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What a difference a day makes

You may have noticed that in the will your lawyer drew up for you, it states that your spouse will inherit your estate if he or she survives you by 30 days. Some lawyers use 20 days or even 10 days, as the number of days is not set out by law. Have you ever wondered why that clause is included, or how it works?

A recent article in www.advocatedaily.com talks about a case in which this clause was included in a will, and the spouse died one month later. The court had to decide whether the spouse inherited the estate or not, as there would be a different set of beneficiaries depending on the outcome.

Click here to read the article by Paul Trudelle.

To understand why a clause like this is used in a will, consider a situation in which you and your spouse are involved in a car crash. Your spouse dies on the scene. You die three days later. Your spouse's estate passes to you, then three days later your estate passes to your beneficiaries. Without a survivorship clause, you could end up with two separate estates, two probates and two sets of costs because of that three-day gap.

The survivorship clause is intended to ensure that in a situation like this, your estate and your spouse's estate may be treated as if they were only one estate for the purposes of distribution.

Aging population needs legal expertise

While the following article from www.lawyersweekly.ca was actually written to be read by lawyers and other professionals in the estate planning field, I believe it makes good reading for clients too. It does a great job of explaining what we as lawyers are trying to achieve with our clients, and what clients expect from us. It also talks about some of the challenges that lawyers and executors will face, particularly with respect to after-death tax issues. I hope that those of you who are doing your own estate planning and thinking about who should be your executor will read this article and understand the kind of thing that executors face.  Click here to read the article by Lionel W. Newton and Barry S. Corbin, two leaders in this field in Canada.

Home-made estate plan claims another victim

Home-made estate planning claims yet another victim. In this case, a son who believes he is entitled to keep a GIC to which his mother had added him as a joint owner is not likely to receive the GIC he says his mother wanted him to have. Here is his question, followed by my answer.

"My mother put my name on her GIC approximately 1 year prior to her death, saying that the GIC, which is about 25% of her estate, would be for my own use. This was an extra thank you for the time and energy put forth by me (and my wife) over the last 12 years. I was my mother's care giver. Both my brother and I are Executors. He lives in the other side of the country and has for over 35 years. Due to him being an Executor and living so far away, he hired a lawyer to act on his behalf. This lawyer says I have no rights to the jointly held GIC and must turn it in.  I do know there is a law with regard to this scenario, but is it in pure stone? I understand there would be some times when this might be necessary, but when my mother jointed them with me, she had the knowledge that they would become mine should anything happen to her. Obviously neither of us knew about this law or other steps could have been taken to ensure the outcome of her actual wishes."

I can't even tell you how common this is. All over the country, parents are adding their children to their accounts, investments and real estate. And as those parents pass away, the children are being disappointed and pitted against each other to fight over the assets.

And to think that five minutes with an estate lawyer could have prevented the whole thing. If only people realized that taking steps that affect your children's legal rights without talking to a lawyer is simply a bad idea. The kick of it is that the parents generally don't even know they've left a mess behind for their kids to fight over.

The law in Canada says that when an asset is jointly owned between a parent and child (or other inter-generational arrangement such as grandparent and grandchild) and the money originally belonged to the older person, on the death of that older person the asset goes back to the estate.

If you are the parent in a situation like this and you want your child to receive the joint asset on your death, simply adding the child as a joint owner isn't going to be enough. You must also leave written instructions that the joint asset is actually intended to go to that child. The written instructions should be made around the same time you made the asset joint.

The son who wrote me this note might contact the banker who took the mother's instructions to put the asset in joint names. If the banker happened to ask the mother about her intentions, and happened to record them, that would go a long way to establishing what the mother intended for this GIC. Most banks don't keep paper files these days, but they all have customer management software that allows for  notes to be kept. You just might luck out.

If  you are a parent made the asset joint some time ago, you can still salvage the situation by  making a will that confirms that you want the joint asset to go to that child for his or her sole use. The son who wrote to me should double-check his mother's will to see if she says anything about the GIC in her will.

Once you pass away, it's too late for the child to do anything about it. It doesn't matter what the child says about the parent's intentions, even in cases like this one where there is a perfectly reasonable explanation for the child to receive extra funds.

I really feel badly for the thousands of people who have put themselves and their children in this situation. An estate planning lawyer could have given you some advice on how to record your intentions regarding the joint asset, and if it was already in joint names, could have advised you on how to set up your will to carry out your intentions.

A good reason to practice wills law, not criminal law

A good reason for me to practice wills law and not criminal law...

More on RESPs

RESPs are often misunderstood in terms of what happens when the owner of an RESP passes away. Let's say that Joe owns an RESP for his grand-daughter, Julia. Most people think that if Joe passes away, the money will go to Julia, or at least be held in trust for her. In most cases, they'd be wrong.

Unless the proper paperwork has been done specifically to deal with Joe's passing, the money in the RESP stays in Joe's estate and is distributed according to his will (or the laws of intestacy). The portion of the RESP that was received in the form of government matching funds will be returned to the government.

Most RESP owners tell me that this is not what they would like to see happen should they pass away before the child is old enough to use the RESP. I'm attaching an article from www.allaboutestates.ca that talks about the planning you should do if you own an RESP and you want it to carry on in the event of your death.

Click here to read the article. As a bonus, the article also suggests how an executor dealing with an estate might rescue an RESP from being collapsed back into the estate.

What can a lawyer charge to help you with an estate?

If you hire a lawyer to look after an estate, what will it cost? It may be more complicated and possibly more expensive than you realize. The following is a note I received from a reader who is dealing with that very issue.

"I'm looking for some advice regarding legal fees in relation to the administration of my late Aunt's estate in BC. The value of the estate was just over $207,000, with the highest proportion of this sum related to the sale of her apartment. She did not leave a will and therefore died intestate with all the benefactors (including me) residing outside of Canada. While I understand that completing the administration of her affairs in such circumstances presented a number of difficulties than would otherwise be the case, I consider the fees charged by the legal firm appointed to resolve matters, which amounted to $42,000 as grossly excessive. Can you advise me of the approved formula or mechanism for calculating fees relating to estate administration?"

 

There are a few factors in play here that need to be explored. First, it's important to understand what, exactly, is included in that $42,000. And as that amounts to about 20% of the estate, I can see why you're asking.

 

There is a difference between legal fees and estate administration fees. In your case, it appears that you've had the lawyer doing both. I'll talk about this more in a moment. In addition to fees, the bill for the estate likely also includes disbursements. This refers to anything that is paid out-of-pocket by the lawyer on behalf of the estate, such as probate fees, any of your aunt's unpaid bills, taxes, accountant's fees, funeral bill and so on. This money doesn't go to the lawyer; it comes out of the estate and is paid to a third party. Your aunt's estate was administered in BC, which is one of the most expensive jurisdictions in terms of probate fees.

 

The lawyer may also have charged for disbursements in his/her own office, such as for faxes or long distance charges. In any estate where the beneficiaries all live in another country, disbursements are going to be higher.

 

And of course there is tax on all of that. Canada has goods and services tax (GST) that is charged everywhere, and in all provinces but one has a provincial sales tax added to it (together they are the HST).

 

So once you separate out the disbursements and the taxes, all of which should be carefully itemized on the lawyer's statement of account, you can see how much was actually charged in fees.

 

Now here is the kicker. There is no "approved formula or mechanism for calculating fees for estate administration" here. And even if there was, you've asked the lawyer to do much more than a simple estate administration. I can give you a few guidelines though, that you can use to judge the bill you've received.

 

Normally a lawyer will charge about 1.5% of an estate simply to obtain the probate document, or as in your case, the Letters of Administration. The actual fee is not laid down in a law. Lawyers may charge more. Whoever actually hired the lawyer should have received a quote before the lawyer started work. Quotes from lawyers may include a "job" price for a piece of work such as obtaining probate, but they may not. Most lawyers will tell you their hourly rate up front even though it's impossible to tell at the beginning how many hours the work is going to take.

 

In addition to those fees, the lawyer may charge for doing the work that an executor would normally do. While an executor normally may receive up to 5% of an estate, and more if there are complications, an executor may hire experts (such as lawyers) at the expert's normal hourly rate.

 

In addition to that, the lawyer may charge additional legal fees for additional legal work. Specifically, the selling of an apartment is not considered part of the executor's fee because the executor would have hired a lawyer and paid him/her a fee to do it. You should expect a couple of thousand dollars in fees and several disbursements for this transaction alone.

 

I hope this information helps you to understand the lawyer's bill and understand what exactly the lawyer was paid to do. If you feel that the bill is still unreasonably high, you can take steps to have it changed. Believe it or not, you can ask the lawyer to adjust the bill voluntarily. If he/she won't do that, you have the option of going through a process called taxation of account. This involves the client and the lawyer meeting with an officer of the court whose job it is to decide whether lawyers' bills are fair. Whether this would work for you when none of you is local is another matter.

 

I can see why in this case your family hired a lawyer for help. None of you lives in Canada and someone had to deal with the estate. Hiring a lawyer is definitely a good way of getting things done properly, but it's not necessarily the cheapest. There probably isn't a lot you could have done to keep the bill lower. For example, you couldn't have cleaned out the apartment yourself or taken meetings at the bank.  Somebody who lives near to the deceased could have done a lot more to control costs.

 

Another option would have been to hire a trust company, who would have done the same work for a flat fee of less than 5% of the estate (plus disbursements and tax of course).

 

Anyone hiring a lawyer to help with an estate must have a frank discussion about fees, disbursements and taxes. Don't be afraid to ask what you can do to keep a lid on the costs. Get your estimate in writing before the lawyer starts working on the estate. Another good idea is to ask for a monthly statement of fees so that you can see what is happening at each step, and what each of those steps costs.

 

 

How to leave an inheritance to someone on ODSP

Regular readers of this blog know that I especially love finding articles by knowledgeable people that are readable and straightforward, because I can share them with you and know that you're getting some valuable information. I have found one such article - click here to read it - from Ottawa lawyer Donna Neff.

In this article, Ms. Neff gives some practical information about how to leave an inheritance to someone who is, or in the future likely will be, receiving Ontario provincial benefits due to a disability. The issue there is generally how to leave an inheritance without causing the beneficiary to be cut off from valuable provincial benefits. Obviously you would want to leave an inheritance to better someone's life, not to cause difficulties.

Although this article is specifically about Ontario, all provinces have similar benefits and family members across Canada wonder about leaving inheritances to children and grandchildren with disabilities without messing up their benefits. In all provinces but Alberta, the Henson trust discussed by Ms. Neff is an option to be considered.

I highly recommend this article to anyone who has a disabled beneficiary in his or her life.

The life and times of Hetty the Hoarder, the Witch of Wall Street

If you're in the mood for a fascinating story about inheritances, money and strange people (and who isn't interested in a story like that?) then you must read this article from www.mentalfloss.com about Hetty Green, the so-called Witch of Wall Street. Hetty's extrreme behaviour will no doubt make every reader shake his/her head in disbelief, but over the years I've met a handful of people who remind me a little bit of Hetty. They are people worth millions of dollars who live in a way we'd most likely associate with those who are homeless or at least penniless. Whatever conclusions you reach about Hetty and her children, this is a wonderful read. Click here. The attached photo accompanied the article in www.mentalfloss.com and is credited to wikimedia commons.

101-year-old woman battling for home over handwritten deed

I read the attached article from www.sbsun.com about 101-year-old Lois Risse, and all I could think was "what a mess". How sad that this woman has to undergo the stress of this legal battle and the surrounding circumstances, when it could easily have been prevented.

It appears that since Mrs. Risse's husband died 30 years ago, the people around her may well have been taking advantage of her. She has made mistakes herself as well. Click here to read the story. Shortly after her husband's death, she sold her home to a friend using a handwritten deed. There was a verbal agreement that the deed would not be recorded until Mrs. Risse passed away, and an assurance by the buyer, Mr. Neff, that Mrs. Risse could live in the home for as long as she wanted.

The story became more complicated, including a friend who moved in and kept Mrs. Risse isolated from her neighbours, persuaded Mrs. Risse to buy him a motorcycle and didn't leave until the sheriff's office forced him out. Then of course, there was the adding of Mr. Neff's name to Mrs. Risse's bank account shortly after her husband died. Eventually the court appointed a conservator for Mrs. Risse to protect her from the people in her life, and the conservator, not knowing about the sale deed, applied for a reverse mortgage for Mrs. Risse. At that point, Mr. Neff recorded the deed.

Now everyone is in court to sort out various legal issues. On my reading of the article, each step forward seems just to lead to more questions.

As I mentioned above, most of this heartache and financial loss could have been avoided. The following are some of the errors that led to this situation:

1.  Creation of a hand-written document with no legal advice. The house was Mrs. Risse's largest and most important asset, and now she has lost it. An asset of this importance is worth the cost of seeing a lawyer for an hour to make sure it's protected.
2.  Verbally agreeing to terms that vary a written agreement without documenting them in any way. Now it's one person's word against another, and one of those people is 101 years old.
3.  Not keeping a record of money supposedly paid under the agreement. Apparently neither Mrs. Risse nor Mr. Neff can produce receipts for payment, though he insists it has all been paid. Now Mrs. Risse's bank records are being examined by strangers to try to piece together what happened, and neighbours are pitted against each other with accusations of taking advantage of Mrs. Risse.
4.  Adding Mr. Neff's name to the bank account. I can't imagine what purpose that would serve for Mrs. Risse. Now it's almost impossible to figure out where money went and to verify Mrs. Risse's claims that her money was disappearing.

Unfortunately, many of the mistakes made here are made pretty often. People seem to think that insisting on legalities or formalities between friends or neighbours is insulting. This story is an example of what can happen even when you trust someone.

Do lawyers tell clients to make wills so that lawyers can make more money?

Do lawyers tell clients to make wills so that lawyers can make more money? A reader asked me that question, and my answer appears below.

"I was telling my friend that if you do not have a will it is going to cost you more money than if you have one. He said this is not true that the lawyers want to make more money. (Sorry, no offence meant with this comment.)"

No offence taken. Since you have asked me a blunt question, I'm going to give you a blunt answer.

If we lawyers wanted to make more money, we'd never help anyone do a will. The real money for us is in the litigation that is caused by inadequate, invalid or incorrect wills that people make for themselves. If all we cared about was making money, we'd be urging everyone to make their own wills so that we could reap the benefits once they passed away and their families fell to fighting over the mess.

Why would we bother making someone's will for a few hundred dollars, when we could let them make their own will, then make tens of thousands of dollars on the lawsuit?

Your friend is completely mistaken. I can pretty much guarantee that he's never actually talked to a lawyer and so has no real idea what an estate planner can do for him. One day a lawyer is going to make a nice fee when he or she handles the litigation that your friend is leaving to his family.

Yes, Virginia, you really do need a will or estate plan

The author of the attached article, Mary Anne Rees, talks about why many people need estate planning advice as opposed to do-it-yourself wills. She raises a very important point - that people believe their affairs are simple when they are not. I sometimes think that people are wilfully blind to the potential problems because they don't want to spend money on a lawyer, or because they suspect they are being tricked into believing simple things are complicated. Or perhaps they don't want to think about how awful it could really be for their families so they pretend everything is alright.

Click here to read Ms. Rees' article, which contains some common sense ideas about will kits as well as other estate planning matters.

In my opinion, will kit wills can be just fine, as long as they are used by the people for whom they are designed. Will kits are not meant to be used by people with blended families, or business owners, or those with insurance policies, rental properties or investments. If your estate contains only a bank account and you have an obviously good candidate to be your executor, you can probably use a will kit.

If you're using a will kit because you're too cheap to pay for legal advice even though you have assets or family members that could create issues, so be it, but your family will pay for this short-sightedness after you pass away.

The attached photo of Ms. Rees is credited to Jonathan Marrs and was found at www.bizjournals.com.

What do I do if an heir hunter wants me to sign a contract?

An heir hunter is a person who finds beneficiaries of an estate. As with any business, there's a mix of honest ones and self-interested ones. As this type of service is common in the US but less so here in Canada, I thought I'd post this article I saw today from www.heirsearch.com. It might just help someone who gets a call from a less-than-completely-honest member of the profession who presses them to sign a contract. Click here to read the article.

Zombies make bad gifts

Getting qualified, experience legal advice is worth the cost :)

Cartoon from www.dilbert.com.

Must an executor immediately cash in assets with a maturity date?

When a testator passes away leaving assets that have built-in maturity dates, how should those be dealt with? Must they be cashed in right away? This question was recently asked by a reader, and his question with my answer appear below.

"My father had some money invested in a GIC for one year. The expiry date is September 2013, but my father died February 2013. Can I wait for the expiry date in September to receive the GIC or do I have to dissolve it now since he has already passed away?"

You don't say in this question whether you are the executor of the estate or the beneficiary of the GIC, or possibly both, so let's talk about both of those situations.

Executors have some discretion as to when they cash in or sell assets of the estate. The discretion is there so that executors can carry out their responsibility of making the most of the estate by taking advantage of market conditions, tax losses, or whatever else is available. Each executor must consider each asset individually. In this case, if your father has the funds invested at a wonderful interest rate that you're pretty sure you won't be able to get yourself, you might want to keep it invested to take advantage of that rate.

Ideally, the executor and the beneficiary will have a conversation about the assets to give the executor an idea of what would work best for the beneficiary. However, the beneficiary also needs to realize that the executor may have more on the go than just one asset, and must consider the estate as a whole. For example, if the rest of the estate has been wound up except for this one asset, and the executor just wants to get the tax return done and finish things off, it might not make sense to delay all of that. Remember that as long as the GIC is in your father's name, tax receipts for interest earned will go to the estate.

There is no law that says every executor must cash in every GIC immediately. The executor should first look to the will to see whether there are any specific instructions or timelines to follow (usually there are none, but if there are, the executor must follow them). Usually executors are  under pressure from beneficiaries to get things done quickly and efficiently.

Normally when a GIC is invested for a set period of time, cashing it in before the expiry date will result in a penalty or loss of interest. However, the death of the owner of the GIC is an exception to that general rule. This means that the GIC could be cashed in early without any loss.

You asked whether you can wait for the expiry date to cash the GIC. As is always the case in legal situations, the question isn't whether you can do something; the real question is whether you should do it.

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.

The importance of leaving a will

In this article from www.estatedebate.com, Toronto lawyer Ian Hull says that many  people don't have wills either because they are making excuses why they haven't gotten around to it, or they are making false assumptions that they don't need one. Which are you? Click here to read the article.

Happy St. Patrick's Day

Slainte! Here in NL we are sometimes said to be more Irish than the Irish themselves. I don't know if that's true or not, but in the spirit of embracing the strong Irish influence in my home province, I'm sharing this lovely frosty shamrock with you.

Photo credit:
Frosty Shamrock #iloveirish - WorldIrish

Changes in laws affecting seniors over the last 50 years

My latest column in the Spring issue of News & Views, the magazine of the Alberta Retired Teachers' Association (ARTA) is now out. As this year marks the 50th anniversary of ARTA, I was asked to write about how legal issues for seniors have changed over the last 50 years. So in this article I cover planning for incapacity, powers of attorney, personal directives, grandparents' rights and changes to the Alberta Wills and Succession Act that may require grandparents raising grandchildren to support those grandchildren in their wills. Lots of changes to talk about! Click here and scroll down to page 8.

10 reasons families fight about senior care

I've come across this excellent article by Jeff Anderson on a blog called www.aplaceformom.com. As I read the article, I found myself thinking that Mr. Anderson certainly has some real-life experience with the families of seniors. Not surprisingly, one of the ten things mentioned in the article as being a source of strife is the parents' wills.

Best of all, in this article the author points out possible solutions for each of the ten issues. Click here to read the article.

If you want some ideas about what a family meeting can achieve, and how to hold a family meeting without fighting, check out my book called Estate Planning Through Family Meetings (Without Breaking up the Family).