8 estate planning lessons from "Downton Abbey"

Downton Abbey is a huge hit, and I'm one of its most devoted fans. As an estate-planning lawyer, I've always secretly loved the fact that the main story line for this show derives from a derailed estate plan. So far, the fall-out from Lord Grantham's failed estate plan has taken up three seasons!

I was pleasantly surprised to find an article today talking about the estate planning lessons we can learn from this wonderful show. Hopefully the lessons to be gleaned from it will help the rest of us wind up our own estates in less than three seasons.  Click here to read the article from www.lifehealthpro.com .

Photo credit: AP Photo/PBS, Carnival Film and Television Limited 2012 for MASTERPIECE, Nick Briggs.

Passing on the family cottage - Part 1

This article is part 1 of 2 about the challenges of leaving your family's vacation cottage to the next generation. The author, Elaine Blades, does a great job of capturing the thought process (or lack thereof) of many people who are in this position. Click here to read the article. I'll be sure to post part 2 when it appears.

Options for seniors diminish along with capacity

When anyone signs estate-planning documents such as wills and Powers of Attorney, the law says that the person must have the mental capacity to understand the consequences of signing the document.

An individual with full capacity can choose to sign - or not sign - any document. He has has full control over where his assets will go by signing the will that addresses his wishes. He is free to deal with his own money and property without interference by anyone else. He chooses who will look after his estate as executor, and who will act for him if need be under a Power of Attorney.

Unfortunately many seniors experience diminishing capacity. For most, it's a gradual process. As the loss of capacity progresses, legal options disappear, one by one. One of the first problems might be an inability to deal with money. This may manifest as anything from difficulty shopping for groceries to falling victim to a scam artist. The option to deal with his money as he sees fit gradually disappears, and the senior must have help. With any luck, he can still sign a Power of Attorney with the option of springing it into action when he needs it. In the meantime, he can rely on special bank accounts and informal help from family members.

As capacity continues to diminish, the need to have the Power of Attorney activated increases until eventually the senior must relinquish some or all of his control to the person he named as representative.

If the senior didn't act soon enough, there might not be a Power of Attorney in place. Once capacity declines, the option to prepare that document is gone. If the senior needs help with money, it's possible that a trustee might be appointed by the courts. Not only has the senior lost the option to prepare the document, but he has also lost control of the decision of who is to be his representative and what powers that representative will have. The process is imposed on the senior even if he doesn't want it. For some people, this means that all financial decisions are taken away.

The problem experienced by the senior might not have to do with money. It could well be a diminishing ability to live alone and complete daily tasks like cooking, shopping or getting around town independently.

With full mental capacity, living options are restricted only by finances. As abilities diminish, the senior must seek out help, which could be, for example, a housecleaner once a week, a nurse who comes to the house to help with shots or medications, or someone to drive the senior to appointments. At this point, the senior still has the option of signing a representation agreement or other supported decision-making document that appoints someone to help the senior with personal matters.

If capacity continues to diminish, the senior might have to rely on a Personal Directive (aka Advance Directive, Health Care Directive) that gives the chosen person full control over certain personal matters such as where the senior lives and which doctor he sees.

If the senior hasn't prepared a Personal Directive and has lost capacity, it could be that someone will have to apply to the courts to become the senior's legal guardian. At that point, the senior has lost all control over decisions.

While an individual has mental capacity, he or she can decide who is to be the executor of his or her will and who is to inherit. All options are open. If the senior didn't make a will while that option existed and dies without a will, the government decides who is in charge and who is going to inherit the estate.

The key to successful planning is to start early enough, while you're still mentally healthy and all your options are still open.

Ten common estate-planning mistakes

This article from Lancasteronline.com is excellent, realistic and definitely worth reading. It's quite possible that you'll recognize yourself or someone you know in this article. Click here to read it.

May is national Leave a Legacy month

Click on http://www.leavealegacy.ca/ to find out how you can leave a legacy, or click here to see a list of upcoming Leave a Legacy events in Alberta, Ontario and Saskatchewan.

Finding the right wills lawyer for you

I've suggested many times on this blog that the lawyer who helps you draw up your will should be a specialist in wills and estates. I know though, that to most people a lawyer is a lawyer is a lawyer. Most people don't realize that lawyers specialize just as doctors do.

I also know that there are lawyers out there who will make wills for people from time to time, but who really shouldn't because they don't know the area of law well enough to do a good job for the client. I'm sorry to say anything negative about other members of my own profession, but I've seen the documents myself.

So as a consumer, how do you protect yourself by finding the right person for the job?

A good way to find a wills lawyer is to ask someone you know who has just had their own wills done. There is no point asking someone for the name of the lawyer who did their divorce, incorporated their company or defended their kid's drunk driving charges. They might think the lawyer is a great guy or a nice person but that's not the question you need answered, is it?

Another good way is to keep an eye out for local lawyers who give seminars about wills, or whose articles appear in a newspaper or magazine. I've had dozens of people tell me that they called me because they liked how I sounded in the seminar. It takes a bit of the intimidation out of the process if you've already met the lawyer.

The Canadian Bar Association in almost every province and territory in Canada maintains a lawyer referral list and can help find someone in your area.

Assuming you have someone in mind, what should you ask the lawyer before hiring him or her? I don't suggest that you ask "do you make wills?" A much MUCH better idea is to ask "what kind of law do you do?" If the first or second thing on the list is wills, you're probably ok. You could also ask "how much of your practice is wills and estates?" The idea is not to get stuck with the person who does only one or two wills a year and has no real expertise.

Not everyone lives in a big city with a smorgasbord of lawyers available. If you live in a smaller centre and are not comfortable with having your local lawyer handle the matter for any reason, try to find someone in a nearby city. With electronic communication these days, it's possible that you may only have to make one trip to see the lawyer.

One other thing I'd like to add is that if you don't think the advice your lawyer gives you, consider getting a second opinion, just as you would with a medical question.

Alberta's new Wills and Succession Act - part 1

There are big changes coming to wills and estates law in Alberta. Our new Wills and Succession Act (WSA)is expected to take effect in January 2012. Over the next few weeks I'll write a series of blog posts to let you know what's coming. When you read the posts, think about whether the changes could affect you, and perhaps talk to your wills lawyer to find out for sure.

The first change that I'll tell you about has to do with a spouse having possession of a deceased person's home. In Alberta we have the Dower Act, which talks about the situation where a man and woman are legally married and the house is only in the name of one of them. If the one who owns the house dies, the other spouse has a right to live in the house for the rest of his or her life. That hasn't changed. But what about common law couples? The Dower Act doesn't apply to them.

The new WSA talks about that, which is completely new to Alberta law. It says that the spouse can stay in the house for at least 90 days after the death of the spouse who owned the house. The situation must be that:
- the deceased spouse is the one who owned the house
- it can be a house, condo, apartment, mobile home, etc
- the couple must have been Adult Interdependent Partners (Alberta's equivalent of common law spouses, and usually means they must have lived together for at least 3 years)
- the couple must have lived in the home as their family home

This isn't likely to be a problem if the deceased spouse made a will and left the house to his or her surviving spouse. But it's important if there isn't a will.

It's also important if the spouse who owned the house was in a second marriage. Often, in second marriages the spouse wants to leave his or her estate (including the house) to the children of the first marriage. If there was no right to stay in the house for a period of time, which until the new law comes into force is the case, then the surviving spouse has to pack up and get out ASAP so that the children can inherit.

Having observed first hand through my work how cold the children of a first marriage can be towards a step-parent, I'm in favour of this change. It will give a least a short breather for the surviving spouse to make plans to live elsewhere.

Estate planning for all ages and stages of life

Not long ago the Globe and Mail published a series of articles I wrote for them. The four articles in the series covered the issues and hot buttons for estate planning for people of different ages and stages of life. The articles were originally published one per week. Some people have told me they didn't see all of the articles, so I'm putting up links to them - in order - below:

Really? A will in your 20s and 30s?

Update your will in your 40s and 50s

Hey seniors, time to review your will

Controlling finances in your 80s and 90s

Enjoy!

How to minimize the tax hit when you face the final curtain

Everyone wants to know how to save taxes, don't they? This is especially true of those doing their estate planning - every discussion of wills and estate planning must include a discussion of taxation. This article from the Globe and Mail has several tips for reducing your final tax bill. Not every tip will suit every person, of course, but click here to read the article and perhaps pick up some new tax-saving ideas. Both the article and the attached photo are from theglobeandmail.com.

Why use a spousal trust in estate planning?

A trust exists whenever one person (the trustee) is holding money or property on behalf of another person (the beneficiary). A spousal trust generally means that some or all of an estate is being held in trust for the use of the spouse of the deceased person. A spousal trust is usually for the entire lifetime of a spouse, but the length of the trust may vary depending on what the trust is intended to achieve.

When property or funds are held in a trust, the beneficiary doesn't own the assets, but only has use of them. For example, if there is a house in the trust, the beneficiary can live in the house but cannot sell it. When money is held in trust, the beneficiary usually receives the amount that is described in the trust, but not the full capital of the fund. Trusts are very flexible instruments, and many of the details can be tailored to the situation at hand.

There are a number of reasons that spousal trusts are used in estate planning.

Spousal trust are often used in blended family situations where the individual making a will wants to pass his or her estate to their children of a previous marriage. A woman in a second marriage might leave her home in a trust for her spouse so that he can continue to reside there if he outlives her, but he can't sell the property. The terms of the trust would say that when the spouse passes away or can no longer live in the house, it will become the property of the woman's children.

I've also seen a spousal trust used where the will was made fairly late in the testator's life, at a time when the spouse was already beginning to lose capacity. The testator was worried that someone might take financial advantage of the surviving spouse if she were left to manage a large sum of money. As a result, the funds were put into a trust instead in order to protect the spouse.

Spousal trusts can also be used to protect some assets from capital gains tax. For example, if a husband and wife own shares in their privately-owned company, and the wife passes away, her shares are subject to capital gains tax. However, the shares can be rolled over to a spousal trust so that taxes aren't payable and the business can carry on without a financial hit.

And along the tax-savings line, a spousal trust can be used where the surviving spouse already has significant income and giving him or her the estate would result in extra tax being levied. A trust is a separate tax payer and can pay tax each year on the income earned on its assets. In a case like this, you might even see the spouse named as the trustee or one of the trustees for his or her own trust.

If you are considering setting up a spousal trust in your own will, make sure you talk out the pros and cons of the idea with your estate planning lawyer. If you are considering using a trust for either of the tax reasons mentioned here, talk to your accountant before you go ahead. One sentence seen here is sufficient to point out the possiblity, but you need one-on-one advice before you take any steps.

Selecting a guardian in the modern family

This post from Texas Wills and Trusts Online is fun to read, and even has a funny video to watch, but it also illustrates a very important point. The author of the blog, Rania Combs, states that many parents put off making a will because they can't decide who to appoint as guardian. This is so very true.

I recently did some estate planning with a couple who disagreed so deeply on who was to be appointed as guardian for the kids that they ended up not making a will at all until their youngest child turned 18. As they said to me, the disagreements were so bad that they had to make a choice to protect their marriage rather than make a will. Now that's an extreme case, I know.  But the inability to decide on a guardian does deter too many people from putting these important documents in place. My clients were extremely lucky that nothing happened to them while the children were younger.

Click here to read Ms. Combs' article.

Can I leave my estate to whoever I want to?

Don't you wish legal questions had simple answers? A straightforward "yes" or "no"? Well, this one doesn't have a simple answer.

Theoretically, a person making a will does have the freedom to leave his or her estate to any person or charity that seems appropriate. But there are restrictions.

The restrictions may have some variations from place to place, but one constant across Canada is that everyone must adequately provide for the following dependants in his or her will:
-  their spouse (legal or common-law)
-  their minor children (legitimate or not)
-  their adult children who are prevented from earning a living by a mental or physical handicap

When I say that a person must provide for these individuals in his or her will, I mean that should the person fail to do so, anyone on that list (spouse, minors, disabled adults) automatically has the right to contest the will to get a larger share of the estate or even the whole estate. These cases really do happen on a regular basis, and I've handled many of them myself.

You'll notice that adult children who are not disabled are not on the list. Contrary to what many people think, you are not required by law to leave your estate to your adult children. If you choose not to, you should be aware that you will be going against popular tradition and will probably disappoint your kids. This doesn't mean that you can't do it; it just means you have to take extra care to have a will properly drafted, your capacity documented, and your lawyer's file stuffed full of noted about why you made this decision.

Laws dealing with wills and estates are provincial (except for taxation) so there are some differences between the provinces. For example, I note that there are several recent cases from BC in which the estate distribution set out in the will was successfully contested. In my opinion, those same cases would not have succeeded in say, Alberta, because the law that allowed the change in BC doesn't exist in Alberta. Obviously these laws will allow or prevent you from leaving your estate to whoever you want to.

All of this discussion pre-supposes that when you make your will, you have mental capacity to do so and are acting freely with no coercion by anyone. If your mental capacity has deteriorated to the point where you are making unreasonable decisions, the law says that you can't make a new will, in effect binding you to the will you made before you lost capacity. For example, if you suddenly decided to make a new will leaving your life savings to a new friend you just met three weeks ago instead of your children, you should assume that someone isn't going to like that and is prepared to contest the will.

A lack of faith in the next generation

Today's Globe and Mail has an excellent article about the concerns of parents handing down an inheritance to children. I agree with the basic premise shown in the title of the article, that parents are worried about how their children will handle receiving money. It's certainly something I hear constantly in my work. To read the article, click here.

Recipe for a nightmare: take one cottage and leave it equally among all your children

Not long ago I was giving a seminar about estate planning, and I told the group that it was not a great idea for the parents to leave their cottage to all of their children. As I talked about the reasons for my statement, a woman in the audience was nodding enthusiastically, so I asked her if she had some experience in this situation.

She replied that her father had left the cottage to her siblings and herself, and it had been "a nightmare". She said that all wanted to sell it except for one, and the one who didn't want to sell it had moved in and wouldn't budge, so that nobody else could use it.

This was a perfect illustration for the rest of the audience on exactly what can and does happen. Adult children aren't saints. Sometimes they get greedy or stubborn or carry on a childhood rivalry with a sibling. Sometimes they are financially strapped and make weak decisions because of that. It does happen, even in families where people usually get along. Parents who choose to ignore the facts may go blissfully on without realizing there is a problem, but the children are likely to pay the price after the parent passes away.

A parent owning a cottage has options other than leaving the title to the property to all of the children and letting them fight it out. Some of them are:

1. Direct that the cottage be sold with the money split equally among the children.

2.  Include an option for one child to buy the cottage within a set time after the parent's death (say, 60 days). The child can use his or her inheritance to help pay for it. If the child doesn't exercise the option within the time period, another child then gets the option to buy the cottage.

3.  Talk to the children to find out who is most interested in the cottage and leave the cottage to that child. The child would take the cottage as part of his or her equal share in the parent's estate.

If you are dealing with a cottage, make sure that you talk through the logistics of the above ideas - or others - with your estate planning lawyer. Keep in mind that your cottage is unlikely to be your principal residence, so it is subject to capital gains tax. If you leave the cottage to one child or give an option to purchase to one child, be mindful that the capital gains tax is payable by the estate, which will reduce the amount of money in the estate for the other children. Some cottage owners carry life insurance policies to pay those taxes.

The bottom line?  Be realistic and talk through ideas to see if they are really workable.

Why making a will is sound personal finance

I'm going to post a link to an article from the San Francisco Chronicle that talks about why making a will is important. But I have to qualify this post by saying that I don't agree with some of the statements made by the article. For example, I heartily disagree that "people without children need [wills] more than people without children do". Totally disagree! In my view, nobody needs a will more than a parent.

I also disagree that when making a will, you should "make sure the executor is not a beneficiary". The author presents this as a conflict of interest, but again, I disagree, and he doesn't give any examples or explanations of why this is a conflict. Often the beneficiary is the absolute best person to be the executor, such as when a person leaves his or her estate to their spouse and also makes the spouse the executor.

Finally, I disagree that the best way to make sure there are no conflicts of interest is to hire a lawyer to be the executor. Either this writer doesn't know about trust companies, or lives where there are no trust companies, or lawyers do quite a different job there than they do here. Most lawyers that I've talked to are reluctant to act as executors of estates and will only do it when there are no other options. They don't want the headaches.

So why am I including the post on my blog when I don't agree with parts of it? Because it's all information for you, the readers. Because I don't assume I'm right about everything all the time. Because a differing opinion might just get you thinking about what works and what doesn't. And I do agree that a will is necessary, even if I don't agree with this author's take on how it should be done.

Click here to read the post.

Failure to plan for incapacity may lead to more intrusive help later

Nobody really wants to envision their future selves as incapacitated to the point of not being able to manage their own money and health care. Unfortunately, refusing to think about it doesn't prevent it. We don't know in advance whether will we suffer from an injury or health issue that will cause a loss of mental capacity, but it's essential that we have a plan in place to deal with it if it happens.

The usual documents put into place to deal with future incapacity are an Enduring (or Continuing or Durable, depending on where you live) Power of Attorney and a Personal Directive (or Health Care Directive, Advance Directive or Health Care Proxy). When you put these documents into place, you choose who will represent you when you lose capacity. You can set guidelines and limits on what they can do. You can express your wishes about how you want to live.

Having these documents in place greatly decreases the chance that anyone will have to apply to the courts to be appointed as a guardian or trustee (or committee) for you. Instead of having a court-appointed person who has absolute control over every aspect of your health care with no input from you, you can name someone you trust and give them some guidelines.

Instead of having a court-appointed trustee who is not of your choosing and who can sell or re-arrange your financial matters as he or she thinks best, you can give some instructions on what to do with specific assets or business matters. You can build in terms that allow other family members to be informed of what is happening or build in added accountability for your representative. You can retain more dignity and independence.

The bottom line is that with these documents in place, you retain some choice and control. Without them, other people might one day have to choose for you, and impose their wishes and ideas on you whether you like it or not.

Financially, setting up documents in advance is better too. Each of the documents here will only cost a couple of hundred dollars. Applying to the courts to become a trustee, with all of the paperwork and time involved, is much more expensive (and that comes out of your pocket, not the pocket of the person who is applying).

Planning for incapacity is just as important as planning for your eventual death. Make an Enduring Power of Attorney and Personal Directive a part of your estate planning.

What you need to know about your aging parents' legal, financial & health matters

As our parents age, we anticipate that we'll be called upon at some time to help them in various ways. Most adult children are willing to help but are nervous about trying to deal with any kind of family crisis without knowing where to start. This is why I advocate family discussions between elderly parents and their children while the parents are still healthy.

There is information you should have now about your aging parents so that you can help in the future. The information can be divided into legal, financial and health-care, as I've set out below. Always remember though, that the sharing of information must be voluntary; you don't have a right to know your parents' personal matters.

What you should know about your parents' legal matters:

• Do they have Wills, Powers of Attorney and Health Care Directives in place, and if so, where they are stored? (Note that you shouldn't be asking to read the documents; you just want to know where to find them when necessary)
• Who has been named to act under the legal documents?
• Whose name is on the title to the house, cottage or rental property, and are they joint owners with a right of survivorship or tenants-in-common?
• Which lawyer do they use?
• What other legal situations are they involved in, e.g. have they set up trusts? Are they named as anyone's executor? Did they completely wind up the corporation that once held the family business? Are they involved in any lawsuits? Are they guarantors for anyone?
• What current arrangements have been made for a handicapped adult child, and what are their wishes and plans for that child's future?

What you should know about your parents' finances:

• Where do they bank and invest?
• Which financial planner and accountant do they use?
• Do they have life insurance, long term care insurance, critical illness insurance or disability insurance?
• If so, where are the policies kept?
• Who is the beneficiary of the life insurance policy?
• Have they set up RESPs for the grandchildren?
• Are they entitled to receive any private pensions?
• Do they have RRSPs or RRIFs, and if so, who have they named as beneficiary?
• Are loans that the parents made to the kids meant to be repaid?
• Do they own assets in any other countries?
• Can they afford to live where they are, or do they need help in forming new plans?

What you should know about your parents' health care and personal care:

• Are there any immediate health concerns?
• Does their mental capacity still seem to be intact?
• Who are their doctors, pharmacists, and specialists?
• Who are their current live-in caregivers?
• What services do they use, such as housekeepers, Meals on Wheels, driving services, etc?
• Who has been appointed as their spokesperson under a Health Care Directive?
• Do they have any preferences or instructions about how or where they might live if they should lose mental capacity? (e.g. have they expressed a preference to live with one of the kids?)
• What are their wishes for disposal of their remains after they've passed away?

What you are told by your parents could be detailed or it could be sparse. I've seen parents produce every possible fact about themselves right down to the serial number on their Starbucks gift card. And then there are others who prefer to keep their kids on a "need-to-know" basis. In my book "Estate Planning Through Family Meetings (Without Breaking up the Family)", I devoted a full chapter to this topic. In it you'll find more information and ideas, and a checklist you can use.

6 things to have on your first visit with your estate planning attorney

I found this article on an American blog called Crider Law, but as you will see, estate planning meetings are essentially the same on both sides of the border (except for the fact that the Americans call lawyers "attorneys"). Click here to read the article. Something that I'd add to the list of what to have on hand is a list of addresses and birthdates for your children, grandchildren or anyone else who you plan to name as a beneficiary.

Estate planning evening with Avideh Musgrave and Jim Yih

Anyone in the Edmonton area who would like to attend an estate-planning evening with lawyer Avideh Musgrave and and financial expert Jim Yih on April 7, check out this link for more info. I'm not associated with the event, but I know Avideh to be a top notch wills and estates lawyer so I'm confident in recommending her to you.

What does it mean that a "will speaks from death"?

The laws of individual provinces and territories in Canada state that "a will speaks from death". This is an important operational concept that has an impact on what is covered by your will and what is not. The concept means that regarding your property (real and personal), your will is treated as if it were made immediately before you die.

For example, you might have made a will in 1995 leaving everything to your spouse. At that time, not owning a crystal ball, you would not have known exactly what you would own when you pass away, but you made a will that refers to "all my property". Does this mean "all your property" that you owned when you made the will, or "all your property" that you own when you die?

In 1999, you bought a house.  In 2002 you began an investment portfolio. If you should pass away in 2011, your will is not restricted to assets you owned in 1995 when the will was made. On the contrary - it includes the house and portfolio you obtained after you made the will because the will is treated as if you made it right before you died.

The "speaking from death" concept is a method of ensuring that all property, regardless of when it was obtained relative to the will, is dealt with by the will.