Thursday, November 14, 2013

Parents ask too much of the kids when they put them in charge of the estate

Parents rely much too heavily on their children when it comes to carrying out their estate plans. They name their children as Power of Attorney, and as executors, even though the kids have no idea how to do those things. They place children in charge of the parents' life savings even though the children have financial problems of their own and are quite likely to be tempted by what seems like easy money. And worst of all, the parents give everything to one child and ask them to "do the right thing" by their siblings.

If parents only realized how badly this turns out in the majority of cases, they would, as they say, roll over in their graves. A reader recently wrote to me to describe a situation in which a parent may well have put the wrong person in charge. As always, my response follows the question, and as always, I invite you to make up your own minds about what is really going on.

"My mother in law died in 2012. She was suffering from dementia and was in a nursing home. My sister in law had power of attorney and is the executor of the will. To date nobody has seen the will nor has the estate been settled. My sister in law says the will names her as sole beneficiary and that she can do whatever she wants with the estate. She has offered to send us the part of the will that states that but refuses to send anyone the entire document. However my mother in law always said that all of her children would inherit an equal portion There are 6 brothers and sisters, all who were told the same thing. At present the plan is to probate the will so the beneficiaries can know exactly what it said. My question is if the will does name only the one sibling as beneficiary, can the others realistically contest the will. They feel that my mother in law did not mean to disinherit her children but meant to trust one with dispersing the proceeds of the estate. There is also the issue that my sister in law may have spent the money on herself while she had power of attorney and she is taking this evasive attitude to cover up her appropriation of the funds. If this ends up being the case, can she not only be sued civilly, but also brought up on legal charges for essentially stealing her mothers assets? I should note we are not talking about a lot of money, so it's not the money they are particularly worried about, it's the betrayal."

I would be curious to know whether the will was prepared by your mother-in-law long before her daughter started acting as POA, or afterwards. This, to me, raises questions not just about mental capacity but also about influence.

If you were able to persuade the executor to probate the will, that would be a good start, but I doubt it is going to answer too many questions. You may find that she is correct about being the only beneficiary. If so, the timing of the will becomes even more important.

It's not unheard-of for an elderly parent to change his or her mind about who is to get what. However, this is a dramatic change from what your mother-in-law had talked about to several people. Leaving the estate equally among the children is what most people intend to do. I don't find your suspicions at all unusual in this case. It's possible that your mother-in-law thought that by leaving it all to one person, it would be shared among everyone. She certainly wouldn't be the first parent who failed to realize that her kids are human and subject to greed like everyone else.

Contesting a will is tricky business. Only in BC can the siblings contest a will on the basis that the will leaves out someone and therefore isn't fair. However, every province and territory allows a will to be challenged on the ground that the testator (in this case, your mother-in-law) was coerced into making changes that favour one person (again, timing and circumstances are key here). This is costly, time-consuming litigation that turns family members against each other and involves long, undignified discussions about the person's mental state. It won't be pretty, but the upside is that most people will settle the matter before it gets to court.

The fact that this daughter was POA before she was the executor adds to the possibility that your mother-in-law was pressured, tricked or forced into setting up her affairs in a way she did not intend. You  may well find that assets have been placed in joint names with the executor. Seniors are often easily persuaded that it will save money and headaches and keep things simple if they just put things in joint names instead of relying on a will, though nothing could be further from the truth.

If assets were placed in  joint names while your mother-in-law was alive, you may rely on the law to insist that these assets are not true joint assets and must be held in trust for the estate. You'll need a lawyer to do that, but if all of the siblings pool their resources, it shouldn't be too much of a financial hit. This would seem to me to be more your issue than that of undue influence.

The bottom line is that based on what you've told me, you may well have an issue that needs to be sorted out by the courts. As for criminal charges, yes, if funds have been used by the daughter for herself while she was acting as POA, she may face charges. In Canada we have a specific crime of theft by power of attorney. 

If the executor were only more co-operative, she would be more believable, but her evasiveness only adds to the evidence that something is wrong. For example, if she were to produce a set of accounts for her time as POA, that would go a long way towards explaining the situation. A lesson for parents: if you name one of your kids as your POA, consider naming a different child as your executor. At least then there will be two sets of eyes on your money.

3 comments:

  1. What action, if any would be available to my husband whose two sisters are putting pressure on an aging parent to put their names on title of the cottage along with the parent? The parent has significant memory loss due to dementia, is very suggestible and dependent on the two sisters, but can appear quite well to an outsider. All three children have POA (enduring) and are named as beneficiaries in the will. My husband has communicated to his sisters that he feels this is unethical. They have given him an ultimatum: either add your name to the title of the cottage now or loose out. The sale of parent's house is also planned, and it was discussed that the proceeds of the sale would be put in TFSAs of the children but given back to the parent, if needed by the parent.

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    Replies
    1. Those two sisters are horrifying. They are behaving as if their mom getting dementia is a personal lottery win for themselves. I hope karma hits them full force when their own kids are older.

      I assume by "losing out" they mean that your husband will not inherit his share of the assets. However, they are wrong. He will not lose out, for two reasons.

      One is that when property belonging to the parent has kids' names added for the purpose of avoiding probate or reducing fees or for any reason other than the parent intending it to be a true joint tenancy, the property does NOT pass to the surviving joint tenants. Your husband, as beneficiary, should be able to demonstrate that his mother never intended to put the kids' names on there at all.

      Secondly, someone acting under a POA who transfers assets to him/herself is at best in a conflict of interest, and at worst, stealing. If the sisters continue to act this way - by taking assets - then your husband can offer to have them removed from the POA by the courts for wrongful behaviour.

      Selling the house and putting money into TFSAs is fine as long as the account is in the mother's name. Putting it in the children's names is outright stealing, no matter how much they may give lip service to the idea of "giving it back". If this continues, your husband may wish to see a lawyer to ask about getting those two removed before they rob their mother completely blind.

      Lynne

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    2. There is another sad aspect to this that is troubling. Some of the "financial" advice my sister-in-laws base their actions on, comes from a person who runs a business as a Disability Tax Credit Facilitator. She will help access tax savings and benefit programs for seniors and disabled people and promises to unlock sources of "new" funds. Her fee is a large cut from the tax refunds that are actually intended to go in full the eligible applicants. She claims to have 35 years of professional tax experience, yet the credentials behind her name show a BA in Economics. How she thinks her "experience" compares to a professional Accounting designation is beyond me.
      Thank you so much for your advice and your informative blog.

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