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.

When parents open joint accounts with adult kids, others may pay the price

I'm always disappointed when I see that parents continue to put money into joint accounts with their children, when they don't intend for that child to own the money. It causes so many problems, lawsuits, delays, expense and family upset that it's simply a terrible idea.

The parents create these legally impossible situations for the children left behind. The children consult lawyers, battle lines are drawn and the family is often completely destroyed. All because it seemed "easier and cheaper" to use a joint bank account rather than a trust or a power of attorney.

This reader sent me in a question that arises out of a parent doing exactly the wrong thing, which was leaving money in a joint account with one person when she actually intended for someone else to have the money, followed by a daughter who apparently also did the wrong thing. Here is the question:

"My mom's will reads that she left money for her two grandaughters of her deceased son via two joint accounts set up between mom and her daughter. The daughter worked at that bank, stole the money and then closed the accounts. Not sure when the accounts were closed. What can be done?"
This area of law should be so clear, but it is currently very muddy. In your situation, it seems that everyone involved has made errors in judgment, including your mother, the daughter and the bank. The grandchildren pay for the mistakes.

In the old days, a joint account was always a joint account, and the surviving owner of the account always owned the money in the account when one owner died.

The law regarding joint accounts between generations - as in this case, a parent and child - changed in 2007 as a result of a couple of cases from the Supreme Court of Canada. The new law says that when there is an inter-generational joint account and the parent dies, the money is to be held in trust for the parent's estate and does NOT belong to the surviving child. If the parent did actually want that child to inherit the account, there are ways of documenting that intention that will stand up.

For some reason, many banks in Canada have simply decided not to follow the new law.

Many banks in Canada are still treating inter-generational accounts as regular joint accounts and still pay the funds to the child. This is probably what happened in your case; likely nobody batted an eye when the daughter cleaned out the account. Ironically, the court cases were intended to stop exactly this kind of financial abuse by children. Having said that, it's possible that the daughter had some kind of written document from your mother that confirmed she wanted the daughter to own the account. It would be in direct conflict with the will, but theoretically it could exist.

It looks as if the daughter is taking advantage of the mother's trust in her, the bank's failure to follow up-to-date legal policy, and the grandchildren. Many people in her situation do exactly the same as she has done. However, it's always possible that she had a different understanding about whether she was supposed to do with the account. Does she know what's in the will regarding this account? Has she ever come up with any written intention by her mother that would lead her to believe she could have the account for herself?

If communication has broken down or the daughter has dug in her heels, it's probably going to take a lawsuit against both the daughter and the bank to retrieve the money that was in the account. I'm not sure what your relationship is to all of this, but if you are the executor, then it's up to you to launch any lawsuit. Please see a lawyer with extensive experience in estate litigation to have a frank discussion. Present all of the facts and hold nothing back. Estate litigation is unpleasant, lengthy and expensive but sometimes it's the only solution. Think carefully before going ahead.

I and many other lawyers keep warning parents over and over again not to open joint accounts with their children, but until they start heeding the warning, this unfortunate situation is going to keep repeating itself and the children are going to keep paying for the parents' choices.

Suddenly you're rich - now what?

Though most of us will inherit only a modest amount of money, if any, there are certainly people out there who will inherit millions of dollars. I spend a good part of my day setting up estate plans for those who are going to leave that money behind for their children. But what about the children who inherit large estates? What is it like for them to suddenly have to deal with money they aren't used to having?

While we may smile and think it's a great problem to have, the fact remains that someone unprepared to receive a large amount of money may not deal with it wisely. They may blow the money, cause tax problems for themselves or even get swindled.  Click here to read an article from the Globe and Mail that gives some great tips and perspective on this topic. Note that this article is not just about those who inherit money, but encompasses those who sell businesses or win lotteries as well. However, I definitely see the need for this kind of advice for heirs who come into money.

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.

Pillow talk: the executor's spouse and who really makes the decisions?

This brief but common-sense article was published by ERAssure, the folks who provide executor's insurance. It talks about how something simple, such as the executor enlisting his or her spouse to help with the estate, can cause huge problems. If you're looking after a parent's estate, don't underestimate the negative optics of having your spouse (an "outsider") looking after your parent's assets or having access to your parent's home when your siblings don't have similiar privileges.

Click here to read the article.

I'm over 21 and competent - can my money still be held in trust just because the will said so?

This reader wrote to me to ask about his inheritance that is being held in trust. It's not that unusual for people to want to receive their inheritances outright, rather than having them held in trust. However, collapsing a trust through the courts is not necessarily easy.

Here's the question:

"When my grandfather died about 7 years ago, he left me a large sum amd specified in the will that it must go into a trust that my mother controls. However I would gain control of it once she dies. I was over the age of 21 at the time the will was created, and I am not mentally incompetent. Is it legal for my mother to still maintain control of my money just because it said that in the will? If I hired a lawyer to try to gain control of my own money, what is the likelihood of winning?"

Is it legal for your mother to follow a legally valid will? Of course it is.

Generally speaking, we can't just pick the parts of the will we like (such as getting money) and ignore the parts we don't like (such as having the money held in trust).

You mentioned a couple of common reasons that money is held in trust. One is that a beneficiary might be a minor, though the age of 21 that you mentioned seems random. Another is that a beneficiary might be mentally incompetent. However, these are not the only reasons that trusts are set up. Perhaps your grandfather was worried that you might blow the money. Maybe he worried that your marriage was shaky and he didn't want you to lose your inheritance to a divorce. Perhaps you have creditors or a gambling problem or an addiction.

Keep in mind that your grandfather is not obligated to explain to you why he wanted to set up a trust, nor does he need your approval. He gave you a gift and this is the gift he chose to give, for his own reasons.

One part of your question makes me wonder if you really understand this trust, or even if there is a trust for you at all. It's possible that the will leaves a share of the estate to your mother, and you would only have inherited if she had passed away before your grandfather did. This is how the majority of wills are set up. You talk about control of the money, which is what trustees do, not what beneficiaries do. It's odd that your grandfather would give you "control of" a trust for yourself.

It's also odd that a trust that's all about you would be focused on the death of another individual (your mother) unless you're a contingent beneficiary. By that I mean that it's possible that your grandfather did set up a trust for you by leaving your mother a life interest in some assets, with you to receive anything that's left at the time she passes away, as opposed to you "controlling" assets left at her death. I'd need a little more information to be confident that I understand your situation.

Assuming that you are correct and there is a trust for you, before making any decisions about trying to collapse the trust in court, check the wording in the will carefully. There will be clauses that impact the administration of the trust, and perhaps some that specifically address closing the trust early. For example, some trusts are written so that if the sum becomes quite small, the trust can be wound up.

You don't say whether the trust gives you a fixed monthly amount, or whether your mother has the discretion to pay money out to you on an "as-needed" basis. The amount of discretion given to the trustee is important, as sometimes the trust is written so that the trustee can decide to pay out the capital of the trust in full if she feels like it.

There might be other relevant information, such as the trust being established to pay for your education. If you've already completed your education, you might argue that there is no reason to hold it in trust any longer.

There is quite a lot of legal detail and argument involved in determining the point at which a beneficiary's interest in a trust vests in the beneficiary. The exact wording of the trust will matter. Whether there are any beneficiaries after you will be relevant too.

If you do hire a lawyer, why not start by having the lawyer read the will and interpret for you exactly what you inherited, and the terms on which it was inherited? Often the only lawyer involved in an estate acts for the executor, not the beneficiary, so you may never have received legal advice on your situation. You might just find, as I mentioned, that the will already contains wording that will help you without having to resort to long, difficult, expensive litigation.

Whose fault is it? The executor or his lawyer?

I've known for years that most people don't really understand the role of the lawyer who acts for an estate, but lately I've been reminded of just how unfamiliar people really are with the lawyer's job. I receive many emails a day from readers, and a good number of them ask about (or complain about) what the lawyer is supposed to be doing. Recently I received an email in which a reader said she had laid a complaint with the provincial Law Society because the executor's accounting had not been done.

Apparently that reader, like many others, doesn't see the difference between the executor's duties and the lawyer's duties. Making an official complaint about the lawyer when it's the executor who has dropped the ball isn't going to accomplish anything. As most people are not exposed much to estate matters, this lack of familiarity is only to be expected. I thought it would be a good idea to chat a bit about what to expect from a lawyer working on an estate.

The basic relationship is that the lawyer works for the executor on the law-related aspects of an estate. Usually this means applying for probate. The lawyer should be a source of information and advice for the executor, but at the end of the day it's the executor who decides which steps to take and which to ignore. The lawyer can't force the executor to do anything or not do anything.

It's not the lawyer who changes the locks on the house or gives away Mom's jewelry or prepares an accounting. Those are all done, or not done as the case may be, by the executor. From time to time an executor will ask a lawyer to take on more tasks than simply applying to the court for probate. For example, the executor might ask the lawyer to handle the sale of the house. Keep in mind that the lawyer can't decide to sell the house; he or she can only do this on the instructions of the executor. If the executor decides to hold onto the property for years, there is nothing the lawyer can do about that.

A very common complaint on estates is that the beneficiaries can't get information about the estate from the executor or from the lawyer about what the executor is doing. Some individuals are furious with the lawyer for not telling them anything. Having been in that lawyer's shoes, I can only remind people that if the executor doesn't tell the lawyer what he or she is doing, the lawyer doesn't know and therefore the lawyer doesn't have any information to share.

The lawyer's client is the executor. This means that the lawyer can't and won't take instructions from the beneficiaries who call up and insist that the lawyer do things the way they want them done. The lawyer works for the executor. The executor works for the estate.

To break it down a bit further, let's look at a typical probate application. The lawyer prepares the documents but all of the information in the documents comes from the executor. The inventory of the estate, the value placed on items, information about the beneficiaries - all of this is given by the executor to the lawyer.

The lawyer will read the will and give an opinion on its validity. The lawyer will interpret the will according to law and advise the executor on what the terms of the will (such as trusts, conditions or contingencies) mean.

The lawyer will tell the executor what his or her executor's duties are. For example, the lawyer will advise the executor of the requirement to file income taxes. However, it's up to the executor to follow the advice and file the returns.

I hope this discussion has clarified things somewhat. My best advice to anyone - either executor or beneficiary - who needs to consult a lawyer about an estate is to find a specialist. Find a lawyer who has plenty of experience with estates and things will go a lot more smoothly.

"I'm contesting the will" - real threat or just bluster?

I hear a lot of talk from beneficiaries about contesting of wills. The idea is tossed out as a threat by individuals who are unhappily surprised by not getting what they had hoped for under a deceased's will. But is it a realistic threat? The impression I get is that many people believe that anyone who doesn't like a will can simply demand that the will be changed to suit them.

This is not how it works.

Contesting a will means applying to the appropriate court to have a will struck down as being invalid. You would have to prove your case with sufficient relevant evidence. No judge in the country is going to rubber-stamp your request just because that's what you want.

Though each case and each will is different, the general concepts behind contesting a will are the same everywhere. Each case falls within these general headings. They are:
- undue influence
- lack of mental capacity
- problems with the will document itself, such as improper witnessing, lack of signature, other formalities not observed.

You'll notice that I'm leaving aide the issues that lawyers usually refer to as "dependent relief". This refers to an application by a spouse or child to get a larger share of an estate under a valid will. The will itself would still stand, but the court is asked to give a larger portion of the estate to someone in the family.

In this post I'm talking about the ways in which someone hopes to bring the entire will crashing down.

Undue influence:
A person relying on the concept of undue influence aims to show that the will should be struck down because the deceased had been forced or persuaded to make a will that wasn't really what he or she wanted. The idea is that the person getting the estate under this will wouldn't receive it had the deceased been left alone to do what he or she really wanted to do, and therefore shouldn't be allowed to receive it now.

Lack of mental capacity:
Mental capacity is an essential component of a valid will. A person making a will must understand what he or she owns, must have an appreciation of his or her obligations and must understand the nature and effect of making a will. Therefore, a will can be attacked on the basis that the deceased didn't really know what he or she was doing due to illness, injury, medications or other causes of confusion.

One thing that should leap out at you when you read about undue influence or lack of mental capacity is just how hard it would be to prove that either of these factors actually existed when the will was made.

How do you prove that the son receiving the lion's share of his mother's estate manipulated her into leaving it all to him? He will say that he was the one who helped Mom the most during the latter part of her life and that she left the estate to him out of gratitude. Then the battle will begin in earnest.

You may be absolutely positive that he influenced her. You  may even think that "everyone knows" he manipulated her. But we're talking about a court of law, not a family dinner table. How do you prove it?

I'm not saying that these cases never succeed, because they do. They rely on a judge's interpretation of doctor's reports, witness testimony, family history, common sense and the law. They are tough cases that take a long time, a lot of money and infinitely thick skin to tolerate, but when the evidence exists, they succeed.

But I also believe there is an awful lot of blustering and threatening going on, carried out by those who have no real idea of just how hard it really is to successfully contest a will. Most people who talk about contesting a will change their minds once they realize what's involved.


Please don't post a question on this thread. This thread now has more than 200 comments, which is the limit for this system. Once we go over that limit, I can't see or respond to your question, so please post it on any other thread that has less than 200 comments. Thanks!

How long is an estate supposed to take?

Being involved in an estate is not a pleasant experience. Not only have you lost someone important to you, but now you're bogged down in paperwork and family arguments. And it seems endless, doesn't it? Why do estates just seem to drag on forever?

The length of time required to wrap up an estate is one of the chief complaints I hear from beneficiaries. Of course it's even worse when the executor doesn't communicate or dissipates assets, but the passing of time is always tough on those who just want the whole thing to be over.

How long is an estate is supposed to take? And if it's taking too long, what can be done about it?

There is no deadline by which an estate must be wrapped up. This is because estates vary so widely. Some people own businesses when they die. Some own houses in other countries, time shares, collections (art, hockey cards, silver spoons), antiques, literary rights, pensions, or unusual assets such as airplanes. And others pass away leaving simply their home and a bank account. Some estates require trusts to be set up or wound down. With such a variety of tasks needing to be done by an executor, it would be impossible to say that every estate must be wound up within a certain number of months or days.

Having said that, there are some deadlines and rules that will give at least some structure to the estate.

There are deadlines by which tax returns must be filed for the deceased person and for the estate itself. These tax deadlines are fixed regardless of what's going on in any given estate. Many simpler estates are wound up quickly enough that only one tax return is needed whereas a more complex estate may require returns to be filed annually for a few years.

There is also a common-law concept known as "the executor's year" which will interest beneficiaries who have been waiting a long time for an estate to wind up. I often speak with people who tell me that an estate has been open for ten or fifteen years while an executor farms the estate land or lives in the estate house or otherwise benefits from the assets of the estate. The only reason this is tolerated is that the beneficiaries haven't yet become aware of their rights under the executor's year rule.

The concept essentially states that an estate should be wound up within a year of the death of the deceased. Any estate where there are no legal challenges, no disputes and no unusual assets to be dealt with should be finished within a year. By then the beneficiaries should have received their shares and signed off Releases.

This is only a guideline. Obviously those more complex estates I mentioned above may take longer. If a company must be sold or several houses put on the market, this could well extend the estate past a year. As long as the executor keeps things moving as best he can, this is likely the best that can be expected.

In some cases it becomes painfully obvious that the executor is making no attempt to wind up the estate. In such a case, the beneficiaries can use the concept of the executor's year to try either to get the executor moving or have the executor removed. This would involve an application to the court to explain the situation to a judge and ask the judge for help in lighting a fire under the executor.

Anyone considering what to do about an executor should understand that if they present a full, accurate description of what is happening, the judge will most likely take steps to get the estate moving. In my experience, judges are not eager to remove executors entirely, but are more than willing to see that an executor does the job properly.

Before taking legal action like this, I encourage beneficiaries to ensure they have all the facts. Specifically, make sure you understand any provisions of the will that control when an inheritance should be paid. For example, sometimes a will states that a person should receive an inheritance at a certain age, after a specified number of years, or after a certain contingency is met (such as getting a post-secondary degree). It could also be the case that another person has a life estate (i.e. a right to use an asset for life) and you are only supposed to inherit the asset after that person passes away.

The key to understanding why a given estate is taking so long is communication between the executors and the beneficiaries. Unfortunately, communication is too often poor or non-existent between the two groups.

Do the beneficiaries have to repay funds if the executor doesn't keep enough to pay tax?

What happens when an executor distributes an estate to the beneficiary and then - oops! - discovers that the tax owing is more than expected and there isn't enough left in the estate? This happens more often than you might think, even though most executors are aware that taxes must be paid first.

An executor in this position is up the proverbial creek unless the beneficiaries are willing to co-operate and give some of the money back. In most cases, however, either the beneficiaries have either already spent/used the money or they simply don't want to give it back. This is especially true when the beneficiaries know that the executor has used estate funds to pay for professional advice from lawyers and accountants and still hasn't got it right.

Legally the responsibility for these taxes lands squarely on the executor. He must pay the taxes and other expenses before he pays the beneficiaries. If he makes a mistake or miscalculation, he is legally responsible for the payment of the outstanding taxes.

In practice, almost all estates are paid out in part before the executor gets a Tax Clearance Certificate from Canada Revenue Agency. When that payout (known as an interim distribution)is made, the executor must calculate how much tax is going to be payable and hold back enough to pay it. I always advise executors to get an accountant to help them make the calculation to make sure they are holding back enough. I also advise adding a little bit more to the holdback as a cushion. If there is a bit too much held back and the taxes are paid leaving a bit in the estate, that bit can then be distributed according to the will.

Recently I had a note from a reader asking whether the beneficiaries were required to repay money when the executor miscalculates taxes, and whether the beneficiaries could be harassed for the money. This two-part question requires a two-part answer. No, the beneficiaries are not required to repay the money given to them by the executor. But can they be harassed? Well, unfortunately that could happen, since most people are quite willing to harass others without any particular legal reason.

Does the share of a deceased beneficiary go to her husband?

What happens if a beneficiary named in a will dies before the testator of the will? This question was recently asked of me by a reader. Here's the question:

"My father wrote a will long time ago and named my mom, my brother, my 2 sisters and I as the beneficiaries but unfortunately, one of my sisters died 10 years ago. Will her husband and her only son take her part and become beneficiaries? Her husband has got married right after my sister's death. Should my father delete my sister's name from the will if he does not want to leave money to her husband?"

There are two major considerations to keep in mind when looking at a situation like this. One is what the will says, and the other is what happens if the will doesn't address it.

Your father should take out his will and check what it says. The exact wording of a will always matters (which is why I don't really like people making their own wills). For example, if the will says your father leaves the estate to the four children "or the survivor of them", then your sister's share would be divided among the surviving three children. However, most people don't set their wills up that way unless their children are pretty young. You did say the will was made a long time ago so it's possible.

As another example, if your father's will says that a deceased child's share is to be divided per stirpes, the share would pass down to your sister's son.

Normally a will says that the share of a deceased child would be given to that child's children, simply because this is what most people choose. Also, in most places, this is what would happen under intestacy law if there were no will in place or the will didn't mention it.

Your sister's husband is not going to be entitled to your sister's share unless the will specifically says that he is. In my experience, most people choose to pass inheritances down through the family bloodlines and it's pretty rare that they leave a child's share to the child's spouse. Also, if the will doesn't mention what happens, there is no law that says he must get her share. Whether or not he re-married is not relevant.

When you take both of these considerations together, it seems unlikely that your sister's husband is going to get her share, but without seeing the will itself obviously I can't know for sure. This is important stuff for your father, for your siblings and for your sister's son. It's better to clear up questions now while your father is able to address them than to wait until it's too late.

A problem with some older wills is that the language can be archaic and hard to understand. This could be an impediment for your father as he reviews the document on his own. If your father finds that he really can't tell what the heck the will means on this question, he should make an appointment with a wills and estates lawyer to review his will. Ideally, I would like to see your father sit down with an experienced lawyer to explain what he wants to do with his estate and have the chance to ask whether his current will meets his needs. He would achieve peace of mind by knowing that the proper document is in place.

Keep in mind that wills laws and tax rules change over time and older wills should be reviewed from time to time to make sure they are still current. This will go a long way to ensuring that there will be no problems administering your father's estate when that time comes.

It also occurs to me that if he made his will such a long time ago, he might not have made a Power of Attorney or a health care directive. Maybe this is the time to re-visit all of this. It's great that all of you are discussing these issues as a family and that you seem prepared to help your parents get everything into place. I strongly urge your father to see an experienced lawyer and talk all of this through.

Heirs sue estate trustee

I'm attaching a story here from http://www.capitalmagazine.ca/ in which the beneficiaries of a trust are suing the trust company (RBC Royal Trust) for mishandling a trust set up by their grandfather. They allege that the trust company followed instructions set out by their father (also a beneficiary) to the detriment of the trust. I don't work for RBC, in fact I work for their competition, but my feeling is that this is very much only one side of the story. Our industry is highly regulated and audited. A good reputation is paramount. I've never even heard of a lawsuit like this in the time I've worked here. I hope http://www.capitalmagazine.ca/ will print the results of the lawsuit. I for one will be watching for that. Click here to read the story.

Should I designate a person or my estate as beneficiary?

You readers come up with great questions for me, there's no doubt about that. And I do my best to answer as many as I can! Here's one about beneficiaries that I know many people would like to know more about.

The question:

"It would seem to me that naming a person as a beneficiary instead of an estate would be the easiest and fastest route for distribution. Is there some benefit that I can't see to naming an "estate" as a beneficiary?"

There are very good reasons for naming your estate as beneficiary rather than an individual person. But it all depends on what the asset is, who the person is, and the estate set-up as a whole. In other words, there is no one right answer for everyone and you have to figure it out differently for each person. But here are some things you may not have thought of:

Let's look first at RRSPs and RRIFs. If you have a spouse, you will probably name your spouse as beneficiary to take advantage of the tax rollover. But if you don't have a spouse, who do you name? Many people at that point name "all my kids". In a lot of cases, they might be better off naming the estate. For one thing, there is no tax advantage to naming your children because there is no tax rollover (except in certain circumstances where the child is handicapped). Secondly, most people leave their estates to their children, and say that if the child has predeceased, the child's children get the child's share. This won't happen to money in an RRSP if a child predeceases you. It will be split among the remaining named children and none will go to your deceased child's children.

Also, if you leave your RRSP to one of your children, that child will get the full RRSP value and the tax on it will be paid by whoever is inheriting the rest of your estate, presumably your other children.

Now let's look at real estate. Having your spouse on the title to your home so that they inherit the home makes perfect sense in the majority of cases. However, many people do what they think of as estate planning by putting one or more of their children's names on their homes and cottages so that there is no need to go through probate. I can't even begin to describe the number of ways in which this backfires. Confusion, delays, lawsuits, tax issues, fights between siblings - all of this and more happens when you try to bypass probate this way. It's such a bad idea I can't believe anyone still does it.

Next, life insurance. There are plenty of good reasons to name individual beneficiaries of life insurance policies, and I don't argue with any of them. However, sometimes there are reasons to name your estate to receive the life insurance funds. One of the main purposes is to create some cash in your estate to pay for taxes. Having money for taxes could be the difference between having to sell something inportant, such as the family cottage, and keeping it. Having cash in the estate will pay for funeral expenses, pay off debts and allow all beneficiaries to receive a larger inheritance.

Also keep in mind that when you leave life insurance or RRSP to a child, they will inherit it all when they reach age of majority. You may or may not think that that's a suitable age for someone to receive a large sum of money.

As you can see, there are many ways for a person to deal with any particular asset. Sometimes naming an individual as the beneficiary of an asset is exactly the way to go, and sometimes it's not. The best way to get advice about this is to sit down with an estate planning lawyer and look at that asset together with all the rest of your assets in the context of your family and your goals. Make sure it all works together.

Divorce doesn't change your beneficiary designations

Today I had a phone call from one of the Scotiabank branches I work with. A customer was dealing with her father's estate. The father's will said that everything he owns should be divided between his two kids. Now here's the problem: when the father got divorced years ago, he didn't change the beneficiary designation on his RRSP. He left the designation as his ex-wife.

The RRSP contained $100,000 and was by far the largest asset of the estate, which was otherwise modest. The customer found out from our branch that not only was the ex-wife going to receive the RRSP, but the rest of the estate was going to be used to pay the tax on it. The kids weren't going to see a dime.

It was at this point that our staffer called me to see if this could possibly be right, since it seemed so unfair. Unfair or not, it is the law. The will didn't change the beneficiary designation on the RRSP. Neither did the divorce judgment. If the father didn't want his ex-wife to receive the money, he should have changed it some time over the years since they divorced. Otherwise the law will presume that he intended to leave her on as beneficiary.

This is not an uncommon situation by any means. I see several estates like this every year. Unfortunately, if this client's father, who made his own handwritten will, had spent even ten minutes talking to an estate planning lawyer, he would have found out that his money would go to his ex and not his kids. He probably didn't realize the importance of changing what must have seemed like a paperwork detail.

All divorced or separated people should realize that nothing automatically changes your beneficiary designations. They don't change unless you take steps to change them. A divorce settlement, separation agreement or Minutes of Settlement that contain standard boilerplate words to the effect that you and your ex won't make claims against each other's estates won't change anything. Receiving money when you're the designated beneficiary is not "making a claim" so this clause doesn't apply.

It's bad enough to lose a parent. Having them leave an estate mess behind is a nightmare. Do your children a favour and find out how the law affects you before you sign a legal document, even if it's one you wrote yourself.

Beyond a will: filling an emotional gap

As a lawyer, my job is to find legal solutions to problems and to put legal plans into place to prevent legal issues from arising. But one thing I know for sure about estates is that there is so much more to them than just legal issues. Sure, there are financial and tax matters to deal with too, but what I'm really talking about are the human issues. The interactions between beneficiaries and executors, and beneficiaries with each other.

A legal document can only do so much. It can appoint an executor and outline the legal requirements of the job. Do the inventory, it tells the executor. Pay the taxes. Divide the estate. That's all well and good, but it can't regulate how people treat each other. Where does it tell the executor to treat the beneficiaries kindly and to be patient because they've just lost a loved one? Where does it tell the beneficiaries that there is enough for everyone so there is no need to elbow each other to get a little bit extra? Where does it say that it just doesn't matter that your brother pushed you into a puddle when you were ten and that should have nothing to do with how you act now that you're the executor?

Unfortunately none of this can be found in your will. In fact, the more of this you include, the more you might impair the clarity of the legal intent of the document. For example, today I reviewed a will for a woman who appointed her two daughters as executors "in consultation with" her two sons. Where the heck does that leave the sons in terms of legal authority? Are they executors or not?

I believe the woman in question was thinking ahead, and realizing that her sons would want input into how the estate was to be administered, and foreseeing a bit of a communication issue. She tried to forestall it by directing her daughters to consult the sons. The wording at present doesn't work legally, but that will be fixed. What is more difficult to fix is the communication issue itself.

Why do so many executors who are otherwise rational people behave like little Napoleons once they are appointed by a will? Why do so many beneficiaries expect their inheritance within days of someone passing and throw temper tantrums if they don't get it right away? Why are so many families turning on each other? It's sadness and shock at losing someone, I believe, magnified by the stress of being tossed into an unfamiliar legal, financial and emotional situation. Add in a few childhood rivalries and a healthy dose of family politics and the result is a witch's brew of an estate.

I know it isn't strictly my job as a planning lawyer to do anything beyond create the legal documents necessary. Back in the days, not so long ago, when I spent my days probating wills and administering estates, my job was still restricted to legal procedure. But I've always found it hard to stay within those parameters when I see families upset, angry and lost during an estate. I've always done more. I've taken executors out for lunch and beneficiaries out for a beer. I've spent hours talking down sobbing family members on the phone late at night. I've fetched hot blankets for dying people in palliative care wards and visited clients of all ages in the hospital. I'm not looking for a medal; plenty of other lawyers and trust officers I know do the same things. My point is that during an estate situation, people need comfort, kindness and information beyond what's in a legal document, and they usually don't get it.

But if it's not my job, whose is it?

I believe the unwritten role of the executor and the beneficiaries is to be co-operative, patient and above all, kind to each other. It's their job to get along and to treat each other with respect. However, I've been around this business long enough to know that generally people simply don't behave patiently and respectfully during an estate, family or not.

Too bad there isn't a legal document that removes executors who act like jerks and beneficiaries who behave like children. I'd be glad to draft one up.

Attorney accused of stealing $300,000 from a friend's estate

Yet another estate has made the news because of alleged dishonesty. This one is in California. In this case it's a lawyer friend of the deceased who is accused of theft. The case was brought to light by a beneficiary who didn't receive the expected inheritance.

It's not clear to me from reading this article just who is the executor of the estate. Apparently it was not the accused lawyer. Click here to read the story. Note that in the US the word "attorney" in the title means a lawyer, unlike here in Canada where it means a person acting under a Power of Attorney.

Often beneficiaries approach me to ask about their rights when an estate is not being dealt with, or information is being withheld by the executor. Of course they are worried; this story is an example of what sometimes happens when a dishonest person is tempted by estate assets. I sometimes remind beneficiaries that they have both a right and an obligation to watch what is going on in an estate.

Some beneficiaries tell me they feel greedy if they ask outright for their inheritance or ask for explanations for missing funds. But if the beneficiaries aren't going to monitor the executor's actions, who is? Insisting that the estate be wound up in a reasonable time and that you receive your entitlement under the will doesn't make you greedy; it means you are ensuring that the executor carry out the duties as the deceased intended.

Fortunately, most estates that take too long or are conducted in unnecessary secretiveness do not end up with large sums of money missing. They are simply a dog's breakfast because a first-time executor doesn't know what he or she is doing. However, the beneficiaries won't know everything is ok unless they ask.

Attached graphic from http://www.dreamstime.com/.

What happens to my child's inheritance if he or she dies before me?

I was asked this question at last week's seminar, and in fact I hear this question regularly. The real or underlying question is whether the child's inheritance will go to the child's spouse. Very few parents want a deceased child's inheritance to go to that child's spouse.

The answer is simple. What happens to the inheritance is what the parent says in the will. If a parent is concerned about the issue, then he or she had better put together a will that addresses it.

The arrangement favoured most often is that a deceased child's inheritance is split equally among his or her children, with the share of any minors being held in trust to a pre-determined age. For example, if William makes a will leaving his estate to his sons Tom and Joe, but Tom dies before his father does, William's will directs what happens with Tom's share. If William likes the most common arrangement, his will will say that Tom's share is to be divided among Tom's children.

From there, a parent such as William needs to clarify a few points. For example, does he want Tom's step-children to be included? What about the illegitimate child that Tom had in high school and currently has only a superficial relationship with?

William may leave some of Tom's share to Tom's wife if he wants to, though as mentioned above, this is fairly unusual. William must consider whether Tom's wife still gets a share if she and Tom were separated at the time Tom died. William also needs to think about whether Tom's wife should be the trustee of the money held in trust for Tom's children, and if not, who would be a good choice for that job.

Some parents choose that if one of their children has passed away before them, grandchildren don't get anything, nor does the spouse of the deceased child. The share of the estate would be given to the parent's other children. Using the family already described in this post as an example, Tom's share would be given to Joe instead. There could also be an arrangement whereby half (or some other portion) is given to Joe with the rest being given to Tom's children.

Another alternative is that a deceased child's share could be given to a charity.

All jurisdictions have laws in place that describe what will happen if a parent dies leaving a share to a child who has already passed away. These laws kick in if the person hasn't left a valid will. There is no guarantee that the legislated arrangement will be the same as what the parent would have chosen.  If the issue is important to the parent, he or she needs to make a will.

You want me to pay for you to attend my funeral? I'd rather you stayed home

Executors don't have an easy job. One of the tricky issues they have to deal with is deciding which expenses should be paid from the estate and which should not.

Possibly the most common question about estate expenses is whether the estate should pay for the airfare, busfare, mileage, hotels etc for out-of-town family members to attend the deceased's funeral. Somehow, the prevailing idea is that the estate has to pay for everyone to come to the funeral. This is completely wrong and an executor who allows those expenses could find himself or herself personally repaying those amounts to the estate.

Remember that money paid out of the estate is money that is being taken directly out of the pockets of the beneficiaries.  For each person who is pleased that you've covered their airfare and hotel, you're going to have an upset beneficiary.

And why should the person who passed away have to pay for people to attend the funeral? If it were my funeral, I'd prefer you stay at home rather than charge me to attend. It's pretty insulting to make the deceased pay for the attendees, don't you think? The law supports me on this. Family members have to pay their own way. If they can't afford it, either they miss the funeral or the other family members get together and pool their funds to help out.

So what can an executor do when faced with a family member who insists that the trip to the funeral must be covered by the estate, since that is what happened when their friend's brother's hairdresser's mom's neighbour died?

If the family member is also a beneficiary of the estate, the executor has some room to work things out. The executor can advance a sum of money to the beneficiary on the understanding that the amount will later be deducted from the beneficiary's inheritance (get it in writing). Even this is risky for the executor; debts of the estate must be paid before beneficiaries get anything, so if the estate turns out to be insolvent, there might not even be an inheritance for this particular person.

Realistically, the executor might not even have seen the will, or had any chance at all to deal with it, by the time the funeral is held. It's very unlikely that the executor will have a good understanding yet about what's in the estate and who is going to inherit what. So when family members discreetly ask the executor where to send their receipts to be reimbursed, he or she might just have to say that everyone is just going to have to pay his or her own way, and that if it's possible to reimburse beneficiaries later on, the executor will let them know.

Yes, I realize that this is going to make the executor pretty darn unpopular. But what's worse, being unpopular, or being popular but personally responsible for a couple thousand dollars of other people's expenses that you wrongly paid out of the estate?

One thing that the executor can do for those travelling to the funeral is provide them with a copy of the Funeral Director's Statement of Death so that they can claim a bereavement discount from the airline.

Welcome to executorship. This is just the first of many minefields.

If I refuse an inheritance, can I name a replacement beneficiary?

Another interesting reader question. And my answer is both yes and no, depending on what your goal is.

If you refuse ("waive") your inheritance,  you will sign a Waiver document that basically says "no thanks, I don't want it". That is the full extent of your involvement. The inheritance that you don't take will be dealt with by the executor according to the will. You will have no control over what happens to it because you will have taken yourself out of the picture.

If your goal is to get your inheritance into the hands of another person or a charity, waiving your inheritance is probably not the way to go.

There are a couple of options open to you. One is to sign an "Assignment and Direction to Pay" document and give it to the executor. This means that you are acknowledging and accepting the inheritance but asking that they write the cheque to someone other than you. Be careful that you are not asking that it be paid to someone who can't accept it, such as a minor, or a disabled person who has a trustee. In those cases you must direct that it be paid to a legal representative (i.e. a trustee) on behalf of the minor or disabled person.

The other option is to accept the inheritance and receive the money, then give some or all of it to whoever you want.

With both of these options you will have to go through the usual steps required of a beneficiary, such as signing a Release when the estate is done.

You fight, you lose: adding no contest clauses to wills

Nobody wants their loved ones and/or beneficiaries to fight over their estate (well, almost nobody. I did once have a client who was a very angry man and wanted to deliberately set up a situation in which his kids would have to fight it out. Cooler heads eventually prevailed).

In this post, Laura West briefly discusses the practice of putting a clause into a will that tells a beneficiary that if he or she contests the will, the beneficiary will not get anything. I agree with Ms. West's conclusion that these clauses "may" be effective. And they may not. It's an area of law that isn't as simple as people would like it to be.

I've blogged about these clauses before. Click here to read my earlier post.