Estate Freeze: Don't Get Caught Out in the Cold if You're Doing One

The latest issue of Succession Planning Magazine is out, and the cover story - as the title above suggests - is about estate freezes. Those of you who own a company may be familiar with this concept, which transfers ownership and future tax growth to your successors. It's a tool to be considered when you set up your business succession plan. The story explains how they work, and gives some ideas about what needs to be done to ensure things work out as planned. I was interviewed for the story, as were several other practitioners. Click here to read it.

Whose life insurance is it anyway?

Sometimes a couple separates and one spouse must pay child support to the other. They usually put the arrangement into a Separation Agreement so that the terms are clear. On occasion, the spouse who is paying the support agrees (or is required by the court) to buy a life insurance policy, the intent of which is to ensure that if the paying spouse dies, there is enough money to pay out the remainder of the child support.

This arrangement isn't as common as it once was, but it's definitely still out there. A policy like that usually names the ex-spouse, the one receiving the payments, as the beneficiary of the policy.

Recently I read an article posted on Estates and Elder Law in Canada, a blog written by lawyer Chris Staples, that addresses an arrangement like this. The article was about the recent BC case of Milne Estate v. Milne. In that case, a man had a separation agreement just like the one I described above. However, he changed the beneficiary of the policy to name his new common law wife. When he died, he still owed child support.

The question that the court had to decide was who should receive the life insurance money. Should it be the common  law wife, who was named on the policy? Should it be the ex-wife, according to the separation agreement? Life insurance policies are normally outside of an estate, so should it affect the policy if his estate owed child support?

The court examined two basic concepts. One was constructive trust, a "fairness" rule under which the courts can order changes where there has been fraud, unjust enrichment, or a breach of the duty of loyalty. The court said that in this case, constructive trust did not apply because once the requirement to hold the life insurance policy is put in a written agreement, it's no longer about fairness, but about contracts. That would mean the common law wife could keep the insurance proceeds.

The court went on to look at the case through the second basic concept, contract law. This applied because the separation agreement is a contract. The court said that the estate had to honour the contract signed by the deceased. This raised a new question - did the estate have to pay the whole insurance policy to the ex-wife, or just the amount of unpaid child support?

The court determined that to answer the last question, it had to look at the specific wording of the separation agreement (meaning that different wording used in a different agreement could have led to a different result). If the separation agreement had specifically said that the policy was only in place to provide security for the child support obligation, the ex-wife should only receive the amount of unpaid support. However, the agreement did not clearly say that; it only said that the husband was to maintain the policy. That meant that the ex-wife was to receive all of the policy proceeds.

 Click here to read Mr. Staples' article, which contains more detail than I have included in this summary.

This was an interesting result, since the court seems to be saying that two different beneficiaries should receive the proceeds of the policy. Possibly there will be more court proceedings to straighten out who is to get what.

This case illustrates one extremely important point: make sure every element of your estate works together. This means your will, powers of attorney, life insurance, beneficiary designations, joint property, and divorce/separation paperwork. Each item might be just fine standing alone, but if they don't work with each other, your estate will be spent on lawsuits to figure out the things  you should have figured out while you had the chance.

Inheritance tension: why more families may be headed for court

CBC News is carrying an excellent article about inheritance and resulting disputes. I wish I could say it was all doom and gloom, but after 30 years in the industry I have to say that disputes and struggles are the norm, not the exception. The article explains why BC has more estate litigation than other provinces.  Click here to read the article.

Beneficiary and executor at a stalemate over signing of Release

I often receive questions about the release forms that are to be signed by beneficiaries. Here is one from a reader that I've heard more than once, that should be of interest to many of you.

"Is there a standard release form ? I have obtained one from my Estate lawyer and one of the beneficiaries will not sign - as the form states "Received" and her take is that she has not received the funds, so her lawyer has changed it to "to be received" and added in codicil items. I don't want to accept it with those changes, as it is not a clear release for me, as executor."

There is no standard release form for everyone. In each province and territory, there is a form of release included in the Rules of Court, and this form is supposed to be followed in order for the document to be suitable for filing in the court. However, it is well-accepted law and practice that all legal documents must be tailored to the individual situation. Lawyers are expected to make the documents fit the case, not the other way around.

The situation you're describing is one that I've encountered before. The beneficiary won't sign a document saying they've received something they haven't received, because they don't trust the executor to deliver the funds. The executor doesn't want to sign something saying that the funds are to be delivered because then there is nothing showing that the funds have been paid, and he doesn't trust the beneficiaries not to sue for the supposedly non-received money.

It's a stalemate if nobody is willing to take a leap of faith.

Parents who appoint one of the kids as executor should think about the dynamics between their children, because this lack of trust in each other manifests frequently between siblings.

The only way to protect everybody in this situation is for you to show up with a) the release that says the funds have been paid, and b) the cheque for the beneficiary. There is a simultaneous exchange. If you have to charge travel expenses or the estate lawyer charges additional legal fees to make this happen, it comes out of the general estate and all beneficiaries receive a little bit less.

It's "Make a Will Month"

Do you have a valid, up-to-date will? If not, why not? The Ontario Bar Association has designated November as "Make a Will" month to encourage people to look into getting wills put into place.

Advocatedaily.com has an article that talks about why people don't make wills, and clearly explains the advantages of having a will that is properly planned and properly put together.  Click here to read the article.

What if a trustee of a trust won't pay a beneficiary?

What if the trustee of a trust refuses to pay the beneficiary? Most individuals would not know where to start, as trust law is pretty foreign to most people. A reader recently asked me about this. Below, I outline the steps a person might wish to take in order to address the situation.

"My daughter was left as a beneficiary on a trust fund. The executor will not pay my daughter. What can we do?"

I assume for the purposes of answering this question that you want your daughter to be paid in accordance with the terms of the trust, as opposed to being paid immediately and ignoring the trust. I'm also assuming from the word "left" that this was a trust set up by a will.

You need to start by gathering facts and information. Get a copy of the document or will that sets up the trust, and make sure you understand exactly what it means for your daughter. The first question to be answered is the amount of discretion the trustee has in deciding whether or not to make payments to the beneficiaries. This will be set out in the document. Most wills provide for "an absolute, unfettered discretion", meaning that the trustee can pay the beneficiaries or not, as he sees fit, and in any amounts he sees fit.

Also make sure that you understand the type of expense that is meant to be covered by the trust. For example, was the trust set up to pay for your daughter's education? Was it set up to cover basic living expenses? Medical emergencies? Some trusts are restricted so that payments may only be made for the purposes named, while others do not limit the type of expense that may be covered.

You do not mention whether your daughter is disabled. If she is, make sure that you understand how the trust will affect her in terms of her government benefits.

Determine whether payments to your daughter must come from the income of the trust only, or from the capital as well. This may make a difference in terms of what is available to be paid.

Find out by reading the trust whether there are conditions that need to be met before she may be paid. For example, does she have to reach a certain age? Perhaps all of the beneficiaries must reach a certain age before anyone is paid. Does the trust provide for an annual payment (which would mean waiting a year after the deceased's death)? It could also be that your daughter is a contingent beneficiary, meaning that she only receives a share of the trust if another beneficiary has passed away or has failed to meet a condition.

If you find that you simply cannot glean all of this information from the will by yourself, sit down with an experienced estate lawyer to read the will and talk about the trust. You simply have to understand the terms of the trust thoroughly before you go any further.

Assuming that you have established that your daughter is eligible to be paid, and the expenses she wants covered do fall within the intent of the trust, it's time to talk frankly with the trustee. If he is refusing to make payments, he must have a reason. Has the estate proceeded to the point that all debts are paid, a clearance certificate has been received, and the trust has been funded? If all of that hasn't happened, the trustee may simply not yet be ready to make payments, and rightly so. In that case, you must simply wait a little longer before funds are available to be paid out. Understand that this could easily be 18 months after the death of the deceased.

If funding the trust is not the issue, is there a procedural difficulty that may be addressed? For example, if your daughter is a  minor, she cannot receive money directly so perhaps the trustee is not sure how to proceed. Even if your daughter is not a minor, the trustee may want a written budget from your daughter. If it's a specific purpose trust (such as for education), he may want your daughter to produce receipts. Most trustees want some kind of paper trail.

If it turns out that your daughter meets all requirements and the trustee is withholding legitimate payments for no apparent reason - or simply refuses to discuss any of this with you - your daughter may take the trustee to court to compel payments. She will need a lawyer for that, and if she is a minor she will need a parent or the Public Trustee to speak for her. She should be prepared to cover the costs. If she is successful in court and the judge orders the trustee to make payments, the judge may also order the trustee to pay some of your daughter's legal bill (from the trustee's own money, not the trust funds), but that is not a given. Don't be too hasty to proceed to court, as your daughter could be penalized if the judge thinks this is a dispute that could have been settled without the courts.

Finally, is there any bad blood between the trustee and your daughter, or between the trustee and you? Is this all happening because of personality clashes? If so, and if it appears that your daughter is never going to get future payments without resorting to the courts for help, perhaps she should ask the court to appoint a different trustee. This could be a trust company, or the Office of the Public Trustee, depending on the amount of the trust, your daughter's age, and the terms of the trust.

California Dreaming - the right to visit an elderly parent

One of the issues that is raised again and again on this blog is the lack of communication between family members and those placed in various important roles. Often it's the role of executor that is at the centre of the dispute, but it could also be friction involving someone acting under a Power of Attorney, a trusteeship, or an adult guardianship.

How many times have angry, heartbroken siblings or children told me that they've been ignored or dismissed without any information about an estate, or even worse, an aging parent? How terrible it must feel to be barred from seeing an elderly, ill parent for the last few months of that parent's life.

The fact that the family members are turning to lawyers for help usually means that regular communication has broken down, people aren't willing to meet what others see as moral obligations, and generally nobody is cooperating with anybody. Now they are relying on the law to force other people to do what they feel is right. What a nightmare!

Would more laws help us? What if the laws were more specific, such as requiring someone (a spouse or guardian) to advise family members if a parent is admitted to the hospital?

Recently I read a very good blog post on this very issue. Click here to read it. It was written by Justin de Vries, who blogs at www.allaboutestates.ca. The article compares new, specific laws recently put into place in California with the Ontario Substitute Decisions Act. I found it very thought-provoking and I hope you will too.

You haven't heard from the executor 2 months post-death. Is it time to worry?

A reader wrote to me recently about his father's estate, in which he believes he is a beneficiary. He hasn't heard anything from the executor. Is it time to start worrying? His letter and my response are below.

"My father passed away in late September. His new wife of 8.5 years is executor and she likes to drag her feet. I have not seen the will, but from what I understand, from what my Dad told me, is that because of the mortgage insurance, LOC insurance, etc, all debt is paid off and my Dad's wife is to now take out a mortgage for half the house to give this money to me as an inheritance. What would be the steps? I have not received a copy of the will from his lawyer. I have not heard anything from her. Last I heard she signed all the papers at the bank for the insurance. What can I do? The lawyer does not get back with my emails? Does she have a time frame in which this needs to happen?"

There are a couple of issues to address here. First of all you should obtain a copy of the will so that you can determine whether your father did actually set things up the way he told you he did. He could have changed his mind, after all. There is no point doing anything else until you have the facts about where you stand.

There is always the possibility that you are no longer a beneficiary of the estate because your father changed his will. This seems unlikely, since your father seemed to have put a great deal of thought into his estate, and to have settled on a plan that looked after everyone. 

If you are a beneficiary under the will, the executor is bound by law to give you a copy. If she refuses to give you a copy, I hope her lawyer will advise her that you could apply to the court to try to force her to give you one.

Keep in mind that executors usually send beneficiaries a copy of the will at the time they apply for probate. This is usually around three months after the death of the deceased. This is because it takes time to make an inventory of the estate and to determine the value of all assets and debts. The information gets sent out in a package, including the will and inventory. This might be what the executor intends here. Obviously I don't know for sure that she intends this, but it certainly would be the norm. Requirements for notice to beneficiaries varies by province.

The lawyer isn't answering you because you aren't his client. He is bound by client confidentiality. He will only respond to you if he checks first with the executor, and the executor gives  him the go-ahead. Given that you and she don't appear to like each other, I wouldn't expect that level of cooperation. The responsibility for sending out a copy of the will is actually the executor's, not the lawyer's, so you would probably be best off asking her directly.

It sounds as if you don't communicate with her, as you say that you are relying on things that you've heard rather than talking directly with her. However, for the purposes of wrapping up your father's estate, you should put aside any harsh feelings for now and deal with her directly. Relying on second hand information is misleading and frustrating. In my opinion, she should have contacted you, if only to make sure that you had the facts about your father's passing, but she has no legal obligation to contact you immediately following his death.

In terms of a time frame, keep in mind that most estates take a year to wind up. Estates move slowly, partly because there is an incredible amount of paperwork to deal with, and partly because the executor must deal with so many agencies, registries, courts, and companies. As your father passed not even two months ago, it's much too early to worry about the executor dragging her feet. In fact, if she has actually been to the bank to deal with the insurance, at least you know that she is working on the estate.

The executor will have to apply for probate, then transfer the property into her name alone. She will then have to apply for the insurance payments (which you believe she has already done) and apply for the mortgage. Though you say in your note that "all debts are paid", remember that it doesn't happen automatically; she has to provide paperwork to insurance providers and wait for the money to arrive. None of that will move particularly quickly, through no fault of the executor, so I believe it's too early for you to panic.

The holidays might be the right time to help parents fill in a planning workbook

It seems so early to be hearing Christmas music in the stores and seeing Christmas movies on TV, but the preparation for the season is certainly gearing up. People are booking flights to spend time with family over the holidays, and mailing packages for nieces and nephews and grandkids to find under the tree.

If you have been looking for a chance to talk about estate planning with your parents, the holidays might just be the right time. Everyone is together so nobody has to make a special trip out for the discussion. There is usually some unallocated down time between family meals, church services, skating parties, and watching How the Grinch Stole Christmas. Family relationships are top of mind. This might be your best opportunity to raise a serious topic without making it appear alarming or concerning to your family members.

But how do you raise the topic of estate planning with your parents? Consider using my planning workbook called For My Family, With Love. You could give a copy to your parents while you're all gathered for a coffee or meal. It doesn't have to be a scary idea if you present it as something they can work on as a long-term project. If the idea seems overwhelming or they seem reluctant, you could offer to spend some time with them completing the workbook after the holidays when things slow down.

Having their legal and financial affairs in order is the greatest gift any parents can leave behind for their kids. It allows the kids to stay together as a family without legal disputes to drive them apart. In addition to a will, a parent can use this workbook to leave information that the kids will need to make sure that the loss of a loved one isn't any harder than it has to be.

What does an executor do when there are firearms in an estate?

What if you are the executor of an estate, and you find that the deceased owned guns? Are you allowed to handle them? Who can you give them to, and what if that person doesn't want them? This article on the RCMP webpage is a wealth of information for executors who have to deal with firearms. Click here to read it. Also, click here to read further information for executors from the RCMP about transporting firearms, prohibited firearms, eligible heirs, and more.

At what point is the executor required to show the will to family?

I received the following question from a reader who wanted to know about the executor's obligation to show the will to family members. The law is clear on who has a legal right to see a will, but in real life, it's not always easy to apply that rule. The question and my response are below:

"At what point is an executor required to show the will to family ? Are they obligated to show family members? My question is based on a friend who is an executor. They are still working out wording in will with estate lawyer as to who beneficiaries are. Will in question may not include a sibling as a beneficiary.  I've read that once probate is done people can apply to court to view it. And that executor does not have to show them until probate complete?"

As harsh as it may sound, the executor is not required by law to show a will to someone who may be a family member, but who is not a residuary beneficiary under the will. That seems a simple statement, but the application of it can cause incredible heartache to family members who don't understand why they've been left out, or even believe the executor when they are told they are left out.

It sounds as if right now, the family is anxious to get on with the estate. If there is a question about the wording of the will, hopefully it can be resolved by a bit of research on the part of the lawyer. If not, the problem with the wording may be referred to a judge for a ruling. I can certainly see why no copies of the will have been distributed. Each person looking at the will is going to apply his or her own judgment to how it affects them and each other, and this may well cause disputes and expectations that are doomed to disappointment.

Usually a beneficiary sees the will before probate is granted, but usually there aren't issues with the wording.

I  hope that if the sibling you  mention is not included under the will, he or she will at least receive a letter from the estate lawyer on behalf of the executor that confirms in writing that he or she is excluded. It's important that the sibling is treated well, even if the executor is not going to show him or her the will itself. The letter is also important because the disappointed sibling may want to go through the courts to force the executor to hand over a copy of the will. Though the executor is not required to show non-beneficiaries the will, the court can make an exception where the person in question may be able to sue to change the distribution under the will.

At this point, many people question why on earth the executor wouldn't show the sibling the will, just to be transparent about what's going on in the estate and answer the sibling's questions. And I should add that I find the majority of executors much too secretive for their own good. However, you  have to keep in mind that part of the executor's job is to maintain the privacy of the estate by keeping documents and information out of the hands of those who are not part of the estate. Sometimes, asking the excluded beneficiary to attend a family meeting in which the executor meets with the group of beneficiaries might be the kind and expedient thing to do, in order to head off a lawsuit.

It's a balancing act. What gets lost in the application of legal rules sometimes is that people are part of a family, and they have an emotional bond. Therefore, in my view executors have a moral obligation, if not a legal one, to treat family members respectfully and openly. An executor should weigh the risks of showing an excluded family member the will, and weigh privacy against expediency and family unity.