of a good idea? Let's compare the two options.

In option one, on your mother's death, there is no capital gains tax arising on the transfer of the condo to you two, or to the estate (assuming it is her principal residence).  Since you both own other homes, it does not appear that either of you will want to live there, so most likely the property will be sold. If it is sold from the estate to a buyer, there is no capital gains tax as I said, unless there is a delay in the sale during which the value of the property increases. 

The tax situation could be MUCH different if the property is transferred to the two of you during your mother's lifetime. On her death, her share of the property is not taxable, since that is her principal residence. But then you are going to sell the property, if my assumption is correct that neither of you is going to live there. This is where the potential tax comes in. If the condo increases in value during the time your names are on it, your shares of it are taxable when it is sold.

If your mother lives a long life, the taxes could add up.

There are other issues besides tax to consider as well. Let's assume that either you or your brother gets divorced before your mother passes away. If your names are on the condo, the soon-to-be-ex wife can claim half of her husband's share of it. The same could happen if instead of a divorce, you or your brother were being sued. If your name is on your mother's condo, it's not her condo anymore. It's yours as well and is up for grabs when there is a creditor. In other words, there is a risk that the condo will be lost before either of you gets to inherit it. It would be safer in your mother's name and distributed under her will.

Another issue that could crop up during the estate administration is that without the house in the estate, there isn't enough cash to pay for expenses and bills, so you two will have to come up with those amounts personally. On the other hand, the opposite could be true. Your mother could take steps she thinks will dispense with the need for probate only for you two to find that the will needs to be probated anyway because of other assets in the estate.

When I have this discussion with people, they often laugh and wave their hand dismissively at me and say none of this is going to happen. It must be nice to own a crystal ball that shows you that nothing bad is ever going to occur. I have been in this business long enough to know that the best way to proceed with planning is the safe and sensible way, with no crystal ball predictions that you're bulletproof.

Thursday, November 25, 2021

Court is tough on trustee who failed to keep receipts. Really tough.

Today I'm referring you to an article written by David Freidman, a law professor in Ontario. The article appeared on the blog of the law firm of Wagner Sidlofsky. The article discusses the 2010 case of Zimmerman v. McMichael estate in Ontario where a trustee failed to properly account for the money and other assets he was holding in trust. You can read the details in the article, which you can see here

The reason I want to bring up the case is that many readers of this blog are executors or are acting as attorney under an Enduring Power of Attorney. All of you are trustees of other people's assets. You are all responsible for properly keeping records and accounting to beneficiaries or the court at different times. I would prefer that none of you find yourself in hot water because of it. The case we are discussing today involved a person who was in a similar position. However, when the beneficiary could not get a proper accounting, she asked the court for help.

This did not go well for the trustee.

In this case, the trustee did not keep receipts and did not answer reasonable objections to his accounts. In the end, he had to personally repay about half a million dollars that he could not account for. 

It's a worthwhile lesson for all trustees. KEEP RECEIPTS. Keep detailed records so that you can explain cash withdrawals and expenses. 

To read the full case, click here

Saturday, November 20, 2021

Webinar has been recorded and will soon be available for download.

 Thanks to those who came out to our webinar! I certainly enjoyed it and it was good to see your questions come rolling in. We recorded it, and shortly we will be uploading it so that those of you who couldn't make it to the live session can purchase a download of it. I'll keep you posted. In the meantime, if any of you would like to request certain webinar topics, let me know in the comments.

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