Matt Gurney: A heavy-hearted culling of the heirlooms

When the topic of personal and household possessions comes up in the context of an estate, it's usually a matter of who is going to get what. Often there is a scramble to make sure everyone gets his or her share of Mom's or Dad's possessions. Rarely do I see any discussion about what to do with those possessions afterwards, or how beneficiaries are going to feel about them years later.

I have read an interesting article in the National Post that gives quite a different perspective to inheriting physical possessions. It's by Matt Gurney, who talks about what happens when inherited goods run up against realities such as small condos and future generations with no emotional connection to the items. I highly recommend reading this, as it just might change your mind about what you want to inherit from your parents or grandparents. Click here to read it. 

She told me I'd inherit the house but didn't say so in her will. Now what?

What if someone in your family promised that you would inherit her house, but then doesn't say so in her will? Is there anything that can be done? Does it make a difference that the other beneficiaries agree that you can have the house? This topic was raised recently by a reader of this blog. Her note and my reply are below.

"My aunt died recently and her will doesn't mention anything in writing about her house. Approx 2 months ago she said in front of the executor of the will and a man from her bank that she wanted me to have the house. She said this numerous times. She told all her friends this and other family members. The only beneficiaries are myself my siblings and another aunt (she has 50% the remaining 50% split equally between us siblings). All are in agreement I can have the house, but the executor says no it wasn't written down. Is this right ? I assume it is but just checking."

The executor is right, but it can still be done.

Obviously I don't know why your aunt didn't include the gift of the house to you in her will. Perhaps she meant to, but didn't get around to it. Or perhaps she thought that telling people verbally would be good enough. Because the house was not specifically mentioned in the will, it becomes part of the residue of the estate. That just means it's part of the general estate, like her bank account or any other assets, that are available to pay the debts and then be divided among the beneficiaries.

The executor is doing exactly what he should do, which is follow what's in the will. Your aunt did not create an enforceable right for you to have the house. Sometimes a promise that someone is going to receive a house or other property does create an enforceable right, but yours is not one of those cases. The only reason that anything can be changed now is that all beneficiaries agree; if they did not agree, you'd be out of luck. Their agreement is necessary because each of them must give up part of what they are supposed to receive, and the executor can't force that on them even if he were willing to try.

What has to happen is for all beneficiaries to agree in writing. They must also instruct the executor in writing to transfer a portion of their inheritance to you. This is done using a document called an Assignment. I would suggest that each beneficiary sign the document in the presence of someone unrelated to the estate. It's going to take some number-crunching to arrive at the right proportion for each beneficiary.

Understand that the house is likely to be the only thing you get from the estate. You are not likely to receive the house as well as a share of the estate. It's possible of course, but it would require an unbelievable amount of altruism on the part of the other beneficiaries.

This paperwork isn't something that you should try to create on your own. You don't want to muddle through with home-made documents just to have someone come back to you in a year or two claiming it's all wrong and trying to claim your house. If the executor has hired a good estate lawyer, perhaps he or she could help. If not, it would be worth it for you to find one yourself. Yes, it will cost money, but you will be able to ensure that you actually get the title to the house, legally and properly, so it will be worth it.

Another thing to clarify among the beneficiaries is what is to happen with the contents of the house. I think you will find that when you say "my aunt's house", half the people involved think that includes everything in the house, and the other half think the opposite. Talk about this with them. Legally getting a title to a house does not include the contents.

Might I just mention how great it is to finally hear a story in which people are being considerate of each other's wishes instead of being out to get everything they can? Kudos to your family for how they are dealing with this situation.

Can an executor back away without personal liability if the job is too much?

If a person takes on the job of executor and finds that she can't handle it, can she back out? And if she does, will she incur personal liability? A reader asked me about this recently. As this situation is one that I hear about frequently, I decided to share this. His question and my answer are below:

"My father in law just passed away last week. My wife has been named as executor in his will but I'm not sure she is able to deal with her father's estate. He was in debt way over his head and his estate is about negative -$48,000 from what we can calculate so far. His house has 2 mortgages totaling $198,000 but the house is way out in the country and may sell for about $175-$200K. He owed about $35,000 to eight credit card and credit lines. He had about $300 in his bank account when he died. No life insurance. Should my wife decline to be executor and walk away? If she does take on the job and can't handle it, can she back away without personal liability or costs?"

There are two issues that I think should be addressed  here. One is the idea of backing away if she can't handle it. The other is personal liability for costs.

A person who takes on the job of executor is not legally able to simply walk away if the job proves to be too much. Your wife cannot be forced to take on the job, but she can only turn it down right at the very beginning. This is called renouncing, and must be done in writing in the proper form. If your wife has already taken some actions on behalf of the estate, it may already be too late for her to renounce. If she has gone to the bank or the credit card companies, for example, saying that she is the executor, then she is probably on the hook for the whole job. Simply paying a few bills or paying for the funeral would most likely not be enough to establish that your wife was acting as an executor.

If, after doing her best with the estate, she really needed to quit acting as executor, your wife could ask the court for permission to withdraw. If the court gives permission, it will ask your wife to prepare an accounting statement showing everything she did with the estate, and to pass that accounting with the court. This is so that whoever takes over from your wife knows where to start. This is also to ensure that if something goes wrong, they'll know which executor was in charge at the relevant time.

I can't tell you whether or not your wife "should" walk away. It's a complex decision. I would like your wife to consider who will take care of the estate if she does not. You haven't said whether there is an alternate executor named. Yes, being an executor is a giant pain in the neck, but it's something that many people do out of a sense of moral obligation to family members. If, however, acting as executor is going to cost your wife a lot of out-of-pocket expense that she simply can't afford, that may be the deciding factor.

This brings us to the issue of personal liability. An executor is not personally liable for the debts of a deceased person. The executor's job is to use the assets of the estate to pay the bills to the extent possible. When there isn't enough money to go around, there is a lot of work and stress for the executor but generally not enough funds to pay the executor a fee.

The credit card companies are unsecured creditors. That means that unless the house sells for an unexpectedly large sum, the credit card companies may get nothing at all. This isn't going to make them happy. At this point, some credit card companies will actually tell executors that they are personally liable. Sometimes they are pretty persistent about it. However, your wife doesn't have to pay the deceased's debts. The credit card companies keep telling the executors they must pay personally because lots of executors believe them.

Another thing to keep in mind is that if your wife decided to back out of the executor job at a point in which assets were left in a precarious position, she might end up incurring liability. For example, if she left the house vacant, unsold, and uninsured and it burned down, she would be on the hook for that loss.

Estate planning for disabled beneficiaries

One of the estate-planning goals often stated by the parents of disabled children is to provide for the children without causing them to be cut off from provincial government benefits. Achieving that goal may involve pulling together several pieces of a puzzle, including the will, trusts, RDSPs, and possibly more.

I recently found the attached article at www.fromyouradvisor.ca, which goes into quite a bit of detail about planning around the Ontario Disability Support Program (ODSP). It's a pretty thorough discussion, and even talks about what happens when another family member leaves money to a disabled child, disrupting your carefully laid plans. Click here to read it.

Although this article specifically talks about ODSP, it is also useful for parents who live in other provinces. There are important variables, of course, because the dollar limit allowed varies very widely from province to province. However, the discussion regarding RDSP and Henson trusts will still be very valuable.

Alberta residents, please note that Henson trusts are not available in your province, though they are everywhere else in Canada.

I would like to clarify one sentence in the article. It describes a Henson trust as follows: "It’s an absolute discretionary trust that doesn’t allow the beneficiary to access any extra amount beyond what’s predetermined." I think that sentence might be a bit confusing. The author is correct in saying that a Henson trust is absolutely discretionary. This means that in any given tax year, the beneficiary might receive income from the trust or he might not, and if he does, the amount is up to the trustee of the trust. Therefore I find it somewhat contradictory for the author to refer to an amount that is predetermined. An absolutely discretionary trust won't predetermine how much is to be paid.

Pleased to have made the Personal Finance Guru list

Thanks to Cory Papineau for including me in his Top 25 Personal Finance Gurus in Canada list! I'm honoured to be on this list along with so many people that I respect and admire.

"Here are my top 25 Personal Finance Gurus in Canada (no particular order). @JonChevreau @bluntbeancountr @rcarrick @estatelawcanada @jimyih
— Cory Papineau (@Iam_Canadian) July 21, 2014"

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