Loyalty pays: Ed Koch leaves $100,000 to his secretary

Finally, a story about a will that is a good news story rather than a disaster! www.walletpop.ca reports that the former mayor of New York City, Ed Koch, who passed away recently has left his long-time secretary $100,000 in his will. Click here to read more about this story.

The attached photo of Mr. Koch and his secretary was also found at www.walletpop.ca and is credited to New York Daily News.

What happens if the gift you were left in the will no longer exists?

Here's something that many beneficiaries and executors have had to figure out, amicably or otherwise - what happens when a specific gift left to the beneficiary in a will no longer exists? Does the beneficiary get something else instead, or is he simply out of luck? Click here to read a short but informative article about what happens in this case and how you can prevent this from happening in  your own will, from www.estatedebate.com.

Warring over the sentimental items in an estate

I've come to realize over the years that a dispute over a parent's estate is more likely to break out over personal possessions than it is over money. Some of you might be skeptical, but I firmly believe this to be the case. A case where eleven siblings fought over one gold ring is an extreme case, and I've attached a link here for you to read a blog post by www.allaboutestates.ca summarizing the case and how it was resolved.

Clients often ask me how an executor will divide the household and personal goods among the children, and I'm always happy to give some suggestions on how to avoid a dispute. Depending on the number of children, the number and value of the items and the personalities involved, there are some options. I've listed a few below. You'll note that sticking a piece of masking tape on the bottom or back of items with someone's name on it is NOT on the list, as that is not legally effective.

1.  Give some items that you don't need to the children while you are alive.
2.  Hold a family meeting to talk about your estate plans and tell the children how you plan to divide up the items (followed by either #3 or #4 below). Give them a chance to provide you with some feedback that you might use to re-think your decision.
3.  Prepare a handwritten list of who is to get what and keep it with your will. It might be helpful to talk to your estate planning lawyer about this so that you get the right form for your list. Your lawyer can also give you some guidelines about doing the list properly. For example, a list like this should NOT include sums of money.
4.  Include some of the items in your will as specific gifts to certain people. Normally people would only include gifts that are important enough that they won't change their minds about them.
5.  In your will, give your executor the discretion to settle disputes about who gets the household items. This might seem unfair to the kids if one of the people fighting over an object is also the one who gets to settle the argument, but someone has to have the ability to put an end to it.
6.  In your will, direct that everything is to be sold and the money split equally. This is pretty drastic but sometimes parents feel it's the best way.

Most of my clients have told me that preventing disputes among the children is one of their main estate-planning goals. Thinking about the personal and household items and dealing with them clearly and thoroughly in your documents will help you reach that goal.

Who gets their inheritance when debts eat up part of the estate?

Many times in this blog I've talked about how debts and expenses of an estate are to be paid before the beneficiaries receive their inheritances. Now a reader has asked a really good question about the next step in that process, particularly where there might not be enough money in the estate to pay debts and expenses as well as all of the gifts set out in the will.

Here's the question:

"Cash gifts are distributed after the estate has paid expenses. If there are insufficient funds to pay the gifts are the prorated according to the funds available?"

The answer is a bit complicated but I'll do my best to keep it brief. By the way, I addressed this issue in a paper I wrote a couple of years ago for the Legal Education Society of Alberta called "Taxation of the Average Estate", which is available online by clicking here.

The first thing you have to do is read the will carefully to see whether it gives any specific instructions about paying taxes. Most don't, beyond giving a direction to the executor simply to pay debts. If there are specific instructions, then obviously you must follow them. The answer I'm giving below applies when there are no specific instructions in the will.

Let's say that John's will gives $5,000 to his friend Lucy, and divides the rest of the estate among his nephews, Frank, Lloyd and Joe. The gift to Lucy is called a specific gift. The gifts to Frank, Lloyd and Joe are residuary gifts because these three people share the residue, or rest, of the estate. The type of gift matters because debts are paid first from the residue. So if there were only $5,001 in John's estate after payment of debts, Lucy would get the $5,000 and the other three would split the last dollar.

Within the residue itself, personalty would be used up before realty. So if there were cash or vehicles in the residue, they would have to be sold and used to pay debts before real estate in the residue was sold for debts.

I believe this reader's question asks about what to do when there are several specific gifts to be paid and there isn't enough to pay all of them. If some of the gifts were cash and some were realty, cash gifts would have to be completely consumed by debts before realty gifts were used. So it could work out that one person (getting the lake lot for example) might still get that gift even though the next person didn't get their gift because it was cash.

If there were several gifts to be paid - all cash - and none were treated any differently than the others in the will, I would agree with the reader's suggestion to pro-rate them after payment of debts. It would be difficult for any one beneficiary to argue that he or she had been treated unfairly if this approach to division was used.

Keep in mind that if the recipient of any of those gifts is a dependent of the deceased (spouse, minor child, handicapped adult child), he or she might decide to contest the will to get a greater share. They have only a limited time to do this.

Do I attach a list of specific gifts to the application for probate?

Although most assets are given away in a Will, many people choose to make (in addition to the Will) a list of specific personal or household items that they want to give to certain people.  For example, a woman might wish to leave her wedding ring to her daughter.

A list like that is a separate document from the Will. They are usually handwritten by the testator. I was recently asked whether the executor must include the list along with the Will when the executor is applying for probate. The answer can be either "yes" or "no", depending on the facts.

The executor DOES have to include the list (which is legally called a Memorandum of Personal Effects) if:

•  the testator made and signed the list before he/she signed the Will, and
•  the Will specifically refers to the list by saying that it is incorporated by reference.

The fact that the list is incorporated by reference means that it is included as part of the Will even though it was done before the Will document. Because it's now legally considered part of the Will, the executor has to include it when he or she probates the Will. 

Many lists of specific gifts are NOT incorporated by reference. If you make your list after you make your Will, it is not incorporated by reference. If the Will doesn't refer to the list, it isn't incorporated by reference. The non-incorporated list is very popular because it is so flexible; the testator can change the contents of the list as many times as he or she wishes without having to change the Will. In these cases, if the Will says anything about a list or Memorandum, it probably says something like "I may make a Memorandum giving specific items to certain people."

If an executor were to apply for a Grant of Probate on an estate that had a Memorandum that was NOT incorporated by reference, he or she likely wouldn't be required to include the list in the application, but should probably do so anyway, barring unusual circumstances. It's best to give the judge and the residuary beneficiaries the whole picture of the estate. If the Will says that the testator "may make a Memorandum" but one hasn't been found, include a sentence in your application for probate that states that you searched for a list but didn't find one.

This post isn't intended to be a recommendation of any kind about which type of list you should make, if any. There are plenty of reasons to use one or the other. I'll leave that for another day. Today's post is intended only to give executors some ideas about how they might deal with a list/Memorandum during the probate application.

What does an executor do if a beneficiary can't be found?

Let's say an executor has probated the deceased's Will and has begun to distribute the specific gifts made in the Will. One of the beneficiaries, let's call her Sharon, is supposed to receive the sum of $5,000 and her grandmother's jewelry. The executor can't find Sharon and nobody seems to know where she is. What should an executor do? What happens to the money and the jewelry?

The executor should turn first to the Will. Does it say anything about what to do in this situation? If Sharon hadn't been seen in years, her grandmother might have anticipated this would happen. Knowing that Sharon might not be found, her grandmother might have put a time limit on looking for her, and named someone else to receive the property.

Assuming that the Will doesn't say anything like that, the executor must make "reasonable efforts" to find Sharon. The specific methods used by executors will obviously vary depending on the circumstances but some of the most common methods are:

• putting a notice in the paper in an area where Sharon once lived


• asking around and putting up notices in places where Sharon might be expected to show up, such as church, union hall, etc.


• contacting former employers, boyfriends, teachers, co-workers etc


• checking social media like Facebook, MySpace etc

If there are any costs incurred in taking these steps, such as the cost of a newspaper notice, that can be taken out of Sharon's money.

If Sharon still can't be found within a reasonable time (a year is pretty standard), the executor can choose to put Sharon's property aside and hold it for her. In a case like this, the jewelry should be kept in a safe deposit box with a copy of the Will and an explanatory note showing that this is the jewelry Sharon was supposed to inherit.

An executor might also choose to deliver Sharon's inheritance to the Office of the Public Trustee, which is empowered to hold unclaimed property in this situation. Depending on the situation, the Public Trustee might publish a notice to Sharon, or might bring an application to have her pronounced dead, or might do neither of those things. They will hold the property for quite a long time (in Alberta, it's 10 years). Sharon can claim her inheritance from them at any time if she shows up. If not, the Public Trustee might eventually sell the jewelry and transfer the whole inheritance into its general revenue.

The advantage to the executor of delivering the inheritance to the Public Trustee is that the executor can close off the estate and not have this one thing hanging on forever. The executor can reassure the beneficiaries and the family that the executor hasn't just kept Sharon's inheritance for him/herself. It is up to each individual executor to decide what is best in each situation.

Who pays for a gift to be shipped to a beneficiary?

One of the main responsibilities of an executor is to distribute gifts to the beneficiaries as set out in the Will. If all of the beneficiaries live nearby, or if all of the gifts are in cash, this is an easier job logistically. But what happens when the executor has to send Grandma's silver collection to a beneficiary on the other side of the country, or has to get Dad's re-built Mustang to someone three provinces over? The items have to be stored, insured, packed, and shipped to the beneficiary. Who pays these costs? Is it the beneficiary? Is it the estate?

There are some general guidelines for the executor to follow in these cases. First of all, check what the Will says about this. Most won't mention it, unfortunatey, but occasionally a Will states the testator's wishes. If the Will leaves some instructions about who pays, then the executor should follow them.

Assuming that the Will has not given any instructions, the executor should then follow a rule about specific gifts vs. general gifts. The cost of getting a specific gift to a beneficiary is paid for by that beneficiary. The cost of getting a general gift to a beneficiary is paid for by the estate.

What's a specific gift? It's any item that is described in a way that allows you to identify it in particular. For example, Grandma's silver described earlier in this post would be a specific gift. Any gift that starts with the word "my" is probably specific, such as "my wedding ring", "my book collection", or "my re-built '67 Mustang". This means that all items on a Memorandum of Personal Effects (or hand-made list), left by a testator in addition to a Will, or in the Will, should be specific gifts. The beneficiary pays the costs of getting a gift like this to them.

What's a general gift? Any share of the residue is a general gift. Also, a gift with a description such as "a house" or "a truck" (as opposed to "my house" or "my truck") is a general gift. It doesn't specifically describe any particular house or car, even if the testator only had one. The estate pays the cost of getting a general gift to the beneficiary.

What happens to my Air Miles when I pass away?

Have you ever wondered whether you can give your loyalty points such as Air Miles or Aeroplan Miles to a beneficiary when you pass away? If you're a serious collector or you travel a lot, your points might be worth a lot of money, and could be a valuable gift to someone else. Here's what some of the major plans allow a collector to do with the points when the collector passes away:

• Air Miles will allow you to give your points to a family member or a member of your household. You have to have prior consent of the Air Miles program.


• Aeroplan doesn't allow you to transfer your points to anyone unless they consent.


• Shopper's Drug Mart doesn't allow you to transfer your Optimum points to anyone.


• HBC Reward Points can be transferred to an individual or a non-profit organization.

Note that the above comments apply only to transferring the points on your death, as all of these plans allow you to transfer points to someone else while you're alive.

Can an Attorney under a Power of Attorney sell an asset that is specifically left to someone in a Will?

An Attorney acting under an Enduring (Continuing) Power of Attorney has the responsibility of handling the legal and financial affairs for the person who named him or her as Attorney (the person giving the document is known as the donor). The Attorney must approach each and every transaction from the point of view of what is in the best interest of the donor.

Most Enduring Powers of Attorney give only general instructions for an Attorney. If the Attorney must sell some of the donor's assets so that the donor has something to live on, then the Attorney may choose which assets are to be sold, to whom they are to be sold, and at what price. The assets sold may or may not be mentioned in the donor's Will as being left to a specific beneficiary. The Attorney's responsibility is to the donor while the donor is alive, not to the person who might inherit the assets after the donor's death.

Having said that, an Attorney who knows the contents of the donor's Will should do his or her best to work with it, to avoid thwarting the donor's wishes. It would be in the donor's best interests for the Attorney not to mess up his or her plans.

Some Enduring Powers of Attorney contain specific instructions to avoid selling certain assets if at all possible. For example, if a donor has made a Will in which he leaves his lake cottage to his sister, the Enduring Power of Attorney could instruct the Attorney not to sell that lake cottage if there is anything else that could be sold instead. The Attorney must always follow directions in an Enduring Power of Attorney or risk personal liability.

This kind of specific direction is under-used, in my opinion. The only caveat I'd put on that is to suggest that the Enduring Power of Attorney should not have a direction not to sell the cottage under any circumstances. It would be better to phrase it as a direction not to sell the cottage except in dire financial need. That way, if the money from a sale of the cottage is the only money the donor has left and it is needed for living on, it can be used.

I've always been astonished by the number of people acting as Attorney who believe that their role is to do whatever they please with the donor's finances. I believe that people in general are becoming more aware of the limits of the Attorney's role, and it will eventually become harder for dishonest or misled Attorneys to continue to treat the donor's assets as their own. In the meantime, donors should take care to make the strongest document possible. This certainly does not mean a fill-in-the-blank document; it should be one that is personally tailored. Donors should consider putting in requirements for the Attorney to account periodically to other people in the family, or to advisors of the donor.

When the donor passes away, the authority of the Attorney ends. The Attorney must give the Executor of the estate a full financial accounting of everything he or she has done as Attorney. If an asset has been sold contrary to the instructions of the donor, this will be revealed to the executor.

Can I have my parents' house as part of my share of the estate?

The executor of an estate is usually given instructions in a Will that direct proportions or percentages of the estate to certain beneficiaries. For example, a Will might say "divide my estate equally among my three children", or "give 25% of my estate to my daughter". Most of the time, the Will doesn't say which specific assets go to each beneficiary. This is intentional, as most of the time we don't know at the time we make our Wills exactly what we will own when we pass away and we want to create flexibility.

This leaves the decisions about the distribution of certain assets to the executor. With a properly worded Will this decision becomes much easier. On occasion, a Will directs an executor to sell everything and distribute cash to the beneficiaries, but this is rare.

When there is one major asset in the family, such as a business or farm, the Will should give instructions about how to deal with that asset, and what to give the other children in the family who are not receiving that asset.

Most Wills allow the executor to use his or her discretion in allocating individual assets to individual beneficiaries. This is where the powers given to the executor in the Will become important. The Will should allow the executor to decide whether some assets are to be sold and others are to be given to someone as they are. It should allow an executor to roll some registered assets over to a spouse or disabled child. Where there is a gift to a charity, the Will should allow the executor to choose to donate capital shares rather than cash, if that is to the advantage of the estate.

It is possible for a beneficiary to receive his or her parents' house as part of his or her share of the estate, assuming there are no contrary instructions in the Will. For example, an estate worth $800,000 might be divided between the deceased's two children, so that each of them is to receive $400,000. If the deceased had a house worth $300,000, then one beneficiary could receive the house plus $100,000 while the other beneficiary would receive $400,000 in cash.

If, on the other hand, the whole estate is worth $500,000 and the house is worth $300,000, the house is worth more than one beneficiary's entire share. He or she can't inherit the house without making up the difference between the share and the value of the house.

Before deciding to transfer a house to a beneficiary, consider whether there are any tax consequences. If the house in question was the deceased's principal residence, there is no capital gains tax arising on the transfer of the house, but if it is a cottage or revenue property, there will be tax. If the tax is paid out of the residue, as it normally would be, this could mean that the beneficiary who is not receiving the house is paying some or all of the tax on it.

Also consider the contents of the house, as well as any sheds, garages, shops etc on the property. The contents may well be distributed separately in the Will, so the beneficiary should not assume that the contents are included.

What happens if the gift to a beneficiary no longer exists?

When a testator leaves a gift to a specific person in his Will, but that gift is no longer owned by the testator when he or she dies, what is the executor of the Will supposed to do about that gift? This is known as "ademption".

The answer to this question is surprisingly complex. One factor to be considered is why the testator does not own the asset. Has he or she disposed of it? Was it destroyed? Does it still exist but has changed so that it no longer fits the description in the Will? Did the testator make a mistake and name something he or she didn't own in the first place?

Another factor to consider is whether the beneficiary in question gets something else to replace it. This is based partly on the question of why the testator no longer owns the asset, and partly on whether the Will says anything about replacing an adeemed gift.

The general rule when talking about something small, say a set of tools or a piece of jewelry, is that if the item cannot be located, the beneficiary doesn't get anything to replace the gift. Make sure you read the Will carefully though, because it may direct something else.

What if the asset in question is much bigger and more valuable? At this point, the question is probably going to have to be answered by a judge. It doesn't mean there are two sides who are fighting over the answer; it just means that everyone acknowledges that there are specialized legal concepts in play that an executor can't deal with, so a judge is being asked for assistance.

One question that will be raised is whether the gift is a general gift or a specific gift. A specific gift is something like "pay my son $1,000 from account number 12345 at the Bank of Montreal". A general gift would be something like "pay my son $1,000 from my accounts at Bank of Montreal". If account number 12345 is no longer in existence, with the specific gift the son is out of luck and will get nothing. A specific gift will adeem if it doesn't exist in the form the Will mentions. With the general gift, he could still get his gift, because the general gift will not adeem. The exact wording of the Will is important.

Let's say a testator leaves her daughter her house at 10 Apple Street. When the testator dies, she no longer has a house at 10 Apple Street because she sold it and bought a new house at 11 Peach Street. In my opinion, the gift of 10 Apple Street would adeem. However, if the gift to the daughter was "whatever residence I own", the gift would not adeem and the daughter would inherit the house on Peach Street.

The question can get even more complicated. What if the testator left her daughter the house at 10 Apple Street, but the house had burned down, and the testator had put the insurance proceeds in the bank? Could the beneficiary get the insurance proceeds instead? Would it make a difference if the house burned down before the testator died or after she died?

A mistake that happens often that will result in ademption of a gift is a person giving away something in the Will that actually belongs to his or her corporation and not to him or her personally. An individual cannot give away property that is owned by a corporation, even if that individual owns the entire corporation.

The cases I've looked at are very fact-specific so it can be hard to generalize about what would happen in any given estate. One thing that is changing though is that the courts are focusing more on trying to come up with a result that fits the intentions of the testator. This means the courts will look for ways to save an adeemed gift if they can.